a general mean variance approximation to expected utility for short holding periods the mean variance model is precisely consistent with the expected utility hypothesis only in the special cases of normally distributed security returns or quadratic utility functions there is little evidence however that security returns follow normal distributions see 13 for references and quadratic preferences can be shown to generate implausible results exhibiting increasing absolute risk aversion in the pratt ll arrow 1 2 sense and displaying negative marginal utility after some finite wealth level in addition hakansson 4 has shown that single period mean variance efficient portfolios can have disastrous consequences over time even when return distributions are stationary such criticisms of the mean variance approach within the von neumann morgenstern framework have prompted several writers to suggest that investors maximize the expected value of utility functions with more realistic properties while others have criticized the single period focus of the model one popular alternative utility function is the logarithmic function which exhibits decreasing absolute risk aversion and conveniently leads to myopic decision processes through time i e investors treat each period as if it were the last basing investment decisions on that period s wealth and return distributions only 8 4 other utility functions with constant relative risk aversion such as the power function also imply myopic decision rules within a multiperiod setting

an analysis of preemptive behavior in the titanium dioxide industry abstract much of the recent theoretical work on oligopoly theory focuses on preemptive capital expansion this paper continues this work by testing whether dupont s behavior in the titanium dioxide industry was consistent with the capital commitment model between 1972 and 1977 this is different from previous empirical papers analyzing preemptive capital expansion because it focuses on strategic behavior in a specific industry and because the hypothesis tests in this paper are based on a formal model of firms optimizing behavior the results lend support to the conclusion that dupont committed capital to preempt the smallest five firms in the industry between 1972 and 1977

carbon subsidies taxes and optimal forest management we consider the effect of carbon credit payment schemes on forest owners land use and harvest decisions we study two possible credit allocation regimes one where credits are allocated according to the actual amount of carbon sequestered by the trees on a piece of land and another where credits are allocated according to the long run potential to sequester carbon on the land using a real options model with uncertain future timber prices we examine the effect on the timing of harvests and the replanting abandonment decision we show that both schemes discourage deforestation compensating growers for actual carbon sequestration leads to longer rotation periods between harvests while basing compensation only on the long run potential level of sequestration induces shorter rotation periods the former scheme leads to greater benefits of carbon sequestration at lower cost than the latter scheme although inducing moderate levels of sequestration is expensive under both schemes the cost falls dramatically when the level of payments climbs above some threshold indeed providing the payments are sufficiently generous carbon credit payment schemes offer an effective means of increasing carbon sequestration

introducing new futures contracts reinforcement versus cannibalism abstract in order to assure survival futures exchanges around the world are in constant search of new futures contracts that will generate a profitable level of trading volume introducing new futures contracts may increase or decrease the volume for those contracts already listed using a multi product hedging model in which the perspective has been shifted from portfolio to exchange management we study these effects using data from two exchanges that differ regarding assets traded and market liquidity amsterdam exchanges versus chicago board of trade we show the usefulness of the proposed method the method may also be used to evaluate the benefits for exchanges that plan to internationalize their activities by merging with another exchange or by cross listing other exchanges futures contracts

hedging crude oil using refined product a regime switching asymmetric dcc approach abstract in this paper we explore the strategy on hedging crude oil using refined product we develop a regime switching asymmetric dcc rs adcc model by taking into account both of regime switching and asymmetry in correlations our out of sample findings indicate that rs adcc displays greater hedging effectiveness than some conventional multivariate garch heating oil can better hedge crude oil than gasoline

on the sensitivity of mean variance efficient portfolios to changes in asset means some analytical and computational results tbis paper investigates the sensitivity of meanvariance mv efficientportfolios to changes in the means of individual assets when only a budget constraint is imposed on the investment problem the analytical results indicate that an mv efficient portfolio s weights mean and variance can be extremely sensitive to cbanges in asset means when nonnegativity constraints are also imposed on the problem the computational results confirm that a positively weigbted mv efficient portfolio s weigbts are extremely sensitive to cbanges in asset means but the portfolio s returns are not a surprisingly small increase in the mean of just one asset drives balf the securities from the portfolio yet the portfolio s expected return and standard deviation are virtually uncbanged this paper supersedes should investors hold well diversified portfolios financial support from the natural science and engineering research council of canada is gratefully acknowledged we also acknowledge the most capable assistance of ruth cornale simon ng jean marc potier and frederick shen the paper was presented at simon fraser university and the western finance association meetings in san diego we thank the participants especially stephen brown john herzog john heaney ray koopman and bruce lehmann and the editors jon ingersoll and chester spatt for

mothers employment and their children s schooling a joint multilevel analysis for india this paper studies the relationship between mothers employment and children s schooling in india using the second national family health survey the results of a multilevel probit model show that the correlation between mothers employment and their children s schooling is negative women in poorer households are more likely to work but given the negative correlation their additional income does not seem sufficient to enable children s school attendance a sensitivity analysis on wealth deciles shows that this negative relationship disappears in urban areas and becomes weaker in rural areas at the top wealth deciles

hidden child labor determinants of housework and family business work of children in 16 developing countries summary two forms of hidden child labor housework and family business work are studied for 178 000 children in 16 african and asian countries about 30 of african children and 11 of asian children work over 15 h a week in hidden child labor girls are more involved in housework and boys more in family business work but this division is not strict most 80 90 of variation is due to household factors children work less in urban less traditional and more educated areas gender differences are larger in asia probably due to a stricter form of patriarchy

a note on the geometry of shanken s csr t2 test for mean variance efficiency abstract shanken 1985 derives a test for the zero beta capital asset pricing model capm which as he points out is equivalent to a test of the mean variance efficiency of the market portfolio this note illustrates the geometry of shanken s test in the mean variance space

