further results on asset pricing with incomplete information abstract this paper extends the analysis of asset pricing when information is incomplete by relaxing some of the restrictive assumptions of the gaussian model studied earlier in the literature for the information structure considered the posterior beliefs of the investor the conditional distribution of the current state given the past observations are characterized by two sets of sufficient statistics implementable in the form of a filter i the vector of conditional means and ii a set of sufficient statistics for the conditional variance covariance matrix a separation theorem is demonstrated and used to produce a closed form solution for the interest rate process when the investor s utility function is logarithmic in this context we examine the informational efficiency properties of the interest rate and analyze the stochastic shifts in the volatility of the interest rate process

conditions for myopic valuation and serial independence of the market excess return in discrete time models in a multiperiod pure exchange world with investors displaying hara preferences conditions for period by period application of one period asset pricing models are derived first the future investment opportunity set may be uncertain provided that in every period a specific market portfolio variable depending on preferences is known as of the preceding date this variable need not be completely deterministic second conditions for a serially independent market excess return are derived these conditions render serial independence very unlikely hence estimation methods assuming serial independence are likely to yield biased results while multiperiod capital asset pricing models generally involve intertemporal interdependencies in the pricing of assets there exist conditions under which the multiperiod model becomes indistinguishable from a sequence of one period models if these conditions are met then the price of an asset with cash flows at various dates can be derived by applying the one period pricing model recursively period by period the valuation process then is called quasi myopic at every date

robust stochastic discount factors when the market is incomplete a new non redundant derivative security cannot be priced by no arbitrage arguments alone moreover there will be a multiplicity of stochastic discount factors and each of them may give a different price for the new derivative security this paper develops an approach to the selection of a stochastic discount factor for pricing a new derivative security the approach is based on the idea that the price of a derivative security should not vary too much when the payoff of the primitive security is slightly perturbed i e the price of the derivative should be robust to model misspecification the paper develops two metrics of robustness the first is based on robustness in expectation the second is based on robustness in probability and draws on tools from the theory of large deviations we show that in a stochastic volatility model the two metrics yield analytically tractable bounds for the derivative price as the underlying stochastic volatility model is perturbed the bounds can be readily used for numerical examination of the sensitivity of the price of the derivative to model misspecification

financial innovation and information the role of derivatives when a market for information exists we study the effects of financial innovation in a model of endogenous information acquisition we determine the conditions under which the introduction of a derivative written on an existing stock increases or decreases the incentive to purchase information we show that financial innovation produces some effects which hold across informational structures and others which differ the former coincide with the few empirical results that are robust in the literature effects on prices risk premia and volatility while the latter coincide with the ones that differ experiment by experiment effects on volume correlation between volume and volatility and market informational efficiency copyright 2002 oxford university press

the term structure of interest rates in a partially observable economy this paper investigates the term structure of interest rates in a multiperiod production and exchange economy with incomplete information unable to observe their stochastic investment opportunities investors engage in dynamic bayesian inference this results in the endogenous identification of a more complex production function which generates a richer term structure resembling the one that actual market prices imply in addition this paper introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations hypothesis holds true only if interest rates are nonstochastic this paper investigates the term structure of interest rates in a dynamic production and exchange economy with an unobservable productivity factor in order to estimate the unobservable stochastic investment opportunities rational investors engage in dynamic bayesian inference anticipated changes in investors quality of information about the fluctuations of the economic state variable affect equilibrium demands and prices this results in the endogenous identification of a more complex production function which induces a richer term structure term structures of interest rates in a partially observable economy resemble term structure curves that actual market prices imply this paper also introduces a characteristic function of the term structure and demonstrates that in contrast with a fully observable economy the widely investigated expectations

hedging against commodity price inflation stocks and bills as substitutes for futures contracts this study is concerned with the influence of changes in commodity prices on security prices the study is motivated by the observation that stochastic changes in commodity prices represent a risk to each consumer investor and that attempts to deal with these risks may be reflected in the demand for securities and ultimately in their prices and rates of return if security rates of return do reflect information regarding relative price change risk it should be possible to extract that information from the price and returns history of the securities following this reasoning we attempt to form portfolios of stocks and u s treasury bills that hedge against price changes of various commodities this approach differs from previous studies on hedging because we attempt to hedge against price changes in individual commodities not macro aggregates our empirical results however indicate that the history of stock and bill returns contains very little information regarding relative price changes so that our attempts to hedge against commodity price

yield curves and international equity returns abstract this paper examines empirical evidence on the international transmission of shocks to financial asset markets the relationships between yield curves and risk premiums of stocks for eight industrialized countries are examined only the stocks of the three largest economies germany japan and the usa show negative risk premiums during periods preceded by the inverted yield curves of their respective government bonds this is not the case for stocks of the five smaller countries in the sample however four of the five smaller countries have negative risk premiums in periods preceded by inverted german or us yield curves this is consistent with the view that a world risk factor captured by major country yield curves affects the pricing of assets in smaller economies the consumption capm is unable to explain the phenomenon of the negative risk premiums in almost all cases the conditional covariance between consumption growth and the risk premiums is statistically indifferent from zero

logarithmic preferences myopic decisions and incomplete information this paper examines a dynamic production economy with incomplete information and shows that the set of myopic preferenees those that induee myopic decisions depends on the representation of the information flow for example logarithmic preferenees are nonmyopic when some of the economic state variables are unobservable the analysis offers a broader definition of myopic behavior termed generalized myopia which is independent of the representation of the information flow allowing for any smooth concave utility function logarithmic preferenees endogenously emerge as necessary for generalized myopia in incomplete information economies and when combined with restrictions on the information structure they become sufficient i introduction this paper investigates myopic decisions and myopic preferenees in an in complete information production economy with continuous consumption and in vestment the paper interprets myopic decisions as those that do not use informa tion regarding future investment opportunities and identifies specific conditions for myopia within the model although previous research in financial economics has associated logarithmic preferenees with myopic behavior this analysis demonstrates that logarithmic preferenees necessarily induee myopic behavior only when all the economic state variables are observable based on this analysis the paper proposes a broader definition of myopia termed generalized myopia that is independent of the information flow representation the paper also provides nec essary and sufficient conditions for the existence of generalized myopia within both complete and incomplete information economies while the analysis allows for any smooth concave utility function logarithmic preferenees endogenously arise as necessary for generalized myopia in incomplete information economies and when combined with restrictions on the information structure they become sufficient

