the effect of ambiguity aversion on insurance and self protection in this article we derive a set of simple conditions such that ambiguity aversion always raises the demand for self insurance and the insurance coverage but decreases the demand for self protection we also characterise the optimal insurance design under ambiguity aversion and exhibit a case in which the straight deductible contract is optimal as in the expected utility model

fat tails exponents extreme uncertainty simulating catastrophe in dice abstract the problem of low probability catastrophic risk is increasingly central to discussion of climate science and policy but the integrated assessment models iams of climate economics rarely incorporate this possibility what modifications are needed to analyze catastrophic economic risks in an iam we explore this question using dice a well known iam we examine the implications of a fat tailed probability distribution for the climate sensitivity parameter a focus of recent work by martin weitzman and the shape of the damage function one of the issues raised by the stern review forecasts of disastrous economic outcomes in dice can result from the interaction of these two innovations but not from either one alone

inverse portfolio problem with mean deviation model abstract a markowitz type portfolio selection problem is to minimize a deviation measure of portfolio rate of return subject to constraints on portfolio budget and on desired expected return in this context the inverse portfolio problem is finding a deviation measure by observing the optimal mean deviation portfolio that an investor holds necessary and sufficient conditions for the existence of such a deviation measure are established it is shown that if the deviation measure exists it can be chosen in the form of a mixed cvar deviation and in the case of n risky assets available for investment to form a portfolio it is determined by a combination of n 1 cvar deviations in the later case an algorithm for constructing the deviation measure is presented and if the number of cvar deviations is constrained an approximate mixed cvar deviation is offered as well the solution of the inverse portfolio problem may not be unique and the investor can opt for the most conservative one which has a simple closed form representation

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

the regional dimension of competitiveness in manufacturing productivity employment and wages in northern ireland and the united kingdom borooah v k and lee k c 1991 the regional dimension of competitiveness in manufacturing productivity employment and wages in northern ireland and the united kingdom reg studies 25 219 229 the regional dimension of competitiveness in manufacturing industry is examined by comparing the uk with one of its poorest regions northern ireland an overview is provided of total factor productivity and real wage developments in northern ireland and the uk over the last two decades these developments are then investigated econometrically through the estimation of labour demand and wage equations the paper identifies a number of factors which may have eroded the competitiveness and hence the employment prospects of the region relative to the uk as a whole over the period borooah v k et lee k c 1991 la competitivite de l industrie manufacturiere sous un optique regional productivite emploi et salaires en irlande du nord et au royaume uni reg studies 25 219 229 on examine les aspects region

wages and employment under trade unionism microeconomic models and macroeconomic applications the first part of this paper is a critical survey of microeconomic research into behavioural models of trade unionism although certain formulations of union objectives and models of wage and employment determination in unionized markets have found favor with economists unfortunately only a little is known about their empirical relevance the second part of this paper deals with the daunting problems of applying these models at the macroeconomic level one such model is estimated with data from sweden s mining and manufacturing sector from 1968 to 1982

the role of manufacturing in regional growth harris r i d 1987 the role of manufacturing in regional growth reg studies 21 301 312 since a shift in regional policy away from manufacturing to aiding services is being advocated this paper re examines the role of manufacturing in regional growth from both an empirical and theoretical viewpoint first of all it discusses the importance of manufacturing s share of output concluding that in output terms and prior to 1979 manufacturing has not been displaced by services in shares of total output secondly the paper focuses on the theoretical importance of manufacturing to the growth of regional output showing that for most theories demand side growth pole cumulative causation manufacturing is the natural base for growth potential harris r i d 1987 le role des industries de fabrication dans la croissance regionale reg studies 21 301 312 vu que l on propose une reorientation de la politique regionale au depens des industries de fabrication et en faveur du tertiaire cet article

multiproduct equilibrium price dispersion abstract the model of burdett and judd econometrica51 1993 955 969 is generalized to the case of may goods consumers choose the best price observed for each good there are two classes of equilibria those that involve constant expected profits for each good independently of price and those with increasing profits for each good in price a continuum of the latter type always exists these equilibria are qualitatively different than the unique equilibrium of the single good case journal of economic literature classification numbers d83 d43 l13

properties of the social discount rate in a benthamite framework with heterogeneous degrees of impatience this paper derives the properties of the discount rate that should be applied to a public sector project when the affected population has heterogeneous degrees of impatience we show that for any distribution of discount rates the social discount rate has the following properties it decreases over time it is lower than the average of the discount rates in the population and it converges to the discount rate of the most patient individual in the economy these properties hold for both constant and decreasing individual discount rates finally we evaluate how changes in the distribution of individual discount rates affect the social discount rate

