factor demand technical change and inter fuel substitution in africa abstract the translog production function has been widely used in applied production analysis due to its flexibility and superiority over other functional forms this study develops a translog production function for a group of african countries the random effects model is estimated using generalized least squares estimator the main findings are first output in africa is driven by a more intensive use of petroleum and electricity and to a lesser extent capital labor and coal relative to technological progress second african production technology exhibits increasing returns to scale suggesting a path towards market entry barriers third technical change is scale biased and factor augmenting albeit very slow fourth all energy inputs are substitutes indicating africa s potential to proportionally switch towards cleaner fuels without adversely affecting economic growth finally and perhaps more generally the study reinforces the assertion that imposing restrictions like homotheticity homogeneity or separability on the production technology is unrealistic and should rather be a testable hypothesis within any applied analysis in view of the documented findings relevant implications for africa are discussed

capital malleability emission leakage and the cost of partial climate policies general equilibrium analysis of the european union emission trading system computable general equilibrium cge models are the premier analytical platform for assessing the economic impacts of climate change mitigation but these models tend to treat physical capital as malleable capable of reallocation among sectors over the time period for which equilibrium is solved because the extent to which capital adjustment costs might dampen reallocation is not well understood there is concern that cge assessments understate the true costs of greenhouse gas ghg reduction policies this paper uses a multi region multi sector cge model to investigate cap and trade schemes such as the european union emission trading system which cover a subset of the economy elucidating the effects of capital malleability on ghg abatement the potential for emission leakage from abating to non abating sectors and the impacts on welfare to simplify the complex interactions being simulated within the cge model that analysis is complemented with an analytical model a partial climate policy results in negative internal carbon leakage with emissions declining not only in capped sectors but also in non regulated ones this result is stronger when capital is intersectorally mobile interestingly in partial climate policy settings capital malleability can amplify or attenuate welfare losses depending on the attributes of the economy

substitution in the electric power industry an interregional comparison in the eastern us abstract the electric power industry is restructuring as regulations move from states to regional and national levels estimates of regional fuel and input substitution are essential for practitioners and policy makers this paper estimates substitution under static and dynamic scenarios examining changes in technology and total factor productivity from 2001 to 2008 two stage estimation reveals regional characteristics and underlying elements in fuel and factor choice processes substitution varies widely depending on the region coal technology capital investment and r d activities

best practices in demand forecasting tests of universalistic contingency and configurational theories abstract the paper focuses on best practices in demand forecasting literature has addressed the best practice concept under three different perspectives according to the universalistic perspective some forecasting practices are universally effective regardless of the context in which companies operate in the contingent perspective the effectiveness of forecasting practices depends on the specific kind of context each company faces a third perspective is the configurational one which asserts that there are synergistic effects among best practices in this work we compare these different perspectives by designing and testing different sets of propositions that underline the aforementioned perspectives analysis is conducted by collecting data of more than 500 companies in different countries via the 4th edition of the global manufacturing research group gmrg iv questionnaire the results demonstrate that each perspective has some empirical support

the effect of deregulation on us fossil fuel substitution in the generation of electricity abstract fossil fuels produce the majority of electricity in the us with coal being by far the most popular fuel used in the past regulation in the natural gas market in the form of well head price controls and under the boiler fuel use restrictions distorted fuel use away from natural gas more recently with deregulation in the natural gas industry these restrictions have been repealed which has changed fuel use patterns to measure the short run fuel use response from regulatory and other market changes we estimate interfuel substitution using two flexible functional forms the translog and the logit on monthly data from 1991 to 1993 in both models we find coal demand has the least elastic price response while gas and oil demand have the highest both models also suggest there is substitution across fuels in the short run but the patterns and magnitudes vary from comparisons with earlier studies fuel use price response is also found to vary across market conditions and regulatory regime

applications of behavioural economics to tax evasion the paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer the construction of these models is motivated by the failure of the yitzhaki version of the allingham sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion recent approaches have applied non expected utility theory to the compliance decision and have addressed social interaction the models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the yitzhaki model

