globalization migration and development the role of mexican migrant remittances in this paper we present evidence suggesting that international migrant remittances generally lead to improved developmental outcomes using a cross section of mexican municipalities in the year 2000 we show that increases in the fraction of households receiving international remittances are generally correlated with better schooling and health outcomes and with reductions in some dimensions of poverty our results take into account the likely endogeneity between migration remittances and developmental outcome variables and they suggest that measures to facilitate remittance flows are desirable

note on the open loop von stackelberg equilibrium in the cartel versus fringe model one of the ways to model the supply side of the world oil market is by means of the cartel versus fringe model and to employ the open loop von stackelberg equilibrium concept this note shows that the equilibrium as presented in the literature does not satisfy the optimality conditions for the open loop equilibrium the authors show furthermore that in contrast with the prevailing view the equilibrium can display discontinuous price trajectories copyright 1992 by royal economic society

the impacts of international migration on remaining household members omnibus results from a migration lottery program this brief summarizes the results of a gender impact evaluation study entitled the impacts of international migration on remaining household members omnibus results from a migration lottery program conducted in 2002 in tonga the study observed the impact of migration lottery program on the remaining household members of tongan emigrants on the individual and intra household level income falls rapidly by 22 to 25 percent with a rise in remittances failing to offset a large fall in labor earnings ownership of livestock durable and access to financial services is lower for the remaining household members diets change to be less nutritious and more rice and root crops immigration has a negative impact on household size there is no significant impact of migration on labor supply for men nor women funding for the study derived from the world bank stanford university the waikato management school and mardsen fund

limit pricing and the in effectiveness of the carbon tax we present a theory of limit pricing monopoly in non renewable resource production facing a very inelastic demand an oil monopoly seeks to induce the highest price that does not destroy its demand unlike the conventional hotellian analysis the monopoly tolerates some ordinary substitutes to its oil but deters high potential ones with limit pricing policy induced extraction changes do not obey the usual logic for example oil taxes have no effect on current oil production extraction increases when high potential substitutes are promoted but can be effectively reduced by supporting ordinary substitutes the carbon tax not only applies to oil it also penalizes its ordinary carbon substitutes whose market shares are taken over by the monopoly thus the carbon tax ambiguously affects current and long term oil production and carbon emissions

migration and child growth in rural guatemala this paper examines the relationship between migration and child growth in the rural highlands of guatemala a region with substantial international migration outflows significant remittance inflows and some of the highest rates of child undernutrition in the world using cross sectional survey data a double difference approach based on child growth patterns that controls for the selectivity of migration is used to assess the impact of migration to the us on height for age z haz scores and stunting prevalence of children haz scores for children in households with a migrant to the us are conservatively estimated to be 0 5 standard deviations higher and the prevalence of stunting is approximately 6 percentage points lower descriptive evidence suggests the possible channels through which migration may operate are improved food security and reduced morbidity

some examples of dynamic cournot duopoly with inventory this article analyzes a two period game where firms can produce inventory in the first period for sale in the second period we assume that revenues and costs are time invariant and that the firms are symmetric we focus on the nature and the existence of the subgame perfect equilibrium of this model we use examples to show that the nash value functions defined on the joint inventory vector are likely to be ill behaved in particular they need not be concave nor even continuous in the firm s own inventory as a result asymmetric equilibrium is possible when average production costs are falling single firm operation can occur in equilibrium nonexistence is also a distinct possibility

entry deterrence in stackelberg perfect equilibria this paper examines entry deterrence in a duopoly where the postentry game is stackelberg it is argued that in reality firms can use a broader range of precommitments than is allowed for in the literature this paper permits such precommitments and analyzes the perfect equilibria it also allows for the fact that there may be fixed costs associated not only with entry but with beginning production several interesting possibilities are explained including the existence of excess capacity and the holding of inventories even in the absence of any uncertainty copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

