taxation of financial services under a vat in simple economic models it is relatively easy to describe how to impose a value added tax at a uniform rate on all consumption goods and to demonstrate that this tax is equivalent to a proportional labor income tax plus a tax on existing assets the equivalence involves little more than the national income identity relating the sources and uses of income once one attempts to incorporate the costs of financial intermediation however tax analysis becomes more complicated in attempting to determine how a vat should treat financial transactions various authors have attempted to apply results from simpler models unfortunately these results can lead to conflicting ambiguous and misleading prescriptions in this paper we argue that one needs to rely more on the fundamental objectives of a vat to decide how it should treat financial transactions adopting this approach we find that in principle the vat should apply to resources devoted to financial transactions in the same manner that it does in other sectors however as discussed below there are real problems in implementing such a tax on the financial sector which we do not attempt to address in this paper

joint recreation choices and implied values of time a model of joint recreation quantity choices is developed individuals choose both total time spent at distant sites and the number of trips taken implicitly choosing average on site time the model permits nonzero marginal utility of travel makes on site time endogenous and is linear in the constraints the scarcity value of time is analyzed without assuming the marginal utility of work time is zero a partially testable assumption about relative marginal values of travel and on site time yields nonparametric calculations of the scarcity value of time and marginal values of trips and days on site from people s observed optimal quantity choices

micro data heterogeneity and the evaluation of public policy nobel lecture this paper summarizes the contributions of microeconometrics to economic knowledge four main themes are developed 1 microeconometricians developed new tools to respond to econometric problems raised by the analysis of the new sources of micro data produced after the second world war 2 microeconometrics improved on aggregate time series methods by building models that linked economic models for individuals to data on individual behavior 3 an important empirical regularity detected by the field is the diversity and heterogeneity of behavior this heterogeneity has profound consequences for economic theory and for econometric practice 4 microeconometrics has contributed substantially to the scientific evaluation of public policy

cointegration analysis of german and british tourism demand for greece abstract germany and great britain are traditionally two of the most important sources of tourism for greece the purpose of this paper is to investigate changes in the long run demand for tourism to greece by these two countries in order to explain the demand for tourism we are using a number of leading macroeconomic variables including income in origin countries germany and great britain tourism prices in greece and transportation cost and exchanges rates between the three countries annual data from the three countries covering the period from 1960 to 2000 are employed augmented dickey fuller test for unit root is examined in the univariate framework and johansen s maximum likelihood procedure is used to test the cointegration method and to estimate the number of cointegrating vectors of var model error correction models are estimated to explain german and british demand for tourism to greece

the effect of forward markets on the debt equity mix of investor portfolios and the optimal capital structure of firms this paper demonstrates that the various market imperfections that have been suggested to explain observed portfolio choices and capital structures can be circumvented if securities e g options can be traded that simulate forward contracts on stock it is shown that if the risk adjusted returns to bondholders exceed the returns to stockholders to reflect per sonal tax differences tax exempt investors will prefer a combination of these synthetic forward purchases and corporate bonds to purchasing stock directly they will not as has been suggested include stock in their portfolios for diversiflcation purposes when they can alternatively purchase securities that simulate forward contracts it is also shown that firms that can sell synthetic forward positions on their own stock can essentially guarantee that sufficient funds will be available to meet their bond obligations this gives firms the opportunity to increase their debt levels without increasing the possibility of bankruptcy and the corresponding administrative and agency costs

on the optimality of the nordic system of dual income taxation abstract in recent years the nordic countries have introduced a so called dual income tax which combines a proportional tax on capital income with progressive taxation of labour income the paper argues that this asymmetric treatment of the two types of income can be defended on pure efficiency grounds because the progressivity of the labour income tax serves to reduce the private return to human capital investment thereby offsetting the tendency of a proportional comprehensive income tax to discriminate in favour of such investment the analysis is based on an overlapping generations model of a small open economy where consumers face a trade off between investment in human capital and investment in non human capital extended versions of the model allow for liquidity constraints and an endogenous labour leisure choice

endogenous on site time in the recreation demand model careful modeling of on site time may substantially improve estimates of the bene fits of recreational visits using the travel cost method especially when on site time is endoge nous this paper reviews the theory of endoge nous on site time and shows how the theory may apply to the random utility model rum an empirical example of a two level nested choice model of sport fishing in southcentral alaska il lustrates a discussion of the relative advantages of the different ways to specify endogenous on site time jel q26

