the dynamic effects of government spending policies in a two sector endogenous growth model this paper investigates the impact of government spending policies in a two sector model of endogenous growth endogenous growth arises because all factors of production physical and human capital are reproducible both temporary and permanent government spending shocks are examined the model implies that a permanent lump sum financed increase in government spending raises the long run growth rate this occurs because the negative wealth effects of a spending increase will increase labor supply on the other hand an income tax or wage tax financed rise in government spending reduces the growth rate the output effects of a temporary increase in government spending may be greater or less than a permanent increase in spending copyright 1995 by ohio state university press

a bayesian approach to aggregation in demand systems smoothing with perfect substitution priors demand analysis requires aggregation of commodities some are imposed at the data collection level leaving some for the estimation level when data are collected the implicit assumption underlying the aggregation is perfect substitutability one gallon of gasoline is viewed by consumers as equivalent to another gallon hence the two are added together while such aggregation can be carried out further by the data analyst it is difficult to incorporate perfect substitutability into the estimation of direct demand systems perfect substitution in that context implies discontinuous demand functions which are not nested within standard empirical demand systems perfect substitution is much more easily handled in a system of inverse demands though an empirical method to impose perfect substitutability in an inverse demand system has not previously appeared in the literature in this article we develop such a method which allows perfect substitutability to be imposed as a prior restriction we use leame

portfolio optimization with stochastic dominance constraints abstract we consider the problem of constructing a portfolio of finitely many assets whose return rates are described by a discrete joint distribution we propose a new portfolio optimization model involving stochastic dominance constraints on the portfolio return rate we develop optimality and duality theory for these models we construct equivalent optimization models with utility functions numerical illustration is provided

stochastic dominance and mean variance measures of profit and loss for business planning and investment in this paper we first extend the stochastic dominance sd theory by introducing the first three orders of both ascending sd asd and descending sd dsd to decisions in business planning and investment to risk averse and risk loving decision makers so that they can compare both return and loss we provide investors with more tools for empirical analysis with which they can identify the first order asd and dsd prospects and discern arbitrage opportunities that could increase his her utility as well as wealth and set up a zero dollar portfolio to make huge profit our tools also enable investors and business planners to identify the third order asd and dsd prospects and make better choices to complement the stochastic dominance approach we also introduce an improved mean variance criterion to decisions in business planning or investment on both return and loss for risk averse and riskloving investors we then illustrate the superiority of the present approaches with well known examples in the literature and discuss the relationship between the improved stochastic dominance and mean variance criteria

a further look at flexibilities and elasticities relationships between price elasticities and price flexibilities are examined with emphasis on comparing sizes of difference between a directly estimated demand matrix and an inverted demand matrix results show that by using inverted elasticities to represent flexibilities or vice versa sizable measurement errors may be committed in agricultural policy and program analysis a directly estimated demand matrix should be used

an inverse demand system for new england groundfish welfare analysis of the transition to catch share management the welfare effects of the 2010 transition from days at sea to catch share management in the northeast u s groundfish fishery are examined by combining a model of groundfish demand with a simulation based model of supply counterfactual supply is constructed based on the days at sea system that was recalibrated to meet mandated conservation goals due to the decreases in catch that were required to meet those goals the 2010 policy undoubtedly resulted in worse outcomes for both producers and consumers compared to 2009 however the conservation equivalent days at sea system would have been far worse for both consumers and producers copyright 2013 oxford university press

gains from diversification on convex combinations a majorization and stochastic dominance approach by incorporating both majorization theory and stochastic dominance theory this paper presents a general theory and a unifying framework for determining the diversification preferences of risk averse investors and conditions under which they would unanimously judge a particular asset to be superior in particular we develop a theory for comparing the preferences of different convex combinations of assets that characterize a portfolio to give higher expected utility by second order stochastic dominance our findings also provide an additional methodology for determining the second order stochastic dominance efficient set