estimates of inter fuel substitution possibilities in chinese chemical industry abstract the chemical sector is a key driver of china s remarkable growth record and accounts for about 10 of the country s gdp this has made the industry energy intensive and consequently a major contributor to greenhouse gas emissions ghg and other pollutants this study has attempted to investigate the potential for inter fuel substitution between coal oil natural gas and electricity in chinese chemical sector by employing a translog production and cost function ridge regression procedure was adopted to estimate the parameters of the function estimation results show that all energy inputs are substitutes in addition the study produces evidence that the significant role of coal in the chinese chemical fuel mix converges over time albeit slowly these results suggest that price based policies coupled with capital subsidy programs can be adopted to redirect technology use towards cleaner energy sources like electricity and natural gas hence retaining the ability to fuel the chemical sector while also mitigating ghg emissions notwithstanding one must understand that the extent to which substituting electricity for coal will be effective depends on the extent to which coal or oil is used in generating electricity the findings of this study provide general insights and underscore the importance of chinese government policies that focus on installed capacity of renewable electricity energy intensity targets as well as merger of enterprises

cautious risk takers investor preferences and demand for active management actively managed mutual funds have distinct return distributions from their passive benchmarks and our theoretical analysis using tail sensitive risk preferences suggests that active value and growth funds may serve to reduce downside risk and capture upside potential respectively furthermore tail sensitivity measures estimated from the empirical pricing kernel have significant explanatory power for active fund flows even after controlling for business cycles and market wide sentiment finally active funds unlike their passive counterparts have exposures to option strategies hedging downside risk or capturing upside potential

optimism pessimism and financial bubbles this paper shows that it is possible to extend the scope of the existence of rational bubbles when uncertainty is introduced associated with rank dependent expected utility this rdu assumption can be viewed as a transformation of probabilities depending on the pessimism optimism of the agent the results show that pessimism favors the existence of deterministic bubbles when optimism may promote the existence of stochastic bubbles moreover under pessimism the rdu assumption may generate multiple bubbly equilibria the rdu assumption also leads to new conditions ensuring the absence of pareto optimality of the competitive equilibrium without bubbles these conditions still govern the existence of bubbles

a field study of sales forecasting accuracy and processes abstract as might be expected surveys show accuracy is the most important criterion in selecting a forecasting strategy this may lead to the expectation that computer based software would be used to aid the forecasting effort however despite the wide availability of forecast software management judgement appears to be the preferred method this leads to the question does management judgement provide the most accurate forecast estimates this paper reports a field study of judgemental sales forecasting over thirteen manufacturing organisations to investigate whether these forecasts are accurate unbiased and efficient and whether better ex ante forecasts could have been developed using a computer based model the study shows that the company forecasts were not uniformly more accurate than a simple un seasonally adjusted naive forecast most of the source of error is due to both inefficiency a serial correlation in the errors and bias in the forecasts these two factors seemed to mask any contribution of contextual information to accuracy the results are also discussed in terms of forecasting objectives the organisations may have other than accuracy

input demand under yield and revenue insurance previous studies disagree on the effects of insurance on fertilizer application rates the effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements we estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates our results indicate no support for this hypothesis at all nitrogen fertilizer rates and reasonable levels of risk aversion nitrogen fertilizer and insurance are substitutes suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications

broadly decreasing risk aversion this paper considers decision making in the presence of two additive risk sources with no restrictions on the relation between the two risks a utility function is said to exhibit broad dara if and only if a rise in wealth always decreases the magnitude of the risk premium for one of the risks vis a vis the other a condition on utility functions giving this property is derived utility must be of the linear plus exponential form it is shown that certain problems involving portfolios and risk averse firms give unambiguous comparative statics if and only if utility exhibits broad dara

bargaining and boldness abstract we study a multiperson bargaining problem with general risk preferences through the use of shaked s game of cycling offers with exogenous breakdown if preferences are smooth then as the risk of breakdown vanishes the limiting outcome is one in which bargainers are equally marginally bold where a bargainer s marginal boldness measures his willingness to risk disagreement in return for a marginal improvement in his position under smoothness any ordinal nash solution is an equally marginally bold outcome however unlike the concept of the ordinal nash solution a unique equally marginally bold outcome exists in natural cases in particular if all bargainers have risk averse preferences of the rank dependent expected utility type for these preferences the equally marginally bold outcome maximizes a bargaining power adjusted asymmetric nash product where the degree of asymmetry is determined by the disparity in the marginal valuation of certainty among bargainers journal of economic literature classification numbers c72 c78 d81

