corporate social responsibility and profit volatility theory and empirical evidence corporate social responsibility csr implies extra care for the well being of stakeholders different from shareholders in our theoretical model we show that when this principle implies that more csr oriented companies incorporate stakeholders well being constraints it translates into higher sensitivity of profits to economic shocks our empirical analysis finds support for this hypothesis showing that csr attributes which relate to positive contributions to stakeholders well being significantly and positively affect idiosyncratic profit volatility our findings remain robust when controlled for endogeneity with instrumental variable estimates

the incentive effects of medicaid on women s labor supply this paper investigates medicaid s impact on women s labor supply behavior while taking into account medicaid s link to the afdc program the data were extracted from the 1986 current population survey a majorfinding is that medicaid valued as government provided health insurance has a significant negative impact on an average female head s probability of working for instance a i0 percent increase in medicaid would reduce a head s probability of working by 9 to 1 3 percentage points contrary to expectations medicaid is found to have a generally insignificant effect on hours worked

innovative r d and optimal investment under uncertainty in high tech industries an implication for emerging economies abstract in order to continue on the path to convergence with advanced countries emerging countries need to strengthen their research capabilities often they try to do this through the development of strategic industries the objective of this paper is to contribute to the debate on the effectiveness of policies aimed at the development of strategic industries in emerging economies the paper develops a three phase model for product innovation with capital investment under uncertainty to study the investment decisions of a manufacturer in an industry facing a volatile market demand for new inventions the findings demonstrate the importance of interactions between market structure a firm s market power and the associated cost of adjustment the paper draws out implications for emerging economies with regard to policies striving to develop strategic industries in sectors such as semiconductors and information technology

a note on competitive investment under uncertainty uncertainty over future output prices or input costs can affect investment by a riskneutral firm in two opposing ways first it can increase the value of the marginal unit of capital which leads to more investment this only requires that the stream of future profits generated by the marginal unit be a convex function of the stochastic variable by jensen s inequality the expected present value of that stream is increased this result was demonstrated by richard hartman 1972 and later extended by andrew abel 1983 and others in their models constant returns to scale and the substitutability of capital with other factors ensure that the marginal profitability of capital is convex in output price and input costs even with fixed proportions however this convexity can result from the ability of the firm to vary output so that the marginal unit of capital need not be utilized at times when the output price is low or input costs are high if investment is irreversible and can be postponed a second effect of uncertainty is to create an opportunity cost of investing now rather than waiting for new information to arrive before committing resources this increases the full cost of investing in a marginal unit of capital which reduces investment 2 hence the net effect of uncertainty on irreversible investment depends on the size of this opportunity cost relative to the increase in the value of the marginal unit of capital the sign of the net effect is significant because of its possible policy implications pindyck 1988 and giuseppe bertola 1989 developed models in which a firm faces a downward sloping demand curve and found the net effect to be negative ricardo caballero 1991 has recently studied investment by an individual firm facing a stochastically shifting demand curve he shows that as returns to scale become constant and the elasticity of demand faced by the firm rises this opportunity cost of investing now rather than waiting approaches zero thus in the limit of constant returns and an infinitely elastic demand curve an increase in uncertainty tends to raise rather than decrease current investment even if that investment is irreversible it is important to stress that caballero s limiting result treats the firm in isolation and describes the effect of a meanpreserving increase in price uncertainty and not an increase in industry wide demand uncertainty this note shows that in a competitive market the key interactions between irreversibility and uncertainty occur at the industry level and can only be understood by making price and industry output endogenous 3 doing so restores the positive opportunity cost associated with irreversible investment in addition caballero s result is based on a model with convex adjustment costs an innovative aspect of the model is that these costs can be asymmetric thereby allowing for partial or complete irreversibility complete irreversibility corresponds to a cost of massachusetts institute of technology cambridge ma 02139 this work was supported by the national science foundation under grant no ses 8618502 and by mit s center for energy policy research my thanks to julio rotemberg and especially ricardo caballero for very helpful comments and discussions 1then the marginal profit of capital at each time t in the future is max o pt ct where ct is variable cost thus a unit of capital represents a set of all options on future production which are worth more the greater the variance of pt or ct 2for a detailed discussion of this point and a survey of the recent literature on irreversibility and its implications for investment and market evolution see pindyck 1991 3studies that make price endogenous include steven lippman and richard rumelt 1985 avinash dixit 1989 1991 and john leahy 1990