the welfare costs of rationing by waiting with price controls and rationing by waiting rational consumers increase the quantity boughtperpurchase this individually rational response is socially wasteful and the cost of making it is a deadweight loss this cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls i e the value of resources spent competing for the rent may exceed the rent itself this point is illustrated by an empirical application to gasoline price controls rent seeking exhausts an estimated 116 percent of the rent trangerred the efficiency of the price system is often illustrated lby pointing to the obvious wastes associated with alternative allocation mechanisms for example the queues that accompany price controls and first come first served allocations although rationing by waiting wastes resources in a dramatically visible fashion the magnitude of the waste and the factors that determine it seldom have been examined empirically moreover existing theory on the subject is incomplete unless the first come first served rule is precisely specified consumers will compete for available supplies in ways other than waiting in the model developed below queues cause consumers to compete by increasing amounts bought per trip to the market the analysis demonstrates that such individually rational adjustments only increase the welfare cost of rationing by waiting and thus are socially self defeating the theoretical model is illustrated empirically by estimating the welfare costs of a market wide ceiling on gasoline prices this application was motivated by the availability of two key pieces of information the value of time spent in gasoline queues and the effect of waiting lines on amounts bought per purchase this information was obtained from a survey of motorists conducted during the era of federal gasoline price regulations to focus on competition among consumers one of the inefficiencies that results from price controls is ignored the supply reduction leading to the

on arbitrage free pricing of interest rate contingent claims unlike most interest rate claim models the ho lee model utilizes full information on the current term structure unfortunately the model has a major deficiency in that negative interest rates can occur this article modifies the model such that interest rates are well behaved

dynamic portfolio choice with parameter uncertainty and the economic value of analysts recommendations we derive a closed form solution for the optimal portfolio of a non myopic utility maximizer who has incomplete information about the alphas or abnormal returns of risky securities we show that the hedging component induced by learning about the expected return can be a substantial part of the demand using our methodology we perform an ex ante empirical exercise which shows that the utility gains resulting from optimal allocation are substantial in general especially for long horizons and an ex post empirical exercise which shows that analysts recommendations are not very useful

effects of financial innovations on market volatility when beliefs are heterogeneous abstract consider a model with two logarithmic utility maximizer agents that observe aggregate consumption but disagree about its expected rate of change markets are incomplete we first show that volatility of the interest rate in an economy with additional information is higher in a complete markets economy with no additional information there are two differences in volatility with the previous the first one due to the increase in volatility of the wealth share of the individuals is always positive the second difference is the change in covariance between the components of the interest rate volatility and can be positive or negative

partial information about contagion risk self exciting processes and portfolio optimization abstract this paper compares two classes of models that allow for additional channels of correlation between asset returns regime switching models with jumps and models with contagious jumps both classes of models involve a hidden markov chain that captures good and bad economic states the distinctive feature of a model with contagious jumps is that large negative returns and unobservable transitions of the economy into a bad state can occur simultaneously we show that in this framework the filtered loss intensities have dynamics similar to self exciting processes besides we study the impact of unobservable contagious jumps on optimal portfolio strategies and filtering

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

testing mixed strategy equilibria when players are heterogeneous the case of penalty kicks in soccer the concept of mixed strategy is a fundamental component of game theory and its normative importance is undisputed however its empirical relevance has sometimes been viewed with skepticism the main concern over the practical usefulness of mixed strategies relates to the indifference property of a mixedstrategy equilibrium in order to be willing to play a mixed strategy an agent must be indifferent between each of the pure strategies that are played with positive probability in the mixed strategy as well as any combination of those strategies given that the agent is indifferent across these many strategies there is no bene t to selecting precisely the strategy that induces the opponent to be indifferent as required for equilibrium why an agent would in the absence of communication between players choose exactly one particular randomization is not clear of course whether agents in real life actually play nash equilibrium mixed strategies is ultimately an empirical question the evidence to date on this issue is based almost exclusively on laboratory experiments e g barry o neill 1987 amnon rapoport and richard b boebel 1992 dilip mookherjee and barry sopher 1994 jack ochs 1995 kevin a mccabe et al 2000 the results of these experiments are mixed o neill 1987 concludes that his experimental evidence is consistent with nash mixed strategies but that conclusion was contested by james n brown and robert w rosenthal 1990 with the exception of mccabe et al 2000 which looks at a three person game the other papers generally reject the nash mixedstrategy equilibrium while much has been learned in the laboratory there are inherent limitations to such studies it is sometimes argued that behavior in the simpli ed arti cial setting of games played in such experiments need not mimic real life behavior in addition even if individuals behave in ways that are inconsistent with optimizing behavior in the lab market forces may discipline such behavior in the real world finally interpretation of experiments rely on the assumption that the subjects are maximizing the monetary outcome of the game whereas there may be other preferences at work among subjects e g attempting to avoid looking foolish that distort the results tests of mixed strategies in nonexperimental data are quite scarce in real life the games played are typically quite complex with large strategy spaces that are not fully speci ed ex ante in addition preferences of the actors may not be perfectly known we are aware of only one paper in a similar spirit to our own research using data from classic tennis matches mark walker and john wooders 2001 test whether the probability the player who serves the ball wins the point is equal for serves to the right and chiappori department of economics university of chicago 1126 east 59th street chicago il 60637 levitt department of economics university of chicago groseclose graduate school of business stanford university 518 memorial way stanford ca 94305 the paper was presented at games 2000 in bilbao and at seminars in paris and chicago we thank d braun j m conterno r guesnerie d heller d mengual p reny b salanie and especially j l ettori for comments and suggestions and m mazzocco and f bos for excellent research assistance any errors are ours 1 the theoretical arguments given in defense of the concept of mixed strategy equilibria relate either to puri cation john c harsanyi 1973 or to the minimax property of the equilibrium strategy in zero sum games for recent elaborations on these ideas see authur j robson 1994 and phil reny and robson 2001 2 the ultimatum game is one instance in which experimental play of subjects diverges substantially from the predicted nash equilibrium robert slonim and alvin e roth 1998 demonstrate that raising the monetary payoffs to experiment participants induces behavior closer to that predicted by theory although some disparity persists

