are household portfolios efficient an analysis conditional on housing in this paper we argue that standard tests of portfolio efficiency are biased towards rejection because they neglect the existence of illiquid wealth in the case of household portfolios the most important illiquid asset is housing if housing stock adjustments are costly and therefore infrequent we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk through a hedge term when the housing stock is not adjusted we argue that tests for portfolio efficiency of financial asset must then be run conditionally upon housing wealth in our application we use italian household portfolio data from shiw 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient we first consider purely financial portfolios and portfolios that also treat the housing stock as another asset we then consider the consequences of treating the housing stock as given and test for efficiency in this framework our empirical results support the view that the presence of illiquid wealth can explain portfolio choice by home owners

index changes and losses to index fund investors because of arbitrage around the time of index changes investors in funds linked to the s p 500 index and the russell 2000 index lose between 1 0 billion and 2 1 billion a year for the two indices combined the losses can be higher if benchmarked assets are considered the pre reconstitution period is lengthened or involuntary deletions are taken into account the losses are an unexpected consequence of the evaluation of index fund managers on the basis of tracking error minimization of tracking error coupled with the predictability and or pre announcement of index changes creates the opportunity for a wealth transfer from index fund investors to arbitrageurs

statistical efficiency of double bounded dichotomous choice contingent valuation the statistical efficiency of conventional dichotomous choice contingent valuation surveys can be improved by asking each respondent a second dichotomous choice question which depends on the response to the first question if the first response is yes the second bid is some amount greater than the first bid while if the first response is no the second bid is some amount smaller this double bounded approach is shown to be asymptotically more efficient than the conventional singlebounded approach using data from a survey of californians regarding their willingness to pay for wetlands in the san joaquin valley we show that in a finite sample the gain in efficiency can be very substantial

implications of bid design and willingness to pay distribution for starting point bias in double bounded dichotomous choice contingent valuation surveys we examine starting point bias in double bounded dichotomous choice contingent valuation surveys we investigate 1 the seriousness of the biases for the location and scale parameters of the willingness to pay wtp in the presence of starting point bias 2 whether or not these biases depend on the distribution of wtp and on the bid design and 3 how well a commonly used diagnostic for starting point bias a test of the null that bid set dummies entered in the right hand side of the wtp model are jointly equal to zero performs under various circumstances monte carlo simulations suggest that the effect of ignoring starting point bias depends on the bid design and on the true distribution of wtp a well balanced symmetric bid design may result in very modest biases even when the anchoring mechanism is very strong the power of bid set dummies in detecting starting point bias is low they tend to account for misspecifications in the distribution assumed by the researcher for the latent wtp rather than capturing the presence of starting point bias

another look at portfolio optimization under tracking error constraints research has shown that adding constraints to total portfolio volatility can substantially improve the performance of managed portfolios although other work has considered constant tracking error volatility frontiers in this study tracking error was allowed to vary but the risk aversion was fixed the resulting optimal portfolios have several desirable properties

portfolio optimization with tracking error constraints this article explores the risk and return relationship of active portfolios subject to a constraint on tracking error volatility tev which can also be interpreted in terms of value at risk such a constrained portfolio is the typical setup for active managers who are given the task of beating a benchmark the problem with this setup is that the portfolio manager pays no attention to total portfolio risk which results in seriously inefficient portfolios unless some additional constraints are imposed the development in this article shows that tev constrained portfolios are described by an ellipse on the traditional mean variance plane this finding yields a number of new insights because of the flat shape of this ellipse adding a constraint on total portfolio volatility can substantially improve the performance of the active portfolio in general plan sponsors should concentrate on controlling total portfolio risk

residential construction using the urban growth model to estimate housing supply abstract this article presents an empirical model of housing supply derived from urban growth theory this approach describes new housing construction as a function of changes in house prices and costs rather than as a function of the levels of those variables which previous studies have used empirical tests support this specification over the leading alternative models our estimates show that a 10 rise in real prices leads to an 0 8 increase in the housing stock which is accomplished by a temporary 60 increase in the annual number of starts spread over four quarters

survey measures of risk aversion and prudence this paper utilizes a thought experiment conducted by the bank of italy to estimate absolute and relative risk aversion along with absolute and relative prudence for a broad cross section of italian households upper and lower bounds are calculated for each parameter and comparisons are made across socio demographic groups evidence is found of decreasing absolute risk aversion decreasing absolute prudence increasing relative risk aversion and increasing relative prudence

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

the benefits and costs of the section 8 existing housing program abstract the demand side section 8 existing housing program begun in 1975 is currently the second largest low income housing program in the united states with over one million units this paper presents estimates of the benefits and costs of the program and examines its allocative and distributive effects the effects of section 8 existing are compared with those under an alternative program of equal subsidy unrestricted cash grants among other things it is found that the average monthly subsidy of 100 is valued by recipients at 83 on average recipients are induced to consume 11 percent more housing and 6 percent less of other goods than they would with the cash grant recipient households near the eligibility income limits do not receive so large a benefit as to become better off than ineligible households the poorest and largest families receive the largest benefit other things equal however most poorer families are excluded while some richer families participate and equally situated families do not receive the same offer of assistance

portfolio selection with mental accounts and delegation das et al 2010 develop an elegant framework where an investor selects portfolios within mental accounts but ends up holding an aggregate portfolio on the mean variance frontier this investor directly allocates the wealth in each account among available assets in practice however investors often delegate the task of allocating wealth among assets to portfolio managers who seek to beat certain benchmarks accordingly we extend their framework to the case where the investor allocates the wealth in each account among portfolio managers our contribution is threefold first we provide an analytical characterization of the existence and composition of the optimal portfolios within accounts and the aggregate portfolio second we present conditions under which such portfolios are not on the mean variance frontier and conditions under which they are third we show that the aforementioned analytical characterization is also applicable within the framework of das et al and thus improves upon their numerical approach

discrete choice survey experiments a comparison using flexible methods abstract this study investigates the convergent validity of discrete choice contingent valuation cv and contingent rating ranking cr methods using flexible econometric methods our results suggest that cv and cr can produce consistent data achieve convergent validity when respondent s preferred choices and the same changes in environmental quality are considered we also find that cr models that go beyond modeling the preferred choice and include additional ranks cannot be pooled with the cv models accounting for preference heterogeneity via random coefficient models and their flexible structure does not make rejection of the hypothesis of convergent validity less likely but instead rejects the hypothesis to about the same degree or perhaps more frequently than fixed parameter models commonly used in the literature

