economic roots of political conflict the case of sri lanka the escalation of political conflicts in many developing countries and their impact on economic development have been topical issues in recent development literature the overwhelming emphasis on ethnic conflicts in the literature has however precluded analysts from looking at political conflicts beyond their ethnic dimension in the wider context of the development process in particular because of the preoccupation with ethnic roots as the prime source of these conflicts reverse causation running from economic policy to political conflict has been virtually ignored in the debate the purpose of this paper is to fill this gap through an in depth case study of the twin political conflict in sri lanka the tamil separatist war in the north and the sinhala youth uprising in the south with emphasis on its economic roots the findings suggest that fundamental contradictions in the national development policy in the restrictive trade regime of sri lanka were at the heart of the country s twin political conflict

hot stuff index insurance for indian pepper growers summary we simulate the impact of a joint price and yield index insurance on the basis of a small representative panel data set of indian smallholder pepper growers affordable and feasible index insurance reduces crop revenue risk to around 68 of its original level while a reduction to 50 of this level can be achieved with ideal insurance basis risk is large for only a small fraction of farm households depending on risk aversion 5 30 of farm households is willing to pay for index insurance increasing to 12 50 with a 50 premium reduction opportunity costs of consumption smoothing in the form of lower productivity levels suggest potential welfare gains of specialization with insurance

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

designing and rating an area yield crop insurance contract this article documents the design and rate making procedures used in the development of the group risk plan grp the new federal crop insurance product that insures based on area yield the authors of this article worked closely with personnel in the federal crop insurance corporation and others in developing methodological and practical constraints needed in implementing a workable area yield contract grp indemnity payments are made based on percentage shortfalls in actual county yields relative to a forecasted yield historical county yield data are used to develop forecasted yields and premium rates

disinflation with imperfect credibility abstract this paper presents a theory of the real effects of disinflation as in new keynesian models price adjustment iis staggered across firms as in new classical models credibility is imperfect the monetary authority may not complete a promised disinflation the combination of imperfect credibility and staggering yields more plausible results than either of these assumptions alone in particular an announced disinflation reduces expected output if credibility is sufficiently low

inflation uncertainty and growth in a cash in advance economy abstract this paper analyzes the effects of inflation variability on economic growth in a model where money is introduced via a cash in advance constraint in this setting we find that inflation adversely affects long run growth even when the cash in advance constraint applies only to consumption at the same time we find that inflation and growth are positively related in the short run furthermore variability increases average growth through a precautionary savings motive since inflation and inflation variability tend to be highly correlated the presence of uncertainty attenuates the negative long run relationship between inflation and real growth it also provides a partial rationale for the apparent lack of robustness in cross country regressions of growth and inflation

constrained efficient contracts for area yield crop insurance with area yield crop insurance indemnification occurs when area yield falls below a yield trigger that is chosen by the producer the maximum value for this yield trigger is generally restricted e g 80 of the long term area average yield the impact of this trigger constraint on the optimal design of an area yield insurance contract is examined within the constrained efficient contract indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall because lump sum payments may not be feasible to implement efficiency enhancing modifications to standard contracts are also proposed copyright 2000 oxford university press

inflation regimes and the sources of inflation uncertainty this paper develops new time series measures of inflation uncertainty in the united states in the postwar period that account for the prospect of changing inflation regimes the measures are constructed from estimates of a markov switching model for inflation importantly we show that rational forecasts derived from the markov model are consistent with survey measures of inflation expectations our markov model allows us to decompose uncertainty about future inflation into two components a certainty equivalent component that ignores uncertainty about future inflation regimes and a regime uncertainty component that reflects this uncertainty survey measures of inflation uncertainty based on the dispersion of forecasts appear more closely associated to the regime uncertainty component than the certainty equivalent component of inflation uncertainty the regime uncertainty component also appears to have significant explanatory power in forecasting unemployment while the certainty equivalent component does not copyright 1993 by ohio state university press