how important is selection experimental vs non experimental measures of the income gains from migration measuring the gain in income from migration is complicated by non random selection of migrants from the general population making it difficult to obtain an appropriate comparison group of non migrants this paper uses a migrant lottery to overcome this problem providing an experimental measure of the income gains from migration new zealand allows a quota of tongans to immigrate each year with a lottery to choose among the excess number of applicants a unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration by comparing the incomes of migrants to those who applied to migrate but whose names were not drawn in the lottery after allowing for the effect of non compliance among some of those whose names were drawn the authors also conducted a survey of individuals who did not apply for the lottery comparing this non applicant group with the migrants enables assessment of the degree to which non experimental methods can provide an unbiased estimate of the income gains from migration they find evidence of migrants being positively selected in terms of both observed and unobserved skills as a result non experimental methods are found to overstate the gains from migration by 9 to 82 percent a good instrumental variable works best while difference in differences and bias adjusted propensity score matching also perform comparatively well

on the optimal hedge of a nontraded cash position in this paper we focus on the optimal demand for futures contracts by an investor with a logarithmic utility function who attempts to hedge a nontraded cash position when the analysis is conducted in the cash commodity price space we show that the value function associated with the bernoulli investor program is not additively separable thus suggesting that this investor hedges against shifts in the opportunity set as represented by the commodity price by establishing the equivalence between the cash formulation of the problem and the wealth formulation we are able to analyze the problem in the wealth commodity price space in this space we show the additive separability of the value function when the futures settlement price process is perfectly locally correlated with the commodity price process the demand for futures in this instance is composed of a a mean variance term and b a minimum variance component that is a classic feature of models with nontraded assets since the first best nonmyopic optimum is attained however the deviation from a mean variance demand should not be interpreted as the expression of a nonmyopic behavior but rather as an attempt to restore a first best optimum on the other hand when the correlation between the futures price and the underlying commodity price is imperfect in general the value function does not separate additively the first best solution cannot be attained and the optimal futures trading strategy involves a hedging term against shifts in the opportunity set in the classic dynamic portfolio problem the investor selects a trading strategy in risky and riskless assets so as to maximize his or her expected lifetime utility in this environment where all assets can be freely traded the logarithmic investor behaves myopically to the extent that he or she ignores shifts in the opportunity set when making current choices samuelson 271 mossin 24 hakansson 16 merton 22 in particular in models with continuous trading it turns out that the value function corresponding to the investor s program is additively separable in wealth and state variables the implication is that his or her behavior will be myopic i e that his or her demand functions for assets will be of the pure meanvariance efficiency type and in particular will not include any dynamic hedging components that are characteristic of financial markets with shifting opportunities in this paper we investigate the structure of the bernoulli investor s demand functions in the situation where one asset cannot be freely traded in the market

financial market innovation and security design an introduction abstract the article describes in the context of theory and practice this special issue of the journal of economic theory on financial market innovation and security design the main focus is on security design in incomplete financial markets possibly with asymmetrically informed traders we first survey the general equilibrium literature which emphasizes the spanning role of securities we then provide a unified framework encompassing the literature that employs a cara guassian setting to study the impact of financial innovation on risk sharing and information aggregation journal of economic literature classification numbers g10 d52

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

optimal hedging and spreading in cointegrated markets abstract assuming that cash and futures markets are cointegrated this article derives the optimal multiperiod hedging strategy the model is then extended to the case of two futures markets optimal intramarket or intermarket spreading strategy is provided therein

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

what happens to diet and child health when migration splits households evidence from a migration lottery program the impact of migration on food security and child health is likely to differ depending on whether children themselves migrate or whether they remain behind while other household members migrate however existing studies have not been able to examine how impacts differ in these two scenarios because parallel data are required for both the sending and receiving country moreover self selection into migration makes unbiased estimation of either impact difficult we overcome these problems by using a unique survey of tongan households that applied to migrate to new zealand through a migrant quota which selects households through a random ballot this survey covers both migrant children in new zealand and non migrant children in tonga with the migration policy rules providing a source of exogenous variation for identifying impacts our estimates of short run impacts show that diets diverge upon migration children who migrate experience improvements while diets worsen for children who remain there is also suggestive evidence of a divergence in health outcomes with increases in weight for age and height for age found for migrant children and decreases found for children who remain behind while other household members migrate