bayesian estimation of the global minimum variance portfolio in this paper we consider the estimation of the weights of optimal portfolios from the bayesian point of view under the assumption that the conditional distribution of the logarithmic returns is normal using the standard priors for the mean vector and the covariance matrix we derive the posterior distributions for the weights of the global minimum variance portfolio moreover we reparameterize the model to allow informative andnon informative priors directly for the weights of the global minimum variance portfolio the posterior distributions of the portfolio weights are derived in explicit form for almost all models the models are compared by using the coverage probabilities of credible intervals in an empirical study we analyze the posterior densities of the weights of an international portfolio

child labor cause consequence and cure with remarks on international labor standards although the literature on child labor is enormous it lacks a common theoretical foundation in this paper analytical survey of this field is provided keeping in mind that this is an area where the primary reason for theorizing is ultimately to influence policy overall it is noted that the literature on child labor is an illustration of abundance and anarchy although empirical writings on child labor are numerous they are not usually founded on theory it is argued that there is much that can be done in curbing the issue of child labor several theories were studied in this paper including collaborative intervention such efforts include public action which alters the economic environment such that the parents of their own accord prefer to withdraw the child from labor force another strategy involves the government a legal intervention is enforcing a total ban on the subject although such interventions have good intentions some of them may not be feasible in general it is better to take economy wide measures against child labor and if there is to be a sector specific ban it should be based on the working conditions of that sector rather than the destination of the goods

sparse and stable portfolio selection with parameter uncertainty a number of alternative mean variance portfolio strategies have been recently proposed to improve the empirical performance of the classic markowitz mean variance framework designed as remedies for parameter uncertainty and estimation errors in portfolio selection problems these alternative portfolio strategies deliver substantially better out of sample performance in this article we first show how to solve a general portfolio selection problem in a linear regression framework then we propose to reduce the estimation risk of expected returns and the variance covariance matrix of asset returns by imposing additional constraints on the portfolio weights with results from linear regression models we show that portfolio weights derived from new approaches enjoy two favorable properties sparsity and stability moreover we present insights into these new approaches as well as their connections to alternative strategies in literature four empirical studies show that the proposed strategies have better

performance of portfolios optimized with estimation error we explain the poor out of sample performance of mean variance optimized portfolios developing theoretical bias adjustments for estimation risk by asymptotically expanding future returns of portfolios formed with estimated weights we provide closed form non bayesian adjustments of classical estimates of portfolio mean and standard deviation the adjustments significantly reduce bias in international equity portfolios increase economic gains and are robust to sample size and to nonnormality dominant terms grow linearly with the number of assets and decline inversely with the number of past time periods under suitable conditions sharpe ratio maximizing tangency portfolios become more diversified using these approximation methods it may be possible to assess before investing the effect of statistical estimation error on portfolio performance

do different types of assets have differential effects on child education evidence from tanzania to assess the conventional view that assets uniformly improve childhood development through wealth effects this paper tests whether different types of assets have different effects on child education the analysis indicates that household durables and housing quality have the expected positive effects but agricultural assets have adverse effects on highest grade completed and no effects on exam performance extending the standard agricultural household model by explicitly including child labor the study uses three waves of panel data from tanzania to estimate the effects of household assets on child education the analysis corrects for the endogeneity of assets and uses a hausman taylor instrumental variable panel data estimator to identify the effects of time invariant observables and more efficiently control for time invariant unobservables the negative effect of agricultural assets is more pronounced among rural children and children from farming households presumably due to the higher opportunity cost of their schooling

uncertainty and the trade off between scale and flexibility in investment abstract this paper analyzes the behavior of a firm that chooses both the scale and timing of its investment sensitivity analysis shows that greater demand volatility is associated with the firm investing in larger increments less frequently this is in contrast to the conventional wisdom which is that greater volatility leads to investment in smaller increments more frequently overall the reduced frequency dominates the greater scale so that the long run average rate of investment is a decreasing function of demand volatility the timing and scale of investment are most sensitive to volatility when there are substantial investment economies of scale

the sampling error in estimates of mean variance efficient portfolio weights this paper presents an exact finite sample statistical procedure for testing hypotheses about the weights of mean variance efficient portfolios the estimation and inference procedures on efficient portfolio weights are performed in the same way as for the coefficients in an ols regression ols t and f statistics can be used for tests on efficient weights and when returns are multivariate normal these statistics have exact t and f distributions in a finite sample using 20 years of data on 11 country stock indexes we find that the sampling error in estimates of the weights of a global efficient portfolio is large

child labor and household land holding theory and empirical evidence from zimbabwe summary the relationship between rural household productive assets and child labor in developing countries is complex some empirical evidence shows that child labor tends to increase as land holding increases or there is an inverted u shaped curve relationship between the probability of putting children to work and land holding this paper shows that the relationship between use of children as laborers and land holding is nuanced child labor generally decreases as per capita land holding increases but there can be an upward bump in the relationship between child labor and landholding near the middle of the range of land per capita the bump can be explained theoretically by the relationship between the marginal productivity of a child worker on the farm and the marginal value placed on his her education at different levels of wealth this pattern is repeated in three surveys conducted in zimbabwe in 2001 2007 8 and 2010 11 from the perspective of policy making the policy maker should be alerted that the programs to promote school retention should not necessarily focus only on the poorest households in rural areas there is a high probability that middle wealth households put their children to work and this probability may change by some other factors such as gender of child and agro ecological conditions

