optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

joseph schumpeter lecture ideology i develop a model of ideologies as collectively sustained yet individually rational distortions in beliefs concerning the proper scope of governments versus markets in processing and interpreting signals of the efficacy of public and market provision of education health insurance pensions etc individuals optimally trade off the value of remaining hopeful about their future prospects or their children s versus the costs of misinformed decisions because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial endogenous social cognitions emerge thus an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them embracing a statist ideology and voting for an excessively large government conversely an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez faire ideology and blind faith in the invisible hand with public sector capital this interplay of beliefs and institutions leads to history dependent dynamics the model also explains why societies find it desirable to set up constitutional protections for dissenting views even when ex post everyone would prefer to ignore unwelcome news jel h11 d72 d83 p16 z1

cultural differences in consumer impatience abstract in this article the authors examine cross cultural variations in how people discount the future specifically they predict that people from western cultures are relatively less patient and therefore discount the future to a greater degree than do people from eastern cultures and thus westerners value immediate consumption relatively more furthermore on the basis of regulatory focus theory the authors predict that when easterners are faced with the threat of a delay in receiving a product i e a prevention loss they are more impatient whereas when westerners are faced with the threat of not being able to enjoy a product early i e a promotion loss their impatience increases this enhanced impatience manifests in preference for expedited consumption of a product purchased online in two studies in both studies the authors used a priming methodology on bicultural singaporean participants the results support the predictions in the second study they also found evidence in support

the demand for and impact of learning hiv status this paper evaluates an experiment in which individuals in rural malawi were randomly assigned monetary incentives to learn their hiv results after being tested distance to the hiv results centers was also randomly assigned without any incentive 34 percent of the participants learned their hiv results however even the smallest incentive doubled that share using the randomly assigned incentives and distance from results centers as instruments for the knowledge of hiv status sexually active hiv positive individuals who learned their results are three times more likely to purchase condoms two months later than sexually active hiv positive individuals who did not learn their results however hiv positive individuals who learned their results purchase only two additional condoms than those who did not there is no significant effect of learning hiv negative status on the purchase of condoms

a simple impossibility result in behavioral contract theory abstract this paper studies a contract between an optimistic agent and a realistic principal both risk neutral even with complete contracts and ex ante symmetric information it may be impossible to achieve the first best unless the weight on emotions is sufficiently low

discount rates and credit markets theory and evidence from rural india three models of credit markets 1 the permanent income model 2 upward sloping credit supply to individual borrowers and 3 constrained credit due to imperfect enforcement are tested using credit market data and an experimental study of individuals discount rates in south india the permanent income model is rejected by both the discount rate and the credit market data the discount rate data are consistent with either of the other two models while the credit market data are consistent with a combination of these two models other explanations are found to be insufficient to explain the results of this study

degradation of environmental capital and national accounting procedures abstract the capital theoretic approach to the environment as a wastable stock a stock with a flow of abatement services is explored in a simple ricardo like model involving wheat production and pollution production as an essential by product we then turn to how the national accounts are implicit in growth or capital theory models and how formulae emerge for accounting for the wasting of environmental capital airsheds and watersheds from excessive use

anticipation of future variety reduces satiation from current experiences abstractsatiation frequently occurs from repeated consumption of the same items over time however results from five experiments show that when people anticipate consuming something different in the future they satiate at a slower rate in the present the authors find the effect in both food and nonfood consumption settings using different approaches to measure satiation this effect is cognitive specifically anticipating variety in future consumption generates positive thoughts about that future experience the authors find two boundary conditions the future consumption outcome must be 1 in a related product category and 2 at least as attractive as the present consumption outcome the authors rule out potential alternative explanations such as mere exposure to variety the possibility that the future experience is more attractive rather than just different than the current one and perceptions of scarcity associated with the item consumed in the present

let me dream on anticipatory emotions and preference for timing in lotteries we analyze one of the explanations why people participate in lotteries our hypothesis stipulates that part of the value that a unit of money buys in lotteries is consumed before the actual resolution in the form of emotions such as hope in other words a person holding a lottery ticket may prefer a delayed resolution of risk due to positive anticipatory emotions this conjecture is tested in an experiment with real lottery tickets we show that our theoretical considerations may contribute to explaining empirical puzzles associated with lottery participation timing of resolution and the spreading of lots over drawings more specifically we find that a substantial minority of participants prefer delayed resolution that anticipated thrill is the main variable explaining this choice and that emotions actually experienced during the waiting period are indeed predominantly positive and correlated with predictions finally we find that a great majority prefers to spread chances that is to obtain one ticket for each of two drawings rather than two for the same drawing