a dynamic programming approach for pricing options embedded in bonds abstract we propose a dynamic programming dp approach for pricing options embedded in bonds the focus being on call and put options with advance notice an efficient procedure is developed for the cases where the interest rate process follows the vasicek cox ingersoll ross cir or generalized vasicek models our dp methodology uses the exact joint distribution of the interest rate and integrated interest rate at a future date conditional on the current value of the interest rate we provide numerical illustrations for the vasicek and cir models comparing our dp method with finite difference methods our procedure compares quite favorably in terms of both efficiency and accuracy an important advantage of the our dp approach is that it can be applied to more general models calibrated to capture the term structure of interest rates e g the generalized vasicek model

equilibrium pricing and portfolio composition in the presence of uncertain parameters abstract we analyze the effect of parameter uncertainty on equilibrium asset prices for the symmetric case when the amount of estimation risk is the same for all securities the existing literature argues that parameter uncertainty is largely irrelevant for equilibrium our results differ we find that symmetric estimation risk affects equilibrium values of relative asset prices expected returns market weights and betas

household willingness to pay for expanding fuel cell power generation in korea a view from co2 emissions reduction abstract the fuel cell fc is accepted as the state of the art instrument for reducing co2 emissions in the field of power generation in korea therefore the korean government has planned to expand fc power generation from 565 gwh in 2013 to 13 449 gwh by 2027 this article aims to assess the public value or acceptability of this expansion in terms of reducing co2 emissions to this end we derive the public s additional willingness to pay wtp for the expansion using a contingent valuation survey of 1000 korean households for the purpose of mitigating the response effect in eliciting their wtp and increasing statistical efficiency in analyzing the wtp data we employ a one and one half bounded dichotomous choice question format furthermore we use the spike model so as to model zero wtp responses the mean additional monthly wtp for the expansion is computed to be krw 1407 usd 1 37 per household expanding the value to the national population gives us krw 310 5 billion usd 304 4 million per year we can conclude that korean households are ready to shoulder some of the financial burden of expanding fc power generation to reduce co2 emissions

learning about investment risk the effects of structural uncertainty on dynamic investment and consumption abstract we analyze a general equilibrium model where production shocks are unobservable and there is structural uncertainty regarding investment risk because the volatility of the production shocks is unknown higher investment generally accelerates learning on the unknown parameter but the dynamic interaction between learning and investment is complex we quantify this interaction by numerically computing equilibrium investment and consumption in a version of the model calibrated by aggregate us data we find that imperfect observability of productivity shocks by itself does not significantly affect equilibrium investment and consumption but structural uncertainty significantly impacts equilibrium investment and consumption levels

professionals play minimax the implications of the minimax theorem are tested using natural data the tests use a unique data set from penalty kicks in professional soccer games in this natural setting experts play a one shot two person zero sum game the results of the tests are remarkably consistent with equilibrium play in every respect i winning probabilities are statistically identical across strategies for players ii players choices are serially independent the tests have substantial power to distinguish equilibrium play from disequilibrium alternatives these results represent the first time that both implications of von neumann s minimax theorem are supported under natural conditions during the last few decades game theory has contributed to a reshaping of important aspects of the methodology of economics and other social sciences in a large part this is because the language concepts and techniques of non cooperative game theory have become central to many areas of the discipline undoubtedly studying the interaction of ideally rational players greatly aids our understanding of the behaviour of real individuals firms and other agents moreover as kreps 1991 remarks studying the former should aim at understanding the latter the point of game theory is to help economists understand and predict what will happen in economic social and political contexts theoretical contributions should thus feed back to empirical analysis however testing the implications of the theory has proven extremely difficult in the literature the primary reason is that many predictions often hinge on properties of the utility functions and the values of the rewards used even when predictions are invariant over classes of preferences data on rewards are seldom available in natural settings moreover there is often great difficulty in determining strategy sets and in measuring individuals choices effort levels and the incentive structures they face as a result even the most fundamental predictions of game theoretical models have not yet been supported empirically in real situations in view of the substantial problems associated with testing theoretical predictions using natural data many authors have been compelled to test them in experimental settings interestingly enough despite the controlled structure of experiments the results of many experiments during the last few decades typically reject the assumption that subjects are playing according to the theoretical implications of equilibrium play for instance a number of experiments have evaluated the empirical validity of von neumann s minimax theory for two person zero sum games a theory that occupies a central position in our understanding of strategic situations the results have been mixed and are often rather negative see for instance brown and rosenthal 1990 rapoport and boebel 1992 camerer 2003 and the references therein

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

the consumption based asset pricing model a note on potential tests and applications abstract breeden s demonstration that merton s multi beta capital asset pricing model can be collapsed into a single beta model where betas are computed with respect to aggregate consumption is an important theoretical advance nonetheless breeden s model retains many of the empirical problems that beset merton s earlier version in general the consumption betas will be nonstationary so that the state variables must be observable for the model to be estimated

