scientific ambiguity and climate policy economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory yet our knowledge of the impacts of climate policy may not be of sufficient quality to be described by unique probabilistic beliefs in such circumstances it has been argued that the axioms of expected utility theory may not be the correct standard of rationality by contrast several axiomatic frameworks have recently been proposed that account for ambiguous knowledge in this paper we apply static and dynamic versions of a smooth ambiguity model to climate mitigation policy we obtain a general result on the comparative statics of optimal abatement and ambiguity aversion and then extend our analysis to a more realistic dynamic setting where we introduce scientific ambiguity into the well known dice model of the climate economy system for policy relevant exogenous mitigation policies we show that the value of emissions abatement increases as ambiguity aversion increases and that this ambiguity premium can in some plausible cases be very large in these cases the effect of ambiguity aversion on welfare is comparable to that of other much studied welfare parameters thus ambiguity aversion may be an important neglected aspect of climate change economics and seems likely to provide another argument for strong abatement policy

what u s data should be used to measure the price elasticity of demand for alcohol this paper examines how estimates of the price elasticity of demand for beer vary with the choice of alcohol price series examined our most important finding is that the commonly used accra price data are unlikely to reliably indicate alcohol demand elasticities estimates obtained from this source vary drastically and unpredictably as an alternative researchers often use beer taxes to proxy for alcohol prices while the estimated beer taxes elasticities are more stable there are several problems with using taxes including difficulties in accounting for cross price effects we believe that the most useful estimates reported in this paper are obtained using annual uniform product code upc barcode scanner data on grocery store alcohol prices these estimates suggest relatively low demand elasticity probably around 0 3 with evidence that the elasticities are considerably overstated in models that control for beer but not wine or spirits prices

alcohol prices consumption and traffic fatalities we examine the relationships among alcohol prices consumption and traffic fatalities using data across u s states from 1982 to 2000 some previous studies have found large negative associations between alcohol taxes and fatalities however commonly used price data suggest little or no connection between alcohol prices and fatalities these apparently conflicting findings may result from measurement error and or endogeneity in the price data which biases ordinary least squares estimators toward a finding of no price effects using alcohol taxes as instrumental variables fatali ties are found to be negatively related to prices in addition alcohol consumption is strongly posi tively related to fatalities however biases may still remain because taxes are not entirely suitable as instruments

individual heterogeneity and censoring in panel data estimates of tobacco expenditure a panel of households is used to test the rational addiction model of becker et al 1994 these data raise problems of measurement errors censoring and unobservable heterogeneity we use sample separation information to exclude those households who never purchase tobacco to deal with the remaining zeros we compare specifications based on infrequency of purchase and on censoring gmm and system gmm are used to deal with errors in variables and unobservable heterogeneity within groups two step within groups three step gmm and minimum distance methods are used to allow for censoring there is evidence that the rational addiction specification is sensitive to unobservable heterogeneity and censoring copyright 2002 john wiley sons ltd

target zone models with stochastic realignments an econometric evaluation abstract this paper provides empirical support for the second generation of target zone models with stochastic devaluation risk i propose a simple non linear framework with a time varying probability of exchange rate realignment this model nests alternatives i with no devaluation risk ii with constant devaluation risk and iii the random walk i reject these three in favor of a stochastic realignment model where devaluation risk varies with economic fundamentals the model predicts 13 of 17 realignments for the franc and lira including an out of sample episode in august 1993

what price drug use the contribution of economics to an evidence based drugs policy abstract this paper presents a review of the recent economics literature in the area of illicit drug use particular attention is paid to the economics of addiction and the rational addiction model the welfare economics framework for analysing the social costs of drug use and the attempts that have been made by economists to evaluate recent or proposed policy interventions a dominant theme in this review is the problem of poor data availability this is particularly true when it comes to implementing the rational addiction model but it is also apparent in the literature on estimating the costs of illicit drug use to society as a whole one of the main conclusions of this review is that until recently public policy has not been particularly influenced by research carried out by economists it is not clear whether this is because economists have had to grapple with inadequate data and hence their conclusions are couched in uncertainty or whether it is because drugs researchers have assumed a very limited role for economists in their analysis