remittances and inequality in this paper the authors propose a framework and develop techniques for analyzing the impact of migrant remittances on the distribution of rural income by size and subsequently its impact on rural welfare household data are used to assign numerical coefficients to the impact of net remittances from both internal and international migrants on income inequality in 2 mexican villages the impact of migrant remittances on the distribution of rural income by size depends critically on the degree to which migration opportunities become diffused through the village population on the returns to human capital embodied in remittances and on the distribution of potentially remittance enhancing skills and education across village households our empirical findings demonstrate that in a village where many households contain internal migrants but few have experience migrating to the u s remittances from mexico to us migrants have an unequalizing impact on village incomes while remittances from internal migrants have a favorable effect on the village income distribution by contrast in a village with a long historyh of sending migrants to the us and hence a more ready access to us labor markets us to mexico remittances have an equalizing impact on incomes remittances from internal migrants in this village however embody a large human capital component and are highly correlated with household income hence internal migrant remittances account for a comparatively large share of inequalities in the 2nd village the overall effect of remittances on income inequality is favorable in both villages migration type migration stage and interaction terms all appear to play a role in this context the effects of small changes in remittances upon income inequality and rural welfare in the 2 villages are explored and some implications for migration and rural development policy are considered authors modified

on interpreting inverse demand systems a primal comparison of scale flexibilities and income elasticities scale flexibilities in inverse demand systems describe how marginal valuations change with expansions in the consumption bundle such effects clearly are related to income elasticities in direct demand systems however the connection is not so close as it first appears we argue that the link between scale flexibilities and income elasticities is tight only if preferences are homothetic a situation where neither measure is interesting or if all elasticities of substitution are unitary we make clear the relationship between the two measures in a coordinate system focusing on how marginal rates of substitution change with consumption scale and proportion

almost stochastic dominance and stocks for the long run abstract the geometric mean argument and the recently developed almost stochastic dominance criterion have been employed to make the case for stocks for the long run we show that almost stochastic dominance and the geometric mean argument do not necessarily support long run investment in equities in fact for standard preferences bonds may be preferred to stocks for the long run while stocks are preferred for shorter horizons

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

asset returns and government budgets in a small open economy empirical evidence for canada abstract in this paper we test the validity of the ricardian equivalence hypothesis by examining the relationship between the term structure of asset returns and macroeconomic policy variables our study extends the work of plosser 1982 1987 to the canadian case adapting his analysis to the small open economy the empirical results we obtain are consistent with the debt neutrality proposition of the ricardian equivalence hypothesis

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

on inferring individual behaviour from market behaviour in a predetermined quantities model this article develops the theoretical basis of individual behaviour recovered from market behaviour in a predetermined quantities model as applied economists argue an inverse demand system may be empirically sound within the framework of classical demand theory however it should not lead to the conclusion that the market responses for changes in quantity should be used to see welfare effects instead of the individual responses by price changes as far as the market is concerned it shows theoretically and empirically how individual responses can be recovered from market responses in a predetermined quantities model it suggests that the fundamental results of this article should be used on interpreting empirical results from the predetermined quantities models

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

an inverse demand system for u s composite foods this article provides a theoretically consistent framework for estimating a complete price dependent demand system where the concept of distance function and its related substitution and scale effects are used the approach is applied to a u s demand system consisting of thirteen food and one nonfood categories

the robustness of risk return nonlinearities to the normality assumption in a recent study tinic and west 1986 empirically reexamine the risk return relationship posited by the traditional mean variance capm they find a positive nonlinear relationship between risk and return except during january when the market rewards bearing nonsystematic risk this study examines the hypothesis that nonnormality of re turn distributions may account for some of these anomalous results we compare shalit and yitzhaki s 1984 mean extended gini capm an equilibrium asset pricing relation that is independent of the form of the underlying asset distribution with the traditional capm our results indicate that the nonlinear risk return relationship and the size and january effects are robust to nonnormality of return distributions