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

social capital and coping with economic shocks an analysis of stunting of south african children abstract south african households live in an environment characterized by risks and many face a significant probability of experiencing economic losses that threaten their daily subsistence using household panel data that include directly solicited information on economic shocks and employing household fixed effects estimation we explore how well households cope with shocks by examining the effects of shocks on child nutritional status unlike in the idealized village community some households appear unable to insure against risk particularly when others in their communities simultaneously suffer large losses households in communities with more social capital however seem better able to weather shocks

inventories market structure and price volatility abstract the effect of inventories on the level and volatility of price is analyzed under alternative market structures in a fairly general setting it is shown that inventories have no effect on the average level of prices in a cournot duopoly in the absence of depreciation the effect of storage on price volatility is analyzed in a more restrictive linear quadratic setting in which it is found that imperfectly competitive producers make less use of inventories for smoothing random fluctuations than is efficient the effect of market structure on price volatility depends on whether demand shocks or cost shocks are more important

estimating the determinants of child health when fertility and mortality are selective most studies of the effects of education and health infrastructure on child health have not taken fertility decisions into account they assume that the composition of the population of children classified by health is unrelated to prior fertility decisions the author however estimates the determinants of child mortality and child health allowing for the possibility that samples of children are choice based reflecting prior selective fertility and mortality behavior parameter identification is the most serious practical problem in controlling for fertility and mortality selection if parents care about the health outcomes of potential births then any exogenous variable which affects health also affects the fertility decision the author adopts a new approach to the problem by imposing a random effects structure upon the error correlation matrix for the set of fertility mortality and health behaviors fertility selection is found to be statistically significant in the estimation of the determinants of mortality in all 14 sub saharan demographic and health survey data sets studied and fertility and mortality selection is found to be significant in the determination of child height in zambia nonetheless most parameters are only slightly changed when selection is accounted for

monopoly production of durable exhaustible resources we examine monopoly production of a durable exhaustible resource previous authors have implicitly assumed that the monopolist is able to make binding commitments about future decisions we consider the more plausible case in which the monopolist lacks this ability and must choose from dynamically consistent plans two models are considered a discrete time model in which there is a strictly finite initial stock of the resource and a continuous time model in which costs are an increasing function of cumulative production we find that as a general result monopoly leads to overconservation the monopolist who cannot precommit produces the efficient quantity ultimately but does so too slowly by contrast the monopolist who can precommit produces less than the efficient stock even in the limit we also find that increased importance of exhaustibility hastens the extraction of the resource copyright 1990 by the london school of economics and political science

prices credit markets and child growth in low income rural areas in this paper it is argued that fluctuations in child growth in rural areas of bangladesh during and after severe floods in i988 can provide insight into the structure of credit markets a model of intertemporal resource allocation is developed and euler equations relating growth patterns of children to the cost of borrowing by household are then derived from the model the evidence indicates that although some of the variation in growth patterns over the relevant period may be attributed to variation in illness and the price of rice growth patterns for children in landless households were influenced by credit market imperfections this paper links two prominent strands of research in economic development the first strand examines the extent to which households in poor rural economies are able to protect themselves from the adverse weather and other shocks that importantly influence earnings in underdeveloped areas while it has long been thought that credit market imperfections and other forms of market failure make it difficult for poor individuals in these economies to smooth consumption both within and across years there remains some question about the magnitude and pervasiveness of these imperfections while there is evidence that fluctuations in economic conditions result in inefficient allocation of resources e g morduch 1990 rosenzweig and wolpin i993 some recent papers have emphasised the fact that consumption patterns of households in the same village comove in a manner consistent with the idea that a substantial fraction of idiosyncratic variation in income is effectively