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

price barriers and the dynamics of asset prices in equilibrium a price barrier is a price level at which a large number of investors either buy or sell securities we analyze the dynamics of asset prices in an economy in which price barriers exist our analysis suggests that asset prices and volatility can exhibit jumps when the price barrier is reached interestingly the market s anticipation of future trades can influence prices in the opposite direction from what one might expect for example when multiple barriers exist stock prices can be inflated rather than depressed in the proximity of an anticipated stock sale

addiction and discounting abstract in 1988 becker and murphy becker g s murphy k m 1988 a theory of rational addiction journal of political economy 96 675 700 launched a theory in which they proposed that the perspective of rational decision making could be applied also to cases of addictive behaviour this paper discusses the theory s assumptions of interpersonal variation and stability in time preferences on the basis of estimates derived from three groups of people with different consumption levels of illegal intoxicants we find that active injectors of heroin and amphetamine have a higher discount rate than a group reporting that they have never used the substances of greater interest though not in accordance with becker and murphy s assumption of stability we also find that the discount rate among active and former users differs significantly these findings raise the question of whether a high time preference rate leads to addiction or whether the onset of an addiction itself alters people s inter temporal equilibrium

on the mean reverting properties of target zone exchange rates a cautionary note abstract we estimate a franc mark target zone model and find a very limited honeymoon effect monte carlo experiments calibrated with the estimates caution against the use of standard linear tests for non mean reversion as indirect tests of the target zone model

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

central bank interventions and exchange rate band regimes abstract this paper presents an endogenous switching regression model for the exchange rate process where the switch is defined by the central bank criteria functions for intervening we study the signal effect of interventions on the exchange rate using norwegian daily data on official interventions we first find that interventions seemed to have been more effective in moving the exchange rate in the expected desired direction in the regime when the exchange rate was kept away from the edges of the band this type of intervention regime also reduces significantly the conditional volatility of the exchange rate thus when the exchange rate was near the weakest edge of the currency band its conditional variance was significantly larger than when it was moving around its central parity finally we show that in order to obtain consistent estimates intervention variables cannot enter as exogenous variables in the conditional mean or conditional variance of the exchange rate

assessing target zone credibility mean reversion and devaluation expectations in the erm 1979 1992 abstract the paper presents estimates of devaluation expectations for six erm currencies relative to the deutsche mark for the period march 1979 april 1992 both the simplest test and the drift adjustment method are used the simplest test adjusts interest rate differentials for the maximum and minimum expected rate of depreciation within the exchange rate band the drift adjustment method adjusts interest rate differentials by the estimated expected rate of depreciation within the band the latter method gives more precise estimates especially for short horizons and allows statistical inference and hypothesis testing expected rates of devaluation have generally fallen during the period still some devaluation expectations relative to the deutsche mark remain in 1992 except for the belgian luxembourg franc and the netherlands guilder expected rates of devaluation have fluctuated more than interest rate differentials

modelling probabilities of devaluations i show why when the realized rates of depreciation within the exchange rate band are regressed on a given information set and conditioned on ex post actual no realignment a la drift adjustment a peso problem is still encountered the reason is that the frequency of realignments in the data need not be the same as the frequency of the even small subjective probabilities that a realignment may take place i suggest an alternative approach to solve the peso problem and provide consistent estimates my estimates of the expected realignment rates are greater than the ones obtained using the drift adjustment method

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

economic factors affecting the increase in obesity in the united states differential response to price abstract a sharp increase in obesity during the last 15 years in the united states became one of the nation s main public health problems the theory of rational addiction seems to explain human behavior in food consumption leading to obesity reasonably well the interesting thing about our results is that the tax policy normally used to correct various distortions is to serve in this case as the preventive policy additional taxes on future prices of the addictive sweet foods contribute to lower sugar consumption and bmi at present time on the other hand increasing education level is usually considered a preventive type of policy in this case it leads to lowering the levels of the bmi in already overweight and obese population

