the message in weekly exchange rates in the european monetary system mean reversion conditional heteroscedasticity and jumps weekly rates of the european monetary system ems vis a vis the deutsche mark from april 1979 to march 1991 are modeled as a combined ma 1 garch 1 1 jump process the moving average ma part accounts for mean reversion required for the rates to stay inside the target zone the generalized autoregressive conditional heteroscedasticity garch part accounts for changing volatility whereas the jump process models parity changes and other erratic movements using an adjusted pearson chi squared goodness of fit test we find similar results for the bernoulli and the poisson jump processes in those cases in which the bernoulli normal distribution does not pass the goodness of fit test a mixture of three normals does finally the ma 1 garch 1 1 bernoulli jump models are jointly estimated assuming a constant contemporaneous correlation matrix for the disturbances and a common jump probability for all the currencies

jump risk of presidential election evidence from taiwan stock and foreign exchange markets this article employs jump diffusion models including the arji model and the garch jump model to examine jump intensity and volatility of taiwan stock and foreign exchange markets during a presidential election period the empirical results indicate that firstly the arji model fits data better than the garch jump model secondly the presidential election events enhance the jump intensity of both markets and the jump induced variance is higher than diffusion induced variance it reveals the importance of the discrete jump process during a presidential election period and might provide some implications for option pricing or hedging strategy due to the intervention of the central bank in the foreign exchange market during a presidential election period the results indicate that jump intensity and volatility of jump size are more moderate

migration and intergroup conflict abstract two groups in conflict produce and appropriate internally generated consumable output in a two stage game assuming equal within group sharing and endogenous group sizes it is shown how agents leave groups with high productive efficiency and migrate to groups with high appropriative and defensive capabilities

production and conflict models versus rent seeking models a production and conflict p c model and a rent seeking rs model are compared for one group two groups and k groups adding a new agent enlarges the pie in the p c model but causes the fixed size pie to be allocated on one more rent seeker in the rs model the total production or rent is distributed within and between groups according to the within group and between group decisiveness productive and fighting efficiencies and group sizes play a role the collective action problem is more severe for the rs model as group size increases the ratio of within group to between group fighting increases marginally toward a constant for the p c model while it increases convexly for the rs model adding an additional agent to each of two groups is more detrimental to the utilities in rs groups than in p c groups while adding a second group of agents when there is already one group of agents gives the reverse result the severe between group fighting in the p c model for many groups causes the p c model to be preferable for few groups while the rs model is preferable for many groups applications are considered to intergroup migration inside versus outside ownership divestitures mergers and acquisitions multidivisional versus single tier firms and u form versus m form of economic organization

two stage rent seeking contests with carryovers we examine a two stage contest in which players in twogroups compete noncooperatively to win a rent in thefirst stage each group selects a finalist the twofinalists compete for the rent in the second stage first stage efforts are carried over to the secondstage in the sense that they are partly effective inthe second stage as well we show the following inthe case of player specific carryovers therent dissipation rate increases in the carryover rate with the carryover rate equal to one the rent isfully dissipated in the case of group specificcarryovers however the rent dissipation rate isindependent of the carryover rate

a model of a team contest with an application to incentives under list proportional representation abstract we develop a model of a team contest for multiple indivisible prizes team members exert costly effort to improve their team s success we analyze two intrateam allocation rules under a list rule prizes are allocated according to a predetermined list under an egalitarian rule prizes are allocated according to a fair lottery we show that which allocation rule maximizes team success depends on the degree of complementarity between members efforts and the convexity of the individual cost of effort function we then apply the model to the context of elections under proportional representation with both open and closed lists we derive conditions under which closed lists generate stronger incentives than open lists our results offer a rationale for the lack of evidence on the negative incentive effects of closed lists

estimating the effects of information surprises and trading on stock returns using a mixed jump diffusion model i present a methodology that uses the mixed jump diffusion model for stock returns to estimate the separate effects of information surprises and strategic trading around corporate events using simulation techniques i show that for events with multiple announcements spread over a long time the estimators derived from the mixed jump diffusion model are more powerful compared to the traditional cumulative abnormal return estimators the new methodology is used to study the separate effects of information surprises and strategic trading associated with blockholdings and subsequent targeted repurchases i find that for more than 93 percent of the firms in our sample the mixed jump diffusion model is statistically superior to the pure diffusion model in describing stock returns more important i find a statistically significant negative effect due to trading while the average effect around announcements is statistically insignificant in contrast the standard cumulative abnormal return is not statistically different from zero article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international equity markets and trade policy abstract this paper derives optimal trade policies for exporting and importing countries when a market is imperfectly competitive and firms are internationally owned it is shown that an increase in foreign ownership of firms lowers both the optimal export subsidy of the exporting country and the optimal import tariff of the importing country at the same rate foreign ownership also affects the distribution of world welfare between countries however it does not affect trade patterns and firm values