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

equilibrium pricing in a partial search market the shopbot paradox abstract price competition is explored when consumers costlessly learn product prices but not ancillary fees and have greater disutility to paying these fees there is a unique symmetric nash equilibrium price between the competitive bertrand and monopoly diamond prices

capacity pricing and production under supply and demand uncertainties with an application in agriculture abstract we consider capacitated joint lot sizing and pricing problems when supply and a price sensitive demand are uncertain in cases where there is excess capacity the decision maker has the option to rent her capacity we model the case where price and production quantity are determined before the yield is realized joint decisions as well as the case where the price is determined after the yield is known sequential decisions in the joint decisions case we introduce the concept of expected demand fill rate elasticity and characterize the conditions in which a one sided production and pricing policy is optimal we extend the results to the case when there is a fixed production cost and show that a two sided production and pricing policy is optimal we also investigate the conditions under which it is optimal for the decision maker to rent her capacity in addition we look at the case in which the decision maker is risk averse and analyze the effect of the risk attitude on the optimal price and production quantity we extend our model to the multi period case and the case where there is a lead time to acquire new capacity we show that a one sided production pricing and capacity planning policy is optimal in this situation as well we apply our model to the agricultural sector and present numerical examples using data from the california almond industry

regional earnings convergence the case of northern ireland black b 1985 regional earnings convergence the case of northern ireland reg studies 19 1 7 this paper analyses the rapid increase in the earnings of northern ireland male manual workers relative to the united kingdom average which has taken place in recent decades it identifies four factors which help explain this convergence first there has been a big increase in hours worked in northern ireland relative to the uk average since 1961 second the influence of changing industrial structure is highlighted in addition the impact of a range of government policies and developments in the institutional process of pay determination on earnings is examined the paper concludes that the convergence reflects the erosion of regional distinctiveness as earnings levels are increasingly influenced by national factors

risk averse decision making under catastrophic risk abstract a nonstandard probabilistic setting for modeling of the risk of catastrophic events is presented it allows random variables to take on infinitely large negative values with non zero probability which correspond to catastrophic consequences unmeasurable in monetary terms e g loss of human lives thanks to this extension the safety first principle is proved to be consistent with traditional axioms on a preference relation such as monotonicity continuity and risk aversion also a robust preference relation is introduced and an example of a monotone robust preference relation sensitive to catastrophic events in the sense of chichilnisky 2002 is provided the suggested setting is demonstrated in evaluating nuclear power plant projects when the probability of a catastrophe is itself a random variable

the measurement of capital services in production for uk regions 1968 78 harris r i d 1983 the measurement of capital services in production for uk regions 1968 78 reg studies 17 169 180 the purpose of this study is to obtain meaningful measures of the factor input capital so that estimation of the production function is possible at a regional level firstly gross stock measures are converted into a net stock series and the series obtained are then adjusted for levels of utilization finally some use of the data is made to look at various issues such as which regions have experienced rapid growth in capital stocks the composition of these stocks and changes in the capital labour ratios which have resulted

grant deadweight and profitability the case of northern ireland since the mid 1960s manufacturing firms in northern ireland have enjoyed a higher level of subsidy from government than firms in any other uk region this paper examines the cumulative impact of this support on northern ireland manufacturing using a combination of company accounts and government expenditure data the starting point for the study is the observation that northern ireland manufacturing companies were significantly more profitable than their counterparts in great britain in the year investigated 1988 this contrasts strongly with official figures relating to manufacturing productivity and wage levels which suggest that northern ireland firms ought to have had profit levels significantly below comparable uk companies the difference between firms expected and actual profit rates defines an unexplained profitability wedge estimating the cumulative effect of grants and subsidies on the aggregate accounts of northern ireland manufacturing suggests that grants and subsidies were increasing