possibilities for including the opportunity cost of time in recreation demand systems recreation demand modelers have attempted to identify and incorporate the opportunity cost of an individual s time in travel and on site in the model larson 1993b focused on the value of leisure time in a model where individuals face a fixed work week in this paper we examine the connection between labor supply and recreation demands and focus on conditional demand systems we illustrate that corner solution models are not needed to explain several interesting time related recreation issues

the impact of large portfolio insurers on asset prices we develop a simple model in which the presence of portfolio insurers in a market of risk averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility including insurance induced price drops we demonstrate however that centralized portfolio insurance firms may actually reduce not increase volatility even if the existence of these firms increases the total amount of funds under insurance a portfolio insurer typically sells equity as stock prices fall in order to limit the losses from holding equity in a declining market and buys equity as prices rise this can be accomplished directly by switching between stocks and cash or indirectly by taking a position in derivative securities whose payoffs are tied to stock market performance 1 the general effects of such dynamic hedging strategies have been studied by authors such as grossman 1988 brennan and schwartz 1989 and gennotte and leland 1990 gammill and marsh 1988 shiller 1989 jacklin kleidon and pfleiderer 1992 and others have studied the role of portfolio insurance in the crash of 1987 since these papers do not differentiate between an economy in which a group of atomistic investors follow their own individual insurance strategies and an economy in which large portfolio insurance firms act on behalf of investors who wish to insure however the specific price effects of large portfolio insurance firms are yet to be investigated this is the purpose of our paper section i develops a rudimentary asset pricing model with two types of traders atomistic portfolio insurers and atomistic ordinary traders this model is essentially a simplified version of gennotte and leland 1990 in which we focus on the stop loss basics of portfolio insurance like gennotte and leland we demonstrate that the existence of atomistic portfolio insurers increases the variance of possible equilibrium prices i e volatility and can lead to situations in which there are many potential equilibrium prices for a single set of fundamentals section ii extends the model by allowing some

a general equilibrium model of portfolio insurance this article examines the effects of portfolio insurance on market and asset price dynamics in a general equilibrium continuous time model portfolio insurers are modeled as expected utility maximizing agents martingale methods are employed in solving the individual agents dynamic consumption portfolio problems comparisons are made between the optimal consumption processes optimally invested wealth and portfolio strategies of the portfolio insurers and normal agents at a general equilibrium level comparisons across economies reveal that the market volatility and risk premium are decreased and the asset and market price levels increased by the presence of portfolio insurance article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the decision to go public accrued capital gains and taxation abstract the decision to go public is considered in a competitive capital market equilibrium with self selection linear progressive taxes on capital gains accruing from public offerings can increase the incentives to go public in this case the tax improves the risk allocation

will the new keynesian macroeconomics resurrect the is lm model the is lm model has no greater prospect of being a viable analytical vehicle for macroeconomics in the 1990s than the ford pinto has of being a sporty reliable car for the 1990s because of its treatment of expectations the is lm model as traditionally constructed and currently used is a hazardous base on which to build positive theories of business fluctuations and to undertake policy analysis to simplify economic reality sufficiently to use the is lm model as an analytical tool economists must essentially ignore expectations we now know that this simplification eliminates key determinants of aggregate demand the last two decades of research have taught economists that the assumption of rational expectations is a powerful part of economic explanations of individual and market behavior ranging from consumption and investment dynamics to pricing of stocks and bonds the emphasis on expectations in the macro model is the end result of a process of building microeconomic underpinnings that was initiated in the 1950s and 1960s when the goal was to develop dynamic theoretical foundations for the is and lm schedules inevitably consideration of dynamic choice pushed the question of expectations to the forefront as a result most of the equations of the is lm model are now viewed as summarizing purposeful economic behavior in which choices over time play a central role however as we will see this finding means there is no way to maintain traditional uses of the is lm model

a repeated nested logit model of atlantic salmon fishing participation and site choice for atlantic salmon fishing are modeled in the context of a repeated three level nested logit model consumer s surplus measures are derived for different levels of species availability in the penobscot river the most important salmon river in new england for comparison six other travel cost models are estimated these include restrictive cases of the nested logit model a partial demand model and two single site demand models comparisons across these models indicate the importance of modeling the participation decision including income effects and of adopting a nested logit structure rather than a single level logit structure

efficient selection of insured currency positions protective puts vs fiduciary calls we examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options hypotheses are generated from ogden and tucker s 1988 generalizations concerning the relative values of american spot currency options and currency futures options we find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts this suggests that the prices of puts on foreign currency futures contracts are too high relative to foreign currency futures calls and to puts on spot currencies