endogenous sharing rules in collective group rent seeking this paper examines the possibility of endogenous determination of intra group sharing rules in a collective group rent seeking game collective group rent seeking is considered as a two stage nash cournot game in which sharing rules are determined prior to individual decision on voluntary contribution the solution is subgame perfect and is obtained by backward induction in competition between two groups of the same size the nash equilibrium sharing rule of each group is to distribute rent to each according to relative effort total rent seeking outlays in this case are equal to those obtained by tullock 1980 when more than two groups compete for a rent the sharing rule based on relative effort is again likely to be the nash equilibrium strategy of each group the amount of total rent seeking outlays is also equal to that in tullock 1980 in a nutshell the rent is substantially dissipated if sharing rules are endogenously determined

common stock returns and presidential elections t 3 hat equity markets are efficient in at least the semistrong sense is perhaps the most widely accepted hypothesis among financial economists but it has always been a point of contention between academics and practitioners the evidence from the 1960s and early 1970s overwhelmingly supported efficiency more recently however an impressive body of anomalous data has accumulated one of the more surprising developments has been the discovery of a number of patterns in security returns 2 these patterns are remarkably consistent statistically significant and suggest at least the possibility of profitable trading rules although the profitability of such trading rules has yet to be documented we seem to be on the verge of disproving even the weak form of the efficient market hypothesis this article presents some results on the pattern of common stock returns over the four year election cycle and over different administrations

dynamic rent seeking games the present paper analyses rent seeking games in which competitors for a rent can act and react finitely or infinitely often it argues for an infinite move model as the most appropriate specification of a model of rent seeking dynamic equilibrium analysis of this game suggests that wasteful expenditures in rent seeking competitions are lower than previously studied static simultaneous move games predict journal of economic literature classification numbers d72 c73

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

the evolution of sharing rules in rent seeking contests incentives crowd out cooperation modern societies are characterized by competing organizations that rely predominantly on incentive schemes to align the behavior of their members with the organizations objectives this study contributes to explaining why in so many cases incentive schemes have gradually crowded out cooperation as an organization device our explanation does not draw on free riding the obvious achilles heel of cooperation but relies completely on fundamental group contest mechanisms by investigating a canonical rent seeking model and adopting an evolutionary perspective the analysis identifies shortcomings in previous results sets the record straight and explains why the process of incentivizing organizations is protracted

prize sharing in collective contests the characteristics of endogenously determined sharing rules and the group size paradox are studied in a model of group contest with the following features i the prize has mixed private public good characteristics ii groups can differ in marginal cost of effort and their membership size iii in each group the members decide how much effort to put without observing the sharing rules of the other groups it is shown that endogenous determination of group sharing rules completely eliminates the group size paradox i e a larger group always attains a higher winning probability than a smaller group unless the prize is purely private in addition an interesting pattern of equilibrium group sharing rules is revealed the group attaining the lower winning probability is the one choosing the rule giving higher incentives to the members

risk averse rent seeking with shared rents this paper presents a nash equilibrium model of rent seeking behavior in which risk averse players expend resources to obtain a share of a rent as for example in contests for import quota licences results are obtained relating the equilibrium level of lobbying effort by each player to the value of the rent in particular reduced individual lobbying effort is associated with higher rents contested if players are sufficiently risk averse the question of whether the value of rents is a good measure of the resource cost of rent seeking is also considered a simple approximation involving risk and risk aversion parameters is derived for the proportion of rents dissipated in long run equilibrium risk and risk aversion are seen to reduce the rent dissipation ratio below unity copyright 1987 by royal economic society

