are household portfolios efficient an analysis conditional on housing in this paper we argue that standard tests of portfolio efficiency are biased towards rejection because they neglect the existence of illiquid wealth in the case of household portfolios the most important illiquid asset is housing if housing stock adjustments are costly and therefore infrequent we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk through a hedge term when the housing stock is not adjusted we argue that tests for portfolio efficiency of financial asset must then be run conditionally upon housing wealth in our application we use italian household portfolio data from shiw 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient we first consider purely financial portfolios and portfolios that also treat the housing stock as another asset we then consider the consequences of treating the housing stock as given and test for efficiency in this framework our empirical results support the view that the presence of illiquid wealth can explain portfolio choice by home owners

limited commitment and the demand for money understanding money demand is important for our comprehension of macroeconomics and monetary policy its instability has made this a challenge common explications for the instability are financial regulations and financial innovations that shift the money demand function we provide a complementary view by showing that a model where borrowers have limited commitment can significantly improve the fit between the theoretical money demand function and the data limited commitment can also explain why the ratio of credit to m1 is currently so low despite that nominal interest rates are at their lowest recorded levels this article is protected by copyright all rights reserved

proper risk aversion on introduit et on etudie une condition comportementale significative sur les fonctions d utilite pour les richesses qui signifie qu une loterie indesirable ne peut jamais etre rendue desirable par la presence d une loterie indesirable independante

standard risk aversion this paper introduces the concept of standard risk aversion a von neumann morgenstern utility function has standard risk aversion if any risk makes a small reduction in wealth more painful in the sense of an increased reduction in expected utility also makes any undesirable independent risk more painful it is shown that given monotonicity and concavity the combination of decreasing absolute risk aversion and decreasing absolute prudence is necessary and sufficient for standard risk aversion standard risk aversion is shown to imply not only pratt and zeckhauser s proper risk aversion individually undesirable independent risks always being jointly undesirable but also that being forced to face an undesirable risk reduces the optimal investment in a risky security with and independent return similar results are established for the effect of broad class of increases in one risk on the desirability of or optimal investment in a second independent risk

financial technology shocks and the case of the missing m2 m2 growth was unusually weak in the early 1990s when its velocity soared although m2 growth subsequently recovered its velocity plateaued at a high level giving rise to a case of missing money these swings in m2 growth have accompanied opposite swings in bond mutual fund inflows m2 growth is better tracked and the missing m2 problem is resolved when money models are modified to account for shifts in bond mutual fund costs this approach avoids the capital gains and portfolio substitution problems posed by adding bond or equity funds to m2 while capturing the substitution effects relevant to money demand

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

wealth and portfolio composition theory and evidence we examine a survey of 6010 u s households and estimate a model for household portfolio allocation we extend the conventional portfolio choice model in order to capture the observed incompleteness of household portfolios we show that the empirical specification of the joint discrete and continuous choice that characterizes household portfolio behavior is a switching regressions model with endogenous switching we go on to examine the impact of taxes on portfolio composition using detailed survey data to calculate precisely the marginal tax rate facing each household finally we estimate wealth elasticities of demand for a range of assets and liabilities

the demand for money a structural econometric investigation this study empirically investigates dynamic microfoundations for the conventional static money demand equation an intertemporal substitution model with the addilog utility function yields a money demand relationship that closely approximates the double log specification results from previous empirical studies largely support the derived equation estimations with quarterly u s data support cointegration among real per capita m1 and consumption and an after tax long term interest rate for the post 1980 period estimated short run intertemporal interest rate elasticities of consumption vary from 0 26 to 0 93 estimated long run elasticities of substitution between consumption and money range from 0 26 to 0 41

the determinants of household risky asset holdings australian evidence on background risk and other factors we study the portfolio allocation decisions of australian households using the relatively new household income and labour dynamics in australia hilda survey we focus on household allocations to risky financial assets our empirical analysis considers a range of hypothesised determinants of these allocations we find background risk factors posed by labor income uncertainty and health risk are important credit constraints and observed risk preferences play the expected role a positive age gradient is identified for risky asset holdings and home ownership is associated with greater risky asset holdings a unifying theme for many of our empirical findings is the important role played by financial awareness and knowledge in determining risky asset holdings many non stockholding households appear to lack the experience and financial literacy that might enable them to benefit from direct investment in stocks