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

entry deterrence by timing rather than overinvestment in a strategic real options framework this paper examines a dynamic incumbent entrant framework with stochastic evolution of the inverse demand in which both the optimal timing of the investments and the capacity choices are explicitly considered we find that the incumbent invests earlier than the entrant and that entry deterrence is achieved through timing rather than through overinvestment this is because the incumbent invests earlier and in a smaller amount compared to a scenario without potential entry if on the other hand the size of the investment is exogenously given the investment order changes and the entrant invests before the incumbent does

why does child labor persist with declining poverty we develop a dynamic overlapping generations model to highlight the role of income inequality in explaining the persistence of child labor under declining poverty differential investment in two forms of human capital schooling and health in the presence of inequality gives rise to a nonconvergent income distribution in the steady state characterized by multiple steady states of relative income with varying levels of education health and child labor the child labor trap thus generated is shown to preserve itself despite rising per capita income policy recommendations include public provision of education targeted toward reducing schooling costs for the poor or raising the efficacy of public health infrastructure jel i1 j2 o1 o2

does child labor decline with improving economic status between 1993 and 1997 child labor in vietnam declined by nearly 30 percent while the country s gdp grew by nearly 9 percent per year on average using a simple nonparametric decomposition i investigate the relationship between improvements in per capita expenditure and child labor with a panel data set that spans this episode of growth in vietnam improvements in per capita expenditure can explain 80 percent of the decline in child labor that occurs in households whose expenditures improve enough to move out of poverty this finding suggests a previously undocumented role for economic growth in the amelioration of child labor

cheap talk and investment rivalry in the pulp and paper industry determinants of the abandonment of previously announced capacity expansions are analyzed in eleven industries within the north american pulp and paper sector given the investor s initial confidence extent of precommitment of resources and post announcement fresh news abandonment s likelihood increases with unanticipated projects subsequently announced by rivals the process suggests a continual auction with the winning projects and firms having certain systematic properties unexpected announcements by rivals promote abandonment only in less concentrated industries elsewhere completion is actually encouraged short run price competition is found highly sensitive to capacity utilization and the market s geographic scope is tested

child labour a review of recent theory and evidence with policy implications in recent years a growing number of authors have turned their attention to the question of why children work the purpose of this paper is to review some of the more recent theoretical and empirical research into the topic of child labour and to illustrate the fact that no one factor on its own can account for the phenomenon of child labour therefore policies aimed at eradicating child labour will need to address the broad range of underlying factors that contribute to the incidence of child labour such as poverty market imperfections and access to education

the effect of food price changes on child labour evidence from uganda abstractmost people in developing countries spend up to 60 per cent of their income on food even though the majority of them are farmers hence a change in food prices affects both their revenue

explaining investment dynamics in u s manufacturing a generalized s s approach we are grateful to olivier blanchard whitney newey james stock an editor three anonymousreferees and seminar participants at brown cepr champoussin chicago columbia econometric society meetings caracas and tokyo efcc harvard impa lse nber princeton rochester site toronto u de chile and yale for their comments financial support to caballero from the national science and sloan foundations and to engel from fondecyt grant 195 510 and the mellon foundation grant 9608 is gratefully acknowledged 2since plants entry is excluded from their sample these statistics are likely to represent lowerbounds on the degree of lumpiness in plants investment patterns 3we use the word project to emphasize the fact that the actual implementation of a projectmay cover more than a year observation realistic time to build aspects of investment are not incontradiction with the view that investment episodes are lumpy in nature 4 see chirinko 1994 for a survey of the empirical investment literature

home bias in open economy financial macroeconomics standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of financial globalization investors still hold a disproportionate share of local equities in their portfolio the equity home bias french and poterba 1991 we review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two country general equilibrium models we refer to this literature as open economy financial macroeconomics we focus on three broad classes of explanations i hedging motives in frictionless financial markets real exchange rate and non tradable income risk ii asset trade costs in international financial markets such as transaction costs differences in tax treatments between national and foreign assets iii informational frictions and behavioural biases these recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross border asset holdings across different types of assets equities bonds and bank lending we also present some new micro data on institutional holdings of equity at the fund level these data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment

systemic risk and international portfolio choice returns on international equities are characterized by jumps moreover these jumps tend to occur at the same time across countries leading to systemic risk we capture these stylized facts using a multivariate system ofjump diffusion processes where the arrival of jumps is simultaneous across assets we then determine an investor s optimal portfolio for this model of returns systemic risk has two effects one it reduces the gains from diversification and two it penalizes investors for holding levered positions we find that the loss resulting from diminished diversification is small while that from holding very highly levered positions is large returns on international equities are characterized by jumps 1 moreover these jumps tend to occur at the same time across countries implying that conditional correlations between international equity returns tend to be higher in periods of high market volatility or following large downside moves 2 our objective in

factor pricing in a finite economy abstract prior theoretical derivations of the arbitrage pricing theory apt bound an aggregate measure of the deviation of mean asset returns from that predicted by a linear pricing equation it is conceivable given this bound that some assets might be badly mispriced by the model in this paper a more intuitive derivation of the factor pricing equation is presented which describes the deviation on an asset by asset basis the deviation is shown to be small for assets in a realistic finite economy and is arbitrarily close to zero for those assets with arbitrarily small size relative to aggregate wealth it follows that the linear pricing equation provides a good approximation for the mean returns of all traded assets

the macroeconomics of child labor regulation we develop a positive theory of the adoption of child labor laws workers who compete with children in the labor market support a child labor ban unless their own working children provide a large fraction of family income fertility decisions lock agents into specific political preferences and multiple steady states can arise the introduction of child labor laws can be triggered by skill biased technological change which induces parents to choose smaller families the theory can account for the observation that in britain regulations were first introduced after a period of rising wage inequality and coincided with rapid fertility decline