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

optimal insurance in incomplete markets this paper examines the theory of optimal insurance purchasing in the presence of uninsurable background risk existing theorems concerning the optimal level of insurance and the optimal form of an insurance contract are shown to hold only under restricted market and risk assumptions in particular conditions sufficient for the optimality of full coverage or sufficient for the optimality of deductible policies depend on the correlation between insurable and uninsurable risks these results may provide a partial explanation why existing theory is often contradicted by observable behavior

inflation output growth and nominal and real uncertainty empirical evidence for the g7 abstract we use univariate garch models of inflation and output growth and monthly data for the g7 covering the 1957 2000 period to test for the causal effect of real and nominal macroeconomic uncertainty on inflation and output growth and the effect of inflation on inflation uncertainty our evidence supports a number of important conclusions first inflation is a positive determinant of uncertainty about inflation second output growth uncertainty is a positive determinant of the output growth rate third there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth hence uncertainty about the inflation rate is not necessarily detrimental to economic growth finally there is not much evidence supporting the hypothesis that output uncertainty raises inflation

optimum area yield crop insurance cet article determine le contrat optimal d assurance dont l indemnite depend du rendement agrege sur recoltes d un bassin de production le schema optimal d assurance est base sur le coefficient individuel de regression qui mesure la sensibilite du rendement agrege a des variations du rendement agrege une indemnite est versee lorsque le rendement agrege est inferieur superieur a un rendement critique si le coefficient de regression est positif negatif le contrat optimal contient une franchise evanescente si le coefficient de regression est superieur a l unite

inflation and growth stories short and tall this paper reviews the stories that economists tell about the growth effects of inflation informal accounts are common but there are few models that get to grips with the effects that are probably central partly as a result of this and partly as a result of many econometric problems much of the empirical evidence remains unconvincing the paper assesses the various contributions and suggests possible improvements

ethnic discrimination and the migration of skilled labor we develop a model of interdependency between emigration education investment and discrimination in the context of an ethnically divided developing economy assuming a rent extraction basis for discrimination we first endogenize ethnic discrimination in the benchmark case of an economy closed to migration and then explore how migration prospects affect ethnic inequality under the free migration assumption we find the intuitive result that migration prospects have a protective effect on the minority immigration restrictions set by receiving countries on the other hand have the paradoxical effect of creating migration flows that would otherwise have remained latent

insurance with multiple insurers a game theoretic approach this paper studies the set of pareto optimal insurance contracts and the core of an insurance game our setting allows multiple insurers with translation invariant preferences we characterise the pareto optimal contracts which determines the shape of the indemnities closed form and numerical solutions are found for various preferences that the insurance players might have determining associated premiums with any given optimal pareto contract is another problem for which economic based arguments are further discussed we also explain how one may link the recent fast growing literature on risk based optimality criteria to the pareto optimality criterion and we show that the latter is much more general than the former one which according to our knowledge has not been pointed out by now further we extend some of our results when model risk is included i e there is some uncertainty with the risk model and or the insurance players make decisions based on divergent beliefs about the underlying risk these robust optimal contracts are investigated and we show how one may find robust and pareto efficient contracts which is a key decision making problem under uncertainty

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

aggregation in area yield crop insurance the linear additive model previous analyses of area yield crop insurance have used a linear additive model lam to express the relationship between individual and area yield however the theoretical foundations of the lam are unknown this shortcoming is addressed by establishing two conditions linking microvariables and lam parameters the conditions relate to the interaction of risks in individual technologies and the extent of aggregation if systemic and individual risks are additive in individual yields and if the law of large numbers hold then the lam obtains this article also shows how departures from these conditions affect the results derived from a lam analysis a classic issue in agricultural economics is the design of schemes that would offer insurance against risks in agriculture the experience with conventional crop insurance has been disappointing as insurers have struggled to obtain reliable actuarial data on individual yields skees black and barnett the primary attraction of area yield insurance schemes is that insurers do not have to contend with the informational problems of moral hazard and adverse selection halcrow these problems can be dismissed because indemnities and premiums are based not on a producer s individual yield but rather on the aggregate yield of a surrounding geographical area however the key question is how adequate are aggregate yield instruments for reducing the risks faced by producers to address this question previous studies have expressed individual yields as a linear stochastic function of area yield mahul miranda vercammen the approach has been to use the form of a linear regression model where the dependent variable is the yield of an individual producer the only independent variable is area yield and the additive random error term measures omitted individual specific factors uncorrelated with area yield thus the model decomposes variations in individual yield in to variations in area yield that represent systemic risk and bharat ramaswami is senior economist in the indian statistical