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

state price densities under heterogeneous beliefs the smile effect and implied risk aversion abstract it has been widely noted in the empirical literature that state price densities implicit in financial asset prices are not log normal this paper shows that this phenomenon can be caused by heterogeneity in investors beliefs it derives the state price density under heterogeneous beliefs in closed form and demonstrates that heterogeneous beliefs can give rise to multimodal state price densities consequences for the smile effect in implied option volatility and for measures of risk aversion inferred from empirical state price densities are discussed

racial integration as an innovation empirical evidence from sports leagues this paper treats racial integration as an innovation in economic process in which economic entities find it advantageous to utilize potentially more productive inputs previously unavailable due to law custom or managerial discretion data on the racial integration of major league baseball and atlantic coast conference basketball are employed to address this issue the central question examined is which type of team integrated first losers or winners the results strongly support the idea that entrepreneurship trumps competitive rivalry that is winning teams led the process of racial integration jel li j7 one of the watershed events in u s history is the struggle to achieve a racially integrated society while the civil rights laws and court rulings in the 195o s 196o s and 197o s are among the major changes in public policy that gradually led to a breakdown of jim crow rule in the american south other changes in law and custom also motivated the process of racial integration across time and place indeed segregation was not limited to the south but was a prominent feature of many national organizations and markets despite the extensive commentary on these events from various perspectives there has been very little economic analysis of the actual process of racial integration economists have focused their efforts on the economics of discriminatio n while the actual process by which individuals firms and

a continuous time equilibrium model of forward prices and futures prices in a multigood economy abstract this paper is a theoretical investigation of equilibrium forward and futures prices we construct a rational expectations model in continuous time of a multigood identical consumer economy with constant stochastic returns to scale production using this model we find three main results first we find formulas for equilibrium forward futures discount bond commodity bond and commodity option prices second we show that a futures price is actually a forward price for the delivery of a random number of units of a good the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract third we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices these conditions reflect the usefulness of forward and futures contracts as consumption hedges

existence of arrow radner equilibrium with endogenously complete markets under incomplete information abstract a stochastic pure exchange economy with incomplete information is studied where one risky asset and a locally riskless bond are traded the underlying risks are described by a k dimensional brownian motion with k 2 the brownian motion is not directly observable agents observe only asset prices and dividends existence of an arrow radner equilibrium is established in such an equilibrium asset prices result such that every informationally feasible consumption plan can be financed by trading in the risky asset and the bond in this sense the resulting asset market is complete journal of economic literature classification numbers g12 g14 d51

pricing capital assets in an international setting an introduction this paper shows how differences across countries of 1 inflation rates 2 consumption baskets of investors and 3 investment opportunity sets of investors matter when one applies capital asset pricing models in an international setting in particular the fact that countries differ is shown to affect the portfolio held by investors the equilibrium expected returns of risky assets and the financial policies of firms

valuing non marketed goods the case of elk permit lotteries abstract permit allocation methods offer a way of estimating the value of non marketed elk hunting applicants compete for elk hunting permits in colorado by acquiring preference points that have a monetary cost and by distributing themselves among hunts until their marginal values are equalized we infer the marginal value of permits from the opportunity costs incurred to acquire these permits and use a hedonic regression analysis to estimate the impact of various hunt characteristics on permit value

information quality and long run risk asset pricing implications i study the asset pricing implications of the quality of public information about persistent productivity shocks in a general equilibrium model with kreps porteus preferences low information quality is associated with a high equity premium a low volatility of consumption growth and a low volatility of the risk free interest rate the relationship between information quality and the equity premium differs from that in endowment economies my calibration improves substantially upon the bansal yaron model in terms of the moments of the wealth consumption ratio and the return on aggregate wealth in this paper i introduce learning into a production based long run risk model learning improves the asset pricing implications of the model along three dimensions it increases the equilibrium equity premium reduces the volatility of consumption growth and reduces the volatility of the risk free interest rate i show that because of the production economy setting the relationship between information quality and the equity premium differs from that found in pure exchange economies see e g veronesi 2000 quantitatively my model improves substantially upon the bansal and yaron 2004 model in terms of its predictions about the volatility of the return on aggregate wealth and the wealth consumption ratio compared to bansal and yaron 2004 i use a lower relative risk aversion rra parameter two and a higher intertemporal elasticity of substitution ies parameter two my model generates a lower risk premium on the market portfolio 5 06 per year but does roughly as well as the bansal and yaron 2004 model according to other measures commonly used to assess the performance of consumption based asset pricing models such as the key moments of the risk free interest rate and the consumption growth rate more specifically i consider a general equilibrium model with a linear production technology and kreps porteus preferences kreps and porteus 1978 hengjie ai is at the fuqua school of business duke university this paper is based on chap

time horizon and the discount rate abstract we consider an economy a la lucas 1978 econometrica46 1429 1446 with a risk averse representative agent the exogenous growth rate of the economy follows a random walk we characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate the benchmark result is that when the growth rate is almost surely nonnegative the yield curve is decreasing if and only if relative risk aversion is decreasing with wealth relaxing the assumption on the absence of recession requires more restrictions on preferences such as increasing relative prudence journal of economic literature classification numbers d81 d91 q25 q28

the nested collective lottery that maximizes welfare under consumption interdependence we develop a generalized lottery mechanism in this article that allows people to choose to succeed separately while retaining both merits fairness and options to succeed jointly of the collective lottery developed by chen et al 2010 we use the rationing of hunting permits in the us and canada as examples to show the applicability of this generalized lottery mechanism