time preference the discounted utility model and health the constant rate discounted utility model is commonly used to represent intertemporal preferences in health care program evaluations this paper examines the appropriateness of this model and argues that the model fails both normatively and descriptively as a representation of individual intertemporal preferences for health outcomes variable rate discounted utility models are more flexible but still require restrictive assumptions and may lead to dynamically inconsistent behaviour the paper concludes by considering two ways of incorporating individual intertemporal preferences in health care program evaluations that allow for complementarity of health outcomes in different time periods

decisions by rules the case of unwillingness to pay for beneficial delays abstract since the emergence of neoclassical economics individual decision making has been viewed largely from an outcome maximizing perspective building on previous work the authors suggest that when people make payment decisions they consider not only their preferences for different alternatives but also guiding principles and behavioral rules the authors describe and test two characteristics pertaining to one specific rule that dictates that consumers should not pay for delays even if they are beneficial rule invocation and rule override the results show that money can function as the invoking cue for this rule that the reliance on this rule can undermine utility maximization and that this rule may be used as a first response to the decision problem but can be overridden the article concludes with a discussion of more general applications of such rules which may explain some of the seemingly systematic inconsistencies in the ways consumers behave

discounting behaviour and the magnitude effect evidence from a field experiment in denmark we evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour where higher discount rates are inferred from choices made with lower principals all else being equal if the magnitude effect is quantitatively significant it is not appropriate to use one discount rate that is independent of the scale of the project for cost benefit analysis and capital budgeting using data from a field experiment in denmark we find statistically significant evidence of a magnitude effect that is much smaller than is claimed this evidence surfaces only if one controls for unobserved individual heterogeneity in the population

on negative time preferences abstract survey data show that subjects positively discount both gains and losses but discount gains more heavily than losses this holds for monetary and non monetary outcomes these results do not confirm the findings of two earlier studies about negative time preferences for non monetary outcomes

alternative models of individual behaviour and implications for environmental policy abstract most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour formulated in terms of maximization of utility in general or of profits in particular the standard theory of environmental policy is a case in point however the maximization hypothesis and its methodological foundation have been criticized on many grounds related to a lack of either logical or empirical content moreover over the years a great many alternative models of behaviour have been proposed both criticism and alternatives are surveyed here attention is devoted to relevant insights from the philosophy of science the notion of methodological individualism and other criticism the alternative behavioural models include bounded rationality and satisficing lexicographic preferences habitual behaviour incommensurability and multicriteria evaluation and various models of behaviour under uncertainty major implications of the criticism and alternative models of individual behaviour for environmental policy theory are outlined

subadditivity patience and utility the effects of dividing time intervals abstract previous work has demonstrated that time discounting is subadditive individuals exhibit more impatience evaluating a delay as divided into sub intervals this paper argues that subdivision affects both components of intertemporal choice the utility function as well as the intertemporal discount function in my first experiment i demonstrate that differential concavity of utility for gains and convexity for losses implies that the discounting of losses is even more subadditive than the discounting of gains individuals display even more relative impatience over divided time intervals for negative amounts of money than for positive amounts of money my second experiment utilizes alternative elicitation methods which impose an intertemporal status quo to highlight these utility effects subadditivity is stronger when delaying an early gain than for hastening a later gain the reverse pattern holds for losses discounting is more subadditive when hastening a later loss than for delaying an earlier loss

experiencing breast cancer at the workplace we study a dynamic natural experiment involving nearly 3000 american women of age 50 64 to understand how a woman s propensity to receive an annual mammography changes over time after a co worker is diagnosed with breast cancer we find that in the year this event occurs the probability of screening drops by about 6 percentage points off a base level of 70 this impact effect is persistent for at least two years underlying mechanisms and implications for health policy are discussed