the impact of changes in household vacation expenditures on the travel and hospitality industries two large tourism industries travel and hospitality are strongly affected by changes in household demand for vacations in recent years rising income and declining prices per unit of quality have led to changes in patterns of household vacation consumption to understand the impact of these changes on the travel and hospitality industries we develop a theoretical model distinguishing between travel and on site expenditures and apply it to israeli data we find that under certain circumstances the changes in income and prices are responsible for a shift toward multiple short vacations this trend can be a boon to the travel industry but a disadvantage for the hospitality industry both industries are expected to face a rise in the demand for high quality products

imitating accrual taxation on a realization basis abstract while taxation of capital gains upon accrual poses problems of liquidity and valuation taxation upon realization evokes the so called lock in effect that possibly induces distortions of the investors liquidation and investment decision the tax schemes proposed in the literature in order to remedy simultaneously the shortcomings of both taxation methods are mostly based on the idea of imitating accrual taxation on a realization basis the paper surveys these proposals of so called formulaic taxation and develops a uniform formal way of describing the suggested schemes that allows them to be easily compared and evaluated from a theoretic point of view

decomposition of australian tourist expenditure abstract the economic contribution that tourists make to their host depends upon the total amount of their expenditure as tourists this paper looks at the annual changes in the amount of expenditure by international tourists in australia over the period 1985 to 1995 by decomposing these changes into components attributable to the three factors of numbers of tourists their length of stay and their average expenditure insight is gained into how crucial the growth in numbers has been and in particular how important has been the growth in the number of asian holiday makers the research also finds that there have been general declines in the length of stay and the average expenditure for most categories of tourist

on the lock in effects of capital gains taxation abstract the most important drawback of a tax on realized capital gains is its lock in effect this paper uses a simple land development model to examine the distortion that the lock in effect generates a surprising result is that the lock in effect does not arise if the basis for the capital gains tax usually the price at which the current owner acquired the land is sufficiently high rather than delaying the sale the owner sells the land as soon as possible even if the land will be developed much later in this case the capital gains tax creates no real distortion because it does not affect the development time in particular if the basis is the price formed under perfect foresight the lock in effect never arises

the opportunity cost of travel time in recreation demand models deciding how to allocate forage among animals is a fundamentally important process in range management the wisdom of these decisions can be enhanced by estimating the marginal value of forage needed by competing species we present a method for

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

survival analysis of the spanish hotel industry abstract the main objective of this study is an analysis of survival in the spanish hotel industry we used a sample of 1033 hotels opened from 1997 to 2009 examining financial and non financial variables including size location type of hotel management economic and financial structure and the year they opened whether during an expansion or crisis period the methodology included an econometric analysis of survival using the non parametric kaplan meier estimator of constructed variables in order to detect the particular influence of each variable semi parametric regression was done with the cox proportional hazards model confirming which variables clearly influenced the survival of hotels and which signs existed for each analysed variables influence the survival of hotels depends on their size location management and launch in a time of prosperity however survival rates were not significantly tied to particular types of hotels or configurations of their economic and financial structures

the tax dis advantage of a firm issuing options on its own stock abstract it is common for firms to issue or purchase options on the firm s own stock examples include convertible bonds warrants call options as employee compensation and the sale of put options as part of share repurchase programs this paper shows that option positions with implicit borrowing such as put sales and call purchases are tax disadvantaged relative to the equivalent synthetic option with explicit borrowing conversely option positions with implicit lending such as warrants are tax advantaged i also show that firms are better off from a tax perspective issuing bifurcated convertible bonds bonds plus warrants rather than an otherwise equivalent standard convertible

taxable and tax deferred investing a tax arbitrage approach we analyze an intertemporal portfolio problem with both taxable and tax deferred retirement accounts using a tax arbitrage argument we identify conditions under which the optimal location decision where to place an asset is separable from the allocation decision how much to allocate to each asset investors place highly taxed assets in the tax deferred account to maximize the tax benefit and adjust their taxable portfolios to achieve the optimal risk exposure we show that the two account problem can be reduced to a taxable account only problem the results are robust to capital gains tax deferrals consumption and contribution decisions and stochastic tax rates

tourism in the balearic islands a dynamic model for international demand using panel data abstract the balearic islands are one of the most important tourist destinations in the mediterranean sea the tourism sector dominates the economic activity of the islands the purpose of this study is to identify and measure the impact of the main determinants of the inbound international tourism flows the annual panel data set includes the number of arrivals from the 14 most important generating countries during the period 1991 2003 and a number of possible explanatory variables taking into account the changing structure of consumer preferences a dynamic model is estimated the estimated coefficient for the lagged dependent variable may be reflecting the importance of consumer loyalty to the destination as a determinant of tourism demand the results suggest that the demand is heavily dependent on the evolution of economic activity in each of the origin countries and on the relative cost of living of tourists in the destination this study also suggests that diversification of promotion and provision of high quality services are some recommended measures of tourism policy

