the crowding hypothesis and comparable worth although women s pay and occupational distribution have improved during the past few years it is still true that women earn considerably less than men and that their occupational distribution is substantially different because progress has been slow toward equality in the labor market some have called for a comparable worth policy proponents of this approach argue that occupational segregation contributes to the earnings disparity between women and men one theoretical justification for this position is the crowding hypothesis this paper first explains this theory and presents a method used to test its principal hypothesis it then describes an extension of this design for estimating the phenomenon that comparable worth policies address empirical studies conducted in this area are viewed and new findings are presented finally limitations of this analysis are discussed i introduction

a general mean variance approximation to expected utility for short holding periods the mean variance model is precisely consistent with the expected utility hypothesis only in the special cases of normally distributed security returns or quadratic utility functions there is little evidence however that security returns follow normal distributions see 13 for references and quadratic preferences can be shown to generate implausible results exhibiting increasing absolute risk aversion in the pratt ll arrow 1 2 sense and displaying negative marginal utility after some finite wealth level in addition hakansson 4 has shown that single period mean variance efficient portfolios can have disastrous consequences over time even when return distributions are stationary such criticisms of the mean variance approach within the von neumann morgenstern framework have prompted several writers to suggest that investors maximize the expected value of utility functions with more realistic properties while others have criticized the single period focus of the model one popular alternative utility function is the logarithmic function which exhibits decreasing absolute risk aversion and conveniently leads to myopic decision processes through time i e investors treat each period as if it were the last basing investment decisions on that period s wealth and return distributions only 8 4 other utility functions with constant relative risk aversion such as the power function also imply myopic decision rules within a multiperiod setting

expected utility chebichev bounds mean variance analysis this paper deals with and answers the following question what are the best upper and lower bounds on expected utility when we know the mean and variance of the random variable involved some applications are also indicated

the choice of monetary instrument in two interdependent economies under uncertainty abstract this paper analyzes the choice of monetary instrument in a stochastic two country setting where each country s set of monetary policy instruments include both the money supply and the interest rate it shows how the optimal choice of instrument is determined in two stages first for each pair the minimum welfare costs for each economy is determined this defines a pair of payoff matrices and the second stage involves determining the nash equilibrium for this bimatrix game in our illustrative example for the alternative shocks considered a dominant nash equilibrium is always obtained

why do farmers have so little interest in futures markets a farm financial model with leverage and investment in two farm enterprises is specified the model is extended to incorporate futures hedging and the separation theorem is used to show that optimal hedging is zero the assumption of a risk free asset is relaxed and while this leads to a violation of the separation theorem the result that optimal hedging is zero is maintained providing that futures markets are efficient it is concluded that if capital markets are efficient then farmers will have little interest in futures markets except to speculate

international coordination in the design of macroeconomic policy rules abstract the paper examines international issues that arise in the design and evaluation of macroeconomic policy rules it begins with a theoretical investigation of the effects of fiscal and monetary policy in a two country rational expectations model with staggered wage and price setting and with perfect capital mobility the results indicate that with the appropriate choice of policies and with flexible exchange rates demand shocks need not give rise to international externalities or coordination issues price shocks however do create an externality and this is the focus of the empirical part of the paper using a simple seven country model consisting of canada france germany italy japan the united kingdom and the united states optimal cooperative and non cooperative nash policy rules to minimize the variance of output and inflation in each country are calculated the cooperative policies are computed using standard dynamic stochastic programming techniques and the non cooperative policies are computed using an algorithm developed by finn kydland the central result is that the cooperative policy rules for these countries are more accommodative to inflation than the non cooperative policy rules

optimal market pools for agricultural cooperatives most agricultural marketing cooperatives distribute members net revenues on a pool basis the present paper outlines various pool options and provides a framework for identifying privately and collectively optimal pooling rules individual members pool choices are found to vary according to farm enterprise and risk aversion level a collectively optimal rule depends generally on risk aversion and on the method used to aggregate individuals expressed preferences in the instance examined here however the collective optimum is somewhat insensitive to assumed risk aversion

the effects of comparable worth in the public sector on public private occupational relative wages if as appears likely comparable worth programs are confined to the public sector the level of publiclprivate relative pay may change and the structure of publiclprivate relative wages within occupations will almost certainly change the nature of these changes will determine the degree to which public wages conform more or less closely to the prevailing wage standard which requires that wages for public jobs be equivalent to wages for similar private sector jobs thus there will be implications for economic efficiency this study analyzes alternative scenarios involving comparable worth in the state and local government slg sector the results suggest that when comparable worth is implemented through special wage increases public sector wages are moved further from compliance with the prevailing wage standard this is because public wages are on average already on a par with privatesector wages however comparable worth tends to provide larger wage increases to those occupations where publiclprivate wages are relatively low and when the payroll budget under comparable worth is fixed at the same size as the payroll budget before comparable worth public wages could be moved closer to compliance with the prevailing wage norm