exhaustible resources non convexity and competitive equilibrium theoretical underpinnings of competitive equilibrium in an exhaustible resource market with non convex u shaped costs are proposed the analysis extends to intertemporal production novshek and sonnenschein s approximation of static competitive equilibrium by limits of cournot equilibria a problem with using novshek and sonnenschein s method is that oligopolistic equilibrium even an open loop equilibrium to which limits might be applied does not exist when there is a non convex technology using epsilon equilibrium as the equilibrium concept finesses this problem there are two types of limiting competitive equilibrium a third type of competitive equilibrium that has been prominent in the literature is found to be inconsistent with limiting approximations

remittances liquidity constraints and human capital investments in ecuador summary over the last decade ecuador has experienced a strong increase in financial transfers from migrated workers this paper investigates how remittances via trans national networks affect human capital investments through relaxing resource constraints and facilitate households in consumption smoothing by reducing vulnerability to economic shocks our results show that remittances increase school enrollment and decrease incidence of child work especially for girls and in rural areas furthermore we find that aggregate shocks are associated with increased work activities while remittances are used to finance education when households are faced with these shocks 2008 elsevier ltd all rights reserved

a reexamination of the uncovered interest rate parity hypothesis abstract it is now widely known that the uncovered interest rate parity uip hypothesis which states that forward exchange rates are unbiased predictors of future spot exchange rates is generally rejected by empirical evidence we show in this paper by means of a cox et al 1985 model extended to a two country economy that a careful examination of the no arbitrage principle leads to a different formulation for this hypothesis roughly speaking this new formulation states that the expected future spot exchange rate is equal to the forward exchange rate multiplied by a term premium whose closed form expression can be derived moreover this multiplicative term premium reduces to 1 i e the standard uip hypothesis holds if and only if conditional variances are deterministic in short we show that rejection of the standard uip hypothesis is not surprising as long as arch effects have been evidenced in exchange rate data as a by product we provide a parametric and tractable specification for the so called risk premium i e the component of the expected exchange rate in excess of the forward exchange rate

temporary natural resource cartels abstract we analyze the behavior of a nonrenewable resource cartel that anticipates being forced at some date in the future to break up into an oligopolistic market in which its members will then have to compete as rivals under reasonable assumptions about the value function of the individual firms in the oligopolistic equilibrium that follows the breakup we show that the cartel will then produce more over the same interval of time than it would if there were no threat of dissolution and that its rate of extraction is a decreasing function of the cartel s life that there are circumstances under which the cartel will attach a negative marginal value to the resource stocks in which case the rate of depletion will be increasing over time during the cartel phase that for a given date of dissolution the equilibrium stocks allocated to the post cartel phase will increase as a function of the total initial stocks whereas those allocated to the cartel phase will increase at first but begin decreasing beyond some level of the total initial stocks

the open loop von stackelberg equilibrium in the cartel versus fringe model a reply in some cases the open loop stackelberg equilibrium for an oil cartel facing a competitive fringe can be constructed from simple principles but these fail if the cartel supplies both before and after the fringe as reallocations between these two phases relocate the entire fringe price path in such cases the price path need not be continuous and downward jumps are possible and cannot be arbitraged away upward jumps can only be arbitraged if competitive agents can store oil at low cost such equilibria are dynamically inconsistent copyright 1992 by royal economic society