one and one half bound dichotomous choice contingent valuation to reduce the potential for response bias on the follow up bid in multiple bound discrete choice cvm questions while maintaining much of the efficiency gains of the multiple bound approach we introduce the one and one half bound oohb approach despite the fact that the oohb model uses less information than the double bound db approach efficiency gains in moving from single bound to oohb capture a large portion of the gain associated with moving from single bound to db in an analysis of survey data our oohb estimates demonstrated higher consistency with respect to the follow up data than the db estimates and were more efficient as well

portfolio selection based on return risk and relative performance markowitz introduced the concept of portfolio selection based on return and variance recognition that many investors evaluate performance relative to a benchmark led to the idea of portfolio selection based on return and relative risk for many investors both approaches fail to yield satisfactory results although they acknowledge the importance of benchmarks in the decision process they are not indifferent to the variance of absolute returns in this situation a utility function that measures return variance and tracking error is more appropriate analysis of this utility function shows that its set of efficient portfolios includes the mean variance efficient set the mean tracking error efficient set and all convex combinations of these two sets optimization with this utility function may find solutions that investors will actually use

targeted business incentives and local labor markets this paper uses a regression discontinuity design to examine the effects of geographically targeted business incentives on local labor markets unlike elsewhere in the united states enterprise zone ez designations in texas are determined in part by a cutoff rule based on census block group poverty rates exploiting this discontinuity as a source of quasi experimental variation in investment and hiring incentives across areas i find that ez designation has a positive effect on resident employment increasing opportunities mainly in lower paying industries while business sitings spurred by the program are more geographically diffuse ez designation is associated with increases in home values

using referenda to improve targeting and decrease costs of conditional cash transfers cost effective allocation of conditional cash transfers cct requires identifying recipients with low opportunity costs who might change behavior this paper develops a low cost approach for improving program implementation by using a stated preference referendum style survey question to calculate willingness to accept wta for cct contracts this is illustrated in the context of mexico s payments for ecosystem services program with the paper finding that the estimated social cost based on wta is substantially lower than actual payments simulation of three geographic targeting approaches shows that joint selection using deforestation risk and wta could increase program impact under the same budget the paper also simulates modified payment schedules based on predicted wta and demonstrates that these could reduce program cost

do contingent valuation estimates pass a scope test a meta analysis abstract this paper considers the scope test proposed to judge the internal consistency of contingent valuation estimates the test is shown to be quite sensitive to the maintained hypotheses required to derive fairly precise expectations for the properties of wtp functions and therefore a different approach may be needed in gauging the reliability of cv this paper describes an approach that relies on a weight of the evidence criterion and uses meta analysis to develop a systematic appraisal of what the economic values of changes in amenity resources are the approach is illustrated for the case of estimating people s willingness to pay for improving or maintaining visibility at the national parks

basel s value at risk capital requirement regulation an efficiency analysis abstract we analyze the optimal portfolio policies of expected utility maximizing agents under var capital requirement var cr regulation in comparison to the optimal policy under exogenously imposed var limit var l and limited expected loss lel regulations with var cr regulation the agent strategy consists of simultaneous decisions on both the portfolio var and on the implied amount of required eligible capital as a result the performance of var cr regulation depends on its design the parameter n and the agent preferences we show that an optimal var cr regulation allows the regulator on the one hand to completely eliminate the exposure to the largest losses which may jeopardize the existence of the institution and on the other hand to restrain the portfolio exposure to all other losses these results rationalize the current basel regulations however the analysis shows also that there is an optimal level of required eligible capital from the regulator standpoint counter intuitively any requirement above this optimal level is inefficient as it leads to a smaller amount of actually maintained eligible capital and thereby to a larger exposure to the most adverse states of the world unfortunately the current basel s range of required levels n 3 4 is within this inefficient range moreover with an inefficient regulation the agent might employ an inefficient reporting and disclosure procedure

the market price of low income housing tax credits abstract the low income housing tax credit lihtc program awards a subsidy to private developers who construct and operate housing units with income targeted rent controls for at least 15 years the program allocated 6 6 billion to developers in 2006 and over 1 6 million units have been subsidized under the program since its inception in 1987 a historical literature suggests place based housing subsidies such as the lihtc program will be more expensive in providing the same level of housing support to the poor than tenant based strategies i e housing vouchers this paper uses an administrative data series of lihtc subsidized properties in california to show the program encourages developers to construct housing units that are an estimated 20 more expensive per square foot than average industry estimates it is additionally shown that due to liquidity constraints faced by lihtc primary developers in how the subsidy is allocated virtually all developers sell the tax credits at a substantial discount below their statutory value immediately after construction this price is estimated to be 0 73 per 1 of tax credit or 1 8 billion annually as compared to alternatively allocating a lump sum grant to developers

moving to opportunity in boston early results of a randomized mobility experiment this paper examines the short run impacts of a change in residential neighborhood on the well being of low income families using evidence from a program in which eligibility for a housing voucher was determined by random lottery we examine the experiences of households at the boston site of moving to opportunity mto a demonstration program in five cities families in high poverty public housing projects applied to mto and were assigned by lottery to one of three groups experimental offered mobility counseling and a section 8 subsidy valid only in a census tract with a poverty rate of less than 10 percent section 8 comparison offered a geographically unrestricted section 8 subsidy or control offered no new assistance but continued to be eligible for public housing our quantitative analyses of program impacts uses data on 540 families from a baseline survey at program enrollment a follow up survey administered l to 3 5 years after random assignment and state administrative data on earnings and welfare receipt 48 percent of the experimental group and 62 percent of the section 8 comparison group moved through the mto program one to three years after program entry families in both treatment groups were more likely to be residing in neighborhoods with low poverty rates and high education levels than were families in the control group however while members of the experimental group were much more likely to be residing in suburban communities than were those in the section 8 group the lower program take up rate among the experimental group resulted in more families remaining in the most distressed communities households in both treatment groups experienced improvements in multiple measures of well being relative to the control group including increased safety improved health among household heads and fewer behavior problems among boys experimental group children were also less likely to be a victim of a personal crime to be injured or to experience an asthma attack there are no significant impacts of either mto treatment on the employment earnings or welfare receipt of household heads in the first three years after random assignment