a general equilibrium model of two group conflict with endogenous intra group sharing rules this paper explores the interactions among intra group sharing rules the competition between two groups over the common pool of output and the allocation of resources between productive and appropriate activities in the interior solution the use of egalitarian method for the distribution of group income among members plays no distributional role but only affects the allocation of resources it releases resources into the productive sector from the group that adopts the egalitarian rule by making the internal conflict among the members less intense the sequential choice of intra group sharing rules and resource allocations produce the adoption of fully egalitarian intra group sharing rules in both groups these rules minimize the amount of resources allocated to appropriate activities and maximize the welfare level of all individuals in the economy this result suggests that inter group competition with the use of egalitarian principle in the distribution of group income among group members which is not available to the hobbesian state of nature is one of the cheaper social devices in restraining individuals from engaging in costly appropriative activities

natural disasters in a two sector model of endogenous growth using an endogenous growth model with physical and human capital accumulation this paper considers the sustainability of economic growth when the use of a polluting input e g fossil fuels intensifies the risk of capital destruction through natural disasters we find that growth is sustainable only if the tax rate on the polluting input increases over time the long term rate of economic growth follows an inverted v shaped curve relative to the growth rate of the environmental tax and it is maximized by the least aggressive tax policy of those that asymptotically eliminate the use of polluting inputs unavailability of insurance can accelerate or decelerate the growth maximizing speed of the tax increase depending on the relative significance of the risk premium and precautionary savings effects welfare is maximized under a milder environmental tax policy especially when the pollutants accumulate gradually

what s yours is mine rent seeking and the common law the paper develops a rent seeking theory of the common law the general finding is that the law s form depends on thecomparative advantage each group has in production versusappropriation generally and appropriation via litigation inparticular the model generates new interpretations ofdevelopments in united states common law and is used both tosupplement and to criticize two dominant theories of such law the efficiency theory associated with the law and economicsmovement and that generated by critical legal studiesscholars

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

firm competition and incentive pay rent seeking at work empirical evidence shows that competition among firms generates steep incentives inside firms incentive pay stimulates productive investments but may generate inefficient rent seeking investments

private information group contests best shot competition abstract we model competing groups when players values for winning are private information each group s performance equals the best effort best shot of its members and the group with the best performance wins the contest at the symmetric equilibrium of symmetric contests increasing the number of competing teams may increase or decrease each team s performance but it unambiguously increases the overall expected best shot depending on the elasticity of the distribution of players values individual team and contest performance may increase or decrease with team size considering just two competing groups that differ only in size we show members of the smaller group use the more aggressive strategy but depending on the nature of uncertainty either team may be more likely to win more generally when teams value cdfs differ increasing one team s size decreases increases that team s chance of winning if its value cdf is elastic inelastic

sleeping with the enemy the economic cost of internal environmental conflicts this paper extends the literature on collective rent seeking by introducing the possibility that a competing group may be a subset of another we develop a model that incorporates the potential for some individuals to be party of both sides of a conflict which creates interdependence of payoffs results indicate that strategic individual behavior and the resulting rent dissipation is affected by the relative size of the groups we conduct an experimental test of the model and find that observed laboratory behavior corresponds well with the game theoretic comparative static predictions

cooperation and between group competition abstract introducing competition between groups may induce cooperation to emerge in defection games despite considerable cost of cooperation if the groups can confine themselves to a cooperative sector either by providing incentives to raise the cooperation level in one group or by providing disincentives so that the cooperation level in the other group gets lowered to match that of the first maximum degrees of cooperation can be obtained the cooperative sector broadens as the degrees of cooperation increase or the cost of cooperation decreases or the group benefits of cooperation increase

conditional jump dynamics in stock market returns this article develops a new conditional jump model to study jump dynamics in stock market returns we propose a simple filter to infer ex post the distribution of jumps this permits construction of the shock affecting the time t conditional jump intensity and is the main input into an autoregressive conditional jump intensity model the model allows the conditional jump intensity to be time varying and follows an approximate autoregressive moving average arma form the time series characteristics of 72 years of daily stock returns are analyzed using the jump model coupled with a generalized autoregressive conditional heteroscedasticity garch specification of volatility we find significant time variation in the conditional jump intensity and evidence of time variation in the jump size distribution the conditional jump dynamics contribute to good in sample and out of sample fits to stock market volatility and capture the rally often observed in equity markets following a significant downturn