assessing the credibility of a target zone evidence from the ems this paper provides some new evidence on the credibility of the exchange rate mechanism erm of the european monetary system ems the study differs from previous research in the literature in three main respects first the main contribution is the use of several credibility indicators some of which have never been applied before to all of the currencies under study this allows one to strengthen the results obtained in this paper second a longer period than that of previous studies is analysed covering the complete ems history third a comparison has been made of the prediction qualities of the different indicators in order to explore their ability to capture the main erm events realignments changes in the fluctuations bands and speculative pressures fourth the indicators are applied to the experience of the new modified erm linking the currencies of non euro area member states to the euro showing the relevance of this approach in the near future with the enlargement of the european union

illicit drug use among arrestees prices and policy abstract prior studies by relying on nationally representative surveys have overlooked the important fact that use of addictive substances is not uniformly distributed subgroups of hardcore users account for most of the drug consumption this study employs the arrestee drug abuse monitoring system to analyze the demand for cocaine and heroin by urban arrestees employing objective indicators of use based on urinalysis the data are repeated city cross sections and panel data methodology is employed to account for endogeneity cocaine and heroin prices have a negative effect on the probability of use even among this group of heavy users results indicate that subjective self reported measures of participation are likely to be under reported which may impart bias to estimates of the price elasticity the own price cocaine participation elasticity is about 0 15 and the own price heroin participation elasticity is about 0 10 for arrestees this contemporaneous elasticity understates the full effect and the long run price elasticity is about twice the magnitude the magnitude of the price response is substantially smaller relative to the estimates in the prior literature and calculations suggest that further enforcement and interdiction driven increases in drug prices may not be cost effective

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

are alcohol tax hikes fully passed through to prices evidence from alaska on 1 october 2002 the state of alaska increased taxes on malt beverages from 0 35 per gallon to 1 07 per gallon increased taxes on wine from 0 85 per gallon to 2 50 per gallon and increased taxes on distilled spirits from 5 60 per gallon to 12 80 per gallon the net effect is that the tax on a standard serving rose from about 3 cents for beer 2 cents for wine and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage this paper uses primary data on alcoholic beverage prices in alaska to study a very basic question what was the impact of the tax hikes on prices an alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol related problems such as drunk driving the impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health economic theory and previous empirical studies mainly of taxes on goods other than alcoholic beverages do not provide very much guidance on what to expect following a tax hike it is an empirical question to answer the question i conducted telephone surveys just before and a year after the tax hike of on premise and off premise alcohol retail establishments across alaska

price barriers in the dow jones industrial average this study tests the popular claim that the djia s movements around key reference points affect investor sentiment and thus price behavior it is found that the djia s rise and fall is indeed restrained by support and resistance levels at multiples of 100 e g 2800 2900 3000 etc but that having broken through a 100 level the djia then moves by more than otherwise warranted a monte carlo study and comparisons with other indices confirm the significance of these findings this suggests that some agents may trade on the basis of the djia but does not necessarily suggest that the market is inefficient

pricing uncertainty induced by climate change geophysicists examine and document the repercussions for the earth s climate induced by alternative emission scenarios and model specifications using simplified approximations they produce tractable characterizations of the associated uncertainty meanwhile economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities how can we assess both climate and emissions impacts as well as uncertainty in the broadest sense in social decision making we provide a framework for answering this question by embracing recent decision theory and tools from asset pricing and we apply this structure with its interacting components to a revealing quantitative illustration

the linkage between speculative attack and target zone models of exchange rates in this paper we generalize the target zone exchange rate as model formalized by krugman 1988b to include finite sized interventions in defense of the zone the main contributions of these pages consist of linking the recent developments in the theory of target zones to the mirror image theory of speculative attacks on asset price fixing regimes and in using aspects of that linkage to give an intuitive interpretation to the smooth pasting condition usually invoked as a terminal condition this abstract was borrowed from another version of this item

alcohol taxes and labor market outcomes abstract we present reduced form estimates of the effect of alcohol taxes on employment weekly work hours and wages the reduced form estimates are meaningful in two ways first they provide estimates of the effect of an important public policy tool alcohol taxes and second they can be used to evaluate hypotheses about the structural effects of alcohol use on labor market outcomes estimates indicate that there is a weak and indeterminate relationship between alcohol taxes and labor market outcomes this implies that alcohol use does not adversely affect labor market outcomes and is inconsistent with findings from previous studies