the poor are twice cursed wealth inequality and inefficient credit market abstract this paper investigates the role of unobservable wealth differences on credit market equilibrium given there is also asymmetric information concerning effort preferences and choices in equilibrium poor but able entrepreneurs may subsidise the rich and incompetent or be excluded as a result investment may exceed or fall short of the optimal level low inequality may deliver conditions for perfect screening and an efficient level of investment the equilibrium with cross subsidisation is consistent with otherwise puzzling empirical observations

do capitalization effects for public goods reveal the public s willingness to pay this article develops a welfare theoretic framework for interpreting evidence on the impacts of public programs on housing markets we extend rosen s hedonic model to explain how housing prices capitalize exogenous shocks to public goods and externalities the model predicts that trading between heterogeneous buyers and sellers will drive a wedge between these capitalization effects and welfare changes we test this hypothesis in the context of changes in measures of school quality in five metropolitan areas results from boundary discontinuity designs suggest that capitalization effects understate parents willingness to pay for public school improvements by as much as 75

residential income segregation a behavioral model of the housing market abstract we represent the functioning of the housing market and study the relation between income segregation income inequality and house prices by introducing a spatial agent based model abm differently from traditional models in urban economics we explicitly specify the behavior of buyers and sellers and the price formation mechanism buyers who differ by income select among heterogeneous neighborhoods using a probabilistic model of residential choice sellers employ an aspiration level heuristic to set their reservation offer price prices are determined through a continuous double auction we first provide an approximate analytical solution of the abm shedding light on the structure of the model and on the effect of the parameters we then simulate the abm and find that i a more unequal income distribution lowers the prices globally but implies stronger segregation ii a spike in demand in one part of the city increases the prices all over the city iii subsidies are more efficient than taxes in fostering social mixing

do low income housing subsidies increase the occupied housing stock abstract a necessary condition for justifying a policy such as subsidized low income housing either via tenant based rental assistance or construction of public or private projects is that it has a real effect on market outcomes in this paper we examine one aspect of the real effect of subsidized housing does it increase the housing stock if subsidized housing raises the quantity of occupied housing per capita either more people are finding housing or they are being housed less densely on the other hand if subsidized housing merely crowds out equivalent quality low income housing that otherwise would have been provided by the private sector the housing policy may have little real effect on housing consumption using both census place and msa level data from the decennial census and from the department of housing and urban development we ask whether housing markets with more subsidized housing also have more total housing after accounting for housing demand we find that government financed units raise the total number of units in a market although on average one government subsidized unit adds only one third to one half of a unit to the total housing stock there is less crowd out in more populous markets and more crowd out in places where there is less excess demand for subsidized housing as measured by the number of government financed units per eligible person tenant based housing programs such as section 8 certificates and vouchers seem to be more effective than project based programs at targeting subsidized housing units to people who otherwise would not have their own

incentive fees who wins who loses 1987 incentive fees who wins who loses financial analysts journal vol 43 no 1 pp 27 38

diagnosing insensitivity to scope in contingent valuation sensitivity to scope is considered a desirable property of contingent valuation studies and often treated as a necessary condition for validity we first provide an overview of scope insensitivity explanations put forth in the environmental valuation literature then we analyze data from a contingent valuation survey eliciting willingness to pay to prevent oil spills of four different magnitudes in arctic norway in the baseline analysis the scope inference is ambiguous there is only statistical difference in willingness to pay to avoid a very large versus small oil spill nok 1869 and nok 1086 respectively however further explorations show that several confounding factors suggested in the literature influence the scope inference the scope sensitivity improves when we control for subjective probabilities of amenity provision exclude respondents based on the debriefing questions take into consideration the sample sizes and impose diminishing marginal utility overall the analysis supports an emerging view in the contingent valuation literature suggesting that statistical scope insensitivity is not a sufficient reason for deeming a study invalid

public radio in the united states does it correct market failure or cannibalize commercial stations because broadcasters can capture only part of the value of their product as revenue there is the potential for a classic problem of underprovision whether public support corrects a market failure depends on whether the market would have provided similar services in the absence of public broadcasting we address these questions by asking whether public and commercial classical stations compete for listening share and revenue as well as whether public stations crowd out commercial stations we find evidence that public broadcasting crowds out commercial programming in large markets particularly in classical music and to a lesser extent in jazz 1999 elsevier science s a all rights reserved

long term earnings and employment effects of housing voucher receipt abstract using a propensity score matching approach coupled with difference in differences regression analysis we estimate the effect of housing voucher receipt on the employment and earnings of a large longitudinal sample of low income families for 6 years following voucher receipt our results indicate that voucher receipt has little effect on employment but a negative effect on earnings the negative earnings effect is largest in the years immediately following initial receipt and fades out over time in addition we find that the pattern of recipient earnings responses to voucher receipt differs substantially across demographic subgroups several robustness tests are run to support the reliability of our findings we discuss the implications of our findings for research and policy

old homes externalities and poor neighborhoods a model of urban decline and renewal abstract this paper investigates urban decline and renewal in the united states using three panels that follow neighborhoods on a geographically consistent basis over extended periods of time findings indicate that change in neighborhood economic status is common averaging roughly 13 percent per decade roughly two thirds of neighborhoods studied in 1950 were of quite different economic status fifty years later panel unit root tests for 35 msas indicate that neighborhood economic status is a stationary process consistent with long running cycles of decline and renewal in philadelphia county a complete cycle appears to last up to 100 years aging housing stocks and redevelopment contribute to these patterns as do local externalities associated with social interactions lower income neighborhoods appear to be especially sensitive to the presence of individuals that provide social capital many of the factors that drive change at the local level have large and policy relevant effects

building risk into the mitigation adaptation decisions simulated by integrated assessment models this paper proposes an operationally simple and easily generalizable methodology to incorporate climate change damage uncertainty into integrated assessment models iams first uncertainty is transformed into a risk measure by extracting damage distribution means and variances from an ensemble of socio economic and climate change scenarios then a risk premium is computed under different degrees of risk aversion quantifying what society would be willing to pay to insure against the uncertainty of the damages our estimates show that the premium for the risk is a potentially significant addition to the standard average damage but highly sensitive to the attitudes toward risk in the last research phase the risk premium is incorporated into the climate change damage function of a widely used iam which shows consequently a substantial increase in both mitigation and adaptation efforts reflecting a more precautionary attitude by the social planner interestingly adaptation is stimulated more than mitigation in the first half of this century while the situation reverses afterwards