another perspective on the effects of inflation uncertainty this paper examines the effects of inflation uncertainty on real economic activity by utilizing a flexible dynamic multivariate framework that accommodates possible interaction between the conditional means and variances the empirical model is based on a familiar identified vector autoregressive framework modified to accommodate multivariate generalized autoregressive conditional heteroskedasticity our empirical model is preferred to the baseline var by likelihood based information criteria and it retains the important dynamics of the underlying var we find that an average shock to inflation uncertainty has tended to reduce output growth over three months by about 22 basis points

the euro and inflation uncertainty in the european monetary union in this paper we investigate empirically the relationship between inflation and inflation uncertainty in twelve emu countries we estimate a time varying parameter model with a garch specification for the conditional volatility of inflation in order to distinguish between short run structural and impulse and steady state uncertainty we then introduce a dummy variable to model the policy regime shift which occurred in 1999 with the introduction of the euro and its effects on the links between inflation and inflation uncertainty we find that steady state inflation has generally remained stable with the important exception of germany where the trend has become positive steady state inflation uncertainty and inflation persistence have both increased and the relationship between inflation and inflation uncertainty has broken down in many countries these findings cast doubt on the optimistic view taken by the ecb concerning its success in controlling inflation and suggest the need for improvements in its analytical framework

green and brown globalization and the environment globalization viewed as a process of economic integration that embraces governance as well as markets could lead to worldwide convergence toward higher or lower environmental quality or to environmental polarization in which the greening of the global north is accompanied by the browning of the global south the outcome will not be dictated by an inexorable logic rather it will depend on how the opportunities created by globalization alter balances of power within countries and among them copyright 2004 oxford university press

the effects of crop yield insurance designs on farmer participation and welfare the performance of individual farm yield and area yield crop insurance programs is evaluated for a representative iowa corn farm using numerical optimization of expected utility and simulation techniques several different contract design features are studied including the nature of the yield index which triggers insurance payouts alternative restrictions on coverage levels and alternative pricing structures performance is evaluated in terms of impacts on farmer participation and welfare and is examined in a portfolio setting where futures and options are also available to farmers the relative performance of different crop insurance designs is found to be particularly sensitive to restrictions on coverage levels the size of premium loadings and the degree to which individual farm yields are correlated with area yields

macroeconomic uncertainty and performance in the european union abstract we use a very general bivariate garch m model and monthly data on eu countries covering the 1962 2003 period to test for the impact of real output growth and nominal inflation macroeconomic uncertainty on inflation and output growth our evidence supports a number of important conclusions first in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative second in half of the cases there is no significant relationship between inflation uncertainty and output growth performance third inflation and output uncertainty have a mixed effect on inflation nevertheless considerable evidence for the cukierman meltzer hypothesis is obtained our conclusions are based on adopting both a structural and a reduced form bivariate garch model finally we also find statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample

inflation output variance trade offs and optimal monetary policy the author estimates the inflation output gap variance trade off faced by monetary policymakers in the united states for policymakers who care about deviations of inflation around target and output around potential the estimated trade off represents the optimal policy frontier given the structure of the economy policymakers can do no better than to attain weighted variances of inflation and output that lie on the frontier the author finds that the variance trade off becomes quite severe when the standard deviation of inflation or output drops much below 2 percent this suggests that approximately balanced responses to policy goals are consistent with reasonable preferences over inflation and output variability copyright 1997 by ohio state university press