state sponsored violence as a tragedy of the commons england s privateering wars with france and spain 1625 1630 the tragedy of the commons is the familiar problem that open access to a common property resource leads to overexploitation and to zero profits a commons model is applied to an example of state sponsored private violence the practice of privateering or licensed piracy it is predicted that the presence of uncertainty about the value of the prey will reduce the amount of exploitation effort and that industry profits may be positive due to both uncertainty and heterogeneous exploiters using data from england s wars with france and spain between 1625 and 1630 the model suggests that the commons represented by enemy merchant shipping was not overexploited and that privateering profits were positive the dynamic paths of privateering effort ships seized and individual firm profits were however consistent with the normal expectation that commons exploitation will peak and fall as competition drives down returns through entry

substitution between clean and dirty energy inputs a macroeconomic perspective in macroeconomic models the elasticity of substitution between clean and dirty energy inputs within the energy aggregate is a central parameter in assessing the necessary conditions for long run green growth using new sectoral data in a panel of 26 countries we formulate specifications of nested constant elasticity of substitution production functions that allow estimating this parameter for the first time we present evidence that it significantly exceeds unity a favorable condition for promoting green growth

some observations on insurance bankruptcy and input demand abstract the effects of insurance on input demand have been central to the debate over crop insurance policy and are of interest in assessing the moral hazard problem facing insurers in general in this paper the effects of insurance on input demand are characterized and related to a schema by which inputs can be assessed as risk reducing risk increasing or risk constant the results are extended to analyze the impact of bankruptcy provisions

mean gini analysis of stochastic externalities the case of groundwater contamination the mean gini approach is used to analyze stochastic externalities generated by agricultural production the model addresses the problem of groundwater pollution caused by excessive fertilizer application inherent in the mean gini approach to expected utility maximization is a two fold value the simplicity of the two parameter mean variance model and satisfaction of necessary and sufficient conditions for stochastic dominance price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers using the gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution the model shows that when producers underestimate uncertainty quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination

economy wide effects of international and russia s climate policies abstract the objectives of this paper are to analyse the economy wide effects of international climate policy on the russian economy as well as the effects of russia s climate policy on european economies our analysis is based on a general equilibrium model that includes inertias such as imperfect sectoral labour mobility and vintage capital and has a detailed depiction of the power generation sector we found that international climate policy could reduce russia s private welfare by 1 8 annually due to lower revenues from exports of fossil fuels at the sectoral level russia could gain a comparative advantage in producing energy intensive commodities and hence russia s producers of those commodities increase their production and export supplies this could result in a carbon leakage in russia eliminating implicit subsidies on domestic consumption of gas and petroleum products could reduce russia s private welfare loss by 0 6 points and eliminate the carbon leakage nevertheless eliminating implicit subsidies on gas and petroleum products might not be sufficient to achieve the pledged emission reductions by 2030 moreover this leads to an undesirable increase in coal consumption and therefore some additional climate policy such as a carbon tax or an emission trading system might be required we also found that russia s climate policy could have positive but moderate effects on the european economies in particular countries such as lithuania slovakia and hungary benefit due to decreased export prices for gas crude oil and petroleum products from russia

the probability premium a graphical representation we illustrate that pratt s probability premium can be given a simple graphical representation allowing a direct comparison to the equivalent but more prevalent concept of risk premium under expected utility we also show that the probability premium s graphical representation under the dual theory mimics that of the risk premium under expected utility

economies of scale and factor substitution in electricity supply industry a case study of south australia abstract the results support the view that there are cost advantages in retaining etsa s monopoly position the existing economies of scale and the high degree of substitutability between energy and capital imply that a rise in energy prices may not affect the cost of production significantly provided other factor costs do not rise at the same rate and provided demand for electricity grows further it has been observed that improvement in load factor can significantly reduce cost

cumulative prospect theory option returns and the variance premium the variance premium and the pricing of out of the money otm equity index options are major challenges to standard asset pricing models we develop a tractable equilibrium model with cumulative prospect theory cpt preferences that can overcome both challenges the key insight is that the variance premium can be written as the expected return on a portfolio of otm call and put options and the probability weighting feature of cpt can explain the puzzlingly low returns observed for these options using gmm on a sample of u s index option returns between 1996 and 2010 we show that the cpt model ts well observed option prices and therefore the variance premium in a dynamic setting probability weighting and time varying equity return volatility combine to match the observed time series pattern of the variance premium