portfolio selection with a drawdown constraint abstract when identifying optimal portfolios practitioners often impose a drawdown constraint this constraint is even explicit in some money management contracts such as the one recently involving merrill lynch management of unilever s pension fund in this setting we provide a characterization of optimal portfolios using mean variance analysis in the absence of a benchmark we find that while the constraint typically decreases the optimal portfolio s standard deviation the constrained optimal portfolio can be notably mean variance inefficient in the presence of a benchmark such as in the merrill lynch unilever contract we find that the constraint increases the optimal portfolio s standard deviation and tracking error volatility thus the constraint negatively affects a portfolio manager s ability to track a benchmark

the effects of housing assistance on labor supply evidence from a voucher lottery this study estimates the effects of means tested housing programs on labor supply using data from a randomized housing voucher wait list lottery in chicago economic theory is ambiguous about the expected sign of any labor supply response we find that among working age able bodied adults housing voucher use reduces labor force participation by around 4 percentage points 6 percent and quarterly earnings by 329 10 percent and increases temporary assistance for needy families program participation by around 2 percentage points 15 percent we find no evidence that the housing specific mechanisms hypothesized to promote work such as neighborhood quality or residential stability are important empirically jel i38 j22 r23 r38

the risk and duration of catastrophic health care expenditures the authors measure the time series property of catastrophic medical costs facing the elderly using information on medical deductions from a panel of tax returns during the period of analysis 1968 73 taxpayers could deduct medical expenses above 3 percent of income they correct for the resulting censoring bias using multivariate tobit estimated with a variant of the smoothed simulated maximum likelihood method the estimated coefficients imply a 1 00 increase in out of pocket medical spending is associated with 2 65 in future out of pocket spending copyright 1994 by mit press

is expected utility theory applicable a revealed preference test we proffer a method to assess the adequacy of expected utility theory eut in empirical studies involving discrete and continuous choices the method calibrates a utility function to revealed choices and rejects eut for absurd degrees of implied concavity over the wealth at risk we find eut rejections in cases where risk averse choices are made between gambles with similar stakes regardless of their absolute sizes eut is shown to be applicable only when expected payoffs of gambles are similar or when more than half of wealth is at risk we illustrate our method with an application to agricultural production

the redistributive design of social security systems countries with low intragenerational redistribution in social security systems bismarckian are associated with larger public pension expenditures a smaller fraction of private pension and lower income inequality than countries with more redistributive social security beveridgean this article introduces a bidimensional voting model to account for these features agents different in age income and in their ability to invest in the capital market vote on the degree of redistribution of the social security system and on the size of the transfer in an economy with three income groups a small beveridgean system is supported by low income agents who gain from its redistributive feature and high income individuals who seek to minimise their tax contribution and to invest in a private scheme middle income individuals instead favour a large bismarckian system

universal health insurance in the clinton plan coverage as a tax financed public good the financing arrangements embodied in the clinton health reform plan involve some important differences in the way in which public goods are usually financed the subsidies to small low wage firms mandated to provide benefits distort markets in both labor and products and offer incentives for the creation of small firms in addition the financing scheme implicitly envisions a head tax on families at modest income levels but offers a possible rationale for it nevertheless the main reason for many of the financing features appears to be an attempt to hold down the apparent budgetary cost of universal coverage

active portfolio management with benchmarking adding a value at risk constraint abstract we examine the impact of adding a value at risk var constraint to the problem of an active manager who seeks to outperform a benchmark while minimizing tracking error variance tev by using the model of roll 1992 a mean variance analysis of tracking error journal of portfolio management 18 13 22 we obtain three main results first portfolios on the constrained mean tev boundary still exhibit three fund separation but the weights of the three funds when the constraint binds differ from those in roll s model second the constraint mitigates the problem that when an active manager seeks to outperform a benchmark using the mean tev model he or she selects an inefficient portfolio finally when short sales are disallowed the extent to which the constraint reduces the optimal portfolio s efficiency loss can still be notable but is smaller than when short sales are allowed

management compensation and market timing under portfolio constraints abstract this paper shows that portfolio constraints have important implications for management compensation and performance evaluation in particular in the presence of portfolio constraints allowing for benchmarking can be beneficial benchmark design arises as an alternative effort inducement mechanism vis a vis relaxing portfolio constraints numerically we solve jointly for the manager s linear incentive fee and the optimal benchmark the size of the incentive fee and the risk adjustment in the benchmark composition are increasing in the investor s risk tolerance and the manager s ability to acquire and process private information

targeting transfers through restrictions on recipients our objective is to design transfer programs that maximize some social welfare function following the optimal income tax formulation we assume that a random process endows individuals with characteristics that influence welfare such as ability to earn income medical condition or unmonitorable income the goal is to maximize the utility of a randomly chosen individual other individualistic social welfare functions would lead to equivalent results if the random characteristics were observable a first best outcome could be achieved by making them the basis for lump sum transfers in practice however we can observe only indicators of these characteristics such as earnings medical expenditures or consumption patterns the challenge for policy is to design an efficient second best transfer program based on indicators in this paper we argue that 1 an optimal transfer program in general must sacrifice productive efficiency to target efficiency this is done by imposing restrictions on the choices made by intended beneficiaries 2 a program that incorporates restrictions such as means tested in kind transfers commodity specific taxes and subsidies and even ordeals i e the imposition of deadweight costs to qualify for a transfer will perform better than programs that rely solely on income taxes and cash transfers

an accurate measurement of the crowd out effect income effect and price effect for charitable contributions in the past empirical research on charitable contributions has focused on two issues estimating the income and price elasticities of contributions and estimating the extent to which government funding crowded out private contributions the two fundamental problems in all these studies are the differences in the underlying conceptual models and the use of imperfect data for empirical analysis this paper addresses both of these problems