optimal portfolio choice for long horizon investors with nontradable labor income this paper examines how risky labor income and retirement affect optimal portfolio choice with idiosyncratic labor income risk the optimal allocation to stocks is unambiguously larger for employed investors than for retired investors consistent with the typical recommendations of investment advisors increasing idiosyncratic labor income risk raises investors willingness to save and reduces their stock portfolio allocation towards the level of retired investors positive correlation between labor income and stock returns has a further negative effect and can actually reduce stockholdings below the level of retired investors financial advisors typically recommend that their customers invest more in stocks than in safe assets when they are working and to shift their investments towards safe assets when they retire jagannathan and kocherlakota 1996 malkiel 1996 by contrast the standard academic models of portfolio choice merton 1969 1971 samuelson 1969 show that retirement is irrelevant for portfolio decisions if investment opportunities are constant and human capital is tradable in this case the fraction of wealth optimally invested in risky assets should be constant over the lifetime of an individual recent research building on the pioneering work by merton 1971 shows that time varying investment opportunities result in portfolio rules with an intertemporal hedging component whose magnitude depends on the investment horizon of the investor kim and omberg 1996 balduzzi and lynch 1997 brennan schwartz and lagnado 1997 brandt 1999 campbell and viceira 1999 2001 barberis 2000 with time variation in investment opportunities retirement and death play an instrumental role as events that exogenously fix the individual s investment horizon more importantly retirement also marks the time at which individuals stop working and thereafter must live off their lifetime savings and possibly transfers from this perspective retirement matters for portfolio choice

portfolio choice in the presence of background risk in this paper we focus on how the presence of background risks from sources such as labour and entrepreneurial income influences portfolio allocations this interaction is explored in a theoretical model that is calibrated using cross sectional data from a variety of sources the model is shown to be consistent with some but not all aspects of cross sectional observations of portfolio holdings the paper also provides a survey of the extensive theoretical and empirical literature on portfolio choice

interest on bank reserves and optimal sweeping abstract a key rationale offered by the federal reserve for the payment of interest on reserves was to remove the incentive for banks to operate sweep accounts sweeping shifts funds from transactions deposits subject to reserve requirements to non reservable deposits this paper extends a conventional banking model to analyze sweeping behavior sweeping responds positively to increases in bank loan rates and reserve ratios and negatively to increases in the interest rate on reserves or exogenous increases in bank equity sweeping generates greater responsiveness in lending to changes in loan rates or the interest rate on reserves and lower responsiveness to changes in reserve ratios or equity than in its absence empirical analysis of an explicit condition that we derive suggests that with an unchanged reserve requirement the fed could eliminate sweeping by setting the interest rate on reserves to no less than approximately 4 points below the market loan rate

another look at long run money demand abstract this paper investigates the long run demand for m1 in the postwar united states previous studies based on data ending in the late 1980s are inconclusive about the parameters of postwar money demand this paper obtains precise estimates of these parameters by extending the data through 1996 the income elasticity of money demand is approximately 0 5 and the interest semi elasticity is approximately 0 05 these parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period a caveat is that the analysis assumes there is no trend in money demand resulting from technological change

direct effects of base money on aggregate demand theory and evidence abstract meltzer the transmission process working paper carnegie mellon university 1999a shows that real monetary base growth is a significant determinant of consumption growth in the us controlling for the short term real interest rate in this paper i show that the same property of base money holds for total output relative to trend or potential in both the us and the uk the standard optimizing is lm model cannot account for this result but i show that it can once the long term nominal interest rate is included in the money demand function because the long term real rate matters for aggregate demand the presence of the long term nominal rate in the money demand function increases the effect of nominal money stock changes on real aggregate demand when prices are sticky

putting risk in its proper place this paper examines preferences toward particular classes of lottery pairs we show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries if preferences are defined in an expected utility framework with differentiable utility the direction of preference for a particular class of lottery pairs is equivalent to signing the nth derivative of the utility function what makes our characterization appealing is its simplicity which seems particularly amenable to experimentation

precautionary saving and subjective earnings variance abstract in this paper i examine a model of precautionary saving and i show that the fact that people may insure against income risk makes it difficult to evaluate the extent of precautionary accumulation by simply looking at the relationship between wealth and earnings variance i also argue that occupations may represent a bad proxy for income risk