replicating options with positions in stock and cash in most situations of practical relevance the price behavior of a call option is very similar to a combined position involving the underlying stock and borrowing the call price and the stock price will change in the same direction the effect on the call price of a one dollar change in the stock price however will depend on the current price of the stock the number of shares of stock in the replicating portfolio must equal the slope of the call price curve at that price when the call is deep out of the money i e when the stock price is much lower than the striking price a one dollar change in the stock price has little effect on the call price when the stock price is equal to the striking price a one dollar change in the stock price produces roughly a half dollar change in the call price if the stock price rises until the call is deep in the money a one dollar move in the stock price results in nearly a one dollar move in the call price because the call price behaves this way we must revise

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

forecasting international tourist flows to macau abstract the vector autoregressive var modelling technique is used to forecast tourist flows to macau from eight major origin countries regions over the period 2003 2008 the existing literature shows that the var model is capable of producing accurate medium to long term forecasts and also separate forecasts of the explanatory variables are not required a further justification for using the var technique is that it permits an impulse response analysis to be performed in order to examine the ways in which the demand for macau tourism responds to the shocks in the economic variables within the var system the implications of this analysis are discussed the forecasts generated by the var models suggest that macau will face increasing tourism demand by residents from mainland china since the needs of chinese tourists tend to be different from those from other origin countries regions especially western countries the business sectors in macau need to pay considerable attention to catering for the needs of chinese tourists

length of stay for low cost tourism abstract awareness of tourists length of stay and the factors which determine that is an essential element for good planning and management at tourist destinations this article analyses to what extent the personal characteristics of the low cost tourist those of the trip and stay and those of the destination itself are significant in determining the duration of a trip to this end an econometric duration model is estimated the results obtained show that the effect of time restrictions seem to be relevant for explaining the observed differences in length of stay as well as the effects of the tourist s spending capacity prices and the differences between urban and sun and sand destinations furthermore the model also allows us to analyse changes in the likelihood of the stay being ended at a specific point in time hazard associated with changes in the explanatory variables and to obtain predicted survival times for different groups of tourists

portfolio insurance and prospect theory investors popularity and optimal design of capital protected financial products abstract portfolio insurance strategies are used on both the institutional and the retail side of the asset management industry while standard utility theory struggles to provide an explanation this study justifies the popularity of portfolio insurance strategies in a behavioral finance context we run monte carlo simulations as well as historical simulations for popular portfolio insurance strategies and benchmark strategies in order to evaluate the outcomes using cumulative prospect theory our simulation results indicate that most portfolio insurance strategies are the preferred investment strategy for a prospect theory investor moreover the analysis provides insights into how portfolio insurance products should be designed and structured to meet the preferences of prospect theory investors as accurately as possible

us income taxation of new financial products abstract this paper discusses the response of the us federal income tax to financial innovation income taxation in the us and elsewhere has traditionally relied on distinctions such as the difference between fixed and contingent returns that can be undermined by new financial products the principal tax law responses to innovative products have been 1 transactional analysis which aggregates or disaggregates new transactions to conform them to existing legal categories 2 taxation of changes in market value rather than realization events 3 taxation based on an assumed formula and 4 anti avoidance administrative approaches

a comparative study of portfolio insurance abstract this paper undertakes a comparative study of portfolio insurance under a variety of modeling strategies specifically we focus on portfolio insurers who derive utility from horizon wealth with marginal utility tending smoothly to infinity at some pre specified floor we solve for the optimal consumption portfolio wealth of these portfolio insurers and compare with constrained portfolio insurers and normal agents general equilibrium conditions are contrasted under pure exchange and production type models while the market price level is unambiguously increased under pure exchange under production the effect on market level is state dependent in both models the market volatility and risk premium are decreased by portfolio insurance the paper also investigates the possible relationship between portfolio insurance type trading strategies and market volatility

on site time in the demand for recreation the standard travel cost model has treated on site time ambiguously over the years this paper shows how to handle on site time by exploring the implications of two assumptions in the travel cost model first people choose the amount of time that they spend on a site and second the time spent on site is exogenous this paper uses a duality result to show that when on site time is chosen the standard travel cost demand function takes a particularly simple form with slight modification standard estimation and welfare calculations continue to hold