a standard measure of risk and risk value models in this paper we propose a standard measure of risk that is based on the converted expected utility of normalized lotteries with zero expected values this measure of risk has many desirable properties that characterize the notion of risk it is very general and includes many previously proposed measures of risk as special cases moreover our standard measure of risk provides a preference based and unified method for risk studies since the standard measure of risk is compatible with the measure of expected utility it can be used explicitly or implicitly in an expected utility model under a condition called risk independence a decision could be made by explicitly trading off between risk and value which offers an alternative representation of the expected utility model named the standard risk value model finally we discuss some other applications of the standard measure of risk and extensions of our risk value tradeoff framework for descriptive decision making

mean gini analysis of stochastic externalities the case of groundwater contamination the mean gini approach is used to analyze stochastic externalities generated by agricultural production the model addresses the problem of groundwater pollution caused by excessive fertilizer application inherent in the mean gini approach to expected utility maximization is a two fold value the simplicity of the two parameter mean variance model and satisfaction of necessary and sufficient conditions for stochastic dominance price and quantity policy recommendations to control externalities are formulated based upon the relative assessment of uncertainty by the regulatory authority and the farmers using the gini as a measure of risk allows for the quantification of control policy measures under differentiated risk aversion and multiple sources of pollution the model shows that when producers underestimate uncertainty quota policies restricting fertilizer are more efficient than tax policies in reducing groundwater contamination

the implications of knowledge based growth for the optimality of open capital markets this paper re examines the view that opening capital markets must have long run benefits the analysis shows that the desirability of opening a country s capital markets depends on the nature of the technology assumed models of knowledge based growth predict that changes that alter the economy s level of production will also affect the economy s growth rate and hence the welfare of future generations standard neoclassical growth models imply no such effects on growth or welfare if production does involve an important element of learning by doing inference from the standard models may be seriously misleading in particular opening capital markets does not necessarily improve welfare for the nation or for the world as a whole

the inverse almost ideal demand system abstract a new demand system related to the almost ideal demand system aids of deaton and muellbauer is developed and illustrated this inverse aids iaids retains all of the desirable theoretical properties of the aids model with the exception of consistent aggregation an empirical issue is whether a linear approximation will work as well for the iaids as it has for the aids model since quantities are not as highly correlated as prices an application to u s meat demand demonstrates that the linear approximation of the iaids is excellent which enhanced the ease and range of application

empirical tests for stochastic dominance efficiency we derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets the tests can be computed using straightforward linear programming bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation using our tests the fama and french market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book to market equity ratio

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

flexible specification of mixed demand systems common flexible functional forms are not very useful for modeling mixed demand systems because derivation of mixed demands requires closed forms for both direct and indirect utility functions in this paper we study the alternative of using a direct approximation to mixed demands we develop a new approach to slutsky relations for mixed demand functions allowing formulation of a rotterdam mixed demand model the resulting mixed demand system is illustrated with an application to meat demand in canada

the efficiency gains from dynamic tax reform this paper presents a new simulation methodology for determining the pure efficiency gains from tax reform along the general equilibrium rational expectations growth path of life cycle economies the principal findings concern the effects of switching from a proportional income tax with rates similar to those in the u s to either a proportional tax on consumption or a proportional tax on labor income a switch to consumption taxation generates a sustainable welfare gain of almost 2 percent of lifetime resources in contrast a transition to wage taxation generates a loss of greater than percent of lifetime re sources a second general result is that even a mild degree of progressivity in the income tax system imposes a very large efficiency cost this abstract was borrowed from another version of this item

an inverse demand analysis with introduction of quality effects an application to spanish consumption of fruit and vegetables this article analyzes consumer preference for fruit and vegetables when by using time series with socioeconomic characteristics of households there can be seemingly unobserved quality effects which are increased by aggregation the changes in spanish demand for fresh and processed fruit and vegetables over the period 1987 2000 are discussed following previous tests and analyses quantities are taken as predetermined and prices as matching the offer conditions thus quality effects based on the nutritional and or health value of the product are estimated from the error terms associated with the functions of the unit values quality variables are introduced as taste shifters in the inverse demand system laitinen theil model the results show the positive effects of quality differences on the normalized price for the group of products through own quality flexibilities and the negative effects between fresh and processed products through cross quality flexibilities

