does investor risk perception drive asset prices in markets experimental evidence abstract we explore how individual risk perception influences prices and trading behavior in a market setting specifically our study lets experimental participants trade assets characterized by varying shapes of return distributions while common mean variance models predict identical prices for most of our assets we find trading prices to differ significantly assets that are perceived as being less risky on average despite having identical volatility trade at significantly higher prices individually traders who perceive a certain asset to be less risky are also net buyers on average with regard to different risk measures our results show that the probability of a loss is the strongest predictor of transaction prices and risk perception all these results hold also for experienced traders and when traders can trade two assets at the same time

household energy and climate mitigation policies investigating energy practices in the housing sector abstract one central aim of climate change mitigation in the european union is to reduce energy consumption in the housing sector in order to ensure effectiveness of policies targeting household energy conservation it is important to investigate existing energy practices of different social groups this article describes and explains energy practices in three leading states in environmental politics technological innovation and support for renewable energy production denmark austria and the united kingdom based on a longitudinal analysis of housing utility costs from the european community statistics on income and living conditions we show that income plays a central role in households energy practices while high income households have higher overall energy consumption low income groups spend a larger share of their income on utility costs the variation of energy consumption across income groups is related to household characteristics characteristics of the dwellings and cross national differences in the housing sector

beyond search fiat money in organized exchange am odel offiat money is constructed in which spatial separation and the logistics of communication are made explicit as in search theory but in which exchange is organized by profit seeking business enterprises as in all market economies firms mitigate search costs by opening shops that are easily located the model endogenizes the number of shops and which objects are traded in each shop it permits the double coincidence of wants and deals easily with divisible commodities equilibria may exist in which fiat money is used as a universal medium of exchange when such an equilibrium exists fiat money is essential in the sense that it is the universal medium of exchange in any efficient network of shops the model provides a foundation to cash in advance theory without specifying in advance that one object will be used as the universal medium of exchange

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

thar she bursts reducing confusion reduces bubbles to explore why bubbles frequently emerge in the experimental asset market model of smith suchanek and williams 1988 we vary the fundamental value process constant or declining and the cash to asset value ratio constant or increasing we observe high mispricing in treatments with a declining fundamental value while overvaluation emerges when coupled with an increasing c a ratio a questionnaire reveals that the declining fundamental value process confuses subjects as they expect the fundamental value to stay constant running the experiment with a different context stocks of a depletable gold mine instead of stocks significantly reduces mispricing and overvaluation as it reduces confusion jel c91 d14 g11 g12

the induced innovation hypothesis and energy saving technological change we develop a methodology for testing hicks s induced innovation hypothesis by estimating a product characteristics model of energy using consumer durables augmenting the hypothesis to allow for the ine uence of government regulations for the products we explored the evidence suggests that i the rate of overall innovation was independent of energy prices and regulations ii the direction of innovation was responsive to energy price changes for some products but not for others iii energy price changes induced changes in the subset of technically feasible models that were offered for sale iv this responsiveness increased substantially during the period after energy efficiency product labeling was required and v nonetheless a sizable portion of efficiency improvements were autonomous

money is privacy an extensive literature in monetary theory has emphasized the role of money as a record keeping device money assumes this role in situations where using credit would be too costly and some might argue that this role will diminish as the cost of information and thus the cost of credit based transactions continues to fall in this paper we investigate another use for money the provision of privacy that is a money purchase does not identify the purchaser while a credit purchase does in a simple trading economy with moral hazard the efficiency of money is compared with that of credit and we find that money may be useful even when information is free

investment decisions and time horizon risk perception and risk behavior in repeated gambles to investigate the effect of time horizon on investment behavior this paper reports the results of an experiment in which business graduate students provided certainty equivalents and judged various dimensions of the outcome distribution of simple gambles that were played either once or repeatedly for 5 or 50 times systematic mistakes in the ex ante estimations of the distributions of outcomes after independent repeated plays were observed despite correctly realizing that outcome standard deviation increases with the number of plays respondents showed evidence of samuelson s 1963 fallacy of large numbers perceived risk judgments showed only low correlations with standard deviation estimates but were instead related to the anticipated probability of a loss which was overestimated mean excess loss and the coefficient of variation implications for future research and practical implications for financial advisors are discussed