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

motivated health risk denial and preventative health care investments abstract people deny health risks invest too little in disease prevention and are highly sensitive to the price of preventative health care especially in developing countries moreover private sector r d spending on developing country diseases is almost non existent to explain these empirical observations i propose a model of motivated belief formation in which an agent s decision to engage in health risk denial balances the psychological benefits of reduced anxiety with the physical cost of underprevention i use the model to study firms price setting behavior and incentive to innovate i also show that tax funded prevention subsidies are welfare enhancing

nuclear power externalities and non standard pigouvian taxes the external effects arising from the use of nuclear power are in a fundamental way related to uncertainty in this paper we locate these external effects and derive a dynamic pigouvian tax in order to make the decentralized economy support the command optimum another interesting result is that a small constant energy tax which we interpret as a second best policy can take the decentralized economy reasonably close to the command optimum

time tradeoff sequences for analyzing discounting and time inconsistency this paper introduces time tradeoff tto sequences as a general tool to analyze intertemporal choice we give several applications for empirical purposes we can measure discount functions without requiring any measurement of or assumption about utility we can quantitatively measure time inconsistencies and simplify their qualitative tests tto sequences can be administered and analyzed very easily using only pencil and paper for theoretical purposes we use tto sequences to axiomatize quasi hyperbolic discount functions we demonstrate the feasibility of measuring tto sequences in an experiment in which we tested the axiomatizations our findings suggest rejections of several currently popular discount functions and call for the development of new ones it is especially desirable that such discount functions can accommodate increasing impatience

flows of air pollution ill health and welfare we provide a theoretical framework for measuring welfare when pollution influences economic growth by impairing health and driving up defensive medical expenditures we demonstrate the usefulness of our framework in practice by applying it to data from swedish valuation studies designed according to the accounting principles suggested here we estimate that the negative health effects of nitrogen dioxide emissions amount to 0 6 of gdp in sweden we also show that a corrective pigouvian tax should internalize the direct disutility reduced labor productivity and increased healthcare expenditures caused by pollution according to our calculations harmful health impacts alone excluding ecosystem effects justify 65 of the current swedish tax on nitrogen dioxide

is there one unifying concept of utility an experimental comparison of utility under risk and utility over time the nature of utility is controversial whereas decision theory commonly assumes that utility is context specific applied and empirical decision analysis typically assumes one unifying concept of utility applicable to all decision problems this controversy has hardly been addressed empirically because of the absence of methods to measure utility outside the context of risk we introduce a method to measure utility over time and compare utility under risk and utility over time we distinguish between gains and losses and also measure loss aversion in two experiments we found that utility under risk and utility over time differed and were uncorrelated utility under risk was more curved than utility over time subjects were loss averse both for risk and for time but loss aversion was more pronounced for risk loss aversion over risk and time were uncorrelated this suggests that loss aversion although important in both decision contexts is volatile and subject to framing

monopolistic competition credibility and the output costs of disinflation programs an analysis of price controls abstract brazil argentina and israel all used price controls as part of disinflation programs in 1985 1986 in each case they were intended to break an inertial component of inflation this paper focuses on the interaction between lack of credibility of government monetary policy announcements and the price setting behavior of forward looking firms we show that this interaction can lead to inertia extending well beyond the price setting period lack of credibility is then shown to lead to output losses during a disinflation program the paper analyses asset price behavior during disinflation programs with and without price controls and the influence of credibility problems finally we show that if past government policy has any information content about future government policy cheating on current announcements of tight policy buys current employment gains during the price control period at the cost of higher inflation afterwards sustaining low inflation after the price control period thus requires restrictive monetary policy during the price control period

the fragility of time time insensitivity and valuation of the near and far future we propose that the temporal dimension is fragile in that choices are insufficiently sensitive to it and second such sensitivity as exists is exceptionally malleable unlike other dimensions such as money which are attended by default to test this we axiomatize a constant sensitivity discount function and in four studies we show that the degree of time sensitivity is inadequate relative to the compound discounting norm and strongly susceptible to manipulation time sensitivity is increased by a comparative within subject presentation experiment 1 direct instruction experiment 3 and provision of a visual cue for time duration experiment 4 time sensitivity is decreased using a time pressure manipulation experiment 2 in each study the sensitivity manipulation has an opposite effect on near future and far future valuations increased sensitivity decreases discounting in the near future and increases discounting in the far future in contrast such sensitivity manipulations have little effect on the money dimension