testing the rationality of doe s energy price forecasts under asymmetric loss preferences this paper examines the rationality of the price forecasts for energy commodities of the united states department of energy s doe departing from the common assumption in the literature that doe s forecasts are based on a symmetric underlying loss function with respect to positive vs negative forecast errors instead we opt for the methodology of elliott et al 2005 that allows testing the joint hypothesis of an asymmetric loss function and rationality and reveals the underlying preferences of the forecaster results indicate the existence of asymmetries in the shape of the loss function for most energy categories with preferences leaning towards optimism moreover we also examine whether there is a structural break in those preferences over the examined period 1997 2012

a theory of subjective compound lotteries abstract we develop a savage type model of choice under uncertainty in which agents identify uncertain prospects with subjective compound lotteries our theory permits issue preference that is agents may not be indifferent among gambles that yield the same probability distribution if they depend on different issues hence we establish subjective foundations for the anscombe aumann framework and other models with two different types of probabilities we define second order risk as risk that resolves in the first stage of the compound lottery and show that uncertainty aversion implies aversion to second order risk which implies issue preference and behavior consistent with the ellsberg paradox

many good choice axioms when can many good lotteries be treated as money lotteries abstract without the independence axiom a weaker substitution axiom adi is necessary for the preferences over money lotteries induced by the money metric utility function to be well behaved given adi the agent s preferences over many good lotteries can be reconstructed from knowledge of preferences over money lotteries and over sure multivariate outcomes moreover other substitution properties of underlying many good lottery preferences are inherited by the money lottery preferences we analyze the formal and intuitive nature of adi and conclude that analysis of choice under uncertainty without adi cannot be one dimensional

note on adjustments to analysts earnings forecasts based upon systematic cross sectional components of prior period errors this study assesses the effectiveness of using systematic components of cross sectional forecast errors from prior years in order to adjust current analysts earnings forecasts the empirical results document that a significant component of the cross sectional mse in analysts forecasts is systematic and that parameter estimates from earlier periods enable the elimination of a substantial portion of the systematic errors in current forecasts further improvements in forecast accuracy are attained by the incorporation of prior year excess security returns in order to reduce unsystematic error

a model of homogenous input demand under price uncertainty this paper examines the empirical validity of a model of homogeneous input demand under price uncertainty in which firms trade off expected input cost against its variability risk in selecting the optimal input supplier mix using recent work in time series econometrics this model is applied to the japanese steam coal import market where five suppliers compete china the soviet union south africa the united states and australia copyright 1991 by american economic association

adjustment to production uncertainty and the theory of the firm this paper considers the behavior of the firm which faces uncertainty in its production process but can adjust its output once the uncertainty is resolved ex post adjustment unlike previous treatments involves a marginal cost penalty if more output is required and a lowering of price if too much is produced with ex post adjustment allowed in this fashion it is found that nonlinear risk preferences do not affect the sign of the firm s marginal risk premium at optimum ex ante output the firm will produce less output than under certainty whether it is risk averse risk neutral or prefers risk

stochastic dominance in regret theory the regret theory of choice under uncertainty is known to admit intransitivities in preference relations in this paper the stochastic dominance properties of the theory are examined it is shown that the usual definition of first stochastic dominance is not satisfied by regret theoretic preferences and that in general violations of first stochastic dominance are not merely permitted but required an exact characterization of the stochastic dominance rule corresponding to regret theoretic preferences is presented this concept is weaker than the usual definition but stronger than the notion of statewise dominance in which one prospect yields a preferred outcome with probability 1 theories of choice under uncertainty have proliferated in recent years after a long period in which the expected utility eu approach of von neumann and morgenstern 1944 was pre eminent the breakdown of the dominance in eu theory reflects the increasing body of evidence that the choices made by many people systematically violate the predictions of the theory the axiomatic foundations of the theory and in particular the independence axiom have also received severe questioning ever since the famous critique of allais 1953

the standard error of regressions statistical significance as used in economics has weak theoretical justification in particular it merges statistical and substantive significance the 182 papers using regression analysis in the american economic review in the 1980s were tested against 19 criteria for the accepted use of statistical significance most some three quarters of the papers did poorly likewise textbooks in econometrics do not distinguish statistical and economic significance statistical significance should not be the focus of empirical economics