the effects of low income housing tax credit developments on neighborhoods abstract this paper evaluates the impacts of new housing developments funded with the low income housing tax credit lihtc the largest federal project based housing program in the u s on the neighborhoods in which they are built a discontinuity in the formula determining the magnitude of tax credits as a function of neighborhood characteristics generates pseudo random assignment in the number of low income housing units built in similar sets of census tracts tracts where projects are awarded 30 higher tax credits receive approximately six more low income housing units on a base of seven units per tract these additional new low income developments cause homeowner turnover to rise raise property values in declining areas and reduce incomes in gentrifying areas in neighborhoods near the 30th percentile of the income distribution lihtc units significantly crowd out nearby new rental construction in gentrifying areas but do not displace new construction in stable or declining areas

starting point bias in dichotomous choice valuation with follow up questioning abstract follow up questions are frequently used to improve the efficiency of dichotomous choice contingent valuation questionnaires however a number of authors e g 12 16 have noted a significant difference between the wtp distributions implied by initial and follow up question responses this paper investigates starting point bias as one explanation for the phenomenon we develop a model of starting point bias in the context of dichotomous choice questioning with follow up using a monte carlo simulation to illustrate the potential bias imparted to wtp estimates an application is provided based on data from a cv study in northcentral iowa

cointegration and unit roots this paper provides an updated survey of a burgeoning literature on testing estimation and model specification in the presence of integrated variables integrated variables are a specific class of non stationary variables which seem to characterise faithfully the properties of many macroeconomic time series the analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories special emphasis is put on the empirical researcher s point of view

economic and social security in the twenty first century with attention to europe a partly heuristic attempt at exploring long run policies aimed at a second best compromise between ex ante risk sharing efficiency and ex post productive efficiency wage subsidies for low skilled workers financed by taxes on high wages are advocated together with improved risk sharing between capital and labour between generations and between the countries belonging to emu the scope of the advocated policies is limited by considerations of moral hazard time consistency and fiscal competition also estimates of some key economic parameters remain very imprecise several avenues of further research are identified

social security and private saving reply i am embarrassed by the programming error that dean leimer and selig lesnoy uncovered but grateful to them for the care with which they repeated my original study feldstein 1974 they set an admirable example of the tradition of replication on which all scientific work ultimately rests as economic research increasingly involves large and complex computer programs to analyze macroeconomic data sets or to simulate models that cannot be solved analytically replication studies like that of leimer and lesnoy social security and private saving new time series evidence in this issue should become increasingly important in their comment leimer and lesnoy also suggest a variety of modifications to the social security wealth variable to incorporate alternative employee perceptions and actuarial assumptions as i explain below i have strong doubts about the appropriateness of these modifications i therefore do not agree with their conclusion that the time series evidence does not support the hypothesis that the introduction of social security has substantially reduced personal saving in the united states more specifically as i show in this reply correcting the computerprogramming error and reestimating the original equation for the original sample period produces results that are not substantially different from the results that were originally published in 1974 the point estimate of the coefficient of social security wealth implies that the level of social security wealth in the final year of the sample 1971 depressed personal saving by an amount equal to 44 percent of the actual personal saving in that year although the estimated coefficient of the social security wealth variable is smaller than in the original version and its standard error larger the conventional statistical test

unfair credit allocations this article investigates the impact of credit allocation on heterogeneous wealth entrepreneurs we show that with decreasing risk aversion and unobservable wealth poorer borrowers exert more effort as a consequence of endogenous adverse selection they are either excluded from the market or necessarily subsidize richer borrowers in a pooling equilibrium resulting in a paradoxical and inequitable redistribution alternatively a less likely separating equilibrium may occur in which poor types bear the entire weight of separation in the form of excess risk taking

optimal mean variance portfolio selection using cauchy schwarz maximization fund managers highly prioritize selecting portfolios with a high sharpe ratio traditionally this task can be achieved by revising the objective function of the markowitz mean variance portfolio model and then resolving quadratic programming problems to obtain the maximum sharpe ratio portfolio this study presents a closed form solution for the optimal sharpe ratio portfolio by applying cauchy schwarz maximization and the concept of kuhn tucker conditions an empirical example is used to demonstrate the efficiency and effectiveness of the proposed algorithms moreover the proposed algorithms can also be used to obtain the optimal portfolio containing large numbers of securities which is not possible or at least is complicated via traditional quadratic programming approaches

adequate responsiveness to scope in contingent valuation the standard test for scope sensitivity in contingent valuation studies determines whether the response to changes in scope is statistically significant it does not address whether the magnitude of response is appropriate given the specified changes in scope we examine contingent valuation studies that implemented scope tests to determine what they imply about the adequacy of response to scope we find that in the vast majority of studies the magnitude of response cannot be assessed only three studies permit such an assessment samples and hollyer 1990 diamond et al 1993 and chapman et al 2009 the first two papers find that responses to their surveys did not vary adequately with scope the third study passed the standard scope test but we show that the magnitude of response in this study is inadequate by straightforward methods of assessment and cannot be explained by diminishing marginal utility or substitution more research is needed on this issue including wider application of adding up tests on incremental parts as well as the development of other methods that permit an assessment of the magnitude of response or other tests of rationality

what fisher knew about his relation we sometimes forget abstract expected consumption growth increases the real interest rate as one tries to smooth consumption over time we demonstrate that placing it in the fisher relation 1 is consistent with the euler equation governing the purchase of nominal bonds 2 explains observed procyclicality of the real interest rate 3 is supported empirically and 4 provides an alternative method for estimating the consumer s degree of relative risk aversion

portfolio frontiers with restrictions to tracking error volatility and value at risk abstract asset managers are often given the task of restricting their activity by keeping both the value at risk var and the tracking error volatility tev under control however these constraints may be impossible to satisfy simultaneously because var is independent of the benchmark portfolio the management of these restrictions is likely to affect portfolio performance and produces a wide variety of scenarios in the risk return space the aim of this paper is to analyse various interactions between portfolio frontiers when risk managers impose joint restrictions upon tev and var specifically we provide analytical solutions for all the intersections and we propose simple numerical methods when such solutions are not available finally we introduce a new portfolio frontier

unpacking the impacts of the low income housing tax credit program on nearby property values most existing research on the impacts of the low income housing tax credit lihtc on neighbouring property values is limited in terms of providing causal attribution and uncovering nuances in the role of housing market and neighbourhood composition this article addresses these shortcomings by investigating the impacts of the lihtc program in charlotte north carolina and cleveland ohio levels and trends in housing prices before and after lihtc developments in neighbourhoods are examined based on parcel level housing sales data from 1996 to 2007 the adjusted interrupted time series difference in differences aits did model is used to clarify the causal direction of impacts of lihtc developments the results show that lihtc developments have negative impacts in charlotte while having upgrading effects in cleveland also these impacts vary across neighbourhoods income heterogeneity thus care should be taken when siting lihtc developments to minimise negative impacts and enhance its use for communi