underpricing in public lotteries a critique of user pay and all pay tariffs i introduction a body of literature spanning from medical ethics to public economics has amassed regarding the nonmarket rationing of public resources a dominant focus has surrounded the merits and shortcomings of alternative rationing mechanisms as gauged by their effectiveness distributive justness and allocative efficiency these instruments include administrative criteria such as need merit or seniority based rules queues or waiting lines whereby access to the rationed good or service is determined by arrival times and lotteries whereby chance dictates the distribution of the good while nonmarket rationing in any case may lead to the misallocation of resources compared to rationing solely by price e g glaeser and luttmer 2003 empirical observation reveals that public agencies commonly distribute underpriced goods and services to individual consumers and firms the current study takes nonmarket rationing as given and investigates the properties of alternative lottery mechanisms the use of lot teries dates to biblical times boyce 1994 elster 1992 with modern examples including the military draft fienberg 1971 medical services cookson and dolan 2000 recreational privileges on public lands and waterways scrogin 2005 residential housing following hurricane katrina the white house office of the press secretary 2005 and public school admission and voucher programs berry cullen jacob and levitt 2006 from a design perspective lotteries are intriguing because they can take a variety of forms with each possessing unique incentive and revenue generating properties however given the purported inefficiencies of lottery rationing it is natural to question how they have sustained in allocative situations entailing public resources two explanations have emerged in the literature the first historic explanation is attributed to the fairness of the classic lottery mechanism in which the probability of being drawn is uniform and endogenous to the number of participants because entrants are equally likely to be drawn the mechanism is perceived as being nondiscriminatory empirical evidence presented in kemp and bolle 1999 supports this hypothesis in the rationing of some types of goods and services to individual consumers the fairness of lottery rationing is also consistent with the distributive objective of specific egalitarianism put forth by tobin 1970 and discussed later by elster 1992 whereby specific goods and services are allocated such that a greater degree of equality is attained relative to that of a competitive market while egalitarianism and efficiency would appear to be at odds che and gale 2007 demonstrated that lotteries can be more efficient than markets when individuals face binding wealth constraints in a similar vein wijkander 1988 demonstrated that social welfare can be increased by lottery rationing under certain conditions a second more objective explanation for the sustained use of lotteries is that public agencies may be legally constrained by price controls particularly when rationing to individuals and households taylor tsui and zhu 2003 acting as a self sustaining regulated monopolist the agency is confronted with selecting a rationing mechanism and a pricing policy that are both politically feasible and financially viable compared to need merit and seniority based allocation rules lotteries and queues are administratively simple and low cost to implement alternatively lotteries eschew the waiting time and coordination costs confronted by potential entrants under queuing however the initial distribution under lottery rationing may prove allocatively inefficient collectively the literature suggests that agency objectives may deviate from revenue maximization in distributing some types of scarce public resources with lotteries proving to be superior in some settings to alternative nonmarket rationing mechanisms

batter up moral hazard and the effects of the designated hitter rule on hit batsmen i introduction despite its relatively recent appearance in the literature the theory of moral hazard has proved to be rich in empirical implications it has been applied fruitfully in a wide variety of settings including medical insurance property and casualty insurance labor contracts savings and loan failures and credit rationing 1 perhaps the most frequently cited application of this idea is sam peltzman s 1975 study of mandatory seat belt laws he reported evidence suggesting that drivers respond rationally to such laws which reduce the risk of injury or death in automobile accidents by driving more recklessly hence while mandatory seat belt laws have resulted in fewer automobile fatalities they have increased the number of non fatal accidents and accidents involving damage to property and pedestrians in this paper we argue that the introduction of the designated hitter dh rule in the american league but not the national league of major league baseball in 1973 created the potential for a classic moral hazard problem because they are not required to appear at the plate american league pitchers can throw at opposing hitters with greater impunity i e at a lower cost than national league pitchers who must take their turn at bat the economic theory of moral hazard clearly predicts that more batters will be hit in the american league under such circumstances an implication which is supported by the empirical evidence reported herein after controlling for other relevant factors we find that american league batters have been hit by pitches at rates 10 to 15 higher than their national league counterparts in the typical post dh rule season ii the simple economics of hitting batters we model pitchers as the ultimate decision makers with regard to behavior that leads to hit batters in making this assumption we ignore the principal agent relation between pitchers and managers as well as any externalities arising among players that may influence the number of batters hit by pitches managers sometimes instruct pitchers to throw at a batter presumably to cool off opponent s bats or to retaliate for opposing pitchers throwing at his team on occasion a pitcher may view his own personal interests in terms of runs and income as diverging from the manager s interests so that he would not carry out such instructions to the letter 2 in any case a batter may be hit when the pitcher makes a deliberate attempt to do so or when the pitcher has not expended much effort to avoid hitting him while the distinction between the two causes of hit batsmen may be important in its own right we treat them as being observationally equivalent both amount to the pitcher altering the probability of hitting a batter by changing the intended location and speed of his pitches in our elementary approach a pitcher s decision to raise or lower this probability hinges on a marginal decision making calculus of weighing the expected benefits against the expected costs of hitting a batter these benefits and costs would ultimately affect the pitcher s expected utility by influencing his lifetime income and consumption possibilities his utility from the indulgence of personal preferences or both increasing the probability of hitting a batter can potentially benefit the pitcher in several ways hit batsmen may become more reluctant now and in future games to lean over the plate thereby reducing their effectiveness against pitches low and outside they may become more susceptible to being fooled by curve balls that give the illusion of being inside or they may dig in less and thereby reduce their power all of these effects lower the probability of runs being scored against the pitcher in present and future appearances additionally the pitcher may alter the probability of hitting batters in order to retaliate against similar tactics being used by opposing pitchers this may be a means of neutralizing an opponent s strategy of throwing at batters and hence help increase run production by the pitcher s own team

forward rates as predictors of future interest rates in the eurocurrency market this paper examines the ability of forward rates that are implicit in the term structure of eurocurrency interest rates to predict future interest rates and to incorporate the information in past interest rates the findings suggest that forward rates are unbiased estimators of future interest rates but are not optimal predictors of future interest rates further evidence does not provide support for the presence of a systematic risk premium on forward rates the findings of this study suggest also that the eurocurrency market is efficient in incorporating information contained in the history of interest rates into the forward rate in addition this paper shows that in conformity with the efficient market hypothesis errors of prediction based on forward rates are not related to past changes of interest rates

on aggregation of information in competitive markets the dynamic case abstract this article examines in the spirit of hellwig 1980 how a dynamic competitive security market aggregates and communicates information between various market participants at every instant it employs a continuous time economy consisting of a large number of heterogeneous agents who are endowed with noisy private signals about the risky asset payoff of differing precision it yields a stationary rational expectations equilibrium in which at every instant the agents use information contained in the market prices without rendering their private information redundant it shows that the market price reflects only that part of private information which is common to many signals and thus extends hellwig s single period results to a multi period model