analytical debiasing of corporate cash flow forecasts abstract we propose and empirically test statistical approaches to debiasing judgmental corporate cash flow forecasts accuracy of cash flow forecasts plays a pivotal role in corporate planning as liquidity and foreign exchange risk management are based on such forecasts surprisingly to our knowledge there is no previous empirical work on the identification statistical correction and interpretation of prediction biases in large enterprise financial forecast data in general and cash flow forecasting in particular employing a unique set of empirical forecasts delivered by 34 legal entities of a multinational corporation over a multi year period we compare different forecast correction techniques such as theil s method and approaches employing robust regression both with various discount factors our findings indicate that rectifiable mean as well as regression biases exist for all business divisions of the company and that statistical correction increases forecast accuracy significantly we show that the parameters estimated by the models for different business divisions can also be related to the characteristics of the business environment and provide valuable insights for corporate financial controllers to better understand quantify and feedback the biases to the forecasters aiming to systematically improve predictive accuracy over time

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

brown backstops versus the green paradox abstract anticipated climate policies are ineffective when fossil fuel owners respond by shifting supply intertemporally the green paradox this mechanism relies crucially on the exhaustibility of fossil fuels we analyze the effect of anticipated climate policies on emissions in a simple model with two fossil fuels one scarce and dirty e g oil the other abundant and dirtier e g coal we derive conditions for a green orthodox anticipated climate policies may reduce current emissions the model can also be used to analyze spatial carbon leakage calibrations suggest that intertemporal carbon leakage from 0 to 8 is a relatively minor concern

capital vintage time trends and technical change in the electric power industry beginning with tinbergen in 1942 economists have employed a time trend in cost or production functions to represent the rate at which new technology is introduced into the production unit in sufficiently flexible models of the production process the time trend may be used to obtain estimates of the rate as well as direction of technical change the use of the time trend is generally defended on pragmatic grounds as no theoretical justification exists for assuming that new technology is introduced at a steady rate that is independent of a firm s investment in r d education capital of a more recent vintage etc in recent years alternatives to the traditional time trend have been sought to represent the rate at which new technology is introduced research in this area has been concentrated in the telecommunications industry where the stock of r d or the percentage of calls completed by direct dialing or modern switching facilities have been employed as technological indices by nadiri and schankerman 32 denny et al 14 and christensen et al 7 the latter two studies indicate that explicit technological indices provide a better representation of the pace of innovation than the time trend this conclusion must remain tentative however as it is not possible to determine what is the true direction of technical change in these studies this shortcoming is overcome in a recent study by kopp and smith 24 who compare the performance of time trends and explicit technological indices in a study using pseudo data generated by process analysis models their results unambiguously support the use of technologically explicit indicators of technical change and indicate that the use of a time trend may not provide a consistent estimate of the direction of technical change this study does not however shed any light on the ability of a time trend to accurately reflect the rate of technical change the purpose of this study is to investigate the effects of alternative technological indices on the estimated rate and direction of technical change in the electric power industry the performance of a time trend is compared with that of a vintage index computed as the average age of a firm s steam generating capacity this latter index is consistent with the notion that new technology is embodied in newly constructed capital an assumption sup

fuel switching and climate and energy policies in the european power generation sector a generalized leontief model abstract the purpose of this paper is to analyze a the role and the nature of price induced switching behavior between fossil fuels i e coal oil and natural gas in the western european power sector as well as b the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years the analysis is conducted within a generalized leontief cost function framework and employs pooled data across eight countries over the time period 1978 2004 we present short run own and cross price elasticities of fossil fuel demand and assess the impacts of a set of government policies implemented over this time period the empirical results show evidence of notable short run interfuel substitution between oil and gas and particularly in countries where fossil fuels are used extensively for both base and peak load purposes these findings support the notion that ex post fossil fuel substitution takes place in dual and multi fired plants by switching load between different single fuel fired plants as well as through the conversion of power plants to be able to burn alternate fuels the results also illustrate that different public policies i e removal of coal subsidies electricity market liberalization etc have had profound impacts on fossil fuel choices and have in particular favored power generation gas use at the expense of coal finally the paper makes use of the empirical results to simulate the fuel switching impacts of different carbon prices within the european emissions trading scheme eu ets