the rationale of the mean standard deviation analysis skewness preference and the demand for money publisher summary this chapter discusses the rationale of the mean standard deviation analysis skewness preference and the demand for money in january 1969 issue of the review of economic studies karl borch and martin feldstein separately criticized the widely used mean variance analysis of portfolio selection borch contended that any system of upward sloping mean standard deviation e s indifference curves can be shown to be inconsistent with the basic axiom of choice under uncertainty he pointed out that one can always pick any two points on an upward sloping indifference curve to represent two bernoulli distributions with probability 1 p of gaining the same amount x in both the cases and probability p of gaining y1 in the case of one distribution and y2 in the case of the second distribution with y2 y1 if the second distribution represents the point to the northeast of the other point then by the dominance axiom the second distribution must be preferred to the first which contradicts the basic meaning of indifference curves feldstein by using a log utility function and a lognormal distribution for investment outcome showed that e s indifference curves for a risk averter need not be convex downwards though upward sloping they would change from convex to concave once the standard deviation of the outcome exceeds the mean multiplied by on the face of it this seems to suggest that risk aversion might decrease as risk is increased beyond a certain extent

comparable worth in a decentralized labour market the case of ontario we document the application of pro active pay equity legislation to the private sector of the canadian province of ontario in the early 1990s we report substantial lapses in compliance among smaller firms where the majority of men and women work we also find that the pay equity law had no effect on aggregate wages in female jobs or on the gender wage gap this experience provides unique perspectives on 1 the tensions between the workings of a decentralized labour market and the principles of comparable worth and 2 the obstacles to its extension to the private sector jel classification j7 j3 l equite salariale dans un marche du travail decentralise le cas de l ontario les auteurs documentent l application de la loi d equite salariale mise en vigueur dans le secteur prive en ontario au debut des annees 1990 on fait etat de defaillances substantielles dans la mise en uvre de cette politique aupres des pme ou la majorite des hommes et des femmes travaillent l analyse revele que au niveau agrege la loi d equite salariale n a pas eu d effets sur les salaires dans les emplois feminins ou sur l ecart salarial entre les hommes et les femmes l experience ontarienne fournit des perspectives eclairantes sur 1 les tensions entre le fonctionnement d un marche du travail decentralise et les principes de salaire egal pour un travail de valeur comparable et 2 sur les obstacles a l extension de ces principes au secteur prive

do women prefer women s work a new methodology is implemented to determine whether job characteristics can explain why women are concentrated in low paying female dominated occupations extensive information on jobs and labour market histories are collected from the 1982 national longitudinal survey youth cohort for women and men characterized by substantial labour market attachment significant differences in nonpecuniary job characteristics between the male and female samples are found to exist nevertheless we find no evidence that women differentially favour those job characteristics commonly associated with women s work

choice of varieties by sri lanka rice farmers comparing alternative decision models sri lanka rice farmers are faced with a choice between traditional and high yielding rice varieties three risky choice models are compared to explain producer behavior forty farmers with typically small rice areas were studied choice criteria compared were multiple two attribute utility maximization single profit attribute utility maximization and expected profit maximization expected utility maximization performed better than expected profit maximization single attribute utility maximization outperformed the more complex multiattribute utility model the importance of careful elicitation of subjective probability distributions is emphasized rice farmers appear to allocate their land between available technologies in an economically rational way

a new foundation for the mean variance analysis abstract in this paper i re examine how the mean variance analysis is consistent with its traditional theoretical foundations namely stochastic dominance and the expected utility theory then i propose a simplified version of the coarse utility theory as a new foundation i prove that by assuming risk aversion and the normality of asset variables the simplified model is well behaved indifference curves are convex and the opportunity set is concave therefore there exist global optimal portfolios in the market finally i prove that decision making in accordance with the simplified model is consistent with the mean variance analysis

does mean variance portfoliomanagement deserve expected utility s approximative affirmation abstract this article is a comment on the paper by harry markowitz on mean variance approximations to expected utility european journal of operational research 234 2014 436 355 this comment is followed by the reply of harry markowitz

skewness preference risk aversion and the precedence relations on stochastic changes this paper provides a general choice theoretic characterization of the trade off between risk and skewness whose importance in understanding risk taking behavior is well documented in empirical studies the condition under which the prudence measure kimball 1990 characterizes the strength of an individual s downside risk aversion against his own risk aversion is identified and interpreted in a unifying framework based on the concept of one stochastic dominant change preceding another and that of the desirability of a stochastic change the framework is also shown to be useful for a better understanding of the arrow pratt measure the stronger ross measure and the coincidence of the characterizations of downside risk aversion and prudence as well as the relationship between stochastic dominances of different degrees