on the presence of risk premiums in foreign exchange markets abstract this paper provides evidence that for most currencies the exchange risk premium as identified in grauer litzenberger and stehle 1976 is highly volatile random and on average equal to zero further investigation suggests that this volatility can be traced to the fact that our index of world market performance does not adequately represent the common element of variance among currencies in the light of this evidence we investigate the existence of an exchange risk premium in the framework of an alternative model the arbitrage pricing theory proposed by ross 1976 is a particularly appropriate alternative since it does not accord an essential role to the market portfolio the results of our tests suggest the presence of an exchange risk premium

learning and asset prices under ambiguous information we propose a new modeling framework to study the asset pricing implications of learning under ambiguity aversion in a continuous time partial information lucas economy we characterize analytically equilibrium equity returns and make the following observations first learning under ambiguity aversion implies an equilibrium discount for ambiguity if and only if relative risk aversion is below one or equivalently the elasticity of intertemporal substitution eis is above one in this case ambiguity aversion increases conditional equity premia and volatilities second equilibrium interest rates are lower irrespective of risk aversion third no time invariant relation between excess returns and conditional variances exists therefore estimated relations between excess returns and equity conditional variances are highly time varying and have an indeterminate sign fourth estimates of the eis based on standard euler equations for equity returns are strongly downward biased in a setting of learning and ambiguity aversion therefore an eis well above one can be consistent with estimates of eis well below one fifth ambiguity does not resolve asymptotically finally using realistic model parameters we show that a low risk aversion and a moderate amount of ambiguity are consistent with the equity premium the low interest rate and the excess volatility puzzles

policy driven productivity in chile and mexico in the 1980 s and 1990 s abstract both chile and mexico experienced severe economic crises in the early 1980s but chilerecovered much faster than did mexico using growth accounting and a calibrated dynamicgeneral equilibrium model we conclude that the crucial determinant of this difference betweenthe two countries was the faster productivity growth in chile rather than higher investment oremployment our hypothesis is that this difference in productivity was driven by ealier policyreforms in chile the most crucial of which were in banking and bankruptcy procedures wepropose a theoretical framework in which government policy affects both the allocation ofresources and the composition of firms journal of economic literature classification codes e52 n6 o40 key words chile mexico growth accounting total factor productivity depression centro de economia aplicada universidad de chile santiago chile research department federal reserve bank of minneapolis minneapolis mn 55480 department of economics university of minnesota and national bureau of economic research department ofeconomics university of minnesota minneapolis mn 55455 and research department federal reserve bank of minneapolis and instituto de economia pontificia universidadcatolica de chile santiago chile respectively we thank the participants in the minneapolisfed s great depressions of the twentieth century project especially ed prescott for usefuldiscussions jim macgee provided invaluable research assistance bergoeing thanks the hewlettfoundation and kehoe and kehoe thank the national science foundation for research support the views expressed herein are those of the authors and not necessarily those of the federalreserve bank of minneapolis or the federal reserve system

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

single factor heath jarrow morton term structure models based on markov spot interest rate dynamics this paper considers the class of heath jarrow morton term structure models where the spot interest rate is markov and the term structure at time t is a function of time maturity and the spot interest rate at time t a representation for this class of models is derived and i show that the functional forms of the forward rate volatility structure and the initial forward rate curve cannot be arbitrarily chosen i provide necessary and sufficient conditions indicating which combinations of these functional forms are allowable i also derive a partial differential equation representation of the term structure dynamics that does not require explicit modeling of both the market price of risk and the drift term for the spot interest rate process using the analysis presented in this paper a class of intertemporal term structure models is derived

a theory of optimal timing and selectivity abstract we solve an extended optimal portfolio problem in continuous time for any horizon where we allow the mean and variance of returns to be stochastic introduce fund flows to and from the portfolio permit differential investor preferences for dividend versus growth stocks and allow the investor to buy costly information on the random mean and variance of the portfolio to improve his portfolio choice set this model provides analytical results especially useful in understanding the expenditure on timing and selection information a mutual fund undertakes in attempting to improve performance relative to a benchmark we examine this proposition for growth and income funds long and short investment horizons and also account for fund inflows and outflows we also combine our model of costly learning with the traditional model of incomplete information to understand the interaction between costly and costless learning the approach taken is a purely theoretical one and in this regard the paper is normative in spirit we anticipate that the propositions in this paper will provide two byproducts i a framework for fund managers to think about how to allocate information expenses between timing and selection skills and ii give academics especially empirical researchers a theoretical backdrop against which to examine the mutual fund industry

expected life time utility and hedging demands in a partially observable economy this paper analyzes the expected life time utility and the hedging demands in an exchange only representative agent general equilibrium under incomplete information we derive an expression for the investor s expected life time utility and analyze his hedging demands for intertemporal changes in the stochastic unobservable growth of the endowment process and the changing quality of information regarding these changes the hedging demands consist of two components which could work in opposite directions so that a conservative consumer may end up having positive hedging demands our results are qualitatively different from those prevailing under constant growth cf brennan m j 1998 the role of learning in dynamic portfolio decisions european finance review 1 295 306 ziegler a 2003 incomplete information and heterogeneous beliefs in continuous time finance springer berlin chapter 2