financial innovations money demand and the welfare cost of inflation in the 1990s the empirical relation between money demand and interest rates began to fall apart we analyze to what extent improved access to money markets can explain this break down for this purpose we construct a microfounded monetary model with a money market which provides insurance against liquidity shocks by offering short term loans and by paying interest on money market deposits we calibrate the model to u s data and find that improved access to money markets can explain the behavior of money demand very well furthermore we show that by allocating money more efficiently better access to money markets decrease the welfare cost of inflation substantially

climate policy and power producers the distribution of pain and gain abstract climate policies do not affect all power producers equally in this paper we evaluate the supply side distributional consequences of emissions reduction policies using a simple and novel partial equilibrium model where production takes place in technology specific sites in a quantitative application hydro wind and solar firms generate power combining capital and sites which differ in productivity in contrast the productivity levels of coal gas and nuclear technologies are constant across sites we parameterise the model to analyse the effects of stylised tax and subsidy schemes carbon pricing outperforms all other instruments and crucially leads to more equitable outcomes on the supply side technology specific and uniform subsidies to carbon free producers result in a greater welfare cost and their supply side distributional impacts depend on how they are financed power consumption taxes have exceptionally high welfare costs and should not be the instrument of choice to reduce emissions or to finance subsidies aiming to reduce emissions

long run income and interest elasticities of money demand in the united states econometric techniques designed to accommodate nonstationary data are used to reexamine the stability of interest and income elasticities of money demand in the united states estimates based on postwar monthly data reveal a stable relationship between m1 velocity and various measures of interest rates that proxy the opportunity cost of holding money balances tests for the existence of cointegration and methods used to estimate the income and interest elasticities are based on procedures prescribed by soren johansen 1988 corresponding error correction estimates offer insight as to the dynamics of the process that maintains the equilibrium relation between velocity and interest rates copyright 1991 by mit press

co2 abatement from renewables in the german electricity sector does a co2 price help abstract the overlapping impact of the emission trading system ets and renewable energy re deployment targets creates a classic case of interaction effects whereas the price interaction is widely recognized and has been thoroughly discussed the effect of an overlapping instrument on the abatement attributable to an instrument has gained little attention this paper estimates the actual reduction in demand for european union allowances that has occurred due to re deployment focusing on the german electricity sector for the five years 2006 through 2010 based on a unit commitment model we estimate that co 2 emissions from the german electricity sector are reduced by 35 to 60 mtons or 10 to 18 of what estimated emissions would have been without any re policy but with the co 2 price remaining in place at the observed level furthermore we find that the abatement attributable to re injections is greater in the presence of an allowance price than otherwise the same holds for the ets effect in presence of re injection this interaction effect is consistently positive for the german electricity system at least for the considered years and on the order of 0 5 to 1 5 of emissions

the importance of business owners in assessing the size of precautionary savings abstract not properly accounting for differences between business owners and nonbusiness owners in studies of household wealth can lead to erroneous conclusions about the significance of different saving motives using data from the panel study of income dynamics from the 1980s and 1990s we show that within samples of both business owners and non business owners the amount of precautionary savings with respect to labor income risk is modest and accounts for less than 10 of total household wealth previous large estimates of the size of precautionary balances resulted from pooling these two groups together such pooling is inappropriate given that business owners face higher labor risk and accumulate more wealth than non business owners for reasons unrelated to precautionary motives

the incentive to invest in thermal plants in the presence of wind generation abstract in a deregulated market the decision to add generation rests with private investors this paper evaluates how generator profits are affected by increasing wind generation using hourly historical data for the irish single electricity market we simulate new series of electricity prices representative plant bids and wind generation we calibrate the model based on the negative correlation between electricity prices and wind generation this allows us to determine that increasing wind generation induces lower profits for all baseload plants additionally it decreases profits for baseload natural gas plants more than for less flexible coal fuelled plants which might encourage investment in less flexible plants

risk management and wealth accumulation behavior in france abstract recent theoretical saving models have placed greater emphasis on studying prudent behavior in the face of an uncertain future and have shown the influences of background risks on precautionary savings a prudent household exposed to a high future income risk will increase its savings empirical tests on recent french data insee patrimoine 97 show the relevance of subjective earnings variance to explain wealth accumulation but its contribution is not very large around 5