method in the madness a political economy analysis of the ethnic conflicts in less developed countries this paper is an attempt from a political economist s point of view to look for some clear patterns in the horrendous complexities of the ethnic and sectarian conflicts that are raging in less developed countries we emphasize the importance of some institutional failures such as the decline of mediating institutions or of preexisting structures of credible commitment rather than mere cultural and historical animosities behind the collapse of interethnic understandings and compromises the rise in ethnic conflicts is not always associated with economic deterioration sometimes quite the contrary the effects of market expansion are also ambiguous in our discussion of policy lessons we have tried to look for various ways both political and economic of constructing institutionalized incentives for conciliatory actions

the political economy of the maoist conflict in india an empirical analysis we study the maoist naxalite conflict in india by constructing a comprehensive district level database combining conflict data from four different terrorism databases to socioeconomic and geography data from myriad sources using data on 360 districts for three time periods we find that land inequality and lower incomes are important factors behind the conflict exploiting the micro structure of the data we show that growth of incomes of scheduled tribes significantly decreases the intensity of the conflict finally we show that historical property rights institutions from colonial times that go back centuries affect present day conflict outcomes

nonparametric estimation of crop yield distributions implications for rating group risk crop insurance contracts we use nonparametric density estimation procedures to evaluate county level crop yield distributions implications for rating area yield crop insurance contracts are discussed the procedures developed are used to measure yield risk and calculate insurance premium rates for wheat and barley in the 1995 96 group risk program

inflation output and uncertainty in the era of inflation targeting a multi economy view on causal linkages abstract this study provides cross country robust evidence on interdependencies among inflation output growth and respective uncertainties for the current era of low inflation policies we attribute the extant empirical disagreement on these relations to the fact that long sampling periods and single economies are typically considered for analysis in this study varx mgarch m models are estimated for 34 developed and emerging economies and the time period of 1990 2010 we study average granger causal effects by aggregating parameter estimates over economies the cross sectional variation of estimates serves as a means to assess the robustness of empirical findings over the entire cross section we find that both inflation and inflation uncertainty significantly reduce output growth economies with low inflation rates are particularly at risk to incur output losses from increasing inflation we also find spillover effects among uncertainty variables where the causal impact if present seems to point from the uncertainty in output to inflation uncertainty

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

the asymmetric effects of uncertainty on inflation and output growth we study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post war us data our results suggest that increased growth uncertainty is associated with significantly lower average growth while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude copyright 2004 john wiley sons ltd