horticultural exports female wage employment and primary school enrolment theory and evidence from senegal abstract in this paper we analyse the indirect effects of the boom in horticultural exports in senegal on child schooling the export boom has caused a dramatic increase in female off farm wage employment which led to increased female bargaining power in the household we investigate the causal effect of female wage income on primary school enrolment we develop a collective household model with endogenous bargaining power to show that if women have higher preferences for schooling than men the impact of female wage income on school enrolment will be the result of a positive income effect a negative labour substitution effect and a positive empowerment effect we address the question empirically using original household survey data from senegal we use different econometric techniques and show that female off farm wage income has a positive effect on primary school enrolment for both boys and girls and that female empowerment is specifically important for the schooling of girls our results imply that the horticultural export boom in senegal has indirectly contributed to the second and third millennium development goals of universal primary education and elimination of gender disparities in primary education

the schubert effect when flourishing businesses crowd out human capital we show that in family or household firms credit constraints can make business investment a direct competitor to educational investment we test this theory on data collected in cameroon households that are not restricted by credit constraints invest more in education when demand for the product they produce and sell increases however credit constrained households react in the opposite way when demand increases they invest less in education as predicted by our theory we obtain these results controlling for endogeneity of family size of demand conditions and credit constraints

the impact of conditional cash transfers on the amount and type of child labor this paper analyzes the impact of conditional cash transfers on the amount and type of child labor in poor households it first develops a simple theoretical model where child labor and training are chosen to maximize inter temporal household income given constraints to social household and child endowments then it conducts an empirical analysis using the randomized trial data collected to evaluate the 2006 nicaragua conditional cash transfer cct program this social program transferred wealth to poor families in rural areas of the country conditional on children s school attendance and health check ups one third of the beneficiaries received in addition a wealth transfer to begin a non agricultural business the paper finds that the cct program had a selective impact on the volume and quality of child labor reducing it in the aggregate and steering it toward skill forming activities specifically the program appears to have reduced child labor for household chores and traditional farming while increasing it for non traditional activities related to commerce and retail these require the child to develop basic skills in reading and writing arithmetic and interpersonal relationships moreover the paper finds that the source behind the increase in the better quality type of child labor is not the basic component of the program but distinctively its business grant intervention

posterior predictive and utility based approaches to testing the arbitrage pricing theory abstract to provide a framework for judging the economic significance of departures from the arbitrage pricing theory we adopt a utility based metric based on optimal portfolio choices this measure is examined using both predictive and posterior analysis our predictive analysis shows very large and economically significant departures from the model restrictions however the high level of parameter uncertainty suggests that we cannot conclusively either affirm or reject the apt our conclusions differ markedly from other studies which employ traditional significance testing procedures and in many instances fail to reject the apt restrictions

harvest decisions and asset valuation for biological resources exhibiting size dependent stochastic growth optimal harvest rules and preharvest valuation procedures are derived for biological assets with stochastic size dependent growth in a stochastic price environment these issues are analyzed as continuous time optimal stopping problems both the single rotation and ongoing rotations problems are addressed the sensitivity of harvest and valuation rules is assessed the results are compared with those derived from a myopic look ahead procedure and with the corresponding findings for age dependent growth copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

capacity choice under uncertainty in a duopoly with endogenous exit abstract applying the real options framework this article investigates the investment decision of the entrant given that an incumbent is already active both firms have an option to exit this market if the demand level falls too low the combination of three decision components capacity choice entry and exit timing results into multiple trigger strategies for the entrant in particular in the presence of a large incumbent it can either choose to coexist with its rival in a duopoly or eventually monopolize the market by installing a sufficiently large capacity the former scenario is realized when the market is large while the latter occurs when the market is small when the market is of intermediate size a hysteresis region emerges where the entrant does not take any actions and prefers to postpone investment

shadow wages and peasant family labour supply an econometric application to the peruvian sierra a striking feature of developing economies is the large proportion of the work force that is self employed lack of widespread labor market participation in the agricultural sector can pose a major obstacle to the empirical implementation of economic models of the peasant household whether because wage data are simply not available or because the assumptions required to make use of wage data stretch the bounds of credulity this paper develops a methodology for estimating a structural labor supply model for primarily self employed peasant households which holds under a general agricultural technology and set of labor market conditions the unique feature of the approach is that the opportunity cost of time or shadow wage of household workers is explicitly estimated from an agricultural production function and is subsequently used to identify a set of structural labor supply parameters recent household survey data from rural peru is employed to estimate and perform various diagnostic tests on the model the empirical findings lend support to the hypothesis that peasant households allocate their members time as if to maximize a family utility function and moreover demonstrate the tractability of the shadow wage methodology and its usefulness in estimating more elaborate time allocation models

strategic capacity investment under uncertainty this article considers investment decisions within an uncertain dynamic and duopolistic framework each investment decision involves to determine the timing and the capacity level the simultaneous analysis of timing and capacity decisions extends work on entry deterrence accommodation to consider a timing delay element we find that when applying an entry deterrence policy the first investor or incumbent overinvests in capacity for two reasons first it delays the investment of the second investor or entrant second the entrant will invest in less capacity we also find that greater uncertainty makes entry deterrence more likely

time to build option value and investment decisions abstract investment decisions and outlays are often made sequentially for example the rate at which construction proceeds is usually flexible and can be adjusted with the arrival of new information traditional discounted cash flow methods which treat the pattern of investment as fixed ignore this flexibility and understate the value of the project this paper uses contingent claims analysis to derive optimal decision rules and to value such investments we determine the effects of time to build opportunity cost and uncertainty on the investment decision for reasonable parameter values we show how a simple npv rule can lead to gross errors