economic growth pollution and renewable resources abstract this paper first analyzes a model of economic growth with stock pollution allowing smooth substitution between emissions and reproducible capital when emissions are optimally controlled the steady state consumption is lower than without pollution control but the optimal steady state equilibrium may not exist if the marginal productivity of capital is bounded the steady state is shown to be a local saddle point independent of the rate of discount if pollution is not controlled a competitive economy moves along a stable growth path toward a too heavily polluted steady state next a growth model in which pollution affects the growth of renewable resources is presented the conditions for the existence and saddle point property of the steady state are given and the consequences of nonoptimal externality taxes are discussed when renewable resources are included higher than optimal pollution may decrease steady state consumption contrary to the case where renewable resources are ignored

on the intergenerational allocation of natural resources it is known hartwick and others that under standard assumptions a society that invests in reproducible capital the competitive rents on its current extraction of exhaustible resources will enjoy a consumption stream constant in time it is shown here that this result can be interpreted as saying that an appropriately defined stock of capital including the initial endowment of resources is being maintained intact and that consumption can be interpreted as the interest on that patrimony this seems like a useful rule of thumb for policy

time preference and life cycle consumption with endogenous survival we provide a structural theory of time preference and derive a functional form of intertemporal preferences by postulating that individuals make their life cycle consumption choices as if to maximize expected lifetime this yields a nontime separable expected utility representation where the inverse of the coefficient of intertemporal substitution exceeds the coefficient of relative risk aversion the rate of time preference depends on the inverse of expected remaining lifetime and the effect of age on the productivity of consumption in affecting health the preference formulation is applied in a standard intertemporal consumption model to illustrate the implied life cycle consumption choices

the time vs money effect shifting product attitudes and decisions through personal connection the results of five field and laboratory experiments reveal a time versus money effect whereby activating time vs money leads to a favorable shift in product attitudes and decisions because time increases focus on product experience activating time vs money augments one s personal connection with the product thereby boosting attitudes and decisions however because money increases the focus on product possession the reverse effect can occur in cases where merely owning the product reflects the self i e for prestige possessions or for highly materialistic consumers the time versus money effect proves robust across implicit and explicit methods of construct activation

decision making over time and under uncertainty a common approach this paper considers a number of parallels between risky and intertemporal choice we begin by demonstrating a one to one correspondence between the behavioral violations of the respective normative theories for the two domains i e expected utility and discounted utility models we argue that such violations or preference reversals are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice specifically it appears that 1 if we add a constant to all values of an attribute then that attribute becomes less important 2 if we proportionately increase all values of an attribute or if we change the sign of an attribute from positive to negative then that attribute becomes more important the generality of these propositions as well as the constraints they would impose on separable representations of multiattribute preferences is discussed

empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting the derivation of the correct discount rate for intergenerational projects in cost benefit analysis is particularly contentious public choice has resulted in lower discretionary exponential discount rates for many intergenerational projects in britain and the usa this is shown to be strong indirect evidence that the true social discount rate may be a hyperbolic rather than an exponential function there is also empirical evidence for this hypothesis the hyperbolic nature of discounting is also a standard finding in the behavioural sciences for intergenerational time frames hyperbolic discount rates should be employed together with exponential discount rates in cost benefit sensitivity analyses

public support for economic reforms in poland using monthly surveys the author examines the impact of aggregate economic conditions on the dynamic of support for the polish program of economic reforms the balcerowicz plan to highlight the ambiguity of the standard retrospective model the author analyzes the impact of subjective perceptions of economic conditions on postures toward the reform program asking if people were extrapolating the past when forming predictions about the future then the effect of these predictions on the postures toward reform is studied finally the author focuses on the distributional effects substantive conclusions concerning the impact of economic conditions on the support of economic reform programs under democracy close the article