technology acquisition with technological progress effects of expectations rivalry and uncertainty abstract we study the effect of expectations regarding technological progress on a firm s technology adoption decision in a duopoly new generation technologies become available one in each period with successive generations representing better and better performance a game theoretic framework is used involving two identical firms competing in the same market over two periods it is shown that expectations retard adoption of the first period technology it is also shown that an asymmetric equilibrium results in higher social welfare and that more investment does not necessarily mean higher levels of welfare uncertainty is shown to have either no effect or a negative effect on the adoption of the current technology when nash equilibrium holds however when subgame perfect equilibrium holds uncertainty has a more complicated effect and numerical examples show that it may even encourage the adoption of the current technology relative to the deterministic equilibrium

monetary policy macro stability and growth there is greater appreciation now amongst economists of the negative effect of uncertainty on investment growth and equality especially when credit constraints are widespread this implies an important linkage between the transparency and predictability of the policy environment and growth and equality the paper begins with a literature survey on the inflation and inflation volatility link the uncertainty and investment link and the inflation volatility and growth link this framework is used to examine the experience of south africa s new monetary policy regime inflation targeting it in achieving greater macrostability south africa is an interesting case study being one of the more advanced of the emerging markets with its deep and sophisticated financial system and yet with around 35 percent unemployment and a legacy of developmental problems from the apartheid era the authors demonstrate using evidence from three sources of micro data that the new monetary regime is more credible transparent and predictable they examine the performance of monetary policy and argue it has not resulted in real interest rate levels that are a hindrance to growth they explore the better response under it to big external shocks like exchange rate depreciation as compared with the monetary regime prior to it the paradox is examined of success in achieving macro stability where greater household acquisition of debt and increased demand is both inflationary and limits saving hence constraining corporate investment the paper concludes with lessons from south africa s recent successful monetary policy experience for other emerging market countries and for less developed countries central banks e g in africa

renewable energy finance and project ownership the impact of alternative development structures on the cost of wind power abstract this paper uses traditional financial cash flow techniques to examine the impact of different ownership and financing structures on the cost of renewable energy specifically wind power most large non hydroelectric renewable energy projects are developed owned and financed by private non utility generators recently however us utilities have begun to consider owning and financing their own wind power facilities rather than purchasing power from independent renewable energy suppliers utilities in other countries have also expressed interest in direct renewable energy investments a primary justification for utility ownership of wind turbine power plants is that utility self financing and ownership is cheaper than purchasing wind energy from non utility renewable energy suppliers the results presented in this paper support that justification although some of the estimated cost savings associated with utility ownership are a result of suboptimal utility analysis procedures and implicit risk shifting financing terms and variables are shown to significantly impact wind power costs

the effect of business risk on manufacturing investment sectoral survey evidence from ireland abstract this paper analyses the results of a special sample survey on risk and investment carried out using the european union investment survey sampling frame for ireland the paper looks at decision making by large manufacturing firms located in ireland to see whether their investment decisions can be understood within the various models of risk that economists use equilibrium and disequilibrium models are examined to see what best explains the behaviour revealed by the firms responses the paper develops a categorisation of the main theoretical channels of influence from risk to investment in the light of this theory the survey replies of irish firms are used to assess the importance of the different channels of influence

fast high precision decision rules for valuing manufacturing flexibility abstract the valuation of flexible manufacturing systems is one of the most frequently undertaken productivity improvement activities in practice the introduction of an fms into industry must be done on the basis of cost justification recently developed techniques for the evaluation of the value of flexibility typically include the computation of stochastic dynamic programs however the computational effort of stochastic dynamic programs grows combinatorially and limits application to real world problems in this contribution we derive fast approximations to the stochastic dynamic program and compare their results to the exact solution the proposed methods show an excellent worst case behavior 1 for a wide range of volatility of the underlying stochastic profit margins and costs for switching the production mode the computational effort is reduced by a factor of more than 200