simplified risk analysis in agricultural extension abstract attention is given to the major methods of assessing risk in order to make choices the literature frequently reports studies on mean variance e v analysis and stochastic dominance rules both of these methods are compared in an agricultural application with the approach outlined by hanoch and levy the empirical results suggests that hanoch and levy s criterion appear to reduce the size of the risk efficient set and that the sets of recommendations from the methods under comparison were consistent the two recommendations generated by hanoch and levy s rule were found to be reasonable for this particular decision process

international liquidity a welfare analysis the paper addresses the effects of international liquidity conventions on the conduct and success of short run income stabilization two interdependent and noncooperative nations attempt to minimize output variance subject to the international convention that adequate international reserve stocks be maintained we demonstrate that the nash outcome of nations which are bound by international reserve constraints is pareto superior to the nash outcome of unconstrained nations with a formal model we derive the set of pareto optimal liquidity conventions and explore the sensitivity of this set to the macroeconomic structural and stochastic characteristics of the nations and to the stabilization instruments that are employed

risk efficient irrigation strategies for wheat abstract agricultural production is risky when farmers are risk averse they are likely to put a premium on production methods that reduce perceived risks irrigation is generally believed to be a risk reducing input by using the concept of stochastic dominance risk efficient irrigation policies for wheat grown in central india are identified and quantitative estimates of benefits due to risk reduction are obtained such benefits were found to be of a large order of magnitude the more common methods such as mean variance analysis tended to over estimate the benefits

approximation methods for ranking risky investment alternatives abstract the paper develops and illustrates the application of criteria for ranking risky investment alternatives that are based on their certainly equivalent ce outcomes and determines expressions for approximating the ce outcomes by means of the central moments of their distribution the paper develops criteria on the basis of the ce outcomes for determining a complete ranking of risky investment alternatives that can represent the choice of many though not all risk averse agents

optimal grain pricing and storage policy in controlled agricultural economies application to zimbabwe abstract maize pricing and storage policies of zimbabwe s grain marketing board are compared to those that would be optimal under certain objective function risk and risk aversion assumptions optimal producer prices and storage levels are found to be interdependent and to respond to prices at other levels of the marketing chain the ideal maize reserve stock increases with uncertainty over import transportation costs a factor to consider in light of the threat of south african sanctions but at a reasonable risk aversion level optimal reserves still are much lower than those presently held by the board

the trend in the male female wage gap in the united states despite the rise in the feminist movement the enactment of equal opportunity legislation and the rapid increase in women s labor force participation a substantial sex differential in wages has persisted in the united states for at least 4 decades measured by hourly earnings of year round workers this wage gap was 31 in 1955 widened to a 35 37 range by the 1960s and early 1970s and then narrowed to 33 by 1982 this paper examines the extent to which changes in the characteristics of men and women in the labor force and other factors can account for the observed pattern the main finding is that increases in women s labor force participation were initially associated with a declining skill level of employed women relative to employed men where skill is measured by years of schooling and job tenure more recently the work experience of employed women has been increasing which helps account for the recent narrowing trend in the wage gap during the 1970s the wage gap probably woul have narrowed m

on the proportionality and homogeneity of consumption and income in its certainty equivalence form consumption is proportional to the sum of human and non human wealth with labour income uncertainty the proportionality takes the form of homogeneity of consumption with respect to the components of wealth in this paper we analyse the stochastic properties of labour income that yield the homogeneity property

comparable worth wage adjustments and female employment in the state and local sector our paper simulates the likely effects of a comparable worth wage adjustment policy in the state and local sector on female employment in the sector the simulation is based on estimates of within occupation male female substitution and across occupation occupational employment substitution that we obtain using data from the 1980 census of population

an mcdm analysis of agricultural risk aversion abstract in modelling farm systems it is widely accepted that risk plays a central role furthermore farmers risk aversion determines their decisions in both the short and the long run this paper presents a methodology based on multiple criteria mathematical programming to obtain relative and absolute risk aversion coefficients we rely on multiattribute utility theory to elicit a separable additive multiattribute utility function and estimate the risk aversion coefficients and apply this methodology to an irrigated area of northern spain the results show a wide variety of attitudes to risk among farmers who usually exhibit decreasing absolute risk aversion and constant relative risk aversion