disease microdams and natural resources in tigray ethiopia impacts on productivity and labour supplies we examine the effects of water microdams and ensuing waterborne diseases on household decisions in tigray ethiopia where the government implemented a water resource development programme two decades ago we find microdams increase productivity of both fuelwood collection and crop production but the costs of these dams to households can be significant in villages close to dams disease prevalence is higher and all household labour categories spend more time sick and more time is spent by male and female adults caring for sick family members these can cost the household anywhere in the region of 150 250 birr per season depending on the type of labour diversion and the productivity of labour males are most significant here removing their time from production results in 40 60 per cent higher productivity and income losses compared to diversion of female labour sick households also spend significantly more money on health care especially when male and female adults are sick

optimal beliefs in the long run an overlapping generations perspective abstract people have the natural tendency to be optimistic and believe that good outcomes in the future are more likely but also want to avoid overestimation that could result in bad decision making brunnermeier brunnermeier and parker 2005 and brunnermeier et al 2007 established an optimal beliefs framework that balances these two incentives this paper follows and extends the optimal beliefs framework to consider optimal beliefs in the long run in an overlapping generations sense assuming no short selling results show that in almost all cases there does not exist a stable and interior long term optimal belief

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

monopolistic competition relative prices and output adjustment in the open economy abstract this paper explains price and output dynamics in an open economy characterized by a monopolistic competitive market structure in which pricing decisions incur costs this leads producers to pre set the price path for several periods the paper derives an optimal pricing rule including the optimal pre setting horizon it does so for a rational expectation equilibrium characterized by staggered unsynchronized price setting for which the degree of staggering is endogenously determined

repeated games with general discounting we introduce a general class of time discounting which includes time inconsistent ones into repeated games with perfect monitoring a strategy prole is called an agent

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

open economy macroeconomics under imperfect competition a two country model abstract this paper constructs a two country macroeconomic model where prices are set by imperfectly competitive firms and wages by trade unions unemployment benefit is nominally rigid in at least one country the effects of monetary expansion under both fixed and flexible exchange rates and exchange rate changes under fixed rates are considered the results change significantly if it is assumed that in one country unemployment benefit is fully indexed

national accounts and environmental resources in the paper optimal growth theory is used to derive the appropriate definition of the net national product concept when there are environmental resources and environmental damage to take into account the basic conclusions are that conventional defined np should be corrected by deducting environmental damage and adding the value of the net change of all resources

close encounters of two kinds false alarms and dashed hopes people are frequently exposed to potentially attractive events that are subsequently and unexpectedly reversed and to potentially painful events which are also unexpectedly reversed in the process of being returned to the initial asset position does the sequence in which the positive and negative events occur matter this issue of the combined effect of pleasurable and painful stimuli has received scant theoretical or empirical attention we attempt to fill this lacuna in the literature by studying the retrospective evaluation of surprises that return individuals to their original economic state although such surprises do not change an individual s original economic state we argue that the individual s psychological state changes and the final affective state is among other things a function of the sequence in which the events occur from a theoretical standpoint several perspectives can be brought to bear on the issue for instance one reading of mental accounting based on prospect theory s value function would predict that losses should dominate gains and therefore regardless of sequence people should be unhappy when exposed to two economically equivalent outcomes of different signs conversely the literature on intertemporal choice would suggest that a series that ends on an up note is preferred to a series that ends on a down note because people like to defer gratification so that they may savor positive outcomes similarly people apparently have a preference for happy endings finally the extant literature on recency effects would predict that the last event in a series should have a disproportionate influence on overall affect our model relies on a shift in the reference point to explain how a surprising reversal of an event will lead to a nonzero evaluation of the sequence we suggest that people s reference points shift immediately but imperfectly after a stimulus is presented intuitively this implies that the first stimulus will shift the reference point in its direction as a result of which the evaluation of a sequence of events in which an initial event is unexpectedly reversed will be more favorable if the first event is a loss than if it is a gain this model captures the unanticipated nature of the second event i e the surprise element by allowing the first event to move the reference point consequently by the time the next event occurs the reference point has been updated as a result of which the zero economic outcome of the sequence yields nonzero utility we further posit that the magnitude of the reference point shift should be affected by the time elapsed between the two stimuli specifically the reference point shifts gradually with time until it is fully updated consequently the final affective state of the sequence is also a function of the temporal distance between the two events the main predictions of the model were empirically supported first in a survey using a mall intercept sample subsequently we conducted a study of student subjects involving a coin tossing game in which real money was at stake and in which subjects in one condition experienced the second outcome after a two day delay our results from this second study supported the model s prediction regarding the impact of the elapsed time between the events the experimental tasks involved surprising reversals of initial outcomes thus ensuring that savoring dread types of explanations which require that subjects anticipate the second event could not be operating finally in a series of three follow up studies we tested the claim that the magnitude of outcomes would have an impact on observed affect and consistent with our theory and contrary to recency predictions we observed similar results across different magnitudes while theoretically interesting we should also note that our research is of potential pragmatic significance people s reactions to a series of events is of considerable interest to marketers desirous of generating enhanced attitude affect purchase intention and the like without offering economic inducements such as rebates coupons or other costly discounts additionally public policy officials may be interested in protecting people from being manipulated into purchasing a product simply because of changes in the sequence in which a series of offers is made by the merchant