the medicaid notch labor supply and welfare participation evidence from eligibility expansions i assess the impact of losing public health insurance on labor market decisions of women by examining a series of medicaid eligibility expansions targeted toward young children these targeted expansions severed the historical tie between afdc and medicaid eligibility the reforms allowed a mother s earnings to increase without losing public health insurance for her young children increasing the income limit for medicaid resulted in a decrease in afdc participation and an increase in labor force participation among these women the effects were large for ever married women and negligible for never married women

investment and competition this paper examines how industry structure affects corporate investment patterns real options theory shows that deferring irreversible investment in the face of uncertainty is valuable theory also shows that the value of waiting to invest falls if investment opportunities are contestable consistent with these theories we find that firms in monopolistic industries exhibit lower investment q sensitivity and are slower to invest than firms in competitive industries however we find that investment q sensitivity and investment speed are highest in oligopolistic industries suggesting that the value of investing strategically can outweigh the value of waiting indeed oligopolistic industries experience less entry and more exit than other industries

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

product market competition and the impact of price uncertainty on investment some evidence from us manufacturing industries the authors estimate the impact of price uncertainty on investment using a panel of u s manufacturing industries pooling the data for all industries uncertainty has no impact on current investment however for industries that have low levels of seller concentration and thus are likely to be highly competitive the estimated impact is negative and statistically significant while for industries with high levels of seller concentration the impact is always small and not significantly different from zero the finding of a negative relationship between investment and price uncertainty in competitive industries is broadly consistent with models that incorporate irreversibility of capital investment copyright 1996 by blackwell publishing ltd

welfare recipient work choice and in kind benefits in washington state we analyze the work choice of welfare recipients potential welfare recipients compare their on and off welfare utility from after tax income and in kind benefits via employment or welfare and choose whether to work our null hypothesis which we reject is that benefits affect only the decision to work or not not the hours worked which will depend on wages using temporary assistance for needy families tanf administrative data from washington state we find that employer provided health insurance and child care subsidies significantly raise exit rates of tanf recipients and induce greater work effort other work inducing factors include wages and the earned income tax credit while increased levels of medicaid food stamps and the income guarantee increase welfare dependency

cross state variation in medicaid programs and female labor supply john c navin using a pooled cross section data set from the 1980 through 1993 current population survey march supplements we test if different medicaid benefit levels across states impact the labor supply behavior of female heads of households the ordinary least square ols results support the prediction that medicaid expenditures reduce labor supply controlling for state fixed or random effects alters the effect of both afdc and medicaid on the decision to participate as well as the number of hours worked we also find that while the effects of program generosity are sensitive to the inclusion of state effects those of variation in eligibility thresholds are not jel j22 i introduction the issue of the design and effects of government policies aimed at providing support for children is at the center of an ongoing national debate social scientists policy makers and the public at large have all focused their attention on the benefits and perhaps even more so the costs to society of this support network these costs are perceived to take not just monetary forms but also to have adverse incentive effects in terms of work out of wedlock births divorce etc much of this debate has focused on the adverse effects of the cash components of welfare aid for families with dependent children afdc and food stamps but recently other programs have become embroiled in this debate as the costs of health care have risen government provided medicaid benefits have also come under increasing scrutiny medicaid expenditures are one of the fastest rising components of state budgets state medicaid spending rose by 80 in real terms between 1980 and 1990 rising from 19 1 billion to 33 7 billion further state medicaid expenditures increased even more dramatically in the past few years rising about 19 in 1990 91 and 22 5 in 1991 92 up until the mid 1980s medicaid coverage was primarily limited to recipients of afdc and indigent senior citizens over the last ten years however medicaid coverage has been altered to include individuals with incomes above the afdc maximum primarily pregnant women or children whose parents have incomes at or slightly above the poverty line despite the fact that medicaid is a federally mandated program there is a large amount of latitude as to the number and types of individuals and services that each state can choose to cover this state freedom implies that there are basically 51 different medicaid programs in the united states washington d c also participates in medicaid because of this there is a large variance in per recipient medicaid expenditures across states in 1992 for example annual per recipient medicaid expenditures for afdc adults ranged from a high of 2 937 in louisiana to a low of 575 in mississippi 1 recently economists and other social scientists have used the cross state variation in these programs as a form of natural experiment that allows them to access the effectiveness and adverse incentive effects of these programs in this article we use this approach to add to the literature on the effects of these programs on labor supply first we construct three new measures of the value of medicaid benefits to adults children and families which vary across states and time these alternate measures will allow us to test for the sensitivity of the conclusions from previous studies to the measure of medicaid value used previous work on medicaid and female labor supply has used measures of state level medicaid spending which included spending on the elderly and disabled since these groups account for a substantial share of all medicaid expenditures and they are not randomly distributed across states this has the potential to bias the reported results second because there is substantial variation acr oss states in their labor market characteristics demographic mixes and other factors which are potentially correlated with both labor supply and benefit generosity our analysis checks for the sensitivity of the results to the inclusion of state fixed and random effects