crowd out effects of place based subsidized rental housing new evidence from the lihtc program abstract since its inception in 1987 the low income housing tax credit lihtc program has ballooned into the largest ever source of subsidized construction of low income housing in the united states accounting for one third of all recent multi family rental construction this paper examines the crowd out effects of this increasingly important source of low moderate income housing to do so we analyze the impact of lihtc construction at three different levels of geography msa county and 10 mile radius circles this allows us to employ increasingly extensive geographic fixed effects that help to difference away unobserved factors political variables are also used as instruments to further facilitate identification in all of our models iv estimates yield substantially greater crowd out than ols confirming the endogenous attraction of lihtc development to areas ripe for new construction our most robust iv estimates indicate that nearly 100 of lihtc development is offset by a reduction in the number of newly built unsubsidized rental units although the confidence band around this point estimate allows for less dramatic assessments additional estimates suggest that lihtc development has a much more moderate impact on construction of owner occupied housing but these estimates are imprecise overall while lihtc development may well affect the location of low moderate income rental housing opportunities our estimates suggest that the impact of the program on the number of newly developed rental housing units appears to be small

a dynamic small open economy model with involuntary unemployment it is well known that real business cycle small open economy soe models rely on greenwood hercowitz and huffman 1988 preferences to match the countercyclical trade balance observed in open economies as well as other second moments while standard preferences a la king plosser and rebelo 1988 are commonly labelled ineffective owing to their inability to yield the countercyclical trade balance in this paper i show that an soe model with standard preferences and involuntary unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies il est bien connu que les modeles de cycles d affaires reels dans une petite economie ouverte peo comptent sur des preferences a la greenwood hercowitz et huffman 1988 pour etre compatibles avec la balance commerciale contre cyclique observee dans les economies ouvertes ainsi que sur d autres second moments alors que les preferences standards a la king plosser et rebelo 1988 sont considerees comme ineffectives a cause de leur inhabilitea engendrer la balance commerciale contre cyclique dans ce texte l auteur montre qu un modele de peo avec preferences standards et chomage involontaire et partage efficient du risque peut engendrer une balance commerciale contre cyclique et s arrimer aux principales regularites observees dans les petites economies ouvertes

do the gses expand the supply of mortgage credit new evidence of crowd out in the secondary mortgage market abstract the dramatic government takeover of fannie mae and freddie mac in september 2008 was motivated in part by a desire to ensure a continued flow of credit to the mortgage market this study examines a closely related issue the extent to which gse activity crowds out mortgage purchases by private secondary market intermediaries evidence of substantial crowd out suggests that government support for the gses may be less warranted whereas the absence of crowd out implies that gse loan purchases enhance liquidity using 1994 2008 hmda data for conventional conforming sized loans three distinct periods with regard to gse crowd out are apparent from 1994 to 2003 the share of loans sold to the secondary market increased from 60 to over 90 private sector and gse market shares of loan purchases were roughly similar for most market segments and iv estimates indicate relatively little gse crowd out of private secondary market purchases from 2004 to 2006 private loan purchases boomed and dominated those of the gses while iv estimates indicate crowd out jumped to 50 at the peak of the boom this is especially true in the market for home purchase as opposed to refinance loans with the crash in housing and mortgage markets in 2007 private sector intermediaries pulled back the gses regained market share and evidence of gse crowd out disappeared in both the home purchase loan and refinance markets these patterns suggest that the degree of gse crowd out varies with market conditions and that the federal takeover of fannie mae and freddie mac likely served to enhance liquidity to the mortgage market during the 2007 2009 financial crisis

rent vouchers and the price of low income housing since the early 1980s low income housing subsidies have increasingly shifted towards vouchers which allow recipients to rent in the private market by 1993 vouchers subsidized as many households as lived in traditional housing projects although most low income households did not receive any subsidies this study investigates whether this policy has raised rents for unsubsidized poor households as many analysts predicted when the program was conceived the main finding is that low income households in metropolitan areas with more vouchers have experienced faster rent increases than those where vouchers are less abundant in the 90 biggest metropolitan areas vouchers have raised rents by 16 percent on average a large effect consistent with a low supply elasticity in the low quality rental housing market considered as a transfer program this result implies that vouchers have caused a 8 2 billion increase in the total rent paid by low income non recipients while only providing a subsidy of 5 8 billion to recipients resulting in a net loss of 2 4 billion to low income households

valuing the incremental benefits of groundwater protection when exposure levels are known both economic theory and psychological research indicate that benefit functions for reductions in health risk exposures may be conditional on current exposures using nitrates found in household wells it is demonstrated that perceptions of health risks across exposure levels are affected by the individual s current exposure level thus providing support for a conditional benefits function approach functions of conditional incremental benefits are estimated from a contingent valuation study of households that had been informed of their water test results incremental benefits reach a peak at an intermediate level of nitrates and then decline possible explanations for this non convexity are provided

adverse selection and entrepreneurship in a model of development this paper presents a theory in which talented entrepreneurs are identified as the key agents driving the process of development and modernisation entrepreneurial skills are private information which prevents full risk sharing development into a modern industrial economy might fail to take place since potentially talented entrepreneurs may refrain from taking on the entrepreneurial risks as a way to avoid income shocks an interesting feature of the model is the fact that the informational asymmetries are endogenous to the process of development as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities

robust tracking error portfolio selection with worst case downside risk measures abstract this paper proposes downside risk measure models in portfolio selection that captures uncertainties both in distribution and in parameters the worst case distribution with given information on the mean value and the covariance matrix is used together with ellipsoidal and polytopic uncertainty sets to build up this type of downside risk model as an application of the models the tracking error portfolio selection problem is considered by lifting the vector variables to positive semidefinite matrix variables we obtain semidefinite programming formulations of the robust tracking portfolio models numerical results are presented in tracking sse50 of the shanghai stock exchange compared with the tracking error variance portfolio model and the equally weighted strategy the proposed models are more stable have better accumulated wealth and have much better sharpe ratio in the investment period for the majority of observed instances