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

learning and price volatility in duopoly models of resource depletion the aim of this paper is to provide a theoretical model that can account for price fluctuations in depletable resource markets we do so by introducing learning into a hotelling style duopoly model of optimal resource depletion before the depletable resource becomes scarce the self confirming equilibrium of the model mirrors noncooperative rational expectations equilibrium in that supply is high and price is low although learning does induce occasional upward price spikes that are followed by a long period of falling price once the depletable resource becomes scarce the dynamics of the market change significantly with the self confirming equilibrium mirroring the cooperative rather than noncooperative rational expectations equilibrium supply is low and price is high price spikes still occur but against a background of increasing prices when scarcity is sufficient then the market is permanently in a self confirming equilibrium that is equivalent to cooperative rational expectations equilibrium

spreading currency forwards why and how abstract in this paper we have adopted a continuous time framework in which a hedger has a currency risk sensitive non traded cash position the hedger has the opportunity to hedge against risk by using two currency forward contracts that differ only in their maturities the hedger is able to reach a perfect hedge of his non traded position by using only two currency forward contracts with different maturities even though four sources of uncertainty drive the international economy this perfect hedge is reached by spreading forward contracts where the hedger is short in the nearby contract and long in the deferred contract this strategy is easy to implement since no parameter has to be estimated empirically when the hedger is a price taker finally the analysis has been extended to currency futures contracts we show in explicit terms how the marking to market of futures positions affects the spreading strategy

equilibrium valuation of foreign exchange claims this article studies the equilibrium valuation of foreign exchange contingent claims within a continuous time lucas 1982 two country model exchange rates interest rates and in particular factor risk prices are all endogenously and jointly determined this guarantees the internal consistency of these price processes with a general equilibrium in the same model closed form valuation formulas are presented for currency options and currency futures options common to these formulas is that stochastic volatility and stochastic interest rates are admitted hedge ratios and other comparative statics are also provided analytically it is shown that most existing currency option models are included as special cases this article studies the equilibrium valuation and hedging of foreign exchange contingent claims the framework for analysis is the continuous time counterpart of the well known two country monetary model of lucas 1982 1 that is we use the modeling structure of lucas 1982 and adopt his representativeagent perfect pooling equilibrium notion rather than extending the lucas setup to a cox ingersoll and ross 1985a henceforth cir production economy as is done in nielsen and saa requejo 1993 for our purpose the lucas framework offers the desired simplicity and tractability we assume a stochastic structure for the international economy such that the resulting nominal interest rates and exchange rate dynamics exhibit similar empirically plausible features as the corresponding ones in nielsen and saa requejo 1993 for example the endogenous interest rates are positively correlated across national borders campbell and clarida 1987 and ilmanen 1995 as a predictor of future spot exchange rates the equilibrium forward exchange rate is biased in a direction consistent with the forward premium puzzle

opec unconventional oil and climate change on the importance of the order of extraction we show that opec s market power contributes to climate change by enabling producers of relatively expensive and dirty oil to start producing before opec reserves are depleted we examine the importance of this extraction sequence effect by calibrating and simulating a cartel fringe model of the global oil market while welfare net of climate damage under the cartel fringe equilibrium can be significantly lower than under a first best outcome almost the entire welfare loss is due to the sequence effect of opec s market power in our benchmark calibration the cost of the sequence effect amounts to 15 trillion us which corresponds to 97 percent of the welfare loss moreover we find that an increase in non opec oil reserves decreases global welfare in a counterfactual world without non opec oil global welfare would be 13 trillion us higher 10 trillion us of which is due to lower climate damages

inefficiency of credible strategies in oligopolistic resource markets with uncertainty abstract the implications of different information patterns for firms in oligopolistic resource markets are considered the traditional open loop nash equilibrium with static information sets is one of many possible nash equilibria and is not suitable for stochastic environments when shocks to resource growth are serially uncorrelated there are no gains from conditioning the harvest on past stock levels and the feedback or credible nash equilibrium is the appropriate nash equilibrium concept this credible equilibrium assumes that firms have knowledge of current stocks of reserves which typically leads to more rapid extraction of the resource and possibly extinction since the open loop nash equilibrium is efficient when demand is iso elastic and extraction costs are zero it is clear that an increase in information can be detrimental to firms in the industry