employee stock options as warrants abstract previous studies ignore the fact that employee stock options are warrants because these options have been an insignificant component of firms capital structures i show that this assumption is no longer correct for example for more than 36 of my sample firms employee stock options represent a more significant claim on firm value than the firm s debt and preferred stock combined moreover in contrast to the suggestions of previous research i show that employee stock options are a significant claim on firms throughout the economy including larger firms older firms and firms in old economy industries finally i show that the presumption in prior studies that employee stock options are not warrants causes a potential misunderstanding of the risk shifting interests of securityholders and biases the analysis of capital structure issues

managing tourism in the galapagos islands through price incentives a choice experiment approach abstract this study analyzes nature based tourism in ecuador s galapagos national park which faces great risks of invasive species due to visitor contacts the analysis uses visitors preference data to evaluate the potential impacts of various pricing strategies on revenues data come from choice experiment surveys conducted in 2009 regarding four characteristics of a tour to the galapagos length of stay depth of experience in the islands ecosystem level of protective measures taken against invasive species and price we found that the typical tourist would be willing to pay 2 5 times more for a tour with high level of protection against invasive species than for a tour with the current level of protection and otherwise similar characteristics the mean marginal willingness to pay for a tour with an in depth natural experience is 1 8 times more than for a similar tour providing only an overview of the galapagos ecosystem further we determined that differences in elasticity of demand between long and short tours suggest that a pricing strategy may be used to encourage tourists to take longer tours without affecting total revenue such a pricing strategy would decrease the number of unique island visitor contacts per year thereby reducing the threat to the islands unique ecosystem

a latent class approach to tourists length of stay abstract in this paper a conditional demand function is estimated for the length of stay at a tourist destination the microeconomic model specifies the demand for the length of stay conditional on the remaining holiday characteristics that the tourist has chosen the destination type of accommodation etc the empirical model uses a latent class truncated poisson regression which acknowledges the existence of groups or segments of demand with different preferences in the case under study a distinction is made between two segments with a preference for either a longer or shorter holiday the statistical model also resolves a problem of multimodality acknowledged in previous analyses to be one of the main characteristics of this variable

a synthetic option framework for asset allocation what if investors could buy a call option that would grant them the right to purchase at the end of a performance measurement period a full position in the better performing of either stocks or bonds the appropriate investment strategy in that case wotuld be to invest in a riskless asset that portion of total funds sufficient to achieve a desired mninimum return over the period and to use the remaining funds to purchase the multiple risky asset call options although such options are not available in the marketplace their return pattern can be replicated by a trading strategy utilizing stocks bonds and cash this involves taking positions in each risky asset and financing the positions by borrowing in the riskless asset the investor takes larger positions in the risky assets as the assets perform well along with a larger borrowing position and smaller positions in the risky assets as they perform poorly along with smaller borrowing positions historical simulations of the synthetic option asset allocation approach achieved good results in both bull and bear markets over the 1973 83 period the compound perfornmance over the most recent three five and 10 year holding periods ending in 1983 was not only first quartile but first decile for the 10 year period and close to first decile for the other periods

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

time and the recreational demand model in this paper a theoretically consistent approach to including time costs in recreational demand models is developed the demand model is conditional on the recreationist s labor market situation for individuals at corner solutions in the labor market utility maximization is subject to two constraints leading to a demand function with travel costs and travel time as independent variables with interior solutions in the labor market time is valued at the wage rate and combined with travel costs to produce one full cost variable in an illustration welfare measures based on the new model are estimated for a sample of sportfishermen

cross base tax elasticity of capital gains abstractthis paper studies the cross base tax elasticity of capital gains realizations to labour income taxes when capital gains are taxed at a separate proportional tax rate using a longitudinal panel of over 265 000 individuals in sweden this paper shows in a regression kink design that labour income taxes affect capital gains realizations in two ways an increase in the marginal labour income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains one implication of this result is that labour income taxes have a lock out effect but that the magnitude of this effect is smaller than the lock in effect of the actual capital gains tax

accounting for choice set endogeneity in random utility models of recreation demand abstract modeling the choice among a discrete set of recreation alternatives is driven by the possible patterns of substitution among sites researchers typically assume that the individual s choice set is the same as the set of alternatives included in the recreation survey instrument our endogenous choice set model is a generalization of the standard multinomial logit random utility model which allows for the possibility of heterogeneous choice sets that are endogenously determined in the model using two examples we show that parameter and compensating variation estimates differ greatly between the endogenous choice set model and the traditional logit model

the taxpayer relief act estate planning and resource mobility in u s agriculture agricultural resources tend to be owned by individuals in the later stages of their economic life if older agricultural resource owners tend to use resources less productively than younger owners then much of the resource base in agriculture may be inefficiently employed this article argues that u s capital taxation laws may be partly responsible for resource immobility capital gains taxation tends to reduce resource mobility as does the family business estate tax exemption the 1997 taxpayer relief act could exacerbate the immobility problem