finding sensitivity to scope in nonmarket valuation summary data limitations frequently prevent using actual consumer behavior in determining natural resource values so stated preference methods are used whether value estimates show sensitivity to the scope of resource valued is a key test for their validity which several studies fail developing a correlated panel mixed logit model of households water quality valuations in california we show that false negatives in scope tests can result when individual preference variation and correlation are ignored and split sample comparisons are used monte carlo simulations further demonstrate potentially prevalent false rejections of scope sensitivity even when within subject comparisons of willingness to pay portray strong scope sensitivity copyright 2013 john wiley sons ltd

contingent valuation and social choice the contingent valuation method for estimating the existence value of natural resources is examined for psychophysical robustness statistical reliability and economic sensibility extensions of standard models for willingness to pay and suitable econometric techniques for analyzing these models are developed the analysis is applied to a series of experiments on the value of preserving wilderness areas in the western united states the results call into question the reliability of the cv method for estimating existence values

crowding out effects of affordable and unaffordable housing in china 1999 2010 using panel data on housing construction this article examines the crowding out effects of affordable and unaffordable housing in china from 1999 to 2010 applying a dynamic panel model allows us to examine the dynamic interactions between affordable and unaffordable housing constructions when controlling for region specific fixed and time specific effects we analyse whether affordable unaffordable housing construction has changed in response to the past and contemporaneous construction of unaffordable affordable housing our empirical results reveal an asymmetric crowding out pattern between affordable and unaffordable housing we also observe that when urbanization rate is lower than 57 39 unaffordable housing construction crowds out affordable housing construction moreover the crowding out effect of unaffordable housing on affordable housing decreases with rising urbanization rates

the portfolio composition of asset holdings in the united kingdom an extensive literature has developed on theoretical aspects of portfolio selection one basic model which often serves as a convenient benchmark assumes that individuals choose their portfolio to maximise expected utility in a world of perfect information perfect capital markets and no taxes or transaction costs if these individuals exhibit constant relative risk aversion the optimal asset combination will be one in which the proportion of wealth invested in each type of asset is independent of total wealth the asset proportions are also independent of age if the analysis is extended to a lifecycle framework with an additively separable intertemporal utility function once the stringent preconditions of this benchmark model are relaxed it becomes progressively more difficult to derive any firm predictions regarding the structure of asset portfolios the recognition of such factors as transaction costs indivisibilities capital market imperfections and the vagaries of tax systems as well as the possibility that relative risk aversion may not be constant makes it unlikely that asset proportions will show stability across wealth and age groups but portfolio theory is generally ambiguous about how the pattern of asset holdings is affected 2 it follows that the further analysis of portfolio behaviour needs to be primarily empirically orientated unfortunately data on the asset holdings of individuals or households are notoriously poor in comparison with other important economic variables information is available from sample surveys but there are usually problems with the limited asset coverage suspect valuations and biases arising from the non randomness of response rates furthermore the sample sizes are generally low against these deficiencies has to be set the fact that the surveys contain a range of other economic variables and demographic characteristics whose relationship with asset holdings can be investigated projector and weiss i966 report asset shares for a sample of 2 557 households in the united states and these data have been subsequently used by feldstein i976 to examine the impact of the tax structures on asset holdings using another source uhler and cragg i97i present results on portfolio composition for 965 households focusing in particular on the holdings of money balances exploiting yet

random coefficient models for stated preference surveys abstract this paper combines the use of random coefficient discrete choice models that allow for correlated errors in the form of unobserved preference heterogeneity with an investigation of the reliability and usefulness of rankings data for the data we examine we find significant unobserved preference heterogeneity in the rankings which violates the underlying assumptions of the rank ordered logit model further directly modeling unobserved preference heterogeneity results in significant improvement in the precision of the parameter estimates and in estimated willingness to pay wtp the reliability and usefulness of rankings data should be re examined with econometric models not subject to the independence of irrelevant alternatives iia

persistence in industrial policy impacts evidence from depression era mississippi this paper studies the effects of a large scale industrial policy implemented in 1930s mississippi on contemporaneous and modern day labor market outcomes attracted by unprecedented government incentives under mississippi s balance agriculture with industry bawi program 13 large manufacturing plants established operations in the state between 1936 and 1940 using difference in differences and synthetic control matching techniques i find that counties that received these plants experienced an over 15 increase in female labor force participation on average in the short run moreover these effects persisted decades into the future well after many of the original companies shut down i also find suggestive evidence of an increase in educational attainment among women in counties where bawi investment occurred the results highlight the potential for even transitory government interventions to have long lived effects on labor markets

portfolio constraints and the fundamental law of active management active portfolio management is typically conducted within constraints that do not allow managers to fully exploit their ability to forecast returns constraints on short positions and turnover for example are fairly common and materially restrictive other constraints such as market capitalization and value growth neutrality with respect to the benchmark or economic sector constraints can further restrict an active portfolio s composition we derive ex ante and ex post correlation relationships that facilitate the performance analysis of constrained portfolios the ex ante relationship is a generalized version of a previously developed fundamental law of active management and provides an important strategic perspective on the potential for active management to add value the ex post correlation relationship represents a practical decomposition of performance into the success of the return prediction process and the noise associated with portfolio constraints we verify the accuracy of these relati

does it all add up benchmarks and the compensation of active portfolio managers in this article the authors examine theoretically the use of benchmark portfolios in the compensation of privately informed portfolio managers they find that the use of a benchmark and particularly the types of benchmarks often observed in practice cannot be easily rationalized specifically commonly used benchmark adjusted compensation schemes are generally inconsistent with optimal risk sharing and do not lead to the choice of an optimal portfolio for the investor moreover benchmarks do not help in solving potential contracting problems such as inducing the manager to expend effort or trying to screen out uninformed managers copyright 1997 by university of chicago press