hidden skewness on the difficulty of multiplicative compounding under random shocks multiplicative growth processes that are subject to random shocks often have an asymmetric distribution of outcomes in a series of incentivized laboratory experiments we show that a large majority of participants either strongly underestimate the asymmetry or ignore it completely participants misperceive the spread of the outcome distribution to be too narrowband and they estimate the median and the mode to lie too close to the center of the distribution failing to account for the compound nature of average growth the observed biases are measured irrespective to risk preferences and they appear under a variety of conditions the biases are largely consistent with a behavioral model in which geometric growth is confused with linear growth this confusion is a possible driver of investors difficulties with real world financial products like leveraged exchange traded funds and retirement savings plans data and the online appendix are available at https doi org 10 1287 mnsc 2016 2618 this paper was

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

do individuals have preferences used in macro finance models an experimental investigation recent financial studies often assume that agents have epstein zin preferences preferences that require agents to care about when uncertainty is resolved under this recursive preference framework the preference for uncertainty resolution is entirely determined by an agent s preferences for risk and intertemporal substitution to test the implications of this model this paper presents an experiment designed to elicit subject preferences on risk time intertemporal substitution and uncertainty resolution results reveal that most subjects prefer early resolution of uncertainty and have relative risk aversion greater than the reciprocal of the elasticity of intertemporal substitution consistent with the predictions by recursive preferences subjects are classified in a finite mixture model by their risk time and intertemporal substitution parameters regression results show that types predicted by the epstein zin model to prefer early resolution choose early resolution with 20 50 higher probabili

prospect theory mental accounting and differences in aggregated and segregated evaluation of lottery portfolios if individuals have to evaluate a sequence of lotteries their judgment is influenced by the presentation mode experimental studies have found significantly higher acceptance rates for a sequence of lotteries if the overall distribution was displayed instead of the set of lotteries itself mental accounting and loss aversion provide an easy and intuitive explanation for this phenomenon in this paper we offer an explanation that incorporates further evaluation concepts of prospect theory our formal analysis of the difference in aggregated and segregated portfolio evaluation demonstrates that the higher attractiveness of the aggregated presentation mode is not a general phenomenon as suggested in the literature but depends on specific parameters of the lotteries the theoretical findings are supported by an experimental study in contrast to the existing evidence and in line with our theoretical results we find for specific types of lotteries an even lower acceptance rate if the overall distribution is displayed

the political economy of environmental policy with overlapping generations a two sector overlapping generations model illuminates the intergenerational effects of a tax that protects an environmental stock a traded asset capitalizes the economic returns to future tax induced environmental improvements benefiting the current asset owners the old generation absent a transfer the tax harms the young generation by decreasing their real wage future generations benefit from the tax induced improvement in environmental stock the principal intergenerational conflict arising from the tax is between generations alive at the time society imposes the policy not between generations alive at different times a pareto improving tax can be implemented under various political economy settings

social norms and random matching games abstract nash equilibrium has been tremendously useful in understanding economic problems in which strategic behavior is important the theoretical foundations of the solution concept often include the assumption that the game to be played is common knowledge an unrealistic assumption in games with many players we introduce the concept of norm equilibrium for random matching games a norm equilibrium is a nash equilibrium that relies on substantially less information than common knowledge of the game we use norm equilibria to provide a folk theorem for random matching games and to analyze increasing numbers of players in a random matching game journal of economic literature classification numbers c70 c72

generational welfare under a climate change policy with induced innovation we develop a climate economy model with generational heterogeneity and the potential for climate policy induced technological change we use the model to assess the distributional implications of climate policies and of policy designs which recycle generated revenues to finance research and development r d we model only innovation in the energy generated per unit of fossil fuels so the quantitative results we derive are small our emphasis is on the distributional impacts of redistributing climate policy rents to enhance r d we show that while investments of climate policy rents to accelerate innovation are likely to be welfare improving as long as significant market failures exist they are also likely to exacerbate the distributional inequities created across generations by climate change policies the political feasibility of climate policies may be harmed by rent transfers to r d as these transfers can increase the costs borne by agents alive today while increasing benefits to generations born far into the future