efficiency productivity and environmental policy a case study of power generation in the eu this study uses the eu public power generating sector as a case study to investigate the environmental efficiency and productivity enhancing performance of the european union s co2 emissions trading scheme eu ets in its first phase using data envelopment analysis methods we measure the environmental efficiency and the productivity growth registered in public power generation across the eu over the 1996 2007 period in the second stage of our analysis we attempt to explain changes in productivity and efficiency over time using econometric techniques our analysis suggests two conclusions carbon pricing led to an increase in environmental efficiency and to a shift outwards of the technological frontier and the overly generous allocation of emission permits had a negative impact on both measures these results are shown to be robust to changes in controls and specifications

firing the furnace an econometric analysis of utilities fuel choice abstract this paper attempts to estimate how the fuel mix of german electricity producers does react to fuel price changes the empirical analysis is based on panel data 1968 1998 of major utilities two different aspects of fuel choice are distinguished at the one hand the construction of usually fuel specific capacities for electric power generation i e investment decisions that determine the fuel mix in the long run at the other fuel use conditional on existing generation capacities i e short run inter fuel substitution according to the results from panel unit root tests both the econometric models which describe these two aspects are specified in changes rather than levels the partly discrete nature of investment decisions is taken into account by constructing a discrete model of capacity adjustment our estimation results suggest that the fuel mix of electric utilities is price inelastic either if long term investment or short term inter fuel substitution is considered finally the empirical results are used to predict the potential impacts of co 2 emissions trading on fuel choice in the german electric power industry

the economics of fuel choice at us electric utilities abstract this paper compares and contrasts results obtained from estimating fossil fuel cost shares in the generation of electricity in the usa from two models one national and one regional while the national model provides acceptable first order results correct signs and magnitudes of critical parameters it is the regional model that reveals the underlying economics of this fuel choice problem results which hold consistently across regions and across fuels are more plausible than those which are found to be special cases in each region of the country or for each fuel type

the nash bargaining solution for decision weight utility functions abstract a simple derivation of the non expected utility nash outcome as defined in rubinstein et al 1992 rubinstein a safra z thomson w 1992 on the interpretation of the nash bargaining solution and its extension to non expected utility preferences econometrica 60 1171 1186 is given for the class of decision weight utility functions conditions for existence and uniqueness are provided

the supply of individual hours and labor force participation under uncertainty in the absence of labor supply constraints this paper shows that an increase in wage rate uncertainty alters the optimal supply of individual hours but leaves the decision to participate unchanged in the presence of these constraints it is shown that if researchers are concerned with obtaining consistent parameter estimates of the labor supply function then it is important to correctly specify the type of uncertainty faced by workers specifically a mean preserving increase in wage rate uncertainty lowers the participation rate while an increase in non wage income uncertainty raises participation

household portfolio diversification a case for rank dependent preferences the proliferation of novel preference theories in financial economics is hampered by a lack of non experimental evidence and by the theories additional complexity which has not been shown to be critical in applications in this article i present arguments in support of preferences with rank dependency using the survey of consumer finances data i document two widespread patterns inconsistent with expected utility i many households simultaneously invest in well deversified funds and in poorly diversified portfolios of stocks and ii some households with substantial savings do not invest anything in equities i show that portfolio choice models with rank dependent preferences plausibly parameterized and under fully rational assumptions are quantitatively consistent with the observed diversification these results call for further efforts to integrate the models of rank dependent preferences in portfolio theory and asset pricing the decision theoretic literature has long acknowledged the shortcomings of the expected utility theory of von neumann and morgenstern 1944 several generalizations of the theory are inspired by the experimental evidence and aimed at improving its descriptive accuracy however there are few applications of new models of preferences in finance and expected utility continues to dominate the field 1 two principal hurdles slow the proliferation of novel preferences in financial economics first the lack of empirical non experimental or field data confirming that the behavior motivating non expected utilities is widespread outside the laboratory settings second the additional and often significant complexity of the alternative preferences which has not been shown to be critical in applications where the models based on expected utility fall short of reasonable predictions this article presents empirical and theoretical this paper was previously circulated under the title household portfolio diversification the paper has benefited from the comments of shlomo benartzi luca benzoni markus brunnermeier john dickhaut maria perozek raj singh hersh shefrin and workshop participants at minnesota finance bag lunch 2003 wharton conference household financial decision making and portfolio choice and 2003 summer meetings of econometric society i would like to thank cam harvey the editor and an anonymous referee for many helpful comments and suggestions a special thanks to jack kareken for comments and editorial help on an earlier draft i am grateful to donna zerwitz for editorial assistance the views expressed herein are those of the author and not necessarily of the federal reserve bank of minneapolis or the federal reserve system all errors and omissions are the sole responsibility of the author address correspondence to valery polkovnichenko finance 3 122 csom 319 19 th