a positive theory of inflation and inflation variance a positive theory of inflation and inflation variance empirically inflation and the variance of inflation are positively associated this paper develops a model that provides a potential explanation for this relationship in terms of the incentives facing the policymaker in a discretionary equilibrium the model can also account for an empirical association between inflation and measures of real output instability there is however no direct causal link whatever from the average rate of inflation to either the variance of inflation or that of real output i introduction the debate over the use rules or discretion in monetary policy has been central to macroeconomics for many years e g simons 1963 lucas 1980 buiter 1980 recently kydland and prescott 1977 and barro and gordon 1983a b have identified discretion as the absence of policy commitment in a game between policymakers and the public they argued that discretionary policymaking will lead governments to create excessive inflation a policy of low inflation is not consistent with incentives facing governments and thus will not be believed by the private sector barro and gordon 1983a argue that this positive theory of monetary policy can help to explain many features of the trend rate of inflation in modern economies high and persistent rates of inflation a positive relationship between inflation and unemployment and the observed countercyclical behaviour of monetary authorities among others these models are based on the premise that there are significant costs to a high but fully anticipated rate of inflation another feature of inflation in modern economics however is the well documented fact that inflation and the variability of inflation are positively associated this phenomenon has been widely observed over different countries at different times 1 this has led researchers to question the feasibility of a steady and predictable positive rate of inflation the finding suggests that high rates of inflation may reduce the ability to forecast future inflation rates a high average inflation rate may add an unnecessary degree of uncertainty to individual decision making and lead to a misallocation of resources friedman 1977 suggests that this may cause output instability and possibly raise the average unemployed rate a related paper by logue and sweeney 1981 establishes that there is a positive relationship between inflation and the variability of economic growth for industrial countries given this perspective the welfare costs associated with inflation might be considerably higher than the traditional costs of anticipated inflation this paper extends the barro and gordon 1983a model of discretionary monetary policy to take account of the relationship between inflation and measures of inflation and output variability the extension focussed on is to model an endogenous wage indexing scheme in the labor market in the discretionary equilibrium wage setters not only form rational expectations of the future price level but also choose an optimal degree of wage indexation this extension to the basic model has the following properties of a discretionary equilibrium 1 there is a positive association between the mean rate of inflation and the magnitude of real disturbances in the economy as well as between the mean inflation rate and the degree of output instability in the economy 2 in an economy where real disturbances are relatively important there is a positive association between the mean rate of inflation and the variance of inflation the explanation behind these results is as follows the lower is the degree of wage indexation the greater is the incentive for monetary authorities to cause surprise inflation and hence the higher is the mean rate of inflation in a discretionary equilibrium but the degree of wage indexation is negatively related to the variance of real disturbances in an economy which is subject to both real and nominal disturbances

does political competition lessen ethnic discrimination evidence from sri lanka abstract the impact of political competition on ethnic discrimination remains largely unexplored to address this gap this paper explores the relationship between the level of political competition and the probability of receiving government transfers among ethnic minorities in sri lanka in the run up to the national elections of 2000 the paper shows that making politicians dependent on the votes of members of ethnic groups other their own can encourage moderation in discriminatory practices towards ethnic minorities specifically we find that political competition positively influenced the distribution of government food stamps among sri lankan tamils who otherwise are less likely to receive food stamps relative to the sinhalese majority the negative impact of political competition on discrimination is higher when minorities form part of swing constituencies than when they form part of the base support for political parties lessons learnt here suggest that having built in incentives in the design of the electoral process for intergroup bargaining and cooperation in countries with ethnically heterogeneous societies can be an effective restraint on ethnic discrimination this is consistent with other research that considers political institutions to be a key lever for making ethnically divided societies more inclusive

the design of an optimal insurance policy almost every phase of economic behavior is affected by uncertainty the economic system has adapted to uncertainty by developing methods that facilitate the reallocation of risk among individuals and firms the most apparent and familiar form for shifting risks is the ordinary insurance policy previous insurance decision analyses can be divided into those in which the insurance policy was exogenously specified see john gould jan mossin and vernon smith and those in which it was not see karl borch 1960 and kenneth arrow 1971 1973 in this paper the pioneering work of borch and arrow the derivation of the optimal insurance contract form from the model is synthesized and extended

optimal insurance against climatic experience an optimal insurance contract against a climatic risk is derived in the presence of an uninsurable and dependent aggregate production risk the optimaldesign depends on the stochastic dependency between both sources of uncertainty and on the producer s attitude towards risk especially on his prudent behavior rationalweather insurance purchasing decisions are al so derived the prudent producer responds to actuarially fair weather insurance by increasing his exposure towards risk the u s multiple peril crop insurance program in which indemnity payments are based on the producer s individualyiel ds has been disappointing in that premiums have not been sufficient to cover indemnity payments and administrative costs this failure has induced the u s government to promote alternative insurance policies since 1993 the risk management agency has offered areayield contracts under its group risk plan in selected counties skees black and barnett another alternative is to base the indemnity on a weather index such as rainfall or temperature this policy was proposed in the past by sanderson but has failed to gain acceptance among policy makers the difficulties of rainfall insurance were a subject of debate in australia e g bardsley abey and davenport quiggin 1986 patrick the recent development of weather based instruments on financialmarkets known as weather derivatives for which the payoff depends on the cause of risk rather than on its effect on yield provide new opportunities for covering exposure to unfavorable weather events the objective of this article is threefold first a stochastic production function affected by a climatic risk and by an aggregate production risk where both sources of risk are stochastically dependent is de