an intemporal model of asset prices in a markov economy with a limiting stationary distribution a testable single beta model of asset prices is presented if state variables have a long run stationary joint density function then the rate return on a very long term default free discount bond will be perfectly correlated with the representative investor s marginal utility of consumption thus the covariance of an asset s return with the return on such a bond will be an appropriate measure of the asset s riskiness the model can be therefore applied or tested even though the market portfolio or aggregate consumption may not be observable it also is shown that the expected rate of return on a very long term bond is equal to its variance this proposition can be tested to determine whether state variables follow stationary processes article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international arbitrage pricing theory an empirical investigation in this paper we test the arbitrage pricing theory apt in an international setting inter battery factor analysis is used to estimate the international common factors and the chow test is used in testing the validity of the apt our inter battery factor analysis results show that the number of common factors between a pair of countries ranges from one to five and our cross sectional test results lead us to reject the joint hypothesis that the international capital market is integrated and that the apt is internationally valid our results however do not rule out the possibility that the apt holds locally or regionally in segmented capital markets finally the basic results of both the inter battery factor analysis and the cross sectional tests are largely invariant to the nume raire currency chosen numerous authors notably solnik 21 grauer litzenberger and stehle 11 and stulz 24 have derived various versions of the international asset pricing model iapm under alternative views of the structure of international capital markets however only a few serious attempts have been made to test various versions of the iapm these tests are largely inconclusive see solnik 20 and stehle 23 apart from the problem stressed by roll 16 of identifying the world market portfolio previous tests of the iapms suffer from the technical problem of aggregating assets of national investors using different numeraire currencies differences in the numeraire arise from differences in consumption baskets in an environment characterized by exchange rate uncertainty in a fruitful attempt to extend the arbitrage pricing theory apt of ross 18 to an international setting solnik 22 derives an international arbitrage pricing theory which is largely devoid of the aforementioned difficulties and thus more amenable to empirical testing 1 as shown by solnik testability of the apt in an

volatility momentum and time varying skewness in foreign exchange returns this article tests a stochastic volatility model of exchange rates that links both the level of volatility and its instantaneous covariance with returns to pathwise properties of the currency in particular the model implies that the return volatility covariance behaves like a weighted average of recent returns and hence switches signs according to the direction of trends in the data this implies that the skewness of the finite horizon return distribution likewise switches sign leading to time varying implied volatility smiles in options prices the model is fit and assessed using bayesian techniques some previously reported volatility results are accounted for by the fitted models the predicted pattern of skewness dynamics accords well with that found in historical options prices

moment based estimation of stochastic volatility abstract this paper makes use of the distributional information contained in high frequency data to test for the specification of the functional form of the volatility process within the class of stochastic volatility models it s calculus is implemented in order to obtain the first and second conditional moment of the driving stochastic differential equation for the volatility process these analytical expressions are augmented by their lag and lag squared and are used to form the corresponding gmm estimator the base case stochastic volatility model is extended to allow for the leverage effect and jumps in returns empirical estimation confirms the presence of fast mean reversion in volatility and jumps in returns for the 5 min s p 500 stock market index further estimation results also seem to indicate the presence of jumps in the volatility process that are correlated to the jumps in returns

asset pricing in a production economy with incomplete information this paper analyzes an economy in which investors operate under partial information about technology relevant state variables it is shown that for gaussian information structures under incomplete observations the consumer s problem can be transformed into an equivalent program with a completely observed state the conditional expectation of the underlying unobservable state variables a consequence of this transformation is that classic results in finance remain valid under an appropriate reinterpretation of the state variables the static capital asset pricing model capm of sharpe 24 lintner 16 and mossin 20 states that the expected premium on any risky asset is proportional to the premium on the market as a whole this theoretical linear relationship however is subject to criticisms on two grounds first it does not seem to be supported by the empirical evidence second it is based on the premises of a constant opportunity set merton 19 subsequently relaxes this assumption and shows that when the opportunity set fluctuates over time due to changes in the state of the economy individual securities are also priced with respect to selected portfolios funds providing a hedge against unanticipated fluctuations 2 more recently breeden 3 has extended merton s results by emphasizing the role of aggregate consumption in pricing relationships in this paper we seek to further our understanding of asset pricing by relaxing the assumption that investors observe the state of the economy in the mertonbreeden framework observed state variables affect the means and variances of asset returns implying deformations of the opportunity set over time from a practical point of view it seems that this complete information assumption is violated investors in financial markets operate under partial knowledge of the microvariables which influence production and the returns on assets their decisions rely mostly on information through noisy channels such as newspapers technical reviews or weather reports in this paper we attempt to model such

crime and punishment in major league baseball the case of the designated hitter and hit batters i introduction are you seriously going to throw at somebody when you re facing randy johnson curt schilling 1 in 1973 amid waning fan interest in baseball the american league al of major league baseball mlb instituted the designated hitter rule as an experiment the stated goal of this rule change was to boost offensive output by increasing the talent pool of batters in the lineup traditionally the competing teams field nine players who must play defense in the field and bat because of the importance of the pitcher who is responsible for putting every ball in play teams rely on pitching ability and ignore the hitting ability when choosing the pitcher in the lineup therefore pitchers tend to be very poor hitters by allowing teams to substitute a player of greater hitting ability known as the designated hitter dh to bat for the pitcher the total offensive output increases the experiment has since grown into an institution in the al that differentiates it from the national league nl where all players must bat and play in the field the dh succeeded in turning the al into the power league as intended but an unintended consequence of the rule change is that the al now has more batters hit by pitches than the nl traditional baseball lore holds that the lack of retaliatory punishment in the al for hitting batters is the cause of this phenomenon veteran nl manager dusty baker describes the deterrent impact from a pitcher s point of view you can be bold in the american league and get away with hitting batters it s different in our league where you have to hit 2 pitchers who do not have to bat where they might face retaliation are more willing to risk hitting batters than pitchers who do bat given that the rules of the game in both leagues are identical except for the use of the dh mlb created ideal conditions for a natural experiment to examine the impact of the dh on hit batters in a controlled setting 3 several economists have looked at the issue and found that there is a statistically significant relationship between the dh and hit batters however the reason for this difference is subject to much debate it is possible for the hit batter differential to exist without the deterrent effect of retaliation the rulebook punishment for hitting a batter awarding the hit batter first base makes retaliatory enforcement costly for teams to employ pitchers are typically poor hitters who rarely reach base via hitting while batters who are dhs are typically good hitters the fewer hit batters in the nl may reflect the lineup composition in which the pitcher must bat nl teams will try to avoid plunking pitchers because they are relatively less likely to reach base than non pitchers while al teams do not have this easy out in their batting lineups a problem with previous studies of the subject is their reliance on yearly aggregate data hit batters are rare events approximately 1 of all plate appearances result in a hit batter that occur in the course of game where other incentives are quite relevant this means that identifying small changes in pitcher behavior from specific factors will be difficult to identify with aggregate data differentiating between the two competing explanations for the hit batter differential between leagues deterrence and lineup composition requires micro level data where we can control for in game strategic incentives for hitting batters using a unique play by play data set that allows us to control for specific factors that affect hit batters we find that pitchers are still more likely to hit batters with a dh in the lineup than without and though pitchers are hit more rarely than other players pitchers do experience retaliation for hitting batters retaliation against pitchers who plunk batters which was not found in earlier studies is needed to generate an effective deterrent for pitchers in the nl