can job evaluation improve women s wages systematic job evaluation or comparable worth programmes are often seen as a method to increase the relative wages of women this paper examines whether this is the case using two job evaluation studies from the university sector in sweden two different evaluation schemes were used in these studies the general result found in this analysis is that complete implementation of the evaluation results would lead to an increase in women s relative wages by between 2 and 6 this finding is however not uniform in the sense that all women would gain and all men would lose results indicate that about two thirds of women are winners and one third losers while the figures for men are approximately the reverse assuming that the job evaluations give a correct measure of productivity the results are also used in an analysis of wage discrimination and the crowding effect the findings indicate a significant crowding effect but are less conclusive with regard to discrimination

portfolio selection under strict uncertainty a multi criteria methodology and its application to the frankfurt and vienna stock exchanges abstract in modern portfolio theory it is common practice to first compute the risk reward efficient frontier and then to support an individual investor in selecting a portfolio that meets his her preferences for profitability and risk potential flaws include a the assumption that past data provide sufficient evidence for predicting the future performances of the securities under consideration and b the necessity to mathematically determine or approximate the investor s utility function in this paper we propose a methodology whose initial phase filters portfolios that are inefficient from a historical perspective while this is consistent with traditional approaches the second phase differs from the standard approach as it uses a decision table constructed by considering multiple scenarios assuming strict uncertainty the table cells measure consequences by a multi criteria linear performance index of simulated future returns which avoids difficulties with performance ratios the real world applicability is illustrated through two studies based on data from the stock exchanges in frankfurt and vienna

trends in earnings differentials by gender 1971 1981 this paper clarifies trends in relative earnings by sex over the decade 1971 1981 and decomposes these trends to determine which factors contributed to a decline and which to an increase our analyses are based upon data from the annual demographic files of the current population survey for 1972 and 1982 this study is unique in that it estimates earnings functions in each year which are corrected for selectivity bias it is found that such a correction markedly raises the progress of white women relative to men among blacks the impact of the selectivity bias correction was to substantially lower the relative earnings increase of women however the coefficients on the selectivity variable were not significant the findings suggest declining sex role specialization and discrimination as conventionally measured over the decade on the other hand contrary to expectations the total effect of variables reflecting the sex composition of the individuals occupation worked to widen the sex differential over the period the sex differential was also adversely affected by a decline in the relative return to education especially for whites authors modified

calibration of agricultural risk programming models abstract positive mathematical programming pmp is one of the most commonly used methods for calibrating activity programming models in this article we consider pmp as a calibration method for risk programming models with a mean variance e v specification we argue that the restrictive theoretical assumptions employed by typical linear e v models limit their applicability in analyzing the effects of decoupled payments on agricultural production decisions furthermore the requirement for eliciting a risk aversion coefficient renders such models incompatible with the pmp method for this reason we propose a nonlinear e v specification and develop a pmp based procedure for its calibration which does not aim at introducing further nonlinearities in the objective function but at recovering the true distribution of wealth that will allow the final model to reproduce base year observations we also examine how our approach relates to the recent pmp developments on calibration against elasticity priors and we show how such priors can be used for the calibration of the nonlinear e v model

implementing comparable worth a survey of recent job evaluation studies during the 1980 s equal pay for comparable worth has emerged as a major legislative issue especially at the state and local level in the wake of increasing implementation of comparable worth in the public sector efforts have been made to estimate the probable effect of nationwide implementation of comparable worth type legislation on the earnings gap between women and men see for example george johnson and gary solon 1984 these analyses have generally concluded that a comprehensive comparable worth policy would have very little effect on the sex based earnings gap this paper offers alternative estimates of the effect of comparable worth on the male female earnings gap based upon examination of four statelevel comparable worth studies iowa michigan minnesota and washington

neoclassical consumer demand theory and the demand for money m friedman 1956 suggests that the demand for money should be analyzed in terms of consumer demand theory although often the interpretation of empirical results from studies using aggregate data appears to be in terms of the motives approach i e transactions precautionary and speculative motives the authors develop friedman s ideas within an explicit model of consumer theory and find that they provide a consistent framework for analyzing portfolio choice and offer greater insights into results from aggregate studies of the demand for money than the motives approach in particular the authors provide a new interpretation of the role of nominal interest rates inflation and a hicksian measure of wealth in the demand for money function copyright 1991 by royal economic society

comparable worth limited coverage and the exacerbation of inequality citing relevant judicial decisions the author argues that any application of the comparable worth remedy for gender discrimination is likely to cover only certain groups of workers most likely to be covered are women who work for governmental or large private employers in female dominated jobs and least likely to be covered are women who work for small private employers the implementation of comparable worth would cause the wages of noncovered workers to fall relative to those of covered workers and they might even fall absolutely an analysis of 1979 current population survey data suggests that the women most likely to gain from comparable worth are fewer in number better paid and subjected to no greater discrimination than the women most likely to lose