income tax deductions for losses as insurance the federal income tax allows deductions for some categories of personal losses notably for casualty losses such as destruction of one s home or car and medical expenses above a threshold the latter even with lower marginal rates and further restrictions brought about by the 1986 tax reform involves more than a 3 billion annual revenue loss office of management and budget 1990 1 deductions like these act as partial insurance individuals receive a tax benefit equal to their marginal rate multiplied by the magnitude of their loss however this form of insurance is unnecessary when private insurance is available moreover as will be emphasized here these deductions have a perverse effect because they are allowed only for the uninsured portion of losses this induces individuals to be less protected against risk in the aggregate than if the implicit insurance provided by the tax system were unavailable if the tax rate is sufficiently high individuals would forgo insurance coverage altogether 2 it will be demonstrated that a tax system with no deductions for personal losses pareto dominates the current system these conclusions are demonstrated in section i using a simple model in which risk averse individuals may purchase actuarially fair insurance against loss and individual behavior does not affect the risk of loss no moral hazard section ii considers the applicability of the results when one allows for moral hazard administrative costs and other imperfections it also discusses the applicability of traditional notions of tax equity

war signals a theory of trade trust and conflict we construct a dynamic theory of civil conflict hinging on inter ethnic trust and trade the model economy is inhabitated by two ethnic groups inter ethnic trade requires imperfectly observed bilateral investments and one group has to form beliefs on the average propensity to trade of the other group since conflict disrupts trade the onset of a conflict signals that the aggressor has a low propensity to trade agents observe the history of conflicts and update their beliefs over time transmitting them to the next generation the theory bears a set of testable predictions first war is a stochastic process whose frequency depends on the state of endogenous beliefs second the probability of future conflicts increases after each conflict episode third accidental conflicts that do not reflect economic fundamentals can lead to a permanent breakdown of trust plunging a society into a vicious cycle of recurrent conflicts a war trap the incidence of conflict can be reduced by policies abating cultural barriers fostering inter ethnic trade and human capital and shifting beliefs coercive peace policies such as peacekeeping forces or externally imposed regime changes have instead no persistent effects

designing optimal crop revenue insurance when the indemnity schedule is contingent on the farmer s price and individual yield an optimal crop revenue insurance contract depends only on the farmer s gross revenue however this design is not efficient if as is the case with available contracts the coverage function is based on imperfect estimators of individual yield and or price the producer s degree of prudence and the extent of basis risks have important influences on the optimal indemnity schedule in this broader context optimal protection is not provided by available u s crop insurance contracts and may include combinations of revenue insurance yield insurance futures and options contracts

additional aspects of rational insurance purchasing the purchase of insurance provides an individual with the ability to shift risk associated with either timeless or temporal uncertain prospects see dreze and modigliani 1972 previous insurance decision analysis can be further divided into cases in which the insurance contract is exogenously specified see mossin 1968 smith 1968 and cases in which the optimal form of contract is to be determined see raviv 1979 brennan and solanki 1981 this note is concerned with extending some of the results for timeless uncertain prospects with the insurance contract exogenously specified many of the properties associated with the purchase of insurance for timeless uncertain prospects are analyzed by mossin 1968 for different forms of contracts see also gould 1969 utilizing the arrow pratt measure of absolute risk aversion the effect of wealth upon the optimal amount of insurance is determined for the different forms of contracts recent work by ross 1981 demonstrates that in situations where individuals face more than one timeless uncertain prospect and they can purchase insurance only for a subset of these prospects then a more risk averse individual in the arrow pratt this paper examines the use of the arrowpratt and ross measures of risk aversion it is shown that in situations where the individual faces more than one uncertain prospect and can purchase insurance only for a subset of these prospects then in many cases the arrow pratt and ross measures of risk aversion are not sufficient to describe the behavior of the individual in purchasing insurance