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

the welfare implications of climate change policy abstract the response to three different climate change policies is measured within a general equilibrium model of world output technological change greenhouse gas emissions and climate driven changes in productivity the proposed policies including an approximation to the kyoto protocol are shown to differ greatly in how they mitigate climate change support economic growth and allocate rents across generations benefits of alternative policies relative to the status quo do not necessarily accrue to the generations that bear the costs the results also show that the chosen rent distribution rule has a profound effect on policy evaluation in particular policies which allocate rents on a per capita basis are shown to be systematically welfare preferred to situations where emissions rights are grandfathered to emitting firms this implies that both the optimal level of emissions and the welfare cost of reaching a given target of emissions or atmospheric concentration would be lower under a per capita allocation of emissions permits or carbon tax revenues

provision of a public good with multiple dynasties carbon emissions create externalities across countries and generations these externalities depend on the degree of contemporaneous cooperation and intergenerational altruism i study the relative importance of these features in determining equilibrium climate policy by imbedding an olg framework with intergenerational altruism into a differential game among dynasties each representing a coalition of nations there is an isomorphism between pure and paternalistic altruism i illustrate the multiplicity of equilibria using an analytic linear in state model equilibrium steady states are more sensitive to small changes in cooperation than altruism consideration of large changes in altruism and cooperation can reverse this ranking

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

the effects of ageing and an environmental trust fund in an overlapping generations model on carbon emission reductions most currently employed integrated assessment models for climate change are of a dynastic nature they employ the ramsey rule linking the interest rate economic growth and the rate of pure time preference this paper argues that although a dynastic framework might be convenient for economic analysis it is restrictive and can be misleading overlapping generations models which do not employ the ramsey rule are more flexible and may give results different from those derived from dynastic models with the integrated assessment model alice 2 0 it is shown how various assumptions on demographic change and public institutions can affect the interest rate thereby influencing the efficient greenhouse gas emission reductions it is concluded that dynastic integrated assessment models are in many respects inappropriate for providing policy makers with quantitative figures about the costs of carbon dioxide emissions and their desirable reduction levels 2001 elsevier science b v all rights reserved

the investment horizon and dynamic asset allocation some experimental evidence abstract this paper presents the results of an asset allocation experiment on the influence of the investment horizon on risk taking we investigate exposures to the risky asset for an investment horizon of one and two periods in a dynamic setting we found no significant difference in allocations

comments on money is privacy by charles kahn james mcandrews and william roberds monetary theory and game theory three classes of models on money closely related to game theoretic models are i search theoretic models ii repeated games in a narrow sense and iii trading post games this note tries to point out the sense of affinity between the theory of microfoundations of money and the theory of repeated games in a broad sense of the term

hroot hamburg registration and organization online tool abstract hroot hamburg registration and organization online tool is a web based software designed for managing participants of economic experiments this package provides important features to assure a randomized invitation process based on a filtered pre specified subject pool and a complete documentation of the selection procedure for potential participants of an experiment

induced innovation and energy prices this paper uses u s patent data from 1970 to 1994 to study the impact of energy prices on energy efficient innovations theories of technological change have focused both on demand side factors which spur innovative activity by increasing the value of new innovations and supply side factors such as scientific advancements that make new innovations possible data on demand side factors are easily obtained but data on supply side factors that influence innovation are not readily available this paper uses patent citations as a measure of the usefulness of the existing base of scientific knowledge citations to previous patents are used to construct productivity estimates which measure the usefulness of the existing stock of knowledge to inventors in a given energy field for any given year these estimates are then combined with data on demand side factors to estimate a model of induced innovation in energy technologies the results indicate that both energy prices and the supply of knowledge have strongly significant positive effects on innovation the paper concludes with a discussion of the implication of this work for environmental policy