integrating financial theory and methods in electricity resource planning decision makers throughout the world are introducing risk and market forces in the electric power industry to lower costs and improve services incentive based regulation ibr which replaces cost of service ratemaking with an approach that divorces costs from revenues exposes the utility to the risk of profits or losses depending on their performance regulators also are allowing for competition within the industry most notably in the wholesale market and possibly in the retail market two financial approaches that incorporate risk in resource planning are evaluated risk adjusted discount rates radr and options theory ot these two complementary approaches are an improvement over the standard present value revenue requirement pvrr however each method has some important limitations by correctly using radr and ot and understanding their limitations decision makers can improve their ability to value risk properly in power plant projects and integrated resource plans

public health insurance expansions and labour supply of married women the state children s health insurance programme while the relationships between health insurance and the labour supply of women have been explored in the literature little is known about the effects of offering public health insurance on the labour supply decisions of married women this article examines the labour supply decisions of married women using the state children s health insurance programme our empirical analysis implies that certain groups of married women may be leaving the labour force in order to provide public health insurance for their children we conclude that the programme causes unexpected efficiency losses through distorted labour supply decisions

real options delay vs pre emption do industrial characteristics matter this paper presents an empirical study of the channels of influence from uncertainty to fixed investment suggested by real options theory using panel data from the confederation of british industry cbi industrial trends survey we report ols estimates of the impact of uncertainty on investment where the regressors are augmented by cross sectional averages of the dependent variable and of the individual specific regressors as recently suggested by pesaran pesaran m h 2006 estimation and inference in large heterogeneous panels with a multifactor error structure econometrica 74 967 1012 the cross industry pattern of results is checked for consistency with the pattern predicted by real options theory using a specially constructed data set of industrial characteristics we find that irreversibility is able to predict the pattern detected but only when combined with a measure of the information advantage of delay there is also evidence for expansion options effects industries with high r d and advertising intensities tend to have positive uncertainty effects

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

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

investment with uncertain tax policy does random tax policy discourage investment we consider the impact of tax policy uncertainty on firm level and aggregate investment comparing investment behaviour when uncertainty is due to a shock following geometric brownian motion gbm versus when random discrete jumps in tax policy occur expectations of the likelihood of a tax policy switch have an important negative impact on the gain to delaying investment in the latter model and time to investment can fall with increasing tax policy uncertainty aggregate investment simulations indicate that capital formation is adversely affected by increases in uncertainty in the traditional gbm model but can be enhanced in the jump process model

industry wide versus firm specific uncertainty and investment british company panel data evidence this paper presents evidence on the prediction that the impacts of firm specific and industry wide uncertainty on investment will be different results show that these work in opposing directions and that the effect of industry specific uncertainty is stronger in concentrated industries

evaluation of different hedging strategies for commodity price risks of industrial cogeneration plants abstract in this paper we design and evaluate eight different strategies for hedging commodity price risks of industrial cogeneration plants price developments are parameterized based on eex data from 2008 to 2011 the probability distributions derived are used to determine the value at risk var of the individual strategies which are in a final step combined in a mean variance portfolio analysis for determining the most efficient hedging strategy we find that the strategy adopted can have a marked influence on the remaining price risk quarter futures are found to be particularly well suited for reducing market price risk in contrast spot trading of co 2 certificates is found to be preferable compared to forward market trading finally portfolio optimization shows that a mix of various hedging strategies can further improve the profitability of a heat based cogeneration plant