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

a dynamic analysis of asymmetric shocks in eu manufacturing available empirical evidence regarding the degree of symmetry between european economies in the context of monetary unification is not conclusive this study offers new empirical evidence concerning this issue related to the manufacturing sector instead of using a static approach as most empirical studies do the dynamic evolution of shock symmetry is analysed using a state space model the results show a clear reduction of asymmetries in terms of demand shocks between 1978 and 1996 with an increase in terms of supply shocks at the end of the period

generalized cash flow taxation abstract we show the unique form that must be taken by a tax system based entirely on realization accounting to implement a uniform capital income tax or equivalently a uniform wealth tax this system combines elements of an accrual based capital income tax and a traditional cash flow tax having many of the attributes of the latter while still imposing a tax burden on marginal capital income like the traditional cash flow tax this system may be integrated with a tax on labor income we also show how such a tax can be supplemented with an optional accounting for a segregated subset of actively traded securities subjected separately to mark to market taxation at the uniform capital income tax rate to permit a fully graduated tax system applicable to labor income

the pricing of options with default risk this paper considers the pricing of options with default risk the comparative statics of such options can differ from those of ordinary options and early exercise of such american call options can be optimal several examples of options with default risk are considered traditionally it has been assumed that options have no default risk such an assumption is reasonable when one studies options traded on an organized exchange in the u s default on such options would require as cox and rubinstein 5 put it a very sudden and strong movement in stock prices one considerably more extreme than any on record p 71 however many options and financial assets containing option like payoffs are sold by firms that have limited assets for such options default is often a possibility that must be taken seriously in this paper we study how options subject to default risk which we hereinafter call vulnerable options are priced it turns out that many of the well established results of the option pricing literature see e g smith 12 and references therein do not hold for vulnerable options in particular the value of a vulnerable european option can fall with time to maturity with the interest rate and with the variance of the underlying asset furthermore it may pay to exercise early a vulnerable american option on a non dividend paying asset

differentiated price loss aversion in destination choice the effect of tourists cultural interest abstract this article looks into the differentiated effects of loss aversion depending on whether individuals show cultural interest when choosing a destination based on the fact that perceived value implies not only sacrifices but also the expectations of a certain level of quality and prospects of satisfaction together with the idea the prospect theory applies to tourism prices the article states the hypothesis that interest in culture when choosing a destination lowers people s loss aversion by incorporating the reference dependent model into a multinomial logit model with random parameters which controls for heterogeneity the empirical application shows that culture interested tourists are less loss averse i e the negative effect of finding a higher than expected price diminishes with cultural interest the expectation of enjoyment of these attributes and the more conscious attitude toward maintenance restoration activities of cultural sites are hypothesized to lead prices to be evaluated differently when selecting a destination

production organisation and risk control when market instruments are available a standard result in the theory of production under price risk is that if forward cover is available production is determined in terms of the known quoted forward or futures price rather than expectations of future prices in practice however primary production often involves joint or substitutable products so that a natural hedge may be available in addition costs such as input prices or interest rates are highly variable and may be correlated with output prices supply risk adds to this variation this paper considers the demand for market based hedging instruments in relation to such natural hedges and to the possible use of storage for hedging purposes under normality of conditional price cost variation it is shown that for relatively arbitrary nonlinear production technologies and attitudes to risk producers can plan production and derive their demand for futures by decomposing the organisation into a number of activity centres involving planning marketing cost and treasury functions adding up the hedging demands from each centre and equating to the effective supply of each type of hedge natural and market yields a linear system that may be solved for the optimum quantities of each hedge contract

tax reform and adjustment costs the impact on investment and market value this paper provides an effective tax rate measure that is valid in the presence of adjustment costs and anticipated tax changes and a measure of the impact of tax changes on market value that may be decomposed into the effects on discounted pure profits and normal returns to capital changes in the value of capital may in turn be decomposed further into changes in the marginal value of new capital and changes in the relative value of new and existing capital these new measures are used to evaluate tax changes similar to those introduced by the recent u s tax reform copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

modelling us tourism demand for european destinations abstract an almost ideal demand system model is used to examine us demand for tourism in european destinations the model provides policy makers with useful information concerning the sensitivity of tourism demand to changes in relative prices exchange rates and expenditure the results show that price competitiveness is important for us demand for france italy and spain but is relatively unimportant for the uk france and italy are regarded as substitutes by us tourists as are spain and italy as us expenditure rises the market shares of spain and the uk decline while france and italy benefit the demand modelling and forecasting indicate that in the absence of a tourism price index the choice between alternative price indices does not have a significant effect on the results