risk value models restrictions and applications abstract sarin and weber european journal of operational research 70 1993 135 and others have argued for the expression of preferences under risk by the use of risk value models which have the intuitively appealing property that absence of certainty enters the decision maker s preference function only through a well defined risk argument the present paper proposes axioms which should be satisfied by any such model and explores the restrictions that the axioms place on the preference function implications for absolute and relative risk aversion are considered and the usefulness of the approach is demonstrated with applications to portfolio theory and the theory of the firm

functional separability and elasticities of complementarity this paper presents an alternative characterization of separability based on elasticities of complementarity earlier studies have formulated separability restrictions in terms of the allen elasticities of substitution the hicks and antonelli elasticities of complementarity are presented to examine separability of production utility and distance functions whereas the allen elasticities of substitution are valid under homothetic separability the hicks elasticities of complementarity are a universally relevant measure of separability for the production utility function separability of meat commodities is tested using the antonelli elasticities with the consumer s preferences specified with the distance function

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

the interest rate neutrality of fiscal deficits testing for ricardian equivalence and capital inflow abstract this paper examines the extent to which the ricardian equivalence theorem as restated by barro 1974 and the capital inflow hypothesis of dwyer 1985 provide valid explanations of the observed interest rate neutrality of fiscal policy in open economies a theoretical open economy macromodel is specified and subsequently tested on a multi country dataset which spans the recent period of floating exchange rates on balance the empirical results favour the capital inflow hypothesis which emphasizes the importance of international financial integration in facilitating the financing of public deficits by the savings of agents who reside across political frontiers

mean gini portfolio theory and the pricing of risky assets this paper presents the mean gini mg approach to analyze risky prospects and construct optimum portfolios the proposed method has the simplicity of a mean variance model and the main features of stochastic dominance efficiency since mean gini is consistent with investor behavior under uncertainty for a wide class of probability distributions gini s mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect the mg approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk this is further extended to include a degree of risk aversion that can be estimated from capital market data the analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

forms of scale curves and differential inverse demand systems this article provides a new interpretation of the scale effects in differential inverse demand systems a scale curve is defined as a curve that shows how the expenditure share of a good or service changes as the consumption level changes it is shown that brown lee and seale s synthetic model has the same scale effects as do the box cox scale curves in this light their model is not a mere composite but a model in its own right an empirical illustration given for japanese fresh food demand suggests that the underlying scale curves differ from both linear and loglinear forms

coping with risk management and fill rate in the loss averse newsvendor model abstract in this paper we introduce the cvar conditional value at risk measure to hedge against the risks for the loss averse newsvendor we derive the optimal order quantities for the loss averse newsvendor to maximize the cvar objective of utility with and without the shortage cost respectively it is shown that when shortage cost is not considered an increase in the degree of loss aversion leads to a decrease in the fill rate therefore the newsvendor should strike a balance between the two conflicting targets in selecting the optimal order quantity when the shortage cost is taken into account and sufficiently large it is proved that an increase in the degree of loss aversion leads to an increase in the fill rate to manage both of the two targets the newsvendor should order more items in this case our sensitivity analysis further verifies that high risk implies high return and low risk comes with low return based on the analysis some management insights for the risk management of the loss averse newsvendor are presented