monetary policies in interdependent economies with stochastic disturbances a strategic approach western economies have become increasingly interdependent during recent years an important consequence of this is that the effects of macroeconomic policies within these economies have become more closely related a policy implemented in one country will generate effects abroad while the impacts of this policy on the domestic economy are modified by the behaviour and policies of the foreign economies with which it is interacting thus policy making in a multicountry context necessarily involves strategic behaviour analysis of strategic behaviour within the context of international macroeconomic policy began with the pioneering work of hamada 1976 who investigated this question under the assumptions of cournot and stackelberg behaviour his analysis is based on a fixed exchange rate regime and the objective function involves the tradeoff between inflation and the balance of payments more recently canzoneri and gray 1 985 consider alternative strategic monetary policies within the context of two economies subject to a mutual oil disturbance 1 this paper continues the analysis of strategic monetary policy the framework it employs is a two country stochastic macro model in which both economies are subjected to stochastic demand and supply shocks and expectations are rational 2 the policy makers in the two countries seek to optimise their respective objective functions which are taken to be functions of unanticipated movements in output and in the consumer price index the model begins by determining the usual cournot and stackelberg equilibria for this model however these represent just two possible equilibria and a number of alternatives are also considered in particular in the derivation of the cournot equilibrium each agent takes the behaviour of his opponent as given and therefore assumes that his rival does not react to his actions on the other hand each agent is shown to respond in accordance with a reaction function so that ex post the assumption of no response is incorrect by contrast we also consider a consistent conjectural variations equilibrium ccv in which each policy maker in determining his own actions correctly conjectures the response of his opponent the requirement of con

optimal procurement strategies for online spot markets abstract spot markets have emerged for a broad range of commodities and companies have started to use them in addition to their traditional long term procurement contracts forward contracts in comparison to forward contracts spot markets offer products at essentially negligible lead time but typically command a higher expected price for this added flexibility while also exhibiting substantial price uncertainty in our research we analyze the resulting procurement challenge and quantify the benefits of using spot markets from a supply chain perspective we develop and solve mathematical models that determine the optimal order quantity to purchase via forward contracts and the optimal quantity to purchase via spot markets we analyze the most general situation where commodities can be both bought and sold via a spot market and derive closed form results for this case we compare the obtained results to the reference scenario of pure contract sourcing and we include results for situations where the use of spot markets is restricted to either buying or selling only our approaches can be used by decision makers to determine optimal procurement strategies based on key parameters such as demand and spot price volatilities correlation between demand and spot prices and risk aversion the results of our analysis demonstrate that significant profit improvements can be achieved if a moderate fraction of the commodity demand is procured via spot markets the results also show that companies who use spot markets can offer a higher expected service level but that they might experience a higher variability in profits than companies who do not use spot markets we illustrate our analytical results with numerical examples throughout the paper

a structural model of social security s disability determination process we estimate a multistage sequential logit model reflecting the structure of the disability determination process of the social security administration ssa the model is estimated using household survey information exact matched to ssa records on disability adjudications from 1989 to 1993 under program provisions different criteria dictate outcomes at different steps of the determination process we find that without the multistaged structural approach effects of many important health disability and vocational factors are not readily discernible as a result split sample predictions of overall allowance rates from the sequential model perform considerably better than do those for the conventional allowed denied logit regression

labor income uncertainty skewness and homeownership a panel data study for germany and spain abstract in this paper we empirically investigate the effect of labor income uncertainty on the probability of homeownership in germany and spain this study is motivated by two facts firstly theoretical models tend to provide ambiguous results on this issue secondly previous empirical evidence focuses exclusively on the us housing market to carry out our analysis we propose more precise income uncertainty measures based on panel data labor income equations we observe that households facing high levels of income uncertainty display a preference for renting while those located in more positively skewed income distributions show a greater propensity for homeownership

compensating wage differentials for schooling risk in denmark in this paper we analyse the association between wage differentials and risk using detailed information on length and type of education as seen in danish administrative registers our contribution to the literature is that we distinguish between transitory time series and permanent cross sectional income shocks and estimate the compensation for both sorts of risk we find that wage risk in a given education cell is associated with higher wages while skewness is associated with lower wages as a robustness check we see that ad hoc risk measures based on earnings mobility indicators confirm these findings

land allocation under uncertainty for alternative specifications of return distributions using the expected utility moment generating function approach a land allocation rule is derived which is both independent of the nature of the underlying distribution of each element in the choice set and accounts for all moments of that distribution this decision rule is applied to the choice between cotton and corn in the mississippi delta to demonstrate that consideration of just the first two moments of the distribution can often be unjustified and damaging empirically theoretically and in terms of the utility of the decision maker