on the welfare cost of inflation and the recent behavior of money demand post 1980 u s data trace out a stable long run money demand relationship of cagan s semi log form between the m1 income ratio and the nominal interest rate with an interest semi elasticity of 1 79 integrating under this money demand curve yields estimates of the welfare cost of modest departures from friedman s zero nominal interest rate rule for the optimum quantity of money that are quite small the results suggest that the federal reserve s current policy which generates low but still positive rates of inflation provides an adequate approximation in welfare terms to the alternative of moving all the way to the friedman rule jel e31 e41 e52

income risk borrowing constraints and portfolio choice economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household s portfolio if the utility function exhibits decreasing absolute risk aversion and decreasing prudence an individual will reduce his exposure to rate of return risks when confronted with other independent risks if there are transaction costs the expectation of future borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets the authors find support for these propositions in a cross section of italian households copyright 1996 by american economic association

efficient portfolios when housing needs change over the life cycle abstract we address the issue of the efficiency of household portfolios in the presence of housing risk we treat housing stock as an asset and rents as a stochastic liability stream over the life cycle households can be short or long in their net housing position efficient financial portfolios are the sum of a standard markowitz portfolio and a housing risk hedge term that multiplies net housing wealth our empirical results show that net housing plays a key role in determining which household portfolios are inefficient the largest proportion of inefficient portfolios obtains among those with positive net housing who should invest more in stocks

risk management housing and stockholding this article investigates the possible explanations of the stockholding puzzle by focusing on housing and other uninsurable risks associated with income health and business taking the french household wealth survey patrimoine 2004 french national statistical institute we find that the share of financial wealth invested in stocks depends on transaction and information costs risk aversion exposure to real estate risk and to a lesser extent labour market risk these results are obtained by controlling for endogenous home ownership status

the private and public economics of renewable electricity generation generating electricity from renewable sources is more expensive than conventional approaches but reduces pollution externalities analyzing the tradeoff is much more challenging than often presumed because the value of electricity is extremely dependent on the time and location at which it is produced which is not very controllable with some renewables such as wind and solar likewise the pollution benefits from renewable generation depend on what type of generation it displaces which also depends on time and location without incorporating these factors cost benefit analyses of alternatives are likely to be misleading other common arguments for subsidizing renewable power green jobs energy security and driving down fossil energy prices are unlikely to substantially alter the analysis the role of intellectual property spillovers is a strong argument for subsidizing energy science research but less persuasive as an enhancement to the value of installing current renewable energy technologies

sweep programs the fall of m1 and rebirth of the medium of exchange this paper investigates the effect of sweep programs on m1 using dynamic simulations of money demand over 1994 2000 the postsample period constitutes when sweep programs have been in effect all models generate predictions systematically above reported m1 using data on newly initiated programs test findings indicate that sweeps account for the overprediction within the conventional money demand model with a long term interest rate we construct a medium of exchange measure m1s equal to m1 plus estimated holdings of sweep balances m1s velocity compares favorably with that of broader aggregates evidence indicates cointegration within m1s money demand

sectoral money demand and the great disinflation in the united states estimates of the welfare costs of inflation based on bailey 1956 are typically computed using aggregate money demand models yet the behavior of money demand may vary across sectors thus the impact on welfare of inflation regime shifts may differ between households and firms we specifically investigate the sectoral welfare implications of the shift from the great inflation to the present regime of low and stable inflation for this purpose we estimate different functional specifications of money demand for u s households and nonfinancial firms using flow of fund data covering four decades we find that the benefits were significant for both sectors

results of a study of the stability of cointegrating relations comprised of broad monetary aggregates abstract we find strong evidence of a stable money demand relationship for mzm and m2m through the 1990s though the m2 relation breaks down somewhere around 1990 evidence has been accumulating that the disturbance is well characterized as a permanent upward shift in m2 velocity which began around 1990 and was largely over by 1994 taken together our results support the hypothesis that households permanently reallocated a portion of their wealth from time deposits to mutual funds although this reallocation may have been induced by depository restructuring we argue that the substitution could be explained by appropriately measured opportunity cost

cost effectiveness of renewable electricity policies we analyze policies to promote renewable sources of electricity a portfolio standard rps raises electricity prices and primarily reduces gas fired generation a knee of the cost curve exists between 15 and 20 goals for 2020 in our central case and higher natural gas prices lower the cost of greater reliance on renewables a renewable energy production tax credit lowers electricity price at the expense of taxpayers which limits its effectiveness in reducing carbon emissions and it is less cost effective at increasing renewables than a portfolio standard neither policy is as cost effective as a cap and trade policy for achieving carbon emission reductions