retrospective capital gains taxation this paper presents a new approach to the taxation of capital gains that eliminates the deferral advantage of realization based systems along with the lock in effect and tax arbitrage possibilities associated with this deferral advantage the new method still taxes capital gains only upon realization but effectively by charging interest on past gains when realization finally occurs eliminates the incentive to defer such realization unlike a similar scheme suggested previously by william vickrey the present method does not require knowledge of the potentially unobservable pattern of gains over time it thus is applicable to a very broad range of capital assets copyright 1991 by american economic association

skewness persistence in common stock returns recent empirical studies have found ex post common stock returns to be consistently positively skewed the frequency of positive skewness in this study is found to be relatively stable over varying time periods from 1961 to 1980 however the skewness of individual stocks and portfolios of stocks does not persist across different time periods positively skewed equity portfolios in one period are not likely to be positively skewed in the next time period past positively skewed returns do not predict future positively skewed returns

measuring regional effects of monetary policy in canada this article measures monetary policy shocks and examines whether the effects of such shocks have differential regional effects in canada we identify three possible sources of regional effects differences in the importance of interest sensitive industries differences in the contribution of exports to output and differences in the proportion of small relative to large firms using the overnight interest rate as the instrument of monetary policy we present impulse responses of industry output from a recursive vector autoregression which incorporates a cointegrating relation the results show that manufacturing and primary industries are the most interest sensitive we conduct impulse responses of provincial employment from a monetary contraction the results show that newfoundland and prince edward island pei primary industry based provinces are strongly and adversely affected by a monetary contraction manitoba saskatchewan and alberta also primary based are also affected ontario which is man

empirical specification requirements for two constraint models of recreation choice two constraint models are common in recreation demand analysis because of the important role time can play in consumer choices two versions of roy s identity hold for these models and imply coefficient restrictions on empirical demand functions the two constraint restrictions are fully observable and can be expressed in a form analogous to the slutsky hicks equations in single constraint consumer models empirical specifications that use full prices and full budgets can be consistent with the two constraint models when the marginal value of time is either exogenous or endogenous but models with full prices and money income alone are not copyright 2001 oxford university press

overnight tourism in amsterdam 1982 1993 a forecasting approach abstract this research note presents an analysis of tourist flows to amsterdam and it introduces a operational technique for the planning of the city s marketing an empirical model is introduced to aid planning at a local level and estimated and tested using the model the paper then presents an analysis of overnight tourism to the city for the period 1982 1993 additonally an input output analysis is undertaken and a number of trends are demonstrated and commented upon

the length of stay in the demand for tourism abstract one of the main characteristics of current tourism is the reduction in the length of stay at a destination nevertheless this variable has received little attention in literature this paper examines the microeconomic determinants of the length of stay at one of the mediterranean s leading sun and sand destinations the estimation of a conditional demand function model highlights the explanatory power of the tourist s sociodemographic profile and of holiday characteristics as well as the sensitivity of the length of stay to price changes

taxes and the pricing of stock index futures stock index futures prices are generally below the level predicted by simple arbitrage models this paper suggests that the discrepancy between the actual and predicted prices is caused by taxes capital gains and losses are not taxed until they are realized as constantinides demonstrates in a recent paper this gives stockholders a valuable timing option if the stock price drops the investor can pass part of the loss on to the government by selling the stock on the other hand if the stock price rises the investor can postpone the tax by not realizing the gain since this option is not available to stock index futures traders the futures prices will be lower than standard no tax models predict on 24 february 1982 the kansas city board of trade began trading futures contracts on the value line average stock index during the next two months both the chicago mercantile exchange and the new york futures exchange also initiated trading in stock index futures although these contracts are actively traded their prices have puzzled both practitioners and academics the observed

tourism demand for italy and the business cycle this study provides a strategy for modelling the effect of the business cycle on tourism demand under the rationale that tourism cycles are heavily influenced by lagged effects of the overall business cycle using quarterly data on overnight stays in italian hotels both domestic and inbound between 1985 and 2004 we adopt a structural time series approach to evaluate two alternative models the first with a latent cycle component lcc and the second based on specific economic explanatory variables xcv the two models are compared in terms of explanatory power best fit residual diagnostics and forecasting ability the results show similar performances the policy implication is that the xcv model can be used for calibrating countercyclical interventions in tourism policy