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

absenteeism efficiency wages and shirking we investigate the absence behaviour of workers when there is asymmetric information regarding worker health an individual s health is assumed to be private information to that individual and only observable to a third party at cost our aim is to complement the existing largely empirical studies of absence behaviour which have tended to treat the phenomenon exclusively as a labour supply decision on the part of workers cf allen 1981 barmby and treble 1991 barmby orme and treble 1991 and dunn and youngblood 1986 our approach is to draw out the interactive aspects of the employment relationship we assume that workers are ex ante uncertain as to their state of health and supply labour on the basis of an all or nothing utility maximising decision taken once a realisation of this state has been received utility is a function of income leisure and health and workers value leisure more the sicker they are firms are able to exert some control over individual behaviour by monitoring workers and threatening to fire shirkers that is workers absenting themselves with unacceptable sickness our model highlights an efficiency wage effect through which wages may be used as a method of absence control in particular the optimal response of the firm to an increase in the cost of monitoring is to discourage shirking by raising wages furthermore to the extent that

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

investment under uncertainty and the value of the firm abstract the investment behavior of a monopolistic firm with a constant returns to scale production function facing a randomly shifting elastic demand is examined uncertainty can have a negative effect on the value of the firm and on investment

hedging the value of waiting abstract we analyze the optimal hedging policy of a firm that has flexibility in the timing of investment conventional wisdom suggests that hedging adds value by alleviating the under investment problem associated with capital market frictions however our model shows that hedging also adds value by allowing investment to be delayed in circumstances where the same frictions would cause it to commence prematurely thus hedging can have the paradoxical effect of reducing investment we also show that greater timing flexibility increases the optimal quantity of hedging but has a non monotonic effect on the additional value created by hedging these results may help explain the empirical findings that investment rates do not differ between hedgers and non hedgers and that hedging propensities do not depend on standard measures of growth opportunities

research and development cash flow agency and governance uk large companies this paper investigates the determinants of r d expenditure using a sample of uk listed companies with the highest spend from 2000 to 2005 we investigate the effect of corporate governance and ownership on r d using panel data the results provide some evidence that more governance tends to depress r d activity a finding that is robust to whether a composite or disaggregated index of governance is used one innovation of the paper is that we treat agency and finance effects interactively the ownership stake of the ceo appears to be supportive for r d

social interactions in labor supply our research examines the effect of interdependence on estimation and interpretation of earnings labor supply equations we consider the cases of 1 a positive spillover from others labor supplied and 2 a need for conformity with others labor supplied qualitative and quantitative comparative statics results with a stone geary utility function demonstrate how spillover effects increase labor supply uniformly alternatively conformity effects move labor supplied toward the mean of the reference group so that in the limit labor supply becomes perfectly inelastic at the reference group average when there are unmodeled exogenous social interactions conventional wage elasticities are still relatively well estimated although structural parameters may not be omitting endogenous social interactions may seriously misrepresent the labor supply effects of policy however jel d11 j22 z13

welfare effects on female headship with area effects the existing literature on welfare effects on female headship in the united states shows significant positive correlations in cross section possibly increasing over time however when geographic or area effects are permitted in the estimation these correlations either disappear or reverse in sign the results have implications for the study of welfare effects in other countries including canada where benefits vary considerably across provinces and localities within them

firms investment decisions in response to demand and price uncertainty we investigate the effect of demand and price uncertainty on firms planned and realized investment from a panel of manufacturing firms uncertainty measures are derived from firms own expectations about demand and prices and firm s sales we find that demand uncertainty at the time of planning depresses planned and subsequent realized investment firms do not revise their plans due to demand uncertainty at the time of spending suggesting that reducing demand uncertainty will only have lagged effects on investment we do not find any effect of price uncertainty our results are consistent with the behaviour of monopolistic firms with irreversible capital