heterogeneous preferences regarding global climate change we examine the structure of preferences for mitigating impacts of global climate change that will not occur during the lifetimes of most who are alive today because no market data exist for such distant markets a statedpreference approach is used the analysis is based on the random parameters logit model and the results indicate substantial heterogeneity in respondent preferences that mean willingness to pay is a significant and increasing function of the scope of the impact and provocatively that respondents have the same preferences over the two very different time horizons that we consider e examine the structure of preferences for mitigating impacts of global climate change that will not occur during the lifetimes of most who are alive today studies using current market data have estimated the potential costs of climate change on agriculture mendelsohn nordhaus shaw 1994 and on other aspects of measured production nordhaus 1994 but market data can not reveal the willingness of those currently alive to pay for measures to mitigate impacts that may not happen for 100 years or more there is serious public discussion involving diplomats at the highest levels about measures to mitigate emissions that would cost the united states alone 100 to 200 billion dollars annually therefore estimating the willingness of those currently alive to pay for mitigation measures is not a fanciful exercise but rather a crucial effort to determine how much mitigation should be undertaken it is the preferences of those alive today regarding acceptable levels of climate impacts and not the unknowable preferences of those who do not yet exist that will ultimately determine how much mitigation we pursue in the next quarter century as this question cannot be answered with market data we use the stated preference sp approach and elicit preferences for preventing climate change induced impacts a host of climate change impacts have been enumerated this study focuses on one type of impact that may be important but has received little attention from economists scientists have predicted that widespread ecosystem shifts may accompany changes in climate vemap 1995 ecosys tem shifts are likely to evolve slowly indicating that lost use values are likely to be small for those alive today yet the public may still be willing and asked to pay for mitigation measures that are designed to slow the transformation of ecosystems the current debate over climate change demon strates two things the first is that some people do care about long term changes that will never affect them or perhaps even their children the second is that preferences regarding the impacts of climate change are very heterogeneous as other members of the public appear much less concerned long term horizons combined with heterogeneous prefer ences makes ecosystem shifts a useful place to begin analyzing preferences for mitigating climate change im pacts a stated preference survey was designed that asked respondents to choose their most preferred program to reduce ecological impacts from a set menu of five or six different programs the programs varied in terms of costs the degree of ecosystem change and in the mitigation method four different menus provided to each respondent yielded four distinct valuation responses section ii de scribes the random parameters logit model for repeated choices that allows for a flexible correlation structure based on heterogeneous preferences the ecosystem change and the stated preference survey are discussed in section iii in section iv we estimate the random parameters model and estimate the willingness to pay to prevent various levels of ecosystem change section v concludes with a discussion of how the scope of the impact preference heterogeneity and the time horizon affect willingness to pay

teaching new markets old tricks the effects of subsidized investment on low income neighborhoods abstract this paper examines the effects of investment subsidized by the federal government s new markets tax credit nmtc program which provides tax incentives to encourage private investment in low income neighborhoods i identify the impacts of the program by taking advantage of a discontinuity in the rule determining the eligibility of census tracts for nmtc subsidized investment using this discontinuity as a source of quasi experimental variation in commercial development across tracts i find that subsidized investment has modest positive effects on neighborhood conditions in low income communities though spillovers appear to be small and crowd out incomplete the results suggest that some of the observed impacts on neighborhoods are attributable to changes in the composition of residents as opposed to improvements in the welfare of existing residents

testing the internal consistency of contingent valuation surveys abstract for an internal consistency check one can examine wtp responses to different surveys holding an environmental problem constant concave preferences imply wtpconcavein the success of a remedy the same preferences imply wtpconvexin the magnitude of an environmental problem assuming a successful remedy having opposite signed curvature of these two wtp patterns is general not requiring concave preferences for an adding up test an environmental commodity can be divided then wtp for one part plus wtp for the second part conditional on already having the first part equals wtp for the whole adjusted by an income effect

optimizing tracking error constrained portfolios active portfolios subject to tracking error te constraints are the typical setup for active managers tasked with outperforming a benchmark the risk and return relationship of such constrained po

efficiency risk aversion and portfolio insurance an analysis of financial asset portfolios held by investors in the united kingdom using data for the united kingdom the author shows that investors in six different wealth ranges hold mean variance efficient portfolios of financial assets this result permits him to estimate coefficients of relative risk aversion for investors in each wealth range the author finds that these coefficients are much higher than most previous studies have found this implies that investors 1 are unwilling to hold risky assets unless they are compensated with a sufficiently high risk premium and 2 are willing to pay for portfolio insurance the general nonavailability of portfolio insurance in the united kingdom appears to indicate a supply side rather than a demand side failure copyright 1996 by royal economic society

incentive fees some problems and some solutions 1987 incentive fees some problems and some solutions financial analysts journal vol 43 no 1 pp 21 26

a credible approach for measuring inframarginal participation in energy efficiency programs abstract economists have long argued that many recipients of energy efficiency subsidies may be non additional getting paid to do what they would have done anyway demonstrating this empirically has been difficult however because of endogeneity concerns and other challenges in this paper we use a regression discontinuity analysis to examine participation in a large scale residential energy efficiency program comparing behavior just on either side of several eligibility thresholds we find that program participation increases with larger subsidy amounts but that most households would have participated even with much lower subsidy amounts the large fraction of inframarginal participants means that the larger subsidy amounts are almost certainly not cost effective moreover the results imply that about half of all participants would have adopted the energy efficient technology even with no subsidy whatsoever

housing allowance and the rent of low income households this paper analyses the effect of a housing allowance programme on the rent paid by assisted low income households the data consist of 12 000 rental households in the free market and municipal sectors the effect is estimated using the programme reform of 2002 as an instrument the reform increased the allowance of the assisted households depending on housing characteristics but it had little effect on the eligibility results suggest that in the private sector one additional euro of allowance increases the rent of claimants by 60 70 cents the effect is zero in the municipal sector as rents are tied to the housing costs

a linear model for tracking error minimization abstract this article investigates four models for minimizing the tracking error between the returns of a portfolio and a benchmark due to linear performance fees of fund managers we can argue that linear deviations give a more accurate description of the investors risk attitude than squared deviations all models have in common that absolute deviations are minimized instead of squared deviations as is the case for traditional optimization models linear programs are formulated to derive explicit solutions the models are applied to a portfolio containing six national stock market indexes usa japan uk germany france switzerland and the tracking error with respect to the msci morgan stanley capital international index world stock market index is minimized the results are compared to those of a quadratic tracking error optimization technique the portfolio weights of the optimized portfolio and its risk return properties are different across the models which implies that optimization models should be targeted to the specific investment objective finally it is shown that linear tracking error optimization is equivalent to expected utility maximization and lower partial moment minimization