wealth from optimal health abstract recently much research has been devoted to the question of how the conventional net national product measure should be augmented so as to cover changes in the stocks of natural resources this paper investigates the treatment of health capital and the risk of doomsday caused by pollution in such welfare measures our problem is not a standard optimal control problem because the survival probability depends on state variables we show how to handle this complication the resulting welfare measure is contrasted with the conventional net national product measure finally we address the matter of how to design a subsidy on health investment such that a market economy provides the optimal level of health

on the interpretation of green nnp measures as cost benefit rules in this paper we consider the possibility of using green welfare change measures as the basis for cost benefit analysis of new projects such green welfare change measures look very similar to what one would expect a cost benefit analysis of the entire economy to look like it is shown that although green welfare measures contain the shadow prices needed in the evaluation of a small new project one must account for changes in these prices

empirical determinants of intertemporal choice abstract we provide new evidence on the empirical determinants of intertemporal financial decisions we use an exogenously imposed choice affecting nearly all croatian retirees to study characteristics associated with choosing a larger deferred stream of payments over a smaller more immediate payment individuals are more willing to defer if they have higher incomes and are not liquidity constrained have a longer time horizon because of better health and longer life expectancy and have stronger bequest motives individuals who expect currency devaluation or political risk to reduce the value of future income are more likely to take the earlier income stream

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

the pricing of manufactured goods during trade liberalization evidence from chile israel and korea this paper is an investigation of price setting behavior in chile israel and korea when each of these countries moved from a fairly closed to a more open international trade regime in some cases the intensification of the opening resulted from real appreciation rather than from a formal adjustment in tariff rates as in chile 1980 82 and israel 1983 84 the central thesis of this paper is that the structural price equation for import competing manufactured goods changes with the degree of openness to trade when the economy is fairly closed the main weight is commanded by domestic cost variables and excess demand and foreign prices only affect pricing through their effects on imported material prices during trade liberalization the rate of change of prices of an increasing proportion of manufacturing goods begins to be influenced by the landed cost of similar imports but domestic variables still have a role because selected domestic manufactured goods are considered imperfect substitutes for internationally traded products empirical results from time varying parameter estimation show that domestic currency prices of imports become progressively more important during the liberalization processes in the three countries

procrastination of enjoyable experiences abstract the tendency to procrastinate applies not only to aversive tasks but also to positive experiences with immediate benefits the authors propose that models of time discounting can explain this behavior and they test these predictions with field data and experiments a multicity study shows that people with unlimited time windows delay visiting desirable landmarks however procrastination is reduced when the window of opportunity is constrained similarly people procrastinate in redeeming gift certificates and gift cards with long deadlines more than those with short deadlines resulting in overall lower redemption rates these results run counter to participants predictions and typical models of impulsive behavior