stochastic trends and jumps in ems exchange rates abstract in this paper we study the statistical properties of ems exchange rate returns our findings show that jumps time varying parameters and conditional leptokurtosis are pertinent features in the empirical distributions of ems exchange rate returns allowance for fat tails however tends to reduce the measured frequency of jumps in the distributions to more realistic proportions most successful in capturing the relevant features of ems exchange rate returns is a combined jump garch model with conditionally t distributed innovations jel f31

a theory of disasters and long run growth abstract this paper develops a unified framework in which various types of catastrophic shocks can be simultaneously considered within a standard model of economic growth we first establish the basic existence and equivalence results we then apply the framework to an endogenous growth model to consider the influence of disasters on the long term equilibrium and the transition phase the result shows that while experiencing disasters may lower the average growth rate of the affected countries there exist various channels through which the risk of disasters and long term economic performance are positively correlated this finding reconciles the apparently contradictory evidence in recent empirical studies

on jump processes in the foreign exchange and stock markets exchange rates exhibit systematic discontinuities even after allowingfor conditional heteroskedasticity in the diffusion process the results are much more significant in theforeign exchange market than in the stock market which suggests differences in the structure of these markets finally this jump component is shown to explain some of the empirically observed mispricings in the currency options market the objective of this article is to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market there are a number of reasons why a better understanding of the stochastic processes driving prices in these markets would be useful many financial models rely heavily on the assumption of a particular stochastic process while relatively little attention is paid to the empirical fit of the postulated distribution as a result models like option pricing models are applied indiscriminately to various markets such as the stock market and the foreign exchange market when the underlying processes may be fundamentally different the foreign exchange market for instance is characterized by active exchange rate man

the macroeconomic consequences of disasters abstract natural disasters have a statistically observable adverse impact on the macro economy in the short run and costlier events lead to more pronounced slowdowns in production yet interestingly developing countries and smaller economies face much larger output declines following a disaster of similar relative magnitude than do developed countries or bigger economies a close study of the determinants of these adverse macroeconomic output costs reveals several interesting patterns countries with a higher literacy rate better institutions higher per capita income higher degree of openness to trade and higher levels of government spending are better able to withstand the initial disaster shock and prevent further spillovers into the macro economy these all suggest an increased ability to mobilize resources for reconstruction financial conditions also seem to be of importance countries with more foreign exchange reserves and higher levels of domestic credit but with less open capital accounts appear more robust and better able to endure natural disasters with less adverse spillover into domestic production

international risk sharing and economic growth international risk sharing which diversifies away income risk will reduce saving with constant relative risk aversion if growth arises from the external effects of human capital accumulation then reducing saving will reduce growth welfare also may fall with risk sharing because endogenous growth with external effects of capital accumulation typically implies a competitive equilibrium growth rate already less than the optimal growth rate we demonstrate these results in a standard representative agent economy diversifying away rate of return risk also will reduce saving and growth rates if relative risk aversion exceeds one but this diversification always increases welfare this paper studies the effects of international risk sharing portfolio diversification in a world economy in which growth rates of income are endogenous growth is based upon the spillover effects of human capital accumulation as in lucas 1988 and romer 1986 there are positive economy wide spillovers of human capital intensity on individual labour productivity in section 2 we construct a multi country growth model with an infinitely lived representative agent in each country each country faces income risk but there is no aggregate uncertainty at the world level we focus on two market structures in the first structure there are no markets which allow for international diversification of country specific income risk in the second structure there are complete international markets for risksharing with no aggregate world uncertainty this completeness allows full diversification of country specific risk the paper has two central results first growth rates in all countries are lower in the equilibrium with full diversification second in this same structure welfare of each country may be lower than in an equilibrium without risk sharing the reasoning is as follows with external effects of capital accumulation the compet

efficient rents 1 rent seeking behavior in the long run we have analyzed long run behavior in rent seeking under several conditions and behavioral hypotheses the question of interest is whether or not the long run expenditures will exactly equal the value of the rents our results depend on the type of competitive response which is assumed to exist in the long run and on the r value governing the probability of winning

rent seeking for pure public goods in this paper we present a formal analysis of rent seeking for public goods by two or more groups with different numbers of individuals we begin by considering equally wealthy groups under risk neutrality a case which constitutes our basic model several surprising and interesting results emerge from the analysis of this basic case the problem is then extended to deal with a groups with different wealth levels and b risk aversion this last extension brings about a further crop of interesting and useful results