bayesian asset allocation and u s domestic bias u s investors hold much less international stock than is optimal according to mean variance portfolio theory applied to historical data we investigated whether this home bias can be explained by bayesian approaches to international asset allocation in comparison with mean variance analysis bayesian approaches use different techniques for obtaining the set of expected returns by shrinking the sample means toward a reference point that is inferred from economic theory applying the bayesian approaches to the field of international diversification we found that a substantial home bias can be explained when a u s investor has a strong belief in the global mean variance efficiency of the u s market portfolio and in this article we show how to quantify the strength of this belief we also found that one of the bayesian approaches leads to the same implications for asset allocation as the mean variance tracking error criterion in both cases the optimal portfolio is a combination of the u s market por

a test for moral hazard in the labor market contractual arrangements effort and health moral hazard plays a central role in many models depicting contractual relationships involving worker effort the authors show how time series information on worker health consumption and work time can be used to measure the effort effects of payment schemes estimates from longitudinal data describing farming rural households indicate that time wage payment schemes and share tenancy contracts reduce effort compared to piece rate payment schemes and on farm employment the evidence also indicates consistent with moral hazard that the same workers consume more calories under a piece rate payment scheme or in on farm employment than when employed for time wages copyright 1994 by mit press

the tree cutting problem in a stochastic environment the case of age dependent growth abstract harvest policies are derived for growing biological assets e g forests livestock subject to stochastic age dependent growth and price uncertainty the task posed is analyzed as a continuous time optimal stopping problem for diffusion processes both single and ongoing rotation problems are considered qualitative comparative static and numerical results are provided

where are the gains from international diversification eafe and international marketlike mandates are popular with u s institutional fund sponsors the rationale seems to be that the international equity market has higher expected returns than the u s equity market and can substantially diversify u s portfolios the empirical evidence for the 1970 94 period does not support either claim nor does theory help asset pricing models do not argue that risk factors have geographically different expected returns recent research for the u s market shows that two risk factors value and size explain differences in expected returns across equity portfolios preliminary evidence suggests that the same factors work in foreign markets as well international value stocks and international small stocks diversify u s portfolios more than eafe in fact a sensible reason to diversify internationally is to load up on value stocks and small stocks without concentrating in one geographic region if one does not wish to concentrate in such stocks then international di

the economics of child labor if child labor as a mass phenomenon occurs not because of parental selfishness but because of the parents concern for the household s survival the popular argument for banning child labor loses much of its force however this assumption about parental decision making coupled with the assumption of substitutability in production between child and adult labor could result in multiple equilibria in the labor market with one equilibrium where children work and another where adult wage is high and children do not work the paper establishes this result and discusses its policy implications copyright 1998 by american economic association

an equilibrium model of investment under uncertainty this paper analyzes the optimal investment decisions of heterogeneous rms in a competitive uncertain environment we characterize rms optimal investment strategy explicitly and derive a closed form solution for rm value we show that in the strategic equilibrium real option premia are signi cant as a result rms delay investment choosing optimally not to undertake some positive npv projects the model predicts that rm returns vary over the business cycle with returns negatively skewed during expansions but positively skewed in recessions

on estimating the option value of preserving a wilderness area in this paper option pricing theory is used to analyse whether or not to preserve a wilderness area a numerical approach is demonstrated that can be applied to any generalized stochastic process the impact of assuming that amenity value follows a logistic process rather than geometric brownian motion is considered the calculation of critical levels for amenity value necessary to justify preserving a wilderness area such as the killarney provincial park in ontario or the headwaters forest in california is demonstrated the impact of changing the assumed growth and volatility of amenity value is also examined jel classifcation d81 q26 ce memoire utilise la theorie de la tarification d une option pour analyser si on doit preserver un espace naturel on utilise une approche numerique qui peut etre appliquee a tout processus stochastique generalise on examine l impact de possibilites que le profil de la valeur de la ressource dans la temps suive un processus logistique plutot qu un pattern geometrique de type brownien le texte montre le calcul des niveaux critiques de la valeur de la ressource qui seraient necessaires pour justifier la preservation d une espace naturel comme le parc provincial killarney en ontario ou les forets headwaters en californie l impact de postulats differents quant a la croissance et a la volatilite de la valeur de la ressource est examine

child labor in the global economy few issues in developing countries draw as much popular attention as child labor this paper begins by quantifying the extent and main characteristics of child labor it then considers the evidence on a range of issues about child labor fundamentally child labor is a symptom of poverty low income and poor institutions are driving forces behind the prevalence of child labor worldwide this study concludes by assessing the policy options to reduce worldwide child labor

is child labor inefficient we build a model of child labor and study its implications for welfare we assume that there is a trade off between child labor and the accumulation of human capital even if parents are altruistic and child labor is socially inefficient it may arise in equilibrium because parents fail to fully internalize its negative effects this occurs when bequests are zero or when capital markets are imperfect we also study the effects of a simple ban on child labor and derive conditions under which it may be pareto improving in general equilibrium we show that the implications of child labor for fertility are ambiguous

hedging with futures does anything beat the naive hedging strategy this paper investigates out of sample performance of the naive hedging strategy relative to that of the minimum variance hedging strategy in which the covariance parameters are estimated from 18 e

entry deterrence and hidden competition abstract this paper studies strategic investment behavior of firms facing an uncertain demand in a duopoly setting firms choose both investment timing and the capacity level while facing additional uncertainty about market participants which is introduced via the concept of hidden competition we focus on the analysis of possible strategies of the market leader in terms of its capacity choice and on the influence of hidden competition on these strategies we show that due to hidden competition the follower is more eager to invest as a result an entry deterrence strategy of the leader becomes more costly and it can only be implemented for smaller market size leaving additional room for entry accommodation the leader has incentives to prevent entry of the hidden competitor stimulating simultaneous investment if the hidden firm has a large capacity and has more incentives to apply entry deterrence in the complementary case of a small capacity of the hidden player in the first case overinvestment aimed to deter the follower s entry does not occur for a wide range of parameters values