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

it s not what you get but when you get it the effect of gift sequence on deposit balances and customer sentiment in a commercial bank abstract the authors examine the impact of gifts on deposit balances and customer satisfaction in a longitudinal field experiment conducted at a commercial bank they find that gifts increased deposit balances survey response rates and customer satisfaction compared with the no gift control they manipulated several factors within the gift treatment gift type the accompanying message and the sequence of gift value which improved 35 then 100 gift worsened 100 then 35 gift or was a single gift a highly detrimental effect of decreasing gift value occurred on deposit balances this deterioration aversion persisted in a long term follow up analysis of deposit balances a vignette experiment replicates deterioration aversion and extends the results demonstrating increased effectiveness of improving gifts over constant gift sequences and indicating that the mechanism underlying deterioration aversion involves the violation of expectations

beyond homo economicus evidence from experimental economics environmental policies are generally based on a model of the human actor taken from neoclassical economic theory this paper reports on laboratory experiments suggesting weaknesses in this model and describes alternative models correcting these weaknesses one finding is that economic actors tend to be hyperbolic as opposed to exponential discounters who discount the immediate future at a higher rate than the more distant future another finding is that economic actors are not self regarding but rather in many circumstances are strong reciprocators who come to strategic interactions with a propensity to cooperate respond to cooperative behavior by maintaining or increasing cooperation and respond to free riders by retaliating against the offenders even at a personal cost and even when there is no reasonable expectation that future personal gains will flow from such retaliation we discuss some implications for policy analysis 2000 elsevier science b v all rights reserved

exchange rates and traded goods prices abstract this paper presents a partial equilibrium model of the determination of domestic and export prices by a monopolistic competitive firm the model stresses the role of exchange rate uncertainty and expectations the most important result of the analysis is that the stochastic properties of deviations from the law of one price are crucially affected by the currency of denomination of export prices using data on domestic and dollar export prices of japanese goods i find that deviations from the law of one price are due to exchange rate surprises but also to price staggering and ex ante price discrimination

is risk attitude outcome specific within the health domain the aim of this study is to examine whether individuals risk attitude for life years differ from their risk attitude for quality of life the study also investigates two different framing effects an order and sequence effect and the interaction between risk attitude and time preferences the results showed that individuals tended to be risk averse with respect to the gamble involving risk of immediate death and risk seeking with respect to the other health gambles varying the order of the questions or the sequence of full health and ill health did not seem to systematically bias the estimates

endogenous time horizon and behavioral poverty trap theory and evidence from mozambique abstract this paper provides a model where a long term planning horizon improves economic decisions but also increases the salience of anticipated future utility hence a gloomy future induces the agent to shorten her time horizon in order to reduce distress caused by the anticipation of poverty at the cost of worsening her realized future consumption resulting in a behavioral poverty trap where poverty and shortsightedness reinforce each other the paper also provides primary empirical evidence of the endogenous determination of time horizon and of the existence of a behavioral poverty trap using a randomized controlled trial in mozambique that provided agro input subsidies and a matched savings program i show that improvement in economic prospects resulted in a significant increase in the planning horizon of the poor beneficiaries moreover the increase in horizon significantly predicts asset accumulation of beneficiaries during the two years following the intervention

natural resources national accounting and economic depreciation abstract the current value hamiltonian in an aggregate optimal growth problem with heterogeneous capital stocks including exhaustible renewable and environmental stocks is the nnp function routine substitutions reveal that the using up of natural resource stocks is representable as easy to interpret economic depreciation magnitudes we obtain true nnp inclusive of natural resource stock diminution implications for actual national accounting practices are also discussed

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

excess capacity monopolistic competition and international transmission of monetary disturbances analyzes the excess capacity monopolistic competition and international transmission of monetary policy disturbances in the united states sheds light on the international impact of monetary policy emphasis on the spillover effects of monetary disturbances similarity of framework used with open economy macroeconomics

real dollar exchange rate under the bretton woods and floating exchange rate regimes abstract the focus of the paper is on real exchange rates for the dollar over the period 1957 to 1985 most such exchange rates followed an almost steplike pattern showing relatively little movement in the late 1950s and 1960s falling abruptly and then remaining low in the 1970s and finally in the 1980s rising back to levels close to those that prevailed initially contrary to much recent commentary therefore the period that appears different is not the last five years but the decade that preceded them an important factor underlying this pattern of exchange rate movement according to results presented in the paper was the behavior of monetary policy and hence inflation in the united states what remains to be established is the precise mechanism linking money and real exchange rates and the relative strength of those links