stabilizing greenhouse gas emissions assessing the intergenerational costs and benefits of the kyoto protocol the costs and benefits current and future generations incur as the result of climate change or an environmental control policy are often confounded with other objectives such as generational discounting or optimal policy design this paper uses a consumption equivalent measure to simulate the loss or gain of consumption independent of these confounding objectives the findings suggest that the costs associated with an emissions stabilization program are relatively large for current generations and continue to increase over the next 100 years the first generation to actually benefit from the stabilization program is born early during the 24th century

endogenous technological change in climate change modelling this article investigates the impact on optimal co2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change we analyse technological change as a function of cumulative capacity as incorporated recently in energy systems models our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints however the effect is stronger than suggested in the literature moreover the development of non fossil energy technologies constitutes the most important opportunity for emission reductions optimal carbon tax levels reducing fossil energy use are lower than usually advocated

an overlapping generations model of climate economy interactions a numerically calibrated overlapping generations model of climate change and the world economy is examined in this paper in the absence of intergenerational transfers efficient rates of greenhouse gas emissions abatement rise from 16 in the present to 25 in the long run while mean global temperature increases by 7 40c relative to the preindustrial norm a utilitarian optimum which attaches equal weight to each generation s life cycle utility yields abatement rates that rise from 48 to 89 with a long run temperature increase of 3 40c a second best utilitarian path in which intergenerational transfers are by assumption institutionally infeasible also supports stringent abatement measures i introduction the infinitely lived agent framework pioneered by frank ramsey 1928 has emerged as a central structure in the economics of climate change as characterized by ipcc 1996 working group iii climate change occurs when anthropogenic emissions of greenhouse gases principally carbon dioxide but also chlorofluorocarbons methane nitrous oxide and water vapor contribute to long term increases in mean global temperature potentially disrupting ecological systems and climate dependent production activities the best known study on the economics of this subject is nordhaus 1994 dynamic model of climate and the economy dice which incorporates assumptions regarding the costs and benefits of greenhouse gas emissions in a standard one sector growth model in nordhaus analysis a 50 reduction in greenhouse gas emissions would reduce gross world output by 0 93 a doubling of greenhouse gas concentrations relative to the preindustrial norm which is expected to occur by the middle of the twenty first century would reduce output by

risk aversion and incentive effects comment charles a holt and susan k laury 2002 develop an experimental design to determine the risk attitude of an individual they use their observations to argue that increased incentives appear to change risk attitudes leading to greater risk aversion popular utility functions that do not allow for such effects are therefore misspecified building on this finding they estimate a flexible utility function that characterizes their aggregate data well but that does not assume constant absolute or relative risk aversion the basic holt and laury 2002 hl design should become an important tool for the interpretation and design of experiments in which risk attitudes could play a role however their most important result showing the effect of scaling up the stakes of the lottery choice task is confounded by a possible order effect an order effect occurs when prior experience with one task affects behavior in a subsequent task the primary methodological contribution of experiments in economics is to enhance control ideally such control makes the explanatory variables of interest in this case scale orthogonal to other explanatory variables such as order allowing clearer inferences about behavior than one could get from field econometric data we argue that not controlling for order effects results in a misspecification of utility functions that is as important as that of scale the subjects in the hl design were given sequences of three or four tasks as shown in table 1 task 1 involved choices over lotteries with a baseline level of prizes which we will refer to as the 1 scale task 2 involved hypothetical choices over prizes with a scaled up level of prizes either 20 50 or 90 task 3 repeated task 2 but with choices that involved real payoffs task 4 was a return to the baseline task with real 1 prizes in some sessions subjects were not given task 2 or task 3 what could one infer from the comparison of measured risk attitudes in the 1 and 20 tasks in hl unfortunately any observed difference could be due either to the scale of the prizes involved or the task order or some combination of both thus the effect of scale is intrinsically confounded with the possible effect of task order this is a logical flaw in their design which