a stochastic analysis of the tree paradigm abstract the tree paradigm which is a problem in optimal stopping has important ramifications for human capital acquisition search behavior firm entry and in the theory of renewable resources our paper extends previous work in the stochastic literature on several fronts we exhibit a tractable solution to the rotation problem for the stochastic model analyze the effects of inputs which control the growth process and illustrate our results with a multi stage learning problem

good day sunshine stock returns and the weather psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood this paper examines the relationship between morning sunshine in the city of a country s leading stock exchange and daily market index returns across 26 countries from 1982 to 1997 sunshine is strongly significantly correlated with stock returns after controlling for sunshine rain and snow are unrelated to returns substantial use of weather based strategies was optimal for a trader with very low transactions costs however because these strategies involve frequent trades fairly modest costs eliminate the gains these findings are difficult to reconcile with fully rational price setting

child labour in indonesian small industries abstract we analyse the geographic incidence of child labour in small manufacturing firms in indonesia at the village level our unique data set covers virtually all indonesian villages and urban neighbourhoods it allows us to distinguish between demand and supply side determinants of child labour we show by correcting for sample selection that a number of counterintuitive results child labour being unaffected by credit access and school proximity are the result of an interplay between supply and demand side determinants credit access and school proximity reduce child labour supply but simultaneously constitute positive location factors for firms thereby increasing the demand for child labourers to effectively reduce child labour growth oriented policies such as enhancing school and credit facilities should be complemented by policies specifically geared towards increasing school attendance

land inheritance and market transactions in uganda studies on the role of nonmarket land transactions remain limited this paper addresses two questions is land inheritance driven by underdeveloped land markets how does land inheritance influence land disposal and acquisition we use a switching regression model on household data from rural uganda we find that the initially landless or near landless households due to little or no land inheritance obtain land through land markets while those that are land rich dispose of land through land sales and bequests the results suggest that a process of land equalization is unfolding within the sample

investment flexibility as a barrier to entry abstract this paper presents a model of investment in a duopoly with firms that choose the scale and timing of investment decision making flexibility and the costs saved by investing in large steps rather than sequences of small steps determine an incumbent s ability to deter entry by a potential competitor entry occurs when these cost savings are very small or very large because the effect of increased industry capacity on the incumbent s assets in place is the same regardless of which firm invests in intermediate cases the incumbent is able to deter entry by making a smaller earlier investment than the potential entrant the smaller investment scale protects the incumbent s assets in place which offsets the incumbent s cost disadvantage from investing in smaller steps than the entrant would choose nevertheless the threat of entry constrains the incumbent s investment behavior and limits its profitability the model is solved using a combination of best response iteration and the projected successive over relaxation method

uncertainty and stepwise investment we analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points the presence of economies of scale gives rise to the following trade off lumpy investment has a lower total cost but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage our main question is how uncertainty in market development affects this trade off the answer is unambiguous and in contrast with a conventional real options intuition higher uncertainty makes the single stage investment more attractive relative to the more flexible stepwise investment strategy

optimal forest rotation when stumpage prices follow a diffusion process a key assumption in the faustmann rule for financial maturity is that stumpage prices are constant over time timber price series however exhibit wide fluctuations over time which this paper models as a lognormal diffusion process comparing the diffusion results modeled here to the fixed price faustmann results show 1 the prescribed rotation length is generally longer 2 computed stand values are higher using the diffusion model with the greatest divergence occurring when a stand is about the midpoint of a rotation 3 as the stumpage price volatility increases the gain in computed npv increases though in a nonlinear fashion

the value and allocation of time in rural botswana abstract time use data indicate that there is substantial surplus labor in rural areas of botswana with the incidence of underutilization varying by age sex and asset position time allocations are influenced by economic incentives i e income and productivity effects the more productive capital the household has the more productive work its members perform particularly its children the positive productivity effect of capital on economic work somewhat outweighs its negative income effect time allocations also are constrained by a culturally determined division of labor by age and sex which however shows some flexibility at the margin

a real options approach to the valuation of a forestry investment abstract the theory of real options is used to model the optimal tree harvesting decision the value of the option to harvest is estimated using a dynamic programming approach and a general numerical solution technique suitable for any type of stochastic process for prices the conditions under which the optimal harvest time is independent of price are examined in addition the impact of assuming future lumber prices are mean reverting is considered it is found that option value and optimal cutting time are significantly different under the mean reversion assumption compared to geometric brownian motion

child labor and household wealth theory and empirical evidence of an inverted u some studies on child labor have shown that at the level of the household greater land wealth leads to higher child labor thereby casting doubt on the hypothesis that child labor is caused by poverty this paper argues that the missing ingredient may be an explicit modeling of the labor market we develop a simple model which suggests the possibility of an inverted u relationship between land holdings and child labor using a unique data set that has child labor hours it is found that controlling for child household and village characteristics the turning point beyond which more land leads to a decline in child labor occurs around 4 ac of land per household c 2009 published by elsevier b v

on solving the multirotational timber harvesting problem with stochastic prices a linear complementarity formulation this article develops a two factor real options model of the harvesting decision over infinite rotations assuming a known stochastic price process and using a rigorous hamilton jacobi bellman methodology the harvesting problem is formulated as a linear complementarity problem that is solved numerically using a fully implicit finite difference method this approach is contrasted with the markov decision process models commonly used in the literature the model is used to estimate the value of a representative stand in ontario s boreal forest both when there is complete flexibility regarding harvesting time and when regulations dictate the harvesting date