willingness to pay and willingness to accept how much can they differ comment i agree with the point made by edoh y amiran and daniel a hagen 2003 that there can be a substantial or even infinite divergence between the wta and wtp for a public good even where there is a nonzero elasticity of substitution between market goods and the public good provided that the indifference curves are asymptotically bounded with respect to market goods in the manner they describe this is an important point they are also correct to point out that the elasticity of substitution is a local concept whereas their asymptotic boundedness condition applies also for discrete changes my 1991 paper used a local analysis because it was following the structure of the analysis in robert d willig 1976 and alan randall and john r stoll 1980 i wanted to show that while randall and stoll appeared to extend willig s local result on wta versus wtp from price changes to changes in the quantity of a public good the relevant elasticity was in fact different and involved the substitution elasticity as well as the income elasticity i view these points by amiran and hagen as not two separate results but essentially the same result their asymptotic boundedness condition generalizes my zero elasticity of substitution condition to discrete changes the asymptotic boundedness condition can be expressed as follows assuming a bivariate utility function u x q and given a reference point x q associated with a reference utility level u u x q there exists some q q such that for all q q there exists no x such that u x q u in other words no amount of x can substitute for the reduction in public good from q to q q in the case of a zero elasticity of substitution q q but as amiran and hagen show in their theorem 1 this is unnecessarily restrictive when dealing with a discrete reduction in q furthermore their theorem 2 can be viewed as a special case of their theorem 1 in which q 0 which makes q an essential commodity it is well known in consumer theory that the wta to avoid the loss of an essential market good is infinite their theorem 2 extends this result to the case of an essential nonmarket good but as their theorem 1 shows essentialness is not necessary for an infinite wta the boundedness condition is the key and this implies a fundamental lack of substitutability between money market goods and the public good

risk management strategies via minimax portfolio optimization recent extreme economic developments nearing a worst case scenario motivate further examination of minimax linear programming approaches for portfolio optimization risk measured as the worst case return is employed and a portfolio from maximizing returns subject to a risk threshold is constructed minimax model properties are developed and parametric analysis of the risk threshold connects this model to expected value along a continuum revealing an efficient frontier segmenting investors by risk preference divergence of minimax model results from expected value is quantified and a set of possible prior distributions expressing a degree of knightian uncertainty corresponding to risk preference determined the minimax model will maximize return with respect to one of these prior distributions providing valuable insight regarding an investor s risk attitude and decision behavior linear programming models for financial firms to assist individual investors to hedge against losses by buying insurance and a model for designing variable annuities are proposed

optimal taxes and the structure of preferences if optimal tax theory is to be the basis for calculating tax rates a close understanding is required of the relationship between the structure of preferences and the configuration of optimal tax rates otherwise hypotheses chosen by the econometrician for practical convenience may completely determine the results independently of measurement this paper explores the relationship between various types of separability particularly weak and implicit separability and optimal tax rates in the various models discussed in the literature the use of distance functions and the antonelli matrix provides a significant unification of previously disparate results in the final analysis optimal tax theory should be the basis for actual calculation of tax rates although recently there have been great advances in theoretical results and in our understanding of their meaning we are still some way from a working knowledge of whether uniform commodity taxes are in practice optimal or if not which commodities should be discriminated against present theoretical formulae do not yield clear cut results except in special cases and it has recently become clear that optimal rates depend crucially on the detailed structure of consumer preferences for example atkinson and stiglitz 3 show that with an optimal nonlinear income tax discriminatory commodity taxes are only necessary to the extent that individual commodities are not weakly separable from leisure more recently deaton 6 has shown that a similar result holds for what is perhaps the most interesting of the standard models that where there are many consumers and only a linear income tax and proportional commodity taxes are allowed in this case separability between goods and leisure together with linear engel curves for goods removes the need for differential commodity taxation in consequence nothing can be learned about commodity taxes from consumer demand studies in which commodity demands are explained conditionally on total expenditure and commodity prices and which assume linear engel curves all such studies require separability from leisure as a maintained hypothesis and so are consistent with uniform commodity taxation these results suggest that the prospects for meaningful empirical calculations of tax rates are bleak econometricians estimating commodity demand and labor supply equations make generous use of separability assumptions to enable estimation at all in consequence it is likely that empirically calculated tax rates based on econometric estimates of parameters will be determined in structure not by the measurements actually made but by arbitrary untested and even unconscious hypotheses chosen by the econometrician for practical convenience to remedy this situation and as a prelude to fruitful empirical work it is necessary to have a more explicit understanding of how preference structure affects optimal tax rates such is the object of this paper three different