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

financial markets views about the euro swiss franc floor exchange rates and option prices incorporate market participants views about the credibility and the effects of exchange rate targets i present a model to determine exchange rates under policy targets that can be used to price options the model is estimated with euro swiss franc exchange rate and options price data in the first few months of the minimum exchange rate policy the implied survival probability of the policy for a 3 month horizon was typically less than 75 over time the credibility increased and this probability reached 95 in august 2014

are frequency and intensity of participation decision bearing aspects of consumption an analysis of drinking behaviour analysing quantity consumed per period implies a restriction on decisions about how frequently and intensely to consume this quantity hypothesis is rejected based on estimated equations for the frequency and intensity of spirit consumption consequently a simultaneous equation system for frequency and intensity is estimated as they enter the budget constraint as a multiplicative term income and education levels are found to be negatively related to intensity but not frequency this may reflect differences in the shadow prices of frequency and intensity for different socioeconomic groups or heterogeneous preferences for intoxication and health distinguishing between these aspects of drinking patterns is important for the evaluation of the price responsiveness of harmful drinking restrictions on availability and the causes of inequalities in health

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

addiction as a market failure using rational addiction results to justify tobacco regulation abstract tobacco regulation efforts have been criticized by some academic economists for failing to provide adequate welfare analytic justification this paper attempts to address these criticisms unlike previous research that has discussed second hand smoke and health care financing externalities this paper develops the logic for identifying the much larger market failures attributable to the failure of smokers to fully internalize the costs of their addictive behavior the focus is on teen addiction as a form of intrapersonal externality and observed adult consumption behavior consistent with partial myopia the importance of peer effects in the consideration of welfare impacts is also emphasized

clustering in crude oil prices and the target pricing zone hypothesis abstract this paper studies the target pricing zone tpz hypothesis for crude oil by examining price clustering in the dollar digit it is hypothesized that price clustering occurs within an established tpz if opec is able to defend the upper and lower bounds through output changes the results show that prices strongly cluster around the dollar digit value of 9 within the tpz sub periods but not outside the sub periods furthermore the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas consistent with opec s inability to defend the zone nine centered clustering also results in lower contemporaneous and next day volatility these results support the target pricing zone hypothesis of crude oil

exchange rates under ems target zones an econometric investigation this study tests krugman s model on exchange rate target zones using four old ems exchange rates those of the currencies of belgium france italy and the netherlands against the deutsche mark vast theoretical literature is available but there are very few empirical studies testing the main results of krugman s model namely the honeymoon effect smooth pasting and the overall s curved relationship between fundamental and exchange rate the present study supports the honeymoon effect but does not find any evidence in support of smooth pasting or of an s curved relationship between the exchange rate and fundamentals for the belgian franc french franc and italian lira against the deutsche mark the dutch guilder very closely follows movements in the german mark throughout the period 1981 90 end of month exchange rates and euro currency interest rates data are used

robustness and u s monetary policy experimentation we study how a concern for robustness modifies a policy maker s incentive to experiment a policy maker has a prior over two submodels of inflationunemployment dynamics one submodel implies an exploitable trade off the other does not bayes law gives the policy maker an incentive to experiment the policy maker fears that both submodels and his prior probability distribution over them are misspecified we compute decision rules that are robust to misspecifications of each submodel and of the prior distribution over submodels we compare robust rules to ones that cogley colacito and sargent 2007 computed assuming that the models and the prior distribution are correctly specified we explain how the policy maker s desires to protect against misspecifications of the submodels on the one hand and misspecifications of the prior over them on the other have different effects on the decision rule

temperature and growth a panel analysis of the united states this paper documents that seasonal temperatures have significant and systematic effects on the u s economy both at the aggregate level and across a wide crosssection of economic sectors this effect is particularly strong for the summer an increase of 1 f in the average summer temperature is associated with a reduction in the annual growth rate of state level output of 0 15 to 0 25 percentage points when these estimates are combined with projected increases in seasonal temperatures it is found that a reduction of u s economic growth by up to one third could occur over the next century