hedging with commodity options when price distributions are skewed lapan moschini and hanson have demonstrated that commodity options can be useful for hedgers who face a symmetric price distribution and who wish to maintain a net open market position this is because options skew the distribution of profits to the right and such skewness typically increases expected utility in this paper i use standard comparative statics to show that options are relatively more valuable for reducing the skewness of a nonsymmetric price distribution depending on the direction of the skewness and the underlying price expectations hedgers may write options as well as purchase them

economic conflict and the solution of dynamic games abstract solution recommended for dynamic non cooperative games are approximate because of in incomplete allowance for the interdependencies over time and between players the mutual interdependence between agents is investigated in this paper approximate decision rules are compared to optimal decisions for conflicting income distribution goals in a standard macro economic policy problem the results indicate that simplified rules can induce substantial suboptimality and disequilibrium

monetary policy games with broad money targets a linear quadratic control analysis of the u s and japan abstract this paper compares the different outcomes from noncooperative and cooperative equilibria when the federal reserve and the bank of japan follow monetary policies based on broad money supply targets the analysis is an application of stochastic linear quadratic control methods and combines vector autoregressive models with forward looking efficient market models for asset prices the results indicate that the use of broad money targets bring significant welfare gains to both countries in terms of reduced volatility of nominal income broad money exchange rates and asset prices however there appears to be little difference between cooperative and noncooperative monetary policy arrangements

social welfare of alternative controlled price policies recent developments in social welfare analysis provide insights into the selection of price policies in the presen t paper a ces social welfare function and a weighted average of utilitarian and leximin rules are used to identify optimal producer prices in an economy where government is the price setter and agents are risk averse the analysis distinguishes between the interests of commercial producers peasant producers consumers and taxpayers a n application to zimbabwe indicates that a maize producer price in the low medium to medium portion of the historical range would be social ly optimal if egalitarian preferences are moderate this outcome is somewhat insensitive to group weighting schemes and to interpersonal utility correspondences copyright 1993 by mit press

household portfolio diversification a case for rank dependent preferences the proliferation of novel preference theories in financial economics is hampered by a lack of non experimental evidence and by the theories additional complexity which has not been shown to be critical in applications in this article i present arguments in support of preferences with rank dependency using the survey of consumer finances data i document two widespread patterns inconsistent with expected utility i many households simultaneously invest in well deversified funds and in poorly diversified portfolios of stocks and ii some households with substantial savings do not invest anything in equities i show that portfolio choice models with rank dependent preferences plausibly parameterized and under fully rational assumptions are quantitatively consistent with the observed diversification these results call for further efforts to integrate the models of rank dependent preferences in portfolio theory and asset pricing the decision theoretic literature has long acknowledged the shortcomings of the expected utility theory of von neumann and morgenstern 1944 several generalizations of the theory are inspired by the experimental evidence and aimed at improving its descriptive accuracy however there are few applications of new models of preferences in finance and expected utility continues to dominate the field 1 two principal hurdles slow the proliferation of novel preferences in financial economics first the lack of empirical non experimental or field data confirming that the behavior motivating non expected utilities is widespread outside the laboratory settings second the additional and often significant complexity of the alternative preferences which has not been shown to be critical in applications where the models based on expected utility fall short of reasonable predictions this article presents empirical and theoretical this paper was previously circulated under the title household portfolio diversification the paper has benefited from the comments of shlomo benartzi luca benzoni markus brunnermeier john dickhaut maria perozek raj singh hersh shefrin and workshop participants at minnesota finance bag lunch 2003 wharton conference household financial decision making and portfolio choice and 2003 summer meetings of econometric society i would like to thank cam harvey the editor and an anonymous referee for many helpful comments and suggestions a special thanks to jack kareken for comments and editorial help on an earlier draft i am grateful to donna zerwitz for editorial assistance the views expressed herein are those of the author and not necessarily of the federal reserve bank of minneapolis or the federal reserve system all errors and omissions are the sole responsibility of the author address correspondence to valery polkovnichenko finance 3 122 csom 319 19 th

gender wage discrimination methodological issues and empirical results for a canadian public sector employer a methodology for testing the statistical significance of wage discrimination is presented from two perspectives first the question of whether or not wage discrimination is present and second the question of whether or not wage discrimination is of sufficient magnitude to make a statistically significant contribution to the earnings advantage of the majority group using this methodology the total effect of within occupation wage discrimination against females at a large canadian public sector employer is estimated to be statistically insignificiant at the same time occupational femaleness has a negative effect on female earnings so that a pay equity programme is estimated to reduce the earnings advantage of males at this employer by 27 37