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

the role of information and social interactions in retirement plan decisions evidence from a randomized experiment this paper analyzes a randomized experiment to shed light on the role of information and social interactions in employees decisions to enroll in a tax deferred account tda retirement plan within a large university the experiment encouraged a random sample of employees in a subset of departments to attend a benee ts information fair organized by the university by promising a monetary reward for attendance the experiment multiplied by more than e ve the attendance rate of these treated individuals relative to controls and tripled that of untreated individuals within departments where some individuals were treated tda enrollment e ve and eleven months after the fair was signie cantly higher in departments where some individuals were treated than in departments where nobody was treated however the effect on tda enrollment is almost as large for individuals in treated departments who did not receive the encouragement as for those who did we provide three interpretations differential treatment effects social network effects and motivational reward effects to account for these results

time to build and fluctuations in bulk shipping abstract this paper explores the nature of fluctuations in world bulk shipping by quantifying the impact of time to build and demand uncertainty on investment and prices we examine the impact of both construction lags and their lengthening in periods of high investment activity by constructing a dynamic model of ship entry and exit a rich dataset of secondhand ship sales allows for a new estimation strategy resale prices provide direct information on value functions and allow their nonparametric estimation we find that moving from time varying to constant to no time to build reduces prices while significantly increasing both the level and volatility of investment jel g31 l11 l62 l92

quantifying the impact of r d on pv project financing costs abstract energy technology research and development r d typically focuses on advancing the performance and reducing equipment and installation costs however such r d can also have significant indirect impacts on other factors incorporating the impact that r d activities have on financing costs can provide a more complete picture of the consequences of these decisions and may allow policymakers to make better decisions in this paper we discuss some historical examples of r d impacting financing costs in the solar energy sector summarize the areas of r d that can impact financing and describe methodological approaches that can be used to quantify the impact of r d on financing costs and as a result the levelized cost of energy lcoe we estimate that r d driven reductions in financing costs in the solar sector from current levels to low risk levels could reduce lcoe approximately 25 alternatively without the r d advances needed to prevent future risks and complications financing costs in the solar sector could increase by as much as 115

the consumption effects associated with filing for personal bankruptcy this article examines the response of food consumption to filing for personal bankruptcy in the spirit of previous work on the benefits of other social insurance programs using the panel study of income dynamics psid we find that an increase in the financial benefit to filing for bankruptcy increases the growth in food consumption in addition we find that filing under chapter 7 of the bankruptcy code provides consumption insurance while filing under chapter 13 of the bankruptcy code provides no significant consumption benefits personal bankruptcy in the united states is part of the social insurance structure provided by the federal and state governments other programs in this network include but are not limited to unemployment insurance ui temporary assistance to needy families tanf and food stamps while these latter three programs are targeted to specific groups the recently unemployed for ui and low income households for tanf and food stamps personal bankruptcy is not much like these other programs though bankruptcy reduces income uncertainty and reduces wealth uncertainty surprisingly little work has been done on the direct benefits to filing for bankruptcy this is in contrast with the growing literature on the costs of bankruptcy 1 fay hurst and white 2002 estimate the financial benefit to filing for bankruptcy which equals the debt forgiven minus any lost assets this measure is a good predictor of whether the household files for bankruptcy but it is not clear that the financial benefit is the true measure of the welfare gain from bankruptcy in fact the financial benefit is most likely an overestimate of the household s gain in the year it files for bankruptcy unlike ui or tanf bankruptcy provides no increase in money income for that period but rather increases net of debt income this change is felt over the household s lifetime and filers will most likely smooth this effect over multiple years because households cannot file for bankruptcy again for six years further using the financial benefit makes it difficult to compare results against the

teams teamwork and absence we argue that firms with interdependent worker productivity team production have a higher cost of absence and as a consequence spend additional resources on monitoring absence as a result firms with team production should have lower absence rates we estimate the determinants of absence for blue collar workers using a sample of german manufacturing establishments workplace teams are used as a proxy for team production the estimates reveal that firms with teams have lower absence rates as do smaller establishments the size effect however is unique to establishments with teams which fits prior theoretical work that has not been previously tested

valuation for renewable energy a comparative review abstract environmental cost benefit analysis is applied for the evaluation of renewable energy projects since some benefits and costs do not have monetary values economic valuation techniques are applied to estimate them this paper reviews the literature on the valuation evaluation of renewable energy resources and summarizes the methods used in them it discerns four main streams of valuation in renewable energy the first is economic welfare oriented and comprises stated and revealed preference methods the second is the financial option analysis with a financial background the third is emergy analysis which is mostly an ecological engineering based method with capable economic links and the fourth is again economic but not welfare based the paper discusses the main directions discerned in these studies and recognizes first that proper valuation takes place only in the first method while the other methods describe only evaluation procedures and second that there is a research gap that has yet to be filled in as compared to other areas of environmental resource and energy economics