regulated equity returns a puzzle abstract based on a database of u s electric utility rate cases spanning nearly four decades the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return this growing premium does not appear to be explained by traditional asset pricing models often in direct contrast to regulators stated intent we suggest possible alternative explanations drawn from finance public policy public choice and the behavioral economics literature however absent some normative justification for this premium it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms

implied exchange rate distributions evidence from otc option markets abstract this paper uses a rich new dataset of option prices on the dollar mark dollar yen and key ems cross rates to extract the entire risk neutral probability density function pdf over horizons of 1 and 3 months we compare three alternative smoothing methods cubic splines an implied binomial tree trimmed and untrimmed and a mixture of lognormals for transforming option data into the pdf despite their methodological differences the three approaches lead to a similar pdf clearly distinct from the lognormal benchmark and typically characterized by skewness and leptokurtosis we then document a striking positive correlation between skewness in these pdfs and the spot rate the stronger a currency the more expectations are skewed towards a further appreciation of that currency we interpret this finding as a rejection that innovations in these exchange rates are independent of the level or characteristic of a credible target zone explicit or implicit instead this positive correlation is consistent with target zones with endogenous realignment risk we discuss two interpretations of our results on skewness when a currency is stronger the actual probability of further large appreciation is higher or because of risk such states are valued more highly

does traditional price policy work for achieving low smoking rate empirical and theoretical evaluation based on the united states aggregate data in the united states smoking has been strictly restricted by both federal and state governments almost all the policies have imposed high tax on cigarettes for decreasing the number of smokers i

a dynamic demand model for liquor the case for pooling this paper estimates a dynamic demand model for liquor in the united states using panel data from 43 states because of taste changes over time and between states in liquor consumption purely time series or cross sectional studies do not elicit reliable price elasticity estimates this study makes the case for pooling and shows how one can control for individual state effects and endogeneity of the regressors using estimators suited for a dynamic demand model our results indicate that the long run price elasticity is in the 0 7 range the findings also support strong habit persistence a small positive income elasticity and very weak evidence of bootlegging from adjoining states the magnitude of the long run price effect suggests that sin taxes can serve not only as an important income source but also as a significant deterrent effect copyright 1995 by mit press

a high frequency analysis of price resolution and pricing barriers in equities on the adoption of a new currency we use ultra high frequency trade by trade data to demonstrate that equity price clustering and pricing predictability around psychologically important prices in greece switches away from drachma focused with the introduction of the euro but does not immediately switch to euro clustering the change in trader price focus around the euro introduction addresses an open debate in the clustering literature on whether the presence of clustering is a bias related to the current prices or anchoring to past prices our findings of a decline in drachma clustering but lack of switch to euro effects supports the case for clustering being a trading feature that is slow to transfer to new pricing regimes a key advantage of the ultra high frequency dataset is we are also able to demonstrate the presence of psychological pricing barriers related to each currency that are not detectable in daily data

is the rational addiction model inherently impossible to estimate the rational addiction ra model is increasingly often estimated using individual level panel data with mixed results in particular with regard to the implied rate of time discount this paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle point dynamics associated with individual level inter temporal optimization problems we report the results of monte carlo experiments estimating ra type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of ra equations

the demand for cocaine by young adults a rational addiction approach abstract this paper applies the rational addiction model to the demand for cocaine by young adults in the monitoring the future panel the price of cocaine is added to this survey from the drug enforcement administration s system to retrieve information from drug evidence results suggest that annual participation and frequency of use given participation are negatively related to the price of cocaine in addition current participation frequency is positively related to past and future participation frequency the long run price elasticity of total consumption participation multiplied by frequency given participation of 1 35 is substantial

pseudo panel data estimation technique and rational addiction model an analysis of cigarette alcohol and coffee demands we use a pseudo panel data approach to analyze the relationship between the consumptions of cigarettes alcohol and coffee in a rational addiction framework we find that while cigarette and coffee demands fit well with the rational addiction model alcohol demand conforms to a model with inventory effects the results suggest that alcohol consumption increases the marginal utility derived from consumption of cigarettes increasing alcohol prices would decrease not only the consumption of alcohol but also the consumption of cigarettes on the other hand increasing cigarette prices do not have the same effect on consumption of alcohol the cross price elasticity of coffee with respect to cigarette price is positive and significant which suggests that coffee substitutes for cigarettes when cigarette prices increase the cross price elasticity of alcohol with respect to coffee price is found to be negative and significant on the other hand morishima elasticities of substitution indicate that cigarette alcohol and coffee substitute each other along the indifference curve when relative prices change