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

migration growth distribution and welfare abstract in this note we argue that the inverted u curve of inequality is a technical derivative of the attributes of the conventional indices of inequality that these indices are inadequate measures of the change in welfare associated with the typical distributional consequences of rural to urban migration and that an explicit welfare judgment with respect to this process should and can be made

optimal hedging with a subjective view an empirical bayesian approach the standard optimal hedging model has been the preferred theoretical model of normative hedging behavior in empirical applications the model is often implemented with the parameter certainty equivalent pce procedure however the pce procedure completely ignores parameter estimation risk and subjective views we develop an empirical bayesian optimal hedging model that not only effectively accommodates parameter estimation risk but also provides hedgers with a theoretically intuitive yet quantitatively rigorous framework to blend their subjective views and a marketwide or firmwide consensus in determining optimal hedging positions ratios

diversification consistent data envelopment analysis with general deviation measures abstract we propose new efficiency tests which are based on traditional dea models and take into account portfolio diversification the goal is to identify the investment opportunities that perform well without specifying our attitude to risk we use general deviation measures as the inputs and return measures as the outputs we discuss the choice of the set of investment opportunities including portfolios with limited number of assets we compare the optimal values efficiency scores of all proposed tests leading to the relations between the sets of efficient opportunities strength of the tests is then discussed we test the efficiency of 25 world financial indices using new dea models with cvar deviation measures

national debt savings and real interest rates in a neoclassical model with endogenous labour supply and knowledge based growth in this paper the interest rate effect of government deficit financing in neoclassical model with endogenous labour supply and knowledge based growth is examined it is shown that government deficits do not raise interest rates if consumption and leisure are good substitutes and there is a large spillover effect in knowledge creation jel classification e13 e60 h60 dette nationale epargnes et taux d interet reels dans un modele neo classique ou la croissance est fondcle sur la connaissance et l offre de travail endogmne ce memoire examine les effets sur le taux d interet du financement d un deficit gouvernemental dans un modele neo classique ou la croissance est fondee sur la connaissance et l offre de travail endogene on montre que les d6ficits gouvernementaux ne font pas croitre les taux d interet si la consommation et le loisir sont des biens substituts et qu il y a des effets extemes importants qui decoulent de la production de la connaissance

the benefit function approach to modeling price dependent demand systems an application of duality theory in this article we advocate more extensive use of the benefit function in specifying price dependent or inverse demand models we demonstrate how duality theory may be used to establish the interrelationships between the marshallian or hicksian inverse demands and luenberger s adjusted price functions allowing estimable inverse demands to be derived directly from a benefit function we estimate two systems of inverse demands for japanese quarterly fish consumption results indicate that the procedures and methods employed here appear promising and may prove beneficial for quantity and welfare analysis when modeling systems of inverse demand functions copyright 2009 oxford university press

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

satisficing measures for analysis of risky positions in this work we introduce a class of measures for evaluating the quality of financial positions based on their ability to achieve desired financial goals in the spirit of simon simon h a 1959 theories of decision making in economics and behavioral science amer econom rev 49 3 253 283 we call these measures satisficing measures and show that they are dual to classes of risk measures this approach has the advantage that aspiration levels either competing benchmarks or fixed targets are often much more natural to specify than risk tolerance parameters in addition we propose a class of satisficing measures that reward diversification finding optimal portfolios for such satisficing measures is computationally tractable moreover this class of satisficing measures has an ambiguity interpretation in terms of robust guarantees on the expected performance because the underlying distribution deviates from the investor s reference distribution finally we show some promising results for our approach compared to traditional methods in a real world portfolio problem against a competing benchmark