clarifying frank knight s discussion of the meaning of risk and uncertainty frank knight s 1921 famous distinction between risk and uncertainty has entered the jargon of economics and decision theory yet it appears to have gone unnoticed that his formulation suffers from an elementary confusion this note locates the source of the problem and proposes a reformulation that avoids it it is safe to say that frank knight 1921 is more widely quoted than read on his epony mous distinction between risk and uncertainty this of course is a fate that befalls many authorities and at least in the present case is probably not particularly serious for the knightian distinction has acquired a currency of its own that is both reasonably unambiguous and relatively widely understood certainly the convention of using the term risk to describe decision situations in which probabilities are available to guide choice and uncertainty to describe decision situations in which information is too imprecise to be summarised by probabilities is deeply ingrained in both economic theory and decision theory 1 that said and as those who are familiar with it will know the long disquisition on the meaning of risk and uncertainty that appears in chapter 7 of knight s risk uncertainty and profit is well worth reading 2 not only is his categorisation of different kinds of probability situation a good deal more subtle than the simple risk uncertainty dichotomy might imply he also has many interesting things to say about induction social laws the metaphysics of chance and the psychology of decision making under uncertainty in view of the many positive aspects of knight s discussion then not to mention how often it continues to be invoked it is particularly unfortunate that it turns out to suffer from an elementary confusion the purpose of what follows is to locate the source of this confusion and to propose a reformulation of knight s position that avoids it the hope is that readers may then be able to benefit from the many insights in knight s discussion

risk aversion in quiggin and yaari s rank order model of choice under uncertainty this paper studies the rank dependent model of choice under uncertainty proposed by j quiggin in 1982 and elaborated by m e yaari in 1984 first a rigorous axiomatic foundation for the model is provided a very close analogy with expected utility theory is drawn permitting a considerably simplified treatment risk aversion and its measurement are then studied two characterizations one weaker and one stronger are presented in addition to the one considered by yaari lastly risk aversion and other properties of th model are related to empirically observed departures from expected utility maximizing behavior copyright 1987 by royal economic society

expected utility theory and the tyranny of catastrophic risks expected utility theory is not only applied to individual choices but also to ethical decisions e g in cost benefit analysis of climate change policy measures that affect future generations in this context the crucial question arises whether eu theory is able to deal with catastrophic risks i e risks of high but very unlikely losses in an ethically appealing way in this paper we show that this is not the case rather if in the framework of eu theory a plausible level of risk aversion is assumed a tyranny of catastrophic risk tcr emerges i e project evaluation may be dominated by the catastrophic event even if its probability is negligibly small with low degrees of risk aversion however the catastrophic risk eventually has no impact at all when its probability goes to zero which is ethically not acceptable as well

do countries compete over corporate tax rates this paper tests whether oecd countries compete with each other over corporate taxes in order to attract investment we develop two models with firm mobility countries compete only over the statutory tax rate or the effective average tax rate while with capital mobility countries compete only over the effective marginal tax rate we estimate the parameters of reaction functions using data from 21 countries between 1983 99 we find evidence that countries compete over all three measures but particularly over the statutory tax rate and the effective average tax rate this is consistent with a belief amongst governments that location choices by multinational firms are discrete we also find evidence of concave reaction functions consistent with the model outlined in the paper

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

search costs and corporate income tax competition abstract if a small cost applies for learning the corporate tax rules in different countries this can completely eliminate tax competition this modified version of the diamond paradox and can also explain the empirically observed tax cuts cum base broadening

government financial assistance and manufacturing investment in northern ireland sheehan m 1993 government financial assistance and manufacturing investment in northern ireland reg studies 27 527 540 this paper analyses the influence of government grants on the investment decision making process in the northern ireland manufacturing sector the paper is based on detailed interviews with northern ireland manufacturing firms and focuses on two time periods 1985 88 and 1989 92 findings are presented on the impact of grant schemes on the level timing and quality of investment expenditure during the period 1985 88 two types of grant schemes were available for capital investment in northern ireland standard capital grants scgs which were automatic grants and selective financial assistance sfa the standard capital grant scheme was eliminated in 1988 the findings indicate that scgs had more effect on companies investment programmes than sfa due to the certainty of payment since 1988 sfa has become more important to companies and appears to be offsetting to a certain exte

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

posting multiple prices to reduce the effectiveness of consumer price search in a model of competition with imperfect consumer price information and incomplete price search some consumers may end up comparing prices originating from the same supplier either because one firm sets multiple prices or because a group of firms colludes this leads to added monopoly power for these firms and average prices in the mixed strategy equilibrium become higher there is a shift in welfare from consumers to producers both with exogenous and endogenous consumer search behaviour however consumers might search more or less with multiple prices the implications for the price setting equilibrium competition policy and recent judgements are considered