technological change in economic models of environmental policy a survey this paper provides an overview of the treatment of technological change in economic models of environmental policy numerous economic modeling studies have confirmed the sensitivity of mid and long run climate change mitigation cost and benefit projections to assumptions about technology costs in general technical progress is considered to be a noneconomic exogenous variable in global climate change modeling however there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous induced by needs and pressures hence some environmenteconomy models treat technological change as endogenous responding to socio economic variables three main elements in models of technological innovation are i corporate investment in research and development ii spillovers from r d and iii technology learning especially learning by doing the incorporation of induced technological change in different types of environmental economic models tends to reduce the costs of environmental policy accelerates abatement and may lead to positive spillover and negative leakage

myopic prospect theory vs myopic loss aversion how general is the phenomenon abstract individuals often act myopically in evaluating sequences of investment opportunities for loss averse decision makers myopia causes the sequence to look less attractive and might result in rejecting an investment program that would have been accepted otherwise in this paper we argue that the relation between myopia and the attractiveness of a lottery sequence is less general than previously suggested in the literature we extend the concept myopic loss aversion to myopic prospect theory predicting that for specific risk profiles myopia will not decrease but increase the attractiveness of a sequence we support our theoretical predictions by experimental evidence

repeated games with private monitoring two players we investigate two player infinitely repeated games where the discount factor is less than but close to unity monitoring is private and players cannot communicate we require no condition concerning the accuracy of players monitoring technology we show the folk theorem for the prisoners dilemma with conditional independence we also investigate more general games where players private signals are correlated only through an unobservable macro shock we show that efficiency is sustainable for generic private signal structures when the size of the set of private signals is sufficiently large finally we show that cartel collusion is sustainable in price setting duopoly

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

the mismeasurement of risk investors typically measure risk as the probability of a given loss or the amount that can be lost with a given probability at the end of their investment horizons this view of risk considers only the final result but investors perceive or should perceive risk differently they are affected by exposure to loss throughout the investment period not just at its conclusion we introduce two new ways of measuring risk within horizon probability of loss and continuous value at risk that reveal that exposure to loss is substantially greater than investors normally assume

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

cash inflows and bubbles in asset markets with constant fundamental values previous experimental research on asset markets has reported that the level of cash available to traders does not affect asset prices when fundamentals follow a time trajectory that is constant over time this contrasts with other research indicating that greater cash levels increase prices when fundamental values are decreasing over time we report a new experiment in which we show that greater initial cash levels are indeed associated with higher prices when fundamental values are constant over time thus high cash levels will lead to bubbles if the cash is introduced before the market opens our results reconcile the two previous sets of findings jel c90 d03 g02 g12 i introduction smith suchanek and williams 1988 initiated the experimental study of markets for multiperiod finitely lived assets a considerable subsequent literature has consistently observed price bubbles in such markets this consistency makes the smith et al paradigm a popular one for identifying and studying the factors that promote or dampen bubbles see palan 2013 for a survey of this literature it is known that some key market parameters influence prices and the tendency for bubbles to form two of these parameters are 1 the time trajectory of fundamental values and 2 the quantity of cash available for purchases compared to the quantity of assets available for sale a number of studies in this literature have contrasted the behavior of different fundamental value time paths the speed and effectiveness of price discovery the tendency of market prices to track fundamentals depend on the time path of the fundamental value trajectory breaban and noussair 2015 giusti jiang and xu 2012 noussair and powell 2010 stockl huber and kirchler 2014 a trajectory that is constant over time generates closer adherence to fundamental values than a time path that is monotonically decreasing kirchler huber and stockl 2012 noussair robin and ruffieux 2001 smith van boening and wellford 2000 1 another variable influencing market prices is the amount of liquidity traders have available for purchases it is well established that in the case of decreasing fundamentals the price level is affected by liquidity as measured by cash endowment levels greater cash endowments lead to higher prices caginalp and ilieva 2008 caginalp porter and smith 1998 2000 2001 haruvy and noussair 2006 cash and asset endowment levels are typically normalized into a measure of liquidity called the cash to asset c a ratio caginalp porter and smith 2001 this is the ratio of cash in the economy the total amount available for purchases of assets to the value of all of the units of asset in the economy evaluated at the fundamental value in period t the c a ratio is given by c a sub t summation over i c sub it summation over i q sub it f sub t where c a sub t is the c a ratio in period t c sub it is the cash available to trader i in period t q sub it is the quantity of units that trader i holds in period t and f sub t is the period t fundamental value the ratio can be interpreted as the ratio of the largest long position to the largest short position an average trader can take assuming that the market price is equal to the fundamental to date it has been shown that the cash asset ratio affects prices only for the case when fundamental values are decreasing to our knowledge only two studies have explored the effect of cash on prices when fundamentals are constant over time kirchler huber and stockl 2012 hereafter khs and kirchler et al 2015 in both of these studies the additional cash is introduced after one or more periods of trading have elapsed rather than before the market opens khs report that increases in cash endowments do not affect prices in the case of constant fundamental values because the authors interpret bubbles as a consequence of subject confusion about the experimental environment they conclude that the constant fundamental value setting leads to less confusion on the part of subjects