why do so few hold stocks the authors investigate why 75 percent of u s households do not hold stocks despite the equity premium and predictions of expected utility models the question is relevant for privatization asset pricing and tax progressivity issues they show that risk aversion per se heterogeneity of beliefs habit persistence time nonseparability and quantity constraints on borrowing do not account for the phenomenon a wedge between borrowing and lending rates and minimum investment requirements are plausible but empirically weak factors more promising explanations are inertia and departures from expected utility maximization there is also qualified support for nondiversifiable income risk as a contributing factor copyright 1995 by royal economic society

attitudes towards large income risk in welfare states an international comparison using survey data and the instrument developed by barsky et al we estimate the distribution of attitudes towards income risk in a country where many employment and health related risks are generously covered by a tax financed social insurance system norway in 2006 under a constant relative risk aversion assumption the sample average for the coefficient of relative risk aversion is 3 8 with standard deviation 2 3 this number is then contrasted to that for five other oecd countries where risk attitudes have been measured using the same instrument and also prior to the financial crisis chile france italy the netherlands and the usa when we relate this distribution for stated relative risk aversion to that for generosity of social insurance and the risks related to employment and health expenditure a picture emerges suggesting that more extensive welfare states induce higher risk tolerance for foreground risks a relationship that is in line with the theory on risk vulnerability

the future of monetary aggregates in monetary policy analysis this paper considers the role of monetary aggregates in modern macroeconomic models of the new keynesian type the focus is on possible developments of these models that are suggested by the monetarist literature and that in addition seem justified empirically both the relation between money and inflation and between money and aggregate demand are considered regarding the first relation it is argued that both the mean and the dynamics of inflation in present day models are governed by money growth this relationship arises from a conventional aggregate demand channel claims that an emphasis on the link between monetary aggregates and inflation requires a direct channel connecting money and inflation are wide of the mark the relevance of money for aggregate demand in turn lies not via real balance effects or any other justification for money in the is equation but on money s ability to serve as a proxy for the various substitution effects of monetary policy that exist when many asset prices matter for aggregate demand this role for monetary aggregates which is supported by empirical evidence enhances the value of money to monetary policy

the stability of long run money demand in five industrial countries abstract this study provides strong evidence for the stability of long run demand functions for narrowly defined money m1 in five industrial countries u s japan canada u k and west germany using post war quarterly data evidence of stability is examined using two different estimation techniques and through a formal test of parameter constancy designed specifically for cointegrating vectors in the majority of these countries the key to stability is the imposition of a unitary long run income elasticity that is rarely rejected by the data

owner occupied housing and investment in stocks an empirical test abstract this paper analyzes the empirical link between housing investment and stockholding by testing implications of the model of flavin and yamashita american economic review 92 2002 345 362 their model illustrates how the house to net worth ratio influences a homeowner s portfolio composition regression estimates suggest that there is a strong relationship between housing investment and stockholding and the house to net worth ratio could explain certain heterogeneity in stockholding households with a high house to net worth ratio hold a lower proportion in stocks the results support the hypothesis that overinvestment in housing affects financial portfolio of homeowners