the role of obsolescence and inventory costs in providing commitment this paper modifies the cournot and stackelberg models to allow the firms to sell less than they have produced and to store the unsold portion of their output as inventory even if one of the firms can choose its output before the other if it is costless to carry unsold goods forward then the cournot outcome emerges we show however that costs of carrying the inventory forward endow the firms with a limited degree of commitment to sell what they have produced this partially restores the first mover advantage if the firms choose their outputs simultaneously the cournot outcome emerges and has locally consistent conjectures

benefits of a slanted view a discussion of disclosure bias abstract fischer and verrecchia j account econom 2004 forthcoming studies a model of imperfect competition in which firms disclosures are affected by biased information processing they find that optimism can add punch to a firm s actions when facing an optimist a rival is forced to soften its competitive posture thereby rendering such biases viable although the setting provides a cogent explanation for disclosure bias its reliance on imperfect information processing introduces some questions one concern is the ease with which polar results can be obtained when the rules of the game are sufficiently relaxed the discussion provides examples illustrating this and related issues

optimal spreading when spreading is optimal abstract this paper assumes an investor who has a non traded position operating in a stochastic interest rates environment the investor trades continuously either distinct futures contracts or distinct forward contracts in order to maximize his expected utility of terminal wealth in order to reach the welfare level of the first best optimum the investor must incorporate into his portfolio either two distinct futures contracts or two distinct forward contracts the optimal forward contracts dynamic spreading strategy has two components a speculative component and a minimum variance hedging component the minimum variance hedging component is composed of a short position in the nearby contract and a long position in the deferred contract the speculative component serves to replicate the growth optimum portfolio the speculative component is composed of a short position in the contract which is the most negatively correlated with the growth optimum portfolio and a long position in the other contract the marking to market procedure of the futures positions forces the investor to hold less futures contracts than the corresponding forward contract positions the analysis is also extended to incomplete markets and to inter market spreading

opec and the u s oil import tariff open loop nash extraction plans of exhaustible resource producers in which producers take the plans of others as given are time consistent but proposed open loop oil import tariffs are almost always time inconsistent the paper derives a time consistent open loop nash tariff that can be readily computed for both competitive and a nash cournot specification of the oil market the authors illustrate the time sequence of the optimal import tariff for a simple model of the united states facing a duopolistic version of opec and a comparative fringe of oil producers and compare the outcome with the competitive equilibrium copyright 1991 by royal economic society

the optimal tariff production lags and time consistency the optimal tariff for a large country equals the reciprocal of the foreign export elasticity of supply however if production decisions occur before consumption decisions the ex ante optimal tariff is not time consistent because the ex post elasticity is less than the ex ante elasticity we show all countries are worse off if the large country cannot precommit to its ex ante optimal tariff and that all countries can gain if the large country taxes domestic production of importables

currency hedging for international portfolios this paper examines the benefits from currency hedging both for speculative and risk minimization motives in international bond and equity portfolios the riskreturn performances of globally diversified portfolios are compared with and without forward contracts over the period 1974 to 1990 inclusion of forward contracts results in statistically significant improvements in the performance of unconditional portfolios containing bonds conditional strategies are also implemented both in sample and out of sample and are shown to both significantly improve the risk return tradeoff of global portfolios and to outperform unconditional hedging strategies whether international portfolios should be hedged against currency risks is the subject of an active debate the theoretical side of the debate has been closely associated with two strands in the academic literature international asset pricing and optimal hedging in the futures markets in the international asset pricing model iapm of solnik 1974 optimal portfolios contain positions in forward contracts or equivalently foreign currency denominated bills these positions which can differ from the positions in foreign stocks have since been termed hedges black 1990 shows that under additional assumptions the hedge ratios should be identical for all investors regardless of their nationality universality and that investors should never fully hedge their foreign currency exposures similarly theoretical models from the futures literature produce demands for hedging instruments that contain both speculative and hedging components the empirical issue unanswered so far is whether adding forward contracts to international portfolios significantly improves the risk return profile of global investments empirical research has barely begun to respond to the challenges of theoretical models there exists little empirical evidence on either the relevance of black s universal hedge ratios or the optimality of hedge ratios less than one instead researchers have concentrated on the benefits of fully hedging exchange risk for example eun and resnick 1988 indicate that stock portfolios perform better when fully hedged but offer no statistical tests