the gini coefficient structure and its application for the evaluation of regional balance development in china abstract the evaluation of balanced regional development should consider not only the economic and ecological benefits but also regional differences a nongrouped gini index is constructed based on a continuous distribution function to evaluate the regionally balanced development of the economy and the environment and the applicability of the method is analyzed given the data characteristics combining the difference in the regional economic base and ecological carrying capacity a multigroup overall gini index mgo gini with regional spatial heterogeneity is further developed along with its decomposition structure this work evaluates and analyses the regional balance in china s development with regard to regional industrial output energy consumption and pollution emissions from 2000 to 2015 using both the nongrouped and the mgo gini the results show that the gini index constructed in this paper can be well adapted to fat tailed data which is a typical feature of china s regional economic and ecological benefits data the regionally balanced development of china does not obviously promote industrial output whereas the regional balance of energy consumption shows the same upward trend when evaluated with both the nongrouped and the mgo gini from 2000 to 2015 in recent years after a period of improvement the regional balance of pollution emissions has experienced a downward trend there is disparity in cleaner production efficiency between regions of china as well as an upward trend in this disparity in recent years china s interregional balance has been enhanced in terms of energy consumption and pollution emissions considering regional spatial heterogeneity whereas the balance of economic output has been further reduced the balance in regional energy consumption plays a supporting role in balanced development among regions the imbalance within developed areas is the main source of regional economic output and energy consumption imbalances and the imbalance in developing areas is the main source of the regional pollution imbalance in china

fewer fish for higher profits price response and economic incentives in global tuna fisheries management this paper evaluates industry wide economic incentives arising from changes in product prices in an industry exploiting a common renewable resource tropical tunas that is regulated via output limits changes in prices alter economic incentives by affecting revenues profits conservation and nonmarket public benefits economic incentives in industries exploiting common resources have been examined from multiple angles however industry level variation in market prices arising from changes in public regulation has not been explored we analyse the impact on economic incentives due to changes in output limits and market prices through estimation of ex vessel price and scale flexibilities for imported skipjack and yellowfin in thailand s cannery market the unitary scale flexibility estimated from the general synthetic inverse demand systems indicates no loss in revenue and even potential profit increases resulting from lower harvest levels that could arise from lower catch limits however for a revenue neutral or positive outcome to be achieved the three inter governmental tuna regional fisheries management organizations which manage the majority of the yellowfin and skipjack tuna in the pacific and indian oceans would have to coordinate multilaterally to set the catch limits for both species

new evidence on deficits and interest rates it is generally assumed on theoretical grounds that increases in government borrowing cause interest rates to rise 1 but empirical support for this proposition has been weak at best several recent papers have uncovered no strong relationship between deficits and short terrn interest rates however the research reported here indicates that although the relationship between deficits and short terrn interest rates may be tenuous there is strong evidence that larger deficits are associated with higher long terrn interest rates much of the debate about whether there is a strong relationship between federal borrowing and interest rates concerns the crowding out question this controversy centers on the direct and indirect eilffects of government fiscal actions on private spending these effects have been well documented in the theoretical literature e g buiter 1977 carlson and spencer 1975 blinder and solow 1973 many of the crowding out effects studied in this literature depend on the connection between government borrowing and high interest rates friedman 1978 meyer 1975 silber 1970 this is called short run indirect crowding out and may occur when increases in government spending and borrowing cause interest rates to rise which then may cause private spending to be reduced buiter 1977 pp 310 13

portfolio optimization with disutility based risk measure abstract in this paper we propose a quantile based risk measure which is defined using the modified loss distribution according to the decision maker s risk and loss aversion the properties related to different classes of disutility functions are established a portfolio selection model in the mean risk framework is proposed and equivalent formulations of the model generating the same efficient frontier are given the advantages of this approach are investigated using real world data from nyse the differences between the efficient frontier of the proposed model and the classical mean variance and mean cvar are quantified and interpreted extensive experiments show that the efficient portfolios obtained by using the proposed model exhibit lower risk levels and an increased satisfaction compared to the other two mean risk models