a model of fiat money and barter abstract we present an infinite horizon model with capital in which fiat money and barter are two competing means of payment fiat money has value because barter is limited by the extent of a double coincidence of wants the pattern of exchange generally involves both money and barter we find that the chicago rule is sufficient for pareto efficiency while nominal interest smoothing is necessary for a specific utility function we provide a complete characterization of the patterns of exchange and calculate the range of inflation rates over which a stationary monetary equilibrium exists journal of economic literatureclassification numbers d51 e42 e52

a tale of two market failures technology and environmental policy abstract market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies these combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives and can be cost effectively harnessed through the use of economic incentive based policy in the presence of weak or nonexistent environmental policies investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable positive knowledge and adoption spillovers and information problems can further weaken innovation incentives while environmental technology policy is fraught with difficulties a long term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success

an overlapping generations model of growth and the environment this article analyzes the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model short lived individuals make decisions which have long lasting effects on both factor productivity and the environment the model provides a theoretical explanation of observed correlations between environmental quality and income whereby economic growth is associated first with declines then improvements in environmental quality it suggests circumstances in which multiple pareto ranked steady state equilibria may arise and in which sustained growth of both capital and environmental quality may occur overmaintenance of the environment analogous to dynamically inefficient overaccumulation of capital may emerge copyright 1994 by royal economic society

a climate change policy induced shift from innovations in carbon energy production to carbon energy savings abstract we develop an endogenous growth model with capital labor and carbon energy as production factors and three technology variables that measure accumulated innovations for carbon energy production carbon energy savings and neutral growth all markets are complete and perfect except for research for which we assume that the marginal social benefits exceed the marginal private benefits by factor four the model constants are calibrated so that the model reproduces the relevant global trends over the 1970 2000 period the model contains a simple climate module and is used to assess the impact of induced technological change itc for a policy that aims at a maximum level of atmospheric co2 concentration 450 ppmv itc is shown to reduce the required carbon tax by more than a factor 2 and to reduce costs of such a policy by half when we do not constrain aggregate r d expenditures to benchmark levels costs are further reduced numerical simulations show that knowledge accumulation shifts from energy production to energy saving technology we discuss reasons for differences between our results and earlier results reported in the literature

efficiency in repeated prisoner s dilemma with private monitoring abstract this paper analyzes repeated games with private monitoring where in each period each player receives a signal of the other player s action in the previous period and that signal is private information previous literature on discounted repeated games with private monitoring has not shown whether or not nearly efficient equilibria exist for a repeated prisoner s dilemma satisfying a certain assumption regarding stage game payoffs we show that there exists a nearly efficient sequential equilibrium provided that imperfectness of signals is small and players are patient journal of economic literature classification number c73

the safety first expected utility model experimental evidence and economic implications abstract roy s roy a 1952 safety first and the holding of assets econometrica 20 3 431 449 safety first criterion advocates the minimization of the probability of outcomes below a certain disaster level this paper examines safety first theoretically and experimentally we find that safety first plays a crucial role in decision making inducing choices that cannot be explained by and even contradict risk aversion prospect theory and loss aversion in general yet safety first alone cannot explain individual choice therefore we propose an expected utility safety first eu sf model where decisions are made based on a weighted average of the safety first criterion and standard expected utility maximization we experimentally estimate these relative weights and discuss their economic implications