the shape of utility functions and organizational behavior based on measurements among 332 owner managers we investigate how theglobal shape of the utility function i e s shaped versus concave or convex over the total range of outcomes relates to choice behavior we find that the global shape of the utility function differs across decision makers about one third of the owner managers exhibit an s shaped utility function and that the global shape is linked to organizational behavior i e the production system employed a result that does not change when using different methods to identify the decision maker s global shape of the utility function the decision maker s risk attitude risk averse or risk seeking does not affect the choice of the production system whereas the degree of risk aversion based on thelocal shape of the utility function may be important in explaining owner managers trading behavior pennings and smidts 2000 more structural organizational behavior appears to be linked to theglobal shape of the utility function

male female wage differentials and policy responses without implicating them for any of the contents of the paper i am grateful to the following for helpful discussions or comments andrea beller university of illinois david bloom harvard and columnbia glen cain university of wisconsin ron ehrenberg cornell victor fuchs stanford bob gregory australian national university jonathan leonard university of california berkeley roberta robb brock university and paul weiler harvard financial support of the humanities and social sciences committee of the research board of the universitu of toronto is eratefullu acknowlede ed

the implementation process of comparable worth winners and losers this paper provides a unique opportunity to observe how a public policy affected the earnings of various interest groups at different stages of implementation specifically we examine how the earnings of women union members and supervisory and professional staff were affected by various proposed and implemented comparable worth pay plans in iowa we find that large relative gains to women in the original proposed plans were reduced as the process evolved as a result some of the original gains to women were redistributed to union members supervisors and professionals

the gains from fiscal cooperation in the two commodity real trade model abstract this paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model it shows how the adjustment in the terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium in general a noncooperative equilibrium leads to an overexpansion of government expenditure on the import good relative to a cooperative equilibrium the specific example of a logarithmic economy is also considered the paper discusses further the welfare effects resulting from the formation of a coalition of two countries among three

the international transmission of policy announcement effects abstract this paper extends recent work on the effects of fiscal and monetary policy in two country models by considering an additional channel through which the effects of policy announcements may be transmitted the term structure of interest rates previous work suggests that policy announcements have no impact on worldwide aggregates and merely cause a redistribution of demand and output between the domestic and important impact effects on worlwide aggregates which necessarily introduces ambiguities concerning the effects of policy announcements on foreign output and employment

monetary policies in interdependent economies an open economy explanation for base drift and price level non trend stationarities abstract most nations have experienced base drift of their money stocks and associated price level non trend stationarities recent explanations for this fact have emphasized tensions among various possible objectives of central banks in closed economy or small open economy frameworks in contrast this paper explores structural and policy interdependence among economies as an explanation for price level non trend stationarities it demonstrates that such interdependence can induce central banks to follow non trend stationary policies even if they desire only to smooth prices in their home economies

markets in hierarchies organizational and market influences on gender inequality in a state pay system a pivotal issue in sociological theories of labor markets as well as legal and policy debates on pay equity is the relative importance of market and organizational forces in determining pay differences between jobs held predominantly by men and those held predominantly by women this article develops two models of the market organization relationship an administered efficiency model and a bureaucratic politics model quantitative analyses of individual and job level data in a state government pay system indicate that the administered efficiency model does not adequately explain malefemale earnings differences documentary testimonial and interview data strongly suggest the significance of bureaucratic politics in the pay determination process we conclude that market forces influence wage rates but are heavily mediated by organizational factors unrelated to efficiency considerations in the type of organization studied here

new indices of money supply and the flexible laurent demand system the article begins by surveying the existing results on the new divisia monetary aggregates charts display the differences in behavior between the divisia aggregates and the federal reserve s official simple sum monetary aggregates the article then compares system wide fit for the simple sum and divisia monetary aggregates when used as data in the joint estimation of a system of demand equations the demand system is derived from a new laurent expansion approximation to the reciprocal indirect utility function the laurent expansion provides a better behaved remainder term than that of the more commonly used taylor series the results favor the divisia aggregates

necessary conditions for the capm abstract the general restrictions on all economic primitives i e a endowments b preferences and c asset return distributions that yield the capm under the expected utility paradigm are provided these results are then used to derive the class of restrictions on preferences and the distribution of asset returns alone that provides the capm we also show that the conditions that provide the capm and derived preferences over mean and variance are equivalent consequently this paper also resolves the question of when mean variance maximization is consistent with expected utility maximization journal of economic literatureclassification numbers g12 g11 d50

farmers long term investment decisions a study of sri lankan rubber smallholders planting and replanting of perennial crops confronts small farmers with a long term investment decision in this study we analyse the behaviour of rubber smallholders in sri lanka when faced with a replacement decision an intertemporal profit maximizing model maximizing discounted stream of expected future net revenues predicts behaviour of larger hired labour using farmers quite well the model can also be extended successfully to smaller family farms when a lower than market wage rate is imputed to family labour to better reflect opportunity cost of labour and risk considerations are incorporated in relatively simple fashion the difference between a cash investment and a labour investment is crucial for the poorer family farmers and an appropriate cash subsidy can play a vital role in inducing them to undertake long term investments