supply response under proportional profits taxation a striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax with full offsets for losses will have no impact on optimal output this result does not apply under uncertainty it is shown that under constant or increasing returns to scale a proportional profits tax will yield an unambiguous expansion in output the same result is shown to hold for the more general rank dependent expected utility rdeu model

location and the theory of the imperfectly competitive firm under demand uncertainty there is a large and growing literature on location and the theory of the firm in a heterogeneous space i e in the space where markets are given at discrete points such as weber 22 isard 7 moses 15 sakashita 18 19 bradfield 3 emerson 5 woodward 23 khalili mathur and bodenhorn 8 miller and jensen 14 mathur 13 eswaran kanemoto and ryan 6 and mai and shieh 11 what is perhaps surprising is that within this large body of literature nothing has been said about how the firm would and should locate theoretically under conditions of uncertainty it only with webber 21 and mai 10 that any real indication is given that uncertainty due to imperfect market information may exert an influence on locational choice in particular mai 10 presented a formal mathematical model to show that the results and implications of the optimum location of the firm under demand uncertainty is different from that applicable to the state of certainty however mai s analytical framework is restricted to the case of pure competition where price is given all buyers are assumed to be concentrated at given market point and each firm seeks to minimize expected cost and is thus risk neutral the purpose of this paper is to extend the location theory of the competitive firm under demand uncertainty to the case where the imperfectly competitive quantity setting firms are not risk neutral and are interested in maximizing expected utility from profit including cost and demand factors 2 this expected utility approach will provide a more general formulation of the firm s attitude toward risk for analyzing its location decisions the basic model evaluating the firm s location and input choices is presented in section ii section iii examines the overall impacts of demand uncertainty on the optimum location and input demands the effect of a marginal increase in demand uncertainty on the optimum location is investigated in section iv section v analyzes the effect on the optimum location of a change in the expected output price section vi then evaluates the

tactical sales forecasting using a very large set of macroeconomic indicators abstract tactical forecasting in supply chain management supports planning for inventory scheduling production and raw material purchase amongst other functions it typically refers to forecasts up to 12 months ahead traditional forecasting models take into account univariate information extrapolating from the past but cannot anticipate macroeconomic events such as steep increases or declines in national economic activity in practice this is countered by using managerial expert judgement which is well known to suffer from various biases is expensive and not scalable this paper evaluates multiple approaches to improve tactical sales forecasting using macro economic leading indicators the proposed statistical forecast selects automatically both the type of leading indicators as well as the order of the lead for each of the selected indicators however as the future values of the leading indicators are unknown an additional uncertainty is introduced this uncertainty is controlled in our methodology by restricting inputs to an unconditional forecasting setup we compare this with the conditional setup where future indicator values are assumed to be known and assess the theoretical loss of forecast accuracy we also evaluate purely statistical model building against judgement aided models where potential leading indicators are pre filtered by experts quantifying the accuracy cost trade off the proposed framework improves on forecasting accuracy over established time series benchmarks while providing useful insights about the key leading indicators we evaluate the proposed approach on a real case study and find 18 8 accuracy gains over the current forecasting process

fossil fuel flexibility in west european power generation and the impact of system load factors this paper analyzes short run interfuel substitution in west european power generation and the impact of system load factors on fossil fuel choice the problems are studied within a restricted translog cost share model the paper concludes that interfuel substitution in existing power plants is substantial especially that between oil and gas this is consistent with the notion that short run fuel substitution takes place in dual or multi fired plants by switching load between different single fired plants and by some conversions of power plants to be able to burn alternate fuels the empirical investigation also indicates that the system load factor is a notable determinant of fossil fuel choices in west europe and the paper ends with an assessment of the fuel consequences of some load management schemes in the region