rent seeking in groups abstract rent seeking contests between groups involve conflicts of interests at the levels of individuals groups and the society as a whole we conduct a series of economic experiments to study the behavior of groups and individuals competing against each other in rent seeking contests we find substantial over contribution to rent seeking relative to the equilibrium predictions of standard models regardless whether individuals compete against other individuals groups compete against other groups or individuals compete against groups

risk averse rent seekers and the social cost of monopoly power there is now quite general recognition that the social cost of monopoly power encompasses the resources expended by individuals seeking to become the beneficiaries of monopoly rents however since the activity of rent seeking is generally not observable direct estimates of resources expended in quests to acquire monopoly power are usually impossible to come by 1 as a consequence the indirect approach of taking the observed value of monopoly rents as indicative of the unobserved value of the resources expended in rent seeking is quite generally adopted in approaches to evaluation of the social cost of such activity

what makes the stock market jump an analysis of political risk on hong kong stock returns abstract this paper employs a components jump volatility filter to investigate the possible market impact of political risk the filter operates by identifying jump return dates which are then associated with political events allowing us to measure the market return and volatility effects of political announcements our empirical results show that political developments in hong kong have a significant impact on its market volatility and return the results have some interesting implications for option pricing and political risk management

rent seeking with non identical sharing rules the primary object of this paper is to examine the role of differential sharing rules within a collective rent seeking setting on the possible non existence of nash equilibrium focusing on groups that distribute part of the rent equally among their members and the residual according to relative effort we show that in rent seeking societies applying the two polar sharing rules equilibrium never exists in the general case where groups apply different but not necessarily the polar sharing rules we study the relationship between group variability in distributing rents and the problem of non existence of equilibrium in the rent seeking game

collective contests for commons and club goods abstract this paper focuses on collective contests for commons and club goods our main objective is to examine in this context the effect of group size on its performance the main results specify conditions for the existence non existence of the group size paradox namely the situation where a larger group is less more effective in pursuing its interest because of despite the combined effect of the incentives that result in the free riding problem and the tragedy of the commons the paper also explains under what circumstances there exists a bias towards excessive or inadequate winning group size finally it examines the effect of restricted excludability of the commons good within the winning group on the relationship between group size and its winning probability

cap and trade taxes and distributional conflict enacting market based environmental regulation such as emissions taxes and cap and trade programs often create rents that are contested by agents in this paper we create a framework that compares social welfare from alternative market based environmental policy instruments under the presence of rent seeking we show that contrary to the commonly held view non revenue raising instruments nrris are in many cases preferable over revenue raising instruments rris we find that the choice of instrument depends on the size of a potential revenue recycling effect and the level of preassigned rents

do rent seeking groups announce their sharing rules i introduction rent seeking can be seen all around us firms or coalitions of firms expend resources to influence government officials who have authority to award monopoly rights self interested pressure groups lobby for government subsidies foreign producers exert effort to avoid imposing tariffs or quotas on their products interest groups or lobbyists contribute to the election of politicians who promise to advance favorable legislation research and development rd then the groups announce their decisions simultaneously before choosing their sharing rules we examine the groups decisions on releasing sharing rule information their sharing rules and the effort levels and payoffs of the individual players in equilibrium we formally consider the following three stage game in the first stage each group decides and announces whether it will release to the rival group the information about its sharing rule which will be determined in the second stage in the second stage the players in each group jointly choose their sharing rule and then each group releases the information about its sharing rule if it decided to do so in the first stage in the third stage all the players in both groups choose their effort levels simultaneously and independently at the end of this third stage the winning player is chosen and the winner shares the prize with the other players in his group according to the sharing rule on which they agreed in the second stage solving the game we find the following first the case where both groups release their sharing rule information never occurs in equilibrium second the case where neither group releases its sharing rule information occurs only if the players are evenly matched third when the players are unevenly matched one group releases its sharing rule information and the other does not

strategic groups and rent dissipation we consider a rent seeking contest in which players can form strategic groups before expending their outlays we examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation we show the following when just one strategic group is formed in equilibrium group formation is beneficial both to the group members and to the nonmembers and rent dissipation is smaller than with usual individual rent seeking however when more than two strategic groups are formed in equilibrium group formation is never profitable to any players and rent dissipation is greater than with individual rent seeking jel