optimising criminal behaviour and the disutility of prison we use rich microdata on bank robberies to estimate individual level disutilitiesities of imprisonment the identification rests on the money versus apprehension trade off that robbers face inside the bank when deciding whether to leave or collect money for an additional minute the distribution of the disutility of prison is not degenerate generating heterogeneity in behaviour our results show that unobserved heterogeneity in robber ability is important for explaining outcomes in terms of haul and arrest furthermore higher ability robbers are found to have larger disutilities suggesting that increased sentence lengths might effectively target these more harmful criminals

tri criterion inverse portfolio optimization with application to socially responsible mutual funds we present a framework for inverse optimization in a markowitz portfolio model that is extended to include a third criterion the third criterion causes the traditional nondominated frontier to become a surface until recently it had not been possible to compute such a surface but by using a new method that is able to generate the nondominated surfaces of tri criterion portfolio selection problems we are able to compute via inverse optimization the implied risk tolerances of given funds that pursue an additional objective beyond risk and return in applying this capability to a broad sample of conventional and socially responsible sr mutual funds we find that after the screening process there appears to be no significant di erence between how assets are allocated in socially responsible and conventional mutual funds which is likely to be di erent from what most sr investors would expect

portfolio selection and skewness evidence from international stock markets abstract this paper finds that the returns of the world s 14 major stock markets are not normally distributed and that the correlation matrix of these stock markets was stable during the january 1988 december 1993 time period polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the construction of the optimal portfolio the evidence also indicate that investors trade expected return of the portfolio for skewness

integration of var and expected utility under departures from normality this article identifies the level of the expected utility eu risk aversion and value at risk var confidence level that yield the same choice from a given distribution of outcomes and thus allow for consistent application of the two criteria the result for a given distribution is an explicit mapping between risk aversion under eu and var for both normal and nonnormal distributions the cornish fisher expansion is used to establish adjusted mean deviates for nonnormal outcome distributions and the investor s preference function is expanded to include elements for variance skewness and excess kurtosis a farm level application with nonnormal revenue distribution illustrates these approaches

selecting a portfolio with skewness recent evidence from us european and latin american equity markets abstract polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio from latin american us and european capital markets the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the resultant optimal portfolio the empirical evidence indicates that investors do trade expected return of the portfolio for skewness

optimal fuel mix in chp plants under a stochastic permit price risk neutrality versus risk aversion abstract this paper studies the optimal fuel mix of a chp producer under emission permit price risk the producer s multi fuel plant uses two co2 intensive fuels and one clean fuel using a mean variance framework we develop three models the models are divided into spot models risk neutral and risk averse cases and a forward model risk averse case we derive the effects of price risk on optimal fuel use an increase in price risk can in fact increase the use of co2 intensive fuel in the spot model in the forward model the production and financial decisions are separate we also evaluate the risk bearing behavior of seven finnish chp producers we found that risk neutrality describes behavior better than risk aversion

portfolio selection in the mean variance model a note a little recognized feature of the mean variance portfolio selection model is that induced preferences for asset holdings are not necessarily monotone more of an asset or portfolio is not necessarily better even if the asset or portfolio has positive expected return the model predicts that an investor typically wants only a limited number of shares of an asset and beyond that the increase in mean return from costlessly getting more of an asset is not sufficient to compensate for the increased risk this is reasonable if the model describes a market for contracts with unlimited liability where total returns may be negative e g they may be normally distributed it is unreasonable however if the model is used to describe a stock market with limited liability in that case it is desirable to impose conditions that ensure that there is no upper limit to how much of an asset or portfolio the investor wants the sharpest possible conditions are identified in section i since portfolio preferences are not monotone global satiation is possible again this is unrealistic when liability is limited satiation is bothersome also because it may lead to nonexistence of equilibrium in black s 4 capm without a riskless asset as demonstrated in nielsen 9 uniqueness of equilibrium in capm is investigated in nielsen 10 section i identifies the exact conditions under which global satiation does or does not occur the conditions compare the maximum ratio of mean to standard deviation of total return available from the assets with the investor s limiting degree of risk aversion as measured by the slope of his or her indifference curves at high levels of risk an optimal portfolio may or may not exist in the portfolio selection problem depending on the asymptotic slopes of the efficient frontier and the investor s indifference curves section ii identifies the exact conditions mean variance behavior can arise from expected utility maximization based on normal distributions in that case the conditions for nonsatiation and for existence of optimal portfolios can be stated in terms of the von neumannmorgenstern utility function section iii relates the relevant properties of the utility function for standard deviation and mean to properties of the von neumann morgenstern utility function