the decision to conserve or harvest old growth forest abstract the decision to harvest or conserve old growth forest is formulated as a stochastic decision problem in continuous time uncertainty in future amenity values for standing forest and in future timber revenues for harvested forest are included in the model along with the risk of catastrophic destruction by fire pest infestation etc it is shown how the decision problem can be expressed as an optimal stopping problem which can be solved analytically the optimal decision rule is shown to depend on how the ratio of current timber value to the current expected present value of amenity benefits foregone through harvesting compares with some critical level the effects of changes in uncertainty and other parameters on the optimal rule are discussed also it is shown how the cost benefit analysis and certainty equivalence procedures lead to premature harvesting and the expected loss in survival time for these sub optimal procedures is calculated

portfolio resampling review and critique a well understood fact of asset allocation is that the traditional portfolio optimization algorithm is too powerful for the quality of the inputs recently a new concept called resampled efficiency has been introduced into the asset management world to deal with estimation error the objective of this article is to describe this new technology put it into the context of established procedures and point to some peculiarities of the approach even though portfolio resampling is a thoughtful heuristic some features make it difficult to interpret by the inexperienced portfolio resampling review and critique a comment

remittance effects on child labour evidence from burkina faso abstractthis article explores the effects of remittance receipt on child labour in an african context we focus on burkina faso a country with a high prevalence of child labour and a high rate of migration given the complex relationship between remittance receipt and household time allocation decisions we instrument remittances using economic conditions in remittance sending countries and explore heterogeneous effects across different types of potential remitters while remittances have no significant effect on child labour on average transfers reduce child labour in long term migrant households for whom the disruptive effect of migration is no longer felt we find no gender difference but remittances seem to affect mainly the labour market participation of younger children

price cap regulation and the scale and timing of investment this article shows how scale economies affect regulated firms investment behavior and welfare maximizing regulation of price and quantity regulated firms invest in smaller more frequent increments than social planners with greater investment distortions the greater the economies of scale regulators cap prices at lower levels than planners when economies of scale are moderate and at higher levels when they are substantial when quantity is also regulated the average cost of building capacity increases but the price cap decreases immediately after firms make their initial investment regulators want to transfer surplus from customers to shareholders by raising the price cap to induce additional investment

time to build and capacity choice abstract this paper studies how demand uncertainty and time to build interact in affecting irreversible investment activity using impulse control methods we find the optimal timing and size of investment for a firm such as an electric utility that considers expanding its capacity in order to meet an uncertain demand when the construction lag is short uncertainty delays investment while increasing its size once it takes place however for comparatively long and realistic times to build the sensitivity to uncertainty is drastically reduced and the results can even be reversed more uncertainty can speed up investment and reduce its size

child labor and the labor supply of other household members evidence from 1920 america this paper analyses the effect of child labor on household labor supply using 1920 us census micro data the aim of the analysis is to understand who in the household benefits from child labor in order to identify a source of exogenous variation in child labor i use state specific child labor laws i find that a rise in the proportion of working children by household is associated with no variation in parents labor supply i also find a strong negative externality among children as the proportion of working children by household rises everything else equal the probability that each child works falls while the probability that he attends school rises this suggests that parents redistribute entirely the returns from child labor to the children in the household consistent with a model of household labor supply with fully altruistic parents

a dynamic duopoly investment game without commitment under uncertain market expansion abstract we model capacity building investments in a homogeneous product duopoly facing uncertain demand growth capacity building is achieved through the addition of production units that are durable and lumpy and whose cost is irreversible while building their capacity over time firms compete a la cournot in the product market given their installed capacity there is no exogenous order of moves no commitment regarding future decisions and no finite horizon we investigate markov perfect equilibrium mpe paths of the investment game which may include episodes during which firms invest at different times a preemption pattern and episodes in which firms invest simultaneously a tacit collusion pattern these episodes may alternate and are typically several when firms have yet to invest in capacity the sole pattern that is mpe compatible is a preemption episode firms invest at different times but have equal value the first such investment may occur earlier and therefore be riskier than socially optimal when both firms hold capacity tacit collusion episodes may be mpe compatible firms invest simultaneously at a postponed time hence holding back production in the meantime thereby generating an investment wave in the industry such investment episodes are more likely with higher demand volatility faster market growth and lower cost of capital discount rate

an examination of resampled portfolio efficiency we examined the out of sample performance of using resampled portfolio efficiency an approach proposed in 1998 in international asset allocation strategies for the period january 1983 to may 2000 for most models we used to estimate expected returns using strategies based on resampled portfolio efficiency provided some benefits in terms of improved sharpe ratios and abnormal returns over using traditional mean variance strategies we found little evidence however that active mean variance strategies or resampled efficiency strategies would have generated significantly positive abnormal returns for the time period we considered

market imperfections and child labor summary this article looks into the relationship between market imperfections and child labor a rural household model shows that households with medium sized plots may increase child labor when the labor market improves contrary to the others we estimate the relationship between child labor and various measures of market imperfections in madagascar controlling for a large set of village characteristics and district fixed effects on average market imperfections increase child labor but the effects are heterogenous by land ownership and consistent with the model an improvement of markets is associated to a decrease in child labor which is suggestive of new policies to fight against child labor

child labor and schooling responses to access to microcredit in rural bangladesh microcredit has been shown to be effective in reducing poverty in many developing countries however less is known about its effect on human capital formation in this paper we develop a model examining the relation between microcredit and child labour we then empirically examine the impact of access to microcredit on children s education and child labour using a new and large data set from rural bangladesh we address the selection bias using the instrumental variable method where the instrument relies on an exogenous variation in treatment intensity among households in different villages the results show that household participation in a microcredit program may increase child labour and reduce school enrolment the adverse effects are more pronounced for girls than boys younger children are more adversely affected than their older siblings and the children of poorer and less educated households are affected most adversely our findings remain robust to different specifications and methods and when corrected for various sources of selection bias