implications of incomplete performance for optimal insurance we investigate the demand for insurance when contracts are subject with positive probability to two distinct types of incomplete performance when partial performance means payment of some fraction of the indemnity under full performance the latter exhibits a disappearing deductible when partial performance is due to insufficient financial capacity optimal insurance contracts for any given level of financial capacity offer full marginal coverage above a deductible for either type of non performance the optimal deductible under full performance is positive when insurance is offered at an actuarially fair price

inflation and balanced path growth with alternative payment mechanisms the paper shows that contrary to conventional wisdom an endogenous growth economy with human capital and alternative payment mechanisms can robustly explain major facets of the long run inflation experience a negative inflation growth relation is explained including a striking nonlinearity found re peatedly in empirical studies a set of tobin 1965 effects are also explained and further linked in magnitude to the growth effects through the interest elasticity of money demand undis closed previously this link helps fill out the intuition of how the inflation experience can be plausibly explained in a robust fashion with a model extended to include credit as a payment mechanism

the implications of central bank transparency for uncertainty and disagreement abstract using survey data from 25 economies we provide evidence that greater transparency surrounding monetary policy reduces uncertainty of interest rates and inflation primarily by reducing uncertainty that is common to agents rather than disagreement between agents this suggests that studies that focus on disagreement as a proxy for uncertainty understate the benefits of monetary policy transparency the adoption of inflation targets and forward guidance are both associated with lower uncertainty although inflation targets have a stronger impact on reducing uncertainty than forward guidance moreover there are diminishing benefits from ever higher levels of transparency taken as a whole our results support the contention that clarity of communication is as important as the magnitude of transparency

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

insurability and moral hazard in agricultural insurance markets pareto optimal and constrained pareto optimal all risk insurance contracts are studied conditions required for emergence of competitive insurance markets are isolated and discussed full insurance contracts are shown to be dominated by contracts involving coinsurance and deductibles if insurers are pseudo risk averse the effect of moral hazard on all risk agricultural insurance indemnity schedules is examined results for indemnity schedules under moral hazard and constant absolute risk aversion show that providing farmers with the incentives to take appropriate actions may imply lower deductibles in the presence of moral hazard than in the absence of moral hazard

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

livestock disease indemnity design when moral hazard is followed by adverse selection averting or limiting the outbreak of infectious disease in domestic livestock herds is an economic and potential human health issue that involves the government and individual livestock producers producers have private information about preventive biosecurity measures they adopt on their farms prior to outbreak ex ante moral hazard and following outbreak they possess private information about whether or not their herd is infected ex post adverse selection we investigate how indemnity payments can be designed to provide incentives to producers to invest in biosecurity and report infection to the government in the presence of asymmetric information we compare the relative magnitude of the first and second best levels of biosecurity investment and indemnity payments to demonstrate the tradeoff between risk sharing and efficiency and we discuss the implications for status quo u s policy

making the most of high inflation this article examines the relationship between the real effects of inflation and its level in countries with frequent episodes of high inflation the real effects are computed as asymmetric impulse responses of output to inflation separately in the regimes with different signs of the differences between the expected inflation and the predicted output neutral inflation it is found that with the increase in inflation such effects increase in the regime with the positive sign relatively to the effects in the regime with the negative sign it is also shown that this finding is valid for most countries with high inflation episodes where inflation is greater than 4 8 for at least 25 of quarterly observations this leads to a simple policy prescription that in economies with frequent high inflation episodes anti inflationary monetary decisions are least damaging for output if undertaken in the periods when the difference between the expected and output neutral inflation is negative

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

inflation and output growth uncertainty and their relationship with inflation and output growth abstract using a bivariate garch model of inflation and output growth we find evidence that higher inflation and more inflation uncertainty lead to lower output growth in the japanese economy these results support the argument of a price stability objective for the monetary authority