the new economics of labor migration this paper reviews selected theoretical and empirical developments in the field of labor migration economics the migration behavior of individuals differs in accordance with their perceived relative deprivation those who are relatively more deprived tend to have stronger incentive to migrate than those who are relatively less deprived moreover a reference group characterized by more income inequality is likely to generate more relative deprivation highly skilled workers are also more likely to migrate migration decisions are often made jointly by the migrant and nonmigrant with a contractual arrangement regarding the sharing of costs and returns the exchange of commitments to share income provides coinsurance of particular interest are the determinants of the speed of adoption of migration as an innovation and the characteristics associated with the delay in the adoption of innovation new econometric techniques including techniques for the analysis of qualitative dependent variables techniques that correct for sample selection bias and those for the analysis of longitudinal data have substantially benefited empirical research in this area new methods that can correct for the biased estimate of the wages particular individuals would receive at 2 or more locations at the same point in time allow researchers to test locational decsion making models estimates of these structural models of labor migration support the hypothesis that individuals respond to income incentives in making the decsion to migrate further research is needed on the pazzling observation that migrant workers earn less than native born workers with similar characteristics during the 1st few years after migration but more thereafter other topics that need further research include the macroeconomic effects of migration the microeconomic and macroeconomic relationships between aging and labor migration and the migration behavior of dual earner families

an examination of dynamic hedging abstract i compare garch modeled dynamic hedging strategies with traditional ols modeled strategies to determine which perform better i find that dynamic hedging reduces risk more than static hedging but only slightly this is consistent with some previous findings that more complex hedging methods may not improve the performance much briys and solnik s 1992 static comparison of the macroeconomic and asset specific components of the hedge ratio is extended to a dynamic setting to examine how the relative importance of these two components evolves through time cointegrating relationship between the spot and forward rates in the macroeconomic component is also considered but its effect is minimal the asset specific component has effect in the out of sample period especially under dynamic strategies and under short term hedging horizons

discrete exchange rate hedging strategies abstract in this paper we compare the effect of alternative currency hedging strategies on the variance of the terminal value of the firm the main focus is on the time at which the hedge is put down and the frequency with which it is adjusted we show that commonly used strategies such as one period cash flow hedges and long term fixed hedges may leave them firm very exposed to foreign exchange risk one possible explanation for the popularity of one period cash flow hedges is that the firm may shift its operations in response to an exchange rate change we argue that the opportunity for such shifts may help to explain the use of short term hedges

optimal hedging in a dynamic futures market with a nonnegativity constraint on wealth abstract this paper examines the issue of optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of lognormal rather than normal returns and of a constant absolute risk aversion utility function in this context the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical with those encountered in the bulk of the literature which has largely overlooked this problem negative results concerning the derivation of equilibrium in the futures markets and the computation of the open interests then follow