on the equivalence of quadratic optimization problems commonly used in portfolio theory abstract in the paper we consider three quadratic optimization problems which are frequently applied in portfolio theory i e the markowitz mean variance problem as well as the problems based on the mean variance utility function and the quadratic utility conditions are derived under which the solutions of these three optimization procedures coincide and are lying on the efficient frontier the set of mean variance optimal portfolios it is shown that the solutions of the markowitz optimization problem and the quadratic utility problem are not always mean variance efficient the conditions for the mean variance efficiency of the solutions depend on the unknown parameters of the asset returns we deal with the problem of parameter uncertainty in detail and derive the probabilities that the estimated solutions of the markowitz problem and the quadratic utility problem are mean variance efficient because these probabilities deviate from one the above mentioned quadratic optimization problems are not stochastically equivalent the obtained results are illustrated by an empirical study

confidence in the familiar an international perspective one striking feature of intemrnational portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor the home bias puzzle i examine the role of investors perception of foreign investment risk on their portfolio choices the expected retumrns and risk of foreign investment are specified through an asset pricing model with the home portfolio being the benchmark asset pastor s 2000 domestic capm the model serves as a reference point around which investors can center their prior beliefs i focus on investors prior beliefs that are consistent with the literature on confidence in the familiar foreign equities in terms of both expected returns and risk being viewed less favorably than domestic equities these prior beliefs are then combined with the data on g7 equities and the revised beliefs are used to obtain the global optimal asset allocation to hold predominantly domestic equities each g7 investor has to believe that the risk of foreign investment is several times higher than the actual risk the home bias is more of a puzzle for a u s investor during the 1970s specifying investors prior beliefs around the world capm does not help resolve the puzzle

effects of public policy on child labor current knowledge gaps and implications for program design many policy instruments can be used to address or affect child labor even if they are implemented to achieve other objectives from a theoretical point of view however the impact of these policies on child labor is undetermined this paper discusses the evidence generated by rigorous evaluations on the impact on child labor of labor market programs conditional and unconditional transfers and microcredit among other social programs and interventions the study finds that although transfer programs generally tend to reduce child labor other policies risk increasing child labor especially if they affect households productive opportunities the findings also point to knowledge gaps that should be addressed in future evaluations while progress has been made over the past decade there is still much to learn about the effects of public policy on the labor participation of many children in developing countries

socioeconomic and demographic aspects of school enrollment and attendance in rural botswana as has been true for other african and non african mineral rich economies the most serious constraint on botswana s development to date has been the lack of human capital schapera notes that in traditional botswana schooling was conceived as a burden on the family because of both the new expenditures associated with schooling and the loss of the child s contribution to household production and income ashton notes that parents in botswana apparently failed to perceive the benefits of education 2 the situation has changed fundamentally since schapera and ashton wrote in the forties largely through government policy programs of school construction and teacher training schools have become relatively widespread the benefits of schooling are apparent in the labor market and are even more immediately evident at home schools often provide free meals and health care to their pupils however the schooling system may not be designed to serve sparsely populated areas completely this reflects in part the movement and social spread of botswana s rural population across villages lands and cattle posts moreover children especially in households with assets play a role in the household economy 3 as a consequence the indirect costs of schooling those noted by shapera may still be substantial in botswana today these costs in addition to the direct costs of transportation and uniforms may be prohibitive to the schooling of many children the evidence i present later shows that even primary schooling was not universal in botswana at the time of the 1974 rural income distribution survey on which this present study is based 4 this paper is to study the demographic and socioeconomic corre

is there a child labor trap intergenerational persistence of child labor in brazil this article examines the intergenerational persistence of child labor empirically by looking at household survey data from brazil previous empirical work on child labor has focused primarily on isolating the determinants of child labor using survey data we take a different approach by asking does the child labor status of parents affect the child labor incidence of their children we look at this question in two ways our working assumption is that financial need creates this generational link but we also ask if there exists an intergenerational link over and above that which is transmitted through the production of income perhaps through norms we find strong evidence that this link exists and that it appears to persist even when income is held constant moreover we find that children who did not work as child laborers command higher salaries later in life which suggests that the potential human capital gains through apprenticeship as children are outweighed by the human capital gains children receive through schooling excerpt

child labor child schooling and their interaction with adult labor empirical evidence for peru and pakistan using data from peru and pakistan this article tests two hypotheses there is a positive association between hours of child labor and poverty and there is a negative association between child schooling and poverty both of these hypotheses are confirmed by the pakistani data but not by the peruvian data the reduction in poverty rates due to income from children s labor is greater in pakistan than in peru the nature of interaction between adult and child labor markets varies with the gender of the child and the adult in peru rising men s wages significantly reduce the labor hours of girls whereas in pakistan there is a strong complementarity between women s and girls labor markets both data sets agree on the positive role that increasing adult education can play in improving child welfare

technological change and the distribution of schooling evidence from green revolution india abstract in this paper we develop a two strata general equilibrium model of human capital acquisition with endogenous school construction that permits an assessment of the relative impacts of technological change and school availability on schooling investments in landless and landed households and illuminates how these choices interact through the adult and child labor markets the implications of the model are tested using a unique household level panel data set which constitutes a representative sample of rural india during the peak period of agricultural innovation associated with the green revolution 1968 1982 the empirical results indicate that the operation of the market for child labor worsens the distributional impact of agricultural productivity on school investment across landless and landed households as landless child labor is used to replace landed child labor lost due to increased child school attendance in landed households the results also suggest however that the allocation of school construction diminishes the adverse impact of technical change on the gap between landless and landed schooling investment