performance evaluation of portfolio insurance strategies using stochastic dominance criteria abstract this paper evaluates the performance of the stop loss synthetic put and constant proportion portfolio insurance techniques based on a block bootstrap simulation we consider not only traditional performance measures but also some recently developed measures that capture the non normality of the return distribution value at risk expected shortfall and the omega measure we compare them to the more comprehensive stochastic dominance criteria the impact of changing the rebalancing frequency and level of capital protection is examined we find that even though a buy and hold strategy generates higher average excess returns it does not stochastically dominate the portfolio insurance strategies nor vice versa our results indicate that a 100 floor value should be preferred to lower floor values and that daily rebalanced synthetic put and cppi strategies dominate their counterparts with less frequent rebalancing

modeling overnight recreation trip choice application of a repeated nested multinomial logit model in this paper we apply the repeated nested multinomial logit model a version of a random utility model rum to estimate the choice of an overnight versus single day recreation trip along with the other usual choice of which of the sites to visit and less typically the choice of whether to participate in our application to fish at all we also find statistically significant income effects in the empirical results the application is to atlantic salmon fishing and the data set is for maine resident angler s fishing trips to rivers in maine and canada

taxation of corporate capital income tax revenues versus tax distortions this paper shows that when uncertainty is taken into account explicitly taxation of corporate income can leave corporate investment incentives and individual savings incentives basically unaffected in spite of the sizable tax revenues collected in some plausible situations such taxes can increase efficiency the explanation for these surprising results is that the government by taxing capital income absorbs a certain fraction of both the expected return and the uncertainty in the return while investors as a result receive a lower expected return they also bear less risk when they invest and these two effects are largely offsetting

vacation length choice a dynamic mixed multinomial logit model abstract this paper uses panel data to develop and estimate a dynamic model of choice of the length of stay of a vacation controlling for unobserved heterogeneity and state dependency length of stay options vary from short 1 3 nights medium 4 9 nights to long vacations 10 nights or more and the decision not to go on vacation in a particular year independent variables include family lifecycle stage income month and lags of the dependent variable results indicate that long holidays are most strongly affected by trips made previously in the same year than medium and short vacations in contrast there is an increased need for a vacation when any medium or long trips were not yet made in the current year month specific variables confirm that respondents have preferences for making leisure trips during the main holidays and warm seasons the observed differences given the various lifecycle stages reflect imposed constraints given age and or household composition that are typical of each particular group

sterling s relationship with the dollar and the deutschemark 1976 89 this paper evaluates the linkages between bilateral exchange rates using a time varying parameter model which can be estimated using the kalman filter the technique solves many of the statistical problems which arise when ordinary least squares is used to estimate currency correlation applying the technique to the dollar sterling dm sterling and dm dollar bilateral exchange rates the results suggest a market weakening strengthening of sterling s relationship with the dollar dm since the mid 1970s additionally these currency linkages are shown to have undergone a number of regime shifts suggesting that the timing of the weakening of the dollar sterling relationship is different to that proposed by previous studies copyright 1991 by royal economic society

the effects of volatility misestimation on option replication portfolio insurance to insure a stock portfolio one could purchase a put option with a striking price equal to some desired minimum value for the portfolio alternatively one could replicate this stock plus put portfolio with a portfolio of stock and cash the initial allocations to stock and cash will depend upon the parameters of an option valuation formula and will change as those parameters change in particular the construction of such synthetic optionreplicating portfolio insurance hence its outcome will depend critically on correct estimation of the volatility of the portfolio being insured volatility misestimation will cause the price of the synthetic put to deviate from its expected price and will result in incorrect allocations between stock and cash as a result the outcome of a synthetic portfolio insurance strategy based on misestimated volatility will be unpredictable a manager who underestimates volatility will typically end up buying less insurance than is necessary to ensure a given return while a manager who overestimates volatility will buy more insurance than is necessary both outcomes can be costly in terms of missed floors and forgone gains simulations of portfolio insurance performance over the period of the october 1987 market crash indicate that most insured portfolios would have fallen short of their promised values in general however the lower the guaranteed floor of the insurance program hence the lower its insurance the worse its results

demand elasticity estimates for new zealand tourism demand elasticities for new zealand tourism are estimated for 16 different international visitor segments segments are differentiated by origin purpose of visit and travel style elasticities for both international visitor arrivals and on the ground expenditure per arrival are estimated for each segment using time series data in general on the ground consumption per arrival is more price sensitive than number of arrivals and asian market segments are found to be more price sensitive both in terms of arrivals and on the ground expenditure compared to international visitors from other regions an application of the results is presented giving the total effect of exchange rate changes on expenditure by international visitors in new zealand and management implications are discussed