toward an understanding of dynamic moral decision making model free and model based learning in business settings decision makers facing moral issues often experience the challenges of continuous changes this dynamic process has been less examined in previous literature on moral decision making we borrow theories on learning strategies and computational models from decision neuroscience to explain the updating and learning mechanisms underlying moral decision processes specifically we present two main learning strategies model free learning wherein the values of choices are updated in a trial and error fashion sustaining the formation of habits and model based learning wherein the brain updates more general cognitive maps and associations thus sustaining flexible and state dependent behaviors we then summarize studies explaining the neuro computational processes of both learning strategies the calculation of prediction errors and valuation we conclude by emphasizing how the incorporation of dynamic aspects in moral decision making could open new avenues for understanding moral behaviors in a changing world

gain loss asymmetric stochastic differential utility abstract this study examines a gain loss asymmetric utility in continuous time in which the investor discounts their utility gain by more than the utility loss by employing the theory of stochastic differential utility the model allows an endogenously time varying subjective discount rate in addition the model can express various forms of utility functions including a version of the epstein zin utility under the model even if the state variables do not have any jump in their paths the optimal consumption wealth ratio and portfolio weight can change non smoothly

fiscal policy in an endogenous growth model in a neoclassical growth model it is possible to make a case for public debt because a balanced growth path may be dynamically inefficient this paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital it is shown that an increase in public debt reduces the growth rate so there always exists a future generation that will be harmed and that a reduction in public debt although it increases the growth rate cannot be pareto improving one current generation must be harmed

inflation in open economies abstract this paper relates the time consistent inflation rate to the degree of trade openness of an economy the mechanism linking the welfare effects of monetary surprises and hence the incentives to inflate to openness does not rely on a large country terms of trade effect but rather is due to imperfect competition and nominal price rigidity in the non traded sector the empirical evidence supports the main predictions of the model 1997 elsevier science b v

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

anticipation of future consumption a monetary perspective we adapt the monetary model sidrauski 1967 to study the hypothesis of anticipation of future consumption we assume that anticipation of future consumption affects an agent s instantaneous utility and that all effects of future consumption on current well being are captured by the stock of future consumption monetary policy effectiveness is thereby reduced and a zero nominal lower interest rate and thus the friedman rule is destabilizing given this we can derive a just stable equilibrium nominal interest rate with matching definitions for inflation and monetary growth we demonstrate that these implied lower bounds match their historical analogues well

when choosing makes a good thing better temporal variations in the valuation of hedonic consumption abstract this research investigates how the valuation of delayed consumption of hedonic products such as concerts and chocolate varies with the passage of time between choice and consumption the authors find that when consumers make their own choices they exhibit increases in evaluations of delayed consumption but only if the interval between choice and consumption is relatively short the effect attenuates over longer periods resulting in an inverted u shaped relationship between evaluations and time in contrast when somebody else chooses the same option for the consumer evaluations decrease with the passage of time these effects depend on the extent of intrinsic motivation toward the object of consumption and occur only for consummatory consumption that is of inherent interest moreover anticipatory increases in evaluations before consumption have ironic negative effects on postconsumption evaluations the authors discuss implications and directions for further research

endogenous beliefs in models of politics in the standard rational choice model actors have exogenously given beliefs that perfectly match objective probabilities as such these beliefs cannot be optimistic or motivated by preferences even though substantial empirical evidence indicates that human beliefs routinely satisfy neither of these criteria i present a tractable endogenous beliefs model and apply it to three different political environments from across the subfields of political science in the model players form beliefs that maximize a utility function that represents preferences over outcomes and the anticipatory experience of uncertainty applications include voter turnout taxation and collective choice and crisis bargaining the model captures the empirical evidence about belief formation much better than the standard model moreover these applications show how rigidly insisting on the standard rational choice model rejects otherwise reasonable explanations by fiat precisely because of its implausible assumptions about beliefs

the choice between an annuity and a lump sum results from swiss pension funds this paper uses unique micro data from swiss employer based pension plans to study the annuitization decision at retirement the administrative nature of our data though limited with respect to individual background characteristics allows us to analyze real choices over large retirement balances rather than subjectively reported intentions to annuitize we find a strong and robust impact of a utility based measure of the annuity s value computed within a life cycle framework on individual annuitization rates low accumulation of retirement assets is strongly associated with the choice of the lump sum presumably due to the availability of means tested social assistance the sponsor s default option in most cases the annuity is also found to be highly influential in the decision to annuitize