the relationship between the income elasticities of demand and willingness to pay abstract the relationship between income and willingness to pay for collectively provided public environmental goods is investigated we show that while the income elasticity of willingness to pay and the ordinary income elasticity of demand are related knowledge of one is insufficient to determine the magnitude or even the sign of the other the income elasticity of willingness to pay is influenced by additional factors which are generally unobservable examples are provided to illustrate the degree to which the two income elasticities may diverge our results indicate that even when goods are demand luxuries they may or may not have income elasticities of willingness to pay which are greater than one

marginal conditional stochastic dominance this paper introduces the concept of marginal conditional stochastic dominance mcsd which states the conditions under which all risk averse individuals when presented with a given portfolio prefer to increase the share of one risky asset over that of another mcsd rules also answer the question of whether all risk averse individuals include a new asset in their portfolio when assets returns are correlated mcsd criteria are expressed in terms of the probability distributions of the assets and of the underlying portfolio an empirical application of mcsd is provided using stocks traded on the new york stock exchange mcsd rules are used to show that in the long run one cannot assert that the market portfolio is inefficient

stochastic dominance and risk measure a decision theoretic foundation for var and c var abstract is it possible to obtain an objective and quantifiable measure of risk backed up by choices made by some specific groups of rational investors to answer this question in this paper we establish some behavior foundations for various types of var models including var and conditional var as measures of downside risk in this paper we will establish some logical connections among vars conditional var stochastic dominance and utility maximization though supported to some extents with unanimous choices by some specific groups of expected or non expected utility investors vars as profiles of risk measures at various levels of risk tolerance are not quantifiable they can only provide partial and incomplete risk assessments for risky prospects we also include in our discussion the relevant vars and several alternative risk measures for investors these alternatives use somewhat weaker assumptions about risk averse behavior by incorporating a mean preserving spread for this latter group of investors we provide arguments for and against the standard deviation versus var and conditional vars as objective and quantifiable measures of risk in the context of portfolio choice

government financing decisions and asset returns abstract this paper presents an empirical investigation of the relation between government financing decisions and asset returns in particular the focus is on whether a substitution of debt financing for tax financing of a given level of expenditures is associated with an increase in interest rates the paper brings a different perspective to empirical investigations of government fiscal policies by examining the response of asset prices in an efficient capital market to such policies rather than focusing on aggregate consumption behavior the results are consistent with the idea that asset prices are unrelated to how the government finances its expenditures the results however also indicate that the capital market is not indifferent with respect to the level of government expenditures as higher interest rates are associated with increases in government purchases

long and short term interest rates in a risky world abstract the paper develops and tests a general equilibrium model in which variability or risk affects the choice of portfolios our measures of variability include only the variability of unanticipated growth in monetary and non monetary aggregates and our tests use data ending with the change in federal reserve procedures in october 1979 we find that increased variability of unanticipated money growth raises demands for debt and money and reduces the demand for real capital interest rates on both short and long term debt rise by a risk premium we estimate the size of the risk premium before and after the october 1979 change and we show that the change in federal reserve procedures moved the economy to a less efficient point

mean risk analysis with enhanced behavioral content abstract we study a mean risk model derived from a behavioral theory of disappointment with multiple reference points one distinguishing feature of the risk measure is that it is based on mutual deviations of outcomes not deviations from a specific target we prove necessary and sufficient conditions for strict first and second order stochastic dominance and show that the model is in addition a convex risk measure the model allows for richer and behaviorally more plausible risk preference patterns than competing models with equal degrees of freedom including expected utility eu mean variance m v mean gini m g and models based on non additive probability weighting such as dual theory dt in asset allocation the model allows a decision maker to abstain from diversifying in a positive expected value risky asset if its performance does not meet a certain threshold and gradually invest beyond this threshold which appears more acceptable than the extreme solutions provided by either eu and m v always diversify or dt and m g always plunge in asset trading the model provides no trade intervals like dt and m g in some but not all situations an illustrative application to portfolio selection is presented the model can provide an improved criterion for mean risk analysis by injecting a new level of behavioral realism and flexibility while maintaining key normative properties