optimal climate change mitigation under long term growth uncertainty stochastic integrated assessment and analytic findings abstract economic growth over the coming centuries is one of the major determinants of today s optimal greenhouse gas mitigation policy at the same time long run economic growth is highly uncertain this paper is the first to evaluate optimal mitigation policy under long term growth uncertainty in a stochastic integrated assessment model of climate change the sign and magnitude of the impact depend on preference characteristics and on how damages scale with production we explain the different mechanisms driving optimal mitigation under certain growth under uncertain technological progress in the discounted expected utility model and under uncertain technological progress in a more comprehensive asset pricing model based on epstein zin weil preferences in the latter framework the dominating uncertainty impact has the opposite sign of a deterministic growth impact the sign switch results from an endogenous pessimism weighting all of our numeric scenarios use a dice based assessment model and find a higher optimal carbon tax than the deterministic dice base case calibration

the demand for alcohol the differential response to price although several studies indicate that drinking is responsive to price little work has focused on whether prices have a differential effect on light moderate or heavy drinking this study examines the price responsiveness of the demand for alcohol whether heavy drinkers are less sensitive to price than light or moderate drinkers the study uses data on alcohol consumption on the 1983 national health interview survey the results indicate that both light and heavy drinkers are much less price elastic than moderate drinkers further we cannot reject the hypothesis that the very heaviest drinkers have perfectly price inelastic demands

the economy climate change and infectious diseases links and policy implications this short paper provides a modeling framework for unifying the economy climate change and the outbreak of infectious diseases such as the recent covid 19 pandemic we stress that continuous growth of consumption activities capital accumulation and climate change could increase the potential of the epidemic its contact number or the probability of its arrival this framework of analysis allows us to think of infectious disease policies in two stages in the short run containment policies like social distancing could help to stop the epidemic in the medium and the long run economic policies could help to reduce the potential of the epidemic or the probability of its emergence

modeling regional linkage of financial markets abstract with the development of globalization and regional economic integration regional markets linked with a common currency emerge in which investors from domestic market are allowed to trade in foreign markets empirical studies have evidenced extensively the existence of co movement of asset prices or cross correlation in market returns among these markets especially in global event however there is no theoretical model in literature that can provide economically plausible justifications for these stylized facts this research intends to fill up such a gap with a simplest possible nonlinear dynamic model based on the classical market maker framework of day and huang 1990 a two market ham model is developed which does not only prove in theory the existence of price co movement but also replicate in simulation this typical characteristic along with other well known stylized facts characterizing individual financial market moreover theoretical analysis suggests meaningful implications for market opening policy in particular in terms of financial stability a relatively small market may not benefit from market linkage and market opening is essentially a double edged sword

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

losing sleep at the market the daylight saving anomaly reply motivated by the recent flurry of activity in sleep research this paper explores the connection between sleep disruptions following spring and fall clock shifts associated with daylight savings time and equity returns it is shown that the weekend effect in the form of the lower than expected friday to monday returns is particularly pronounced for the two weekends involving daylight savings clock changes this abstract was borrowed from another version of this item

price clustering and natural resistance points in the dutch stock market a natural experiment abstract this paper focuses on the tendency of stock prices to cluster at round numbers like 10 20 30 etc and to a lesser extent 5 15 25 etc and the related effect of round number price barriers prices pass round numbers less frequently than other numbers two competing hypotheses are tested using data from the dutch stock market of the period 1990 2001 after 1 january 1999 stock prices were listed in euros while guilders were still the currency of daily life until 2002 the aspiration level hypothesis predicts that round number effects in guilders will only slowly disappear the odd price hypothesis predicts an abrupt change in round number effects after 1 january 1999 generally the results are consistent with the odd price hypothesis