inventory holding as a strategic weapon to deter entry recent papers by dixit 1980 and eaton and lipsey 1981 have explored the strategic use of committed product specific capital by an incumbent firm in order to influence a post entry equilibrium and in some cases make entry unattractive by committing or sinking part of the production costs prior to entry the incumbent creates a credible shift in its own reaction function if entry should occur in this way the payoffs in the post entry equilibrium can be influenced to the incumbent s advantage the entry game thus consists of two stages the first in which the incumbent is able to strategically commit itself prior to entry and the second or post entry period in which a duopoly equilibrium is realized the more costs that are put up front by the incumbent the greater is the post entry output it will wish to sell for a given output of the entrant and the lower will be the resulting equilibrium price if the set up or fixed costs of entry are sufficiently high entry may be rendered unprofitable this paper extends the idea in a natural way all the production costs of a quantity of output can be sunk or committed by stockpiling inventory of the product the stock of inventory held by the incumbent firm represents a credible shift in its reaction function in response to entry in the following way the inventory is a stock that can be sold off over time in a way consistent with intertemporal profit maximization constrained by the presence of the entrant moreover the threat to sell off the inventory in response to entry is credible since given that entry has occurred the opportunity cost of the inventory is zero it seems reasonable to require that any strategic asymmetry between incumbent and entrant should be restricted to commitments made by the former prior to entry conditional on such commitments the post entry game should give neither firm a strategic advantage this requirement is the same as the game theoretic concept of perfectness 1 entry can be credibly deterred because the entrant knows that were entry to take place it would be in the incumbent s own interest to follow the anticipated sales programme of inventory in order to demonstrate that entry may be deterred by holding a stock of inventory that is sufficiently large that deterrence can be made the perfect equilibrium of the complete entry game the properties of the equilibrium with entry must be derived the post entry equilibrium is modelled here as a pair of nash strategies in sales programmes if the sales programme anticipated by the entrant in the post entry equilibrium implies a negative present value entry will be deterred thus successful entry deterrence implies that the equilibrium with entry is never realized the incumbent can then continue to receive monopoly profits less the holding cost of the inventory which serves as a credible deterrent to entry but is never sold

the role of liquidity in futures market innovations i characterize the optimal design of a new futures market an innovation by an exchange in the presence of market frictions futures markets am characterized by both the contract and the level of trader participation both can be determined by an exchange a game in which exchanges simultaneously design markets is c onsidered and a particular equilibrium not necessarily unique is constructed a game in which exchanges sequentially design markets and incur design costs is also considered and the generically unique equilibrium is constructed the nature of equilibrium with multiple exchanges is discussed in these simultaneous and sequential settings illustrating the role played by liquidity considerations both in market design and in the nature of competition between exchanges

the equilibrium price range of oil economics politics and uncertainty in the formation of oil prices abstract this paper attempts to clarify the articulation between economic and political factors in the formation of petroleum prices it begins with defining the political factors then it gives a definition of the dynamic equilibrium price of a mineral commodity market the essential point is that when actors control significant low cost reserves and will not or cannot adopt behaviour of a substantial economic rationality then the economic analysis does not allow a unique dynamic equilibrium price to be determined however it does permit definition of an equilibrium price range within which political preferences may be expressed finally the paper draws some conclusions on what could be discussed within the scope of a new oil producer consumer dialogue

investment and hedging under a stochastic yield curve abstract this paper examines portfolio decisions involving both fixed and non fixed income securities two state variables the short term and the long term interest rates fully determine the bonds prices and partly influence the other assets prices we propose first a methodology for determining optimal portfolios in such a context and then use that methodology to solve the portfolio problem of investors whose long term bond holdings are constrained which generates undesirable interest rate risk that are hedged with futures contracts the individual futures positions which involve several hedging components and the futures market equilibrium open interest are derived and analysed

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

remittances household expenditure and investment in guatemala the author uses a large household data set from guatemala to analyze how the receipt of internal remittances from guatemala and international remittances from the united states affects the marginal spending behavior of households on various consumption and investment goods contrary to other studies the author finds that households receiving remittances actually spend less at the margin on consumption food and consumer goods and durables than do households receiving no remittances instead of spending on consumption households receiving remittances tend to spend more on investment goods like education health and housing the analysis shows that a large amount of remittance money goes into education at the margin households receiving internal and international remittances spend 45 and 58 percent more respectively on education than do households with no remittances these increased expenditures on education represent investment in human capital like other studies the author finds that remittance receiving households spend more at the margin on housing these increased expenditures on housing represent a type of investment for the migrant as well as a means for boosting local economic development by creating new income and employment opportunities for skilled and unskilled workers