interdependence in worker productivity this paper investigates interactions between co worker productivity levels in a rich empirical context workers have unambiguous output measures compensation that depends on individual and group output to differing degrees and potential peers beyond their immediate work group important productivity interdependencies exist which could arise from the group based component of compensation peer pressure common supervisors or information exchanges but not group based output or technological interdependence workers with the strongest individual incentives seem least sensitive to these interactions in contrast they are important to workers with no individual incentives for these workers peer pressure must be a powerful influence copyright 2003 john wiley sons ltd

looking after number two competition cooperation and workplace interaction abstract we look for cooperation in a real world setting in which optometrists absent less frequently in two chair than one chair offices because of the externality such behavior imposes on their co worker we motivate our empirical analysis by developing a model of worker interdependence in which two workers can either compete or cooperate we show that relative to a single worker working in isolation competition unequivocally increases absence whilst cooperation may increase or decrease absence our empirical analysis of a unique data set finds explicit support for cooperative behavior

optimal investment with lumpy costs abstract in this paper we analyze a continuous time model of investment with uncertainty irreversibility and a broad class of lumpy adjustment costs we show that the two components of the optimal investment strategy the investment trigger and the investment increment can be found sequentially and that the optimal investment increment maximizes a closed form function solving the model numerically we find that adding a relatively small amount of variable adjustment costs often leads firms to invest in much smaller increments we derive a measure of user cost that incorporates lumpy investment and use it to show that as firms invest in bigger increments the investment trigger increases as well

the use of real options approach in energy sector investments abstract energy shortage global warming and climate change led to an increase in the use of alternative sources of energy with renewable energy sources res playing a fundamental role in this new energetic paradigm however the investment costs often constitute a major barrier to their spread use moreover the overall benefits of renewable energy technologies are often not well understood and consequently they are often evaluated to be not as cost effective as traditional technologies from the moment that the energy sector started a deregulation process with a high level of competitiveness and associated increased market uncertainty traditional project evaluation techniques alone became insufficient to properly deal with these additional risk and uncertainty factors the diffusion of the renewable energy technologies is also affected by this feature the way investors evaluate their investments call now for the use of more sophisticated evaluation techniques real options approach can deal with these issues and as so began to be considered and applied for the energy sector decision aid this approach it is now extensively widespread in evaluating investment projects in the energy sector a large set of applications in almost all fields of energy decision making from electricity generation technologies appraisal to policy evaluation is available in the literature however the use of this technique in the field of res is still limited and worth to be analysed this paper addresses this issue a review of the current state of the art in the application of real options approach to investments in non renewable energy sources and res is presented giving perspectives for further research in this field

investment irreversibility and financing constraints evidence from a panel of transition economies abstract focusing on a panel of unlisted firms from transition economies we observe that only firms facing low irreversibility exhibit high and significant investment cash flow sensitivities our findings provide a new explanation for why some financially constrained firms may exhibit low sensitivities

social interactions and schooling decisions abstract the aim of this paper is to study whether a child s schooling choices are affected by the schooling choices of other children identification is based on a randomized targeted intervention that grants a cash subsidy conditional on school attendance to a subgroup of eligible children within small rural villages in mexico progresa this policy change spills over to ineligible children if social interactions are relevant results indicate that the eligible children tend to attend school more frequently and the ineligible children acquire more schooling when the subsidy is introduced in their local village moreover the overall effect of progresa on eligible children is the sum of a direct effect due to cash transfers and an indirect effect due to changes in peer group schooling interestingly the social interactions effect is almost as important as the direct effect

on the real effects of inflation and inflation uncertainty in mexico we estimate an augmented multivariate garch m model of inflation and output growth for mexico at business cycle frequencies the main findings are 1 inflation uncertainty has a negative and significant effect on growth 2 once the effect of inflation uncertainty is accounted for lagged inflation does not have a direct negative effect on output growth 3 however as predicted by friedman and ball higher average inflation raises inflation uncertainty and the overall net effect of average inflation on output growth in mexico is negative that is average inflation is harmful to mexican growth due to its impact on inflation uncertainty 4 the mexican presidential election cycle significantly raises inflation uncertainty both during the year of the election and the year following the election which has correspondingly negative effects on output growth