u s narrow money for the twenty first century i introduction though money retains its fundamental role in a market economy money measures have been noticeably de emphasized within the conduct of u s monetary policy the federal open market committee fomc stopped reporting annual growth objectives for monetary aggregates although it states that money supply still has value for gauging economic conditions board of governors 2000 however a growing body of research calls for returning monetary aggregates to a more prominent role within monetary policy meltzer 1998 asserts that the view of persistent money growth as being the source of inflation is again widely accepted perhaps more firmly held by some central bank governors now than at any time in the twentieth century nelson 2002 provides evidence that base money has a significant effect on output relative to potential in the united states and united kingdom even after controlling for the short term real interest rate nelson 2003 argues that money growth governs the mean and dynamics of inflation in present day new keynesian models leeper and roush 2003 find evidence of an essential role for m2 within the transmission of monetary policy even after controlling for the nominal interest rate 1 this article focuses on the role of sweep programs in properly measuring narrow money in a sweep program banks move a portion of funds from customer demand deposits dds or other checkable deposits ocds into instruments with zero statutory reserve requirements we examine the effects of two types of sweep programs in the united states retail sweep programs and commercial demand deposit sweep programs narrow transactions based money historically has played a key role in the conduct of monetary policy as hafer and wheelock 2001 explain m1 served as the measure of money within the st louis model although monetarists had long been divided over whether a narrow or broad aggregate was the preferable target for monetary policy the fomc appeared to focus on m1 during the 1970s and early 1980s publishing their target ranges for money growth in terms of m1 hafer and wheelock 2001 though state that deviations in m1 velocity from its upward trend beginning in the early 1980s caused instability within the st louis model hoffman and rasche 1991 and hoffman et al 1995 place dummy variables in their vector error correction mechanisms to capture observed shifts in m1 velocity what attention remains on the money supply seems to be focused on broad rather than narrow aggregates but the broad aggregates have not escaped difficulties duca 2000 and hafer and wheelock 2001 document a deviation of m2 velocity from its long run trend in the early 1990s sometimes characterized as the missing m2 episode duca and vanhoose 2004 state that one response was to replace m2 with mzm consistent with the view that heightened substitution between small time deposits and mutual funds other than money market mutual funds mmmfs largely accounted for the instability in m2 velocity but as they go on to discuss m2 and mzm velocity encountered problems in the early 2000s plunging in ways not in line with opportunity cost variables duca and van hoose 2004 state that broader aggregates may have become more vulnerable to portfolio substitution involving stock and mutual funds other than mmmf narrow money has also been used extensively in examining money demand a sizable body of research has emerged that empirically investigates the demand for m1 especially using cointegration techniques hoffman and rasche 1991 hoffman et al 1995 dutkowsky and atesoglu 2001 and ball 2001 provide evidence of a stable long run money demand equation using m1 ball 2002 generates further support with m1 and establishes a correspondence between the partial adjustment formulation and the vector error correction model yet research and policy making using narrow money is currently being hampered by the lack of an accurate measure of transactions based money

national natural rates of interest and the single monetary policy in the euro area national natural rates of interest and the single monetary policy in the euro area we estimate time varying national natural real rates of interest r for the four largest economies of the euro area over 1999 2016 we further derive the associated national real interest rate gaps which gauge the perceived monetary policy stance in each country we find that the average r have been lower after 2008 furthermore national r were significantly negative in southern countries during the sovereign crisis as their effective real rates soared national rate gaps across the euro area diverged however a common policy stance has been restored since 2014 as the european central bank s unconventional programs gathered pace

sweep programs and optimal monetary aggregation abstract this paper examines the admissibility of monetary aggregate groupings for the us over 1993 2001 based upon weak separability we investigate the impact of retail and commercial demand deposit sweep programs on the separability of monetary asset groupings weak separability is tested using the swofford whitney and fleissig whitney tests we use varian s measurement error adjustment procedure to eliminate violations of the generalized axiom of revealed preference garp when funds from both retail and commercial demand deposit sweep programs are placed within checkable deposits all groupings narrow and broad pass garp and weak separability for groupings based on conventional money measures tests tend to favor broad aggregates

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

comparing the costs of intermittent and dispatchable electricity generating technologies economic evaluations of alternative electric generating technologies typically rely on comparisons between their expected life cycle production costs per unit of electricity supplied the standard life cycle cost metric utilized is the levelized cost per mwh supplied this paper demonstrates that this metric is inappropriate for comparing intermittent generating technologies like wind and solar with dispatchable generating technologies like nuclear gas combined cycle and coal levelized cost comparisons are a misleading metric for comparing intermittent and dispatchable generating technologies because they fail to take into account differences in the production profiles of intermittent and dispatchable generating technologies and the associated large variations in the market value of the electricity they supply levelized cost comparisons overvalue intermittent generating technologies compared to dispatchable base load generating technologies they also overvalue wind generating technologies compared to solar generating technologies integrating differences in production profiles the associated variations in the market value of the electricity supplied and life cycle costs associated with different generating technologies is necessary to provide meaningful comparisons between them this market based framework also has implications for the appropriate design of procurement auctions created to implement renewable energy procurement mandates the efficient structure of production tax credits for renewable energy and the evaluation of the additional costs of integrating intermittent generation into electric power networks