the effects of alternative regulatory policies on utility investment strategies the environment for planning and constructing power plants has undergone substantial changes since the early 1970s after this decade of change many utilities are completing costly plants that are larger than necessary to satisfy current demand and requesting that the plants be added to the rate base the used and useful uu and the prudent investor pi criteria have been applied by increasing numbers of regulatory commissions to determine whether excess capacity plants should be included in the rate base this paper considers whether these criteria will induce firms to invest efficiently much of the discussion of these criteria has focused on developing an appropriate method for allocating excess capacity costs between consumers and investors it is widely recognized that allocating some of the excess capacity costs to investors increases the risk faced by utilities 2 this increased risk both increases the market cost of capital and reduces the utility s incentive to invest efficiently in new plants in the future consumers therefore trade lower current expenses for higher capital and operating costs in the future the importance of these concerns depends on the answers to two questions 1 how soon will new capacity be needed and 2 to what extent will the current policy affect future allowed rates of return and capital investment in response to the first question some analysts indicate that the situation of current excess capacity will be reversed in the early 1990s 3 this paper explores the second question by developing a simple model to consider the relation between the uu or pi policies the allowed rate of return and the level of future investment this important relationship is complex some writers have emphasized capital market con

delving into liberia s energy economy technical change inter factor and inter fuel substitution abstract the industrial energy mix of liberia is dominated by petroleum products this has generated serious environmental problems contributing immensely to co 2 emissions and other pollutants in the country this study has attempted to investigate the potential for inter factor and inter fuel substitution between capital labor petroleum and electricity in liberia by employing a translog production and cost function approach ridge regression procedure has been adopted to estimate the parameters of the function due to multicollinearity in the data estimation results show that all inputs are substitutes these suggest that price based policies coupled with capital subsidy programs can be adopted to redirect technology use towards cleaner energy sources like electricity hence retaining the ability to fuel the economy while also mitigating greenhouse gas ghg emissions substitution between energy and labor and energy and capital implies that removal of price ceilings on energy in liberia would tend to reduce energy use and increase capital and labor intensiveness notwithstanding the study seems to show no evidence of convergence in relative technological progress of the four inputs implying that petroleum will continue to play a dominant role in the energy consumption mix of liberian industry while labor investment will continue to outweigh capital inputs finally the findings of this study provide general insights and underscore the importance of policies that focus on installed capacity of renewable electricity energy intensity targets as well as merger of enterprises

some results on comparative statics under uncertainty this paper presents results on comparative statics for a class of decision problems under uncertainty necessary and sufficient conditions are derived for parameter changes and stochastically dominant shifts in the return in the two asset portfolio problem these results give conditions for the demand for money to be inversely related to the rate of interest further applications include the qualitive behavior of aggregate savings under uncertainty and the production decision of a firm facing price uncertainty copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimism and pessimism in games this paper considers the impact of ambiguity in strategic situations it extends the earlier literature by allowing for optimistic responses to ambiguity ambiguity is modelled by ceu preferences we propose a new solution concept for players who may express ambiguitypreference then we study comparative statics of changes in ambiguity attitude in games with strategic complements this gives a precise statement of the impact of ambiguity on economic behaviour

a note on adjustment to production uncertainty and the theory of the firm this paper analyzes the impact of production uncertainty on the firm s optimal output decision if uncertainty is introduced by an additive risk variable then short run optimal output is unchanged but the owner manager s expected utility can change causing long run output effects if uncertainty is introduced by a multiplicative random variable then short run output can change as well

stochastic dominance analysis without the independence axiom we characterize the consistency of a large class of nonexpected utility preferences including mean variance preferences and prospect theory preferences with stochastic orders for example stochastic dominances of different degrees our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision maker s preferences as an illustration we consider in some detail prospect theory and choice acclimating preferences two popular models of reference dependence under risk and we show the incompatibility of loss aversion with prudence this paper was accepted by james smith decision analysis

portfolio choice in personal equilibrium abstract this paper finds that in portfolio choice where reference point arises endogenously in personal equilibria investors behave as if they had a concave probability weighting function this finding establishes a link between the reference dependent utility and the rank dependent utility theories

elasticity of substitution and technical efficiency evidence from the us electricity generation abstractthe implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution this study u

optimal fuel mix in chp plants under a stochastic permit price risk neutrality versus risk aversion abstract this paper studies the optimal fuel mix of a chp producer under emission permit price risk the producer s multi fuel plant uses two co2 intensive fuels and one clean fuel using a mean variance framework we develop three models the models are divided into spot models risk neutral and risk averse cases and a forward model risk averse case we derive the effects of price risk on optimal fuel use an increase in price risk can in fact increase the use of co2 intensive fuel in the spot model in the forward model the production and financial decisions are separate we also evaluate the risk bearing behavior of seven finnish chp producers we found that risk neutrality describes behavior better than risk aversion