multi period information markets abstract this article examines the single shot decision problem of a monopolistic information seller selling a flow of information in a dynamic framework in a generalized version of wang s 1993 economy it shows that the profit maximizing strategy of the seller is to sell his information as is but only to a fraction of traders it argues that this strategy of selling information is different from that in a static model mainly due to the very different nature of constraints faced by the information seller in a dynamic framework

pass or run an empirical test of the matching pennies game using data from the national football league this article examines play calling in the national football league nfl it finds that a mixed strategy equilibrium game explains nfl play calling better than standard optimization techniques when a quarterback is injured and replaced with a less capable backup standard optimization theory suggests that the offense will run more often passing less our game theoretic model predicts that the offense will not change its play calling because the defense will play against the run more often using every first half play from the 11 teams that had a starting quarterback miss action because of injury in the 2006 season we find that the injury did not alter the likelihood that the offense would pass we also find that coaches randomly mix passing and running plays as the mixed strategy games predict

optimal pricing of public lotteries and comparison of competing mechanisms this article establishes optimal pricing rules for rationing indivisible units of rival and otherwise nonexcludable goods by lottery or a hybrid of a lottery and outright sale by posted price given the distributional objective of maximizing expected consumer surplus the solutions to unconstrained and constrained versions of the pricing problem may be expressed in classic inverse elasticity form with the lottery price appearing as an entry fee user fee or a combination of the two numerical analysis of a rich class of private value distributions indicates that sizable gains in expected consumer surplus can be realized over competitive pricing and zero pricing

do new major league ballparks pay for themselves in recent decades local governments have allocated billions of dollars to subsidizing construction of facilities for major league baseball we use panel data that cover all major league baseball teams from 1989 2001 to estimate the impact of ballpark construction on team revenue our estimates imply that a typical new ballpark generates additional revenue sufficient to cover most or all of its capital cost it follows that any external benefits of ballpark construction are likely to be inframarginal and that continuance of large public subsidies cannot be justified on economic grounds

and a hockey game broke out crime and punishment in the nhl i introduction the economic theory of crime predicts that an increase in policing resources will lead to a decrease in the crime rate empirically determining the magnitude of this effect has proved difficult however because of an endogeneity problem although variations in the allocation of policing resources are expected to affect crime rates the reverse may also hold true cornwell and trumbull 1994 levitt 1997 the endogeneity problem can be avoided to a large degree by studying situations in which changes in the allocation of policing resources occur independent from crime rates in an innovative and influential study mccormick and tollison 1984 apply the economic theory of crime to rules infractions in a sports contest they analyze a policy change in the atlantic coast conference acc basketball tournaments in 1979 the acc increased the number of referees in the tournament games mccormick and tollison analyze the effect of increasing the number of referees on the number of fouls called their approach is unlikely to suffer from a severe endogeneity bias because the policy change occurred only once and furthermore occurred between tournament seasons on the other hand insofar as rules infractions in sports contests are analogous to criminal activity mccormick and tollison measure arrests rather than crimes the effect of an increase in policing resources on arrests cannot be resolved by theory for a given crime rate increases in police budgets and forces enable greater monitoring of criminal activity and consequently lead to more arrests the crime rate however is itself a function of the level of policing resources rational criminals realize that greater monitoring increases the probability that their actions will result in arrest and may be deterred from committing crimes this decreases the crime rate the net effect on the total number of arrests is ambiguous because it depends on whether the monitoring or deterrent effect dominates mccormick and tollison find that increasing the number of referees leads to a reduction in the number of fouls called this suggests that the deterrent effect dominates the monitoring effect shortly after their study was published it was recognized in surveys of both sports economics by cairns et al 1985 and crime by cameron 1988 we examine a natural experiment in sports to further understand the monitoring and deterrent effects in the 1999 2000 season the national hockey league nhl games had either one or two referees 1 we find that games with two referees have more penalties called suggesting that the monitoring effect dominates the deterrent effect we then use an instrumental variables technique to determine the effect of the number of referees on the number of infractions actually committed by players in the game we find that the number of referees does not significantly affect the number of infractions committed this is direct evidence that the deterrent effect is inconsequential in this context our results are unlikely to suffer from an endogeneity bias because the variation in the number of referees is independent of the rate of infractions in the individual games ii the nhl experiment enforcement of the rules in an nhl game is done by referees and linesmen the nhl has historically utilized one referee and two linesmen the linesmen are responsible for identifying infractions that result in a stoppage of play such as icing sending the puck from one end of the rink to the other and off sides entering the offensive zone before the puck the referee is responsible for identifying more severe infractions such as slashing swinging a stick at an opponent hooking using a stick to impede the progress of an opponent and fighting fisticuffs when one of these infractions is identified by the referee a penalty is called and the offending player is removed from the ice for a period of time depending on the severity of the penalty

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address

rationed access and welfare case of public resource lotteries pressures on public lands and waterways are resulting increasingly in the rationing of public access by lottery upon accounting for the uncertainties of random rationing discrete choice models lend themselves to analyzing participation in public resource lotteries and estimating welfare changes key to valuing lotteryrationed rights is accounting for changes in access probabilities that result from policy changes the empirical application models the discrete choices of more than 18 000 participants in a new mexico lottery system for elk harvest rights welfare estimates are obtained from simulated policy changes that affect individually and jointly the access probability and indirect utility