on the efficiency of futures markets another view abstract one definition of market efficiency holds that today s price of an item contains all the price information that there is about that item that is today s price contains information about people s expectations about the future however in estimating price equations analysts almost exclusively look to the past in developing price forecasting models this paper examines the question how do futures prices affect today s price for heating oil that is do futures markets add to the efficiency of markets by conveying information from the future to the present

how can market mechanisms for forest environmental services help the poor preliminary lessons from latin america summary market mechanisms for forest environmental services are a new approach for conservation but there is also an increasing interest in the derived developmental benefits of these mechanisms we first propose a conceptual framework for future research on the livelihood impacts of environmental service markets we then review eight latin american case studies on carbon sequestration and watershed protection market initiatives finding positive local income effects in most cases more land tenure security and socioinstitutional strengthening in some cases but some negative effects also we recommend pro poor policy measures such as reducing smallholders transaction costs and removing inappropriate access restrictions

a tale of two water markets in australia lessons for understanding participation in formal water markets water markets are promoted as a demand management strategy for addressing water scarcity although there is an increasing literature on the institutional preconditions required for successful formal water markets there has been less focus on understanding what drives participation after establishment of the basic enabling conditions participation can be measured in terms of either trading activity conducting either a permanent or temporary water trade and or trade volumes across time and market products australia s water markets in the southern and northern basins of the murray darling basin provide a notable example of a tale of two water markets offering insights about the economic policy levers that can drive participation across different hydrological irrigation and socioeconomic contexts key lessons include distribution of initial property rights in resource allocation the need to prepare for and seize opportunities to strengthen property rights and robust monitoring and compliance requirements all of which will reduce transaction costs and increase participation

economic vs non material incentives for participation in an in kind payments for ecosystem services program in bolivia abstract this study examines the motivations that drive participation in a compensation program for environmental conservation in bolivia previous research on payments programs suggests that institutions that appeal to both economic and non material incentives should be encouraged this program attempts such a strategy offering in kind compensation for conservation while simultaneously attempting to engage with environmental values and traditional social norms i take advantage of a comprehensive household survey conducted prior to the offer of the program and employ means comparison tests and multi level regression analysis to compare those who chose to participate with those who did not my research examines whether motivations for participating in this program reflected purely financial calculations regarding the costs and benefits of the program or whether non financial motivations such as environmental or social beliefs and norms played a role as well i find evidence that the program s effort to engage with social motivations was successful and that social factors not financial incentives alone affect participation in the program findings also suggest that environmental values did not play a very large role and that the financial determinants of participation are related mainly to prohibitive costs or barriers to entry rather than the size of anticipated benefits

is the investment uncertainty relationship nonlinear an empirical analysis for the netherlands we examine the investment uncertainty relationship for a panel of dutch non financial firms the system generalized method of moments gmm estimates suggest that the effect of uncertainty on investment is nonlinear for low levels of uncertainty an increase in uncertainty has a positive effect on investment while for high levels of uncertainty an increase in uncertainty lowers investment this result is in line with a number of theoretical studies but has never been documented empirically

exchange rate and wage price dynamics a theoretical analysis and an econometric investigation abstract this paper is an attempt to analyze inflation dynamics in a small open economy as the result of the interaction between wage and price determination behaviors and the interest rate exchange rate feedback in the context of dornbusch s model an extended version of this model is specified and analyzed formally then the model is estimated for five oecd countries using a full information maximum likelihood technique finally simulations of the effect of monetary shocks are presented for four countries

risk aversion and the investment uncertainty relationship a comment abstract this paper shows that the solution of nakamura s journal of economic behavior and organization 38 1999 357 model is incorrect we propose an alternative framework that allows us to obtain closed form results on the investment uncertainty relationship

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

the cyclical behavior of prices and quantities the case of the automobile market abstract this paper aims at understanding the joint behavior of prices and quantities in a particular market it examines whether we can find decision problems for suppliers and buyers together with a market structure which are consistent with observed price and quantity series because of the homogeneity of the product and the quality of the data we study the automobile market we conclude that the behavior of prices is inconsistent with simple market structures prices appear to be too sticky we then consider potential explanations none appears completely satisfactory in particular costs of changing prices do not explain the joint behavior of prices and quantities

internal supply chain coordination in the electric utility industry abstract electric utilities have a well established vertical internal and external supply chain theoretically information sharing involving production inventory and other policy variables between chain entities can improve supply chain performance such sharing relies on a systematic determination of the optimal policy variables for the chain this paper presents an analysis of the electric utility s decision problem based on an optimal control model in a competitive market environment optimal production and inventory policies are developed for a centralized supply chain under full information sharing the model and policies are tested with electric utility industry data and performance implications are discussed for electric utility managers and public regulators

relative price dispersion and economic shocks an inventory adjustment approach the issue of relative price dispersion rpd has gained prominence in recent years as the economy was subject to economic shocks and to high and variable levels of inflation the concern about the increased rpd was due to its potentially harmful effect on the economy recently blejer and leiderman 4 evaluated empirically the effect of rpd on economic activity in the postwar united states and found that increased rpd leads to a decrease in the level of output and to an increase in the rate of unemployment israelsen and mcdonald 13 showed in a partial equilibrium context that when wage changes are firmly linked to the general price level and labor mobility between markets or industries is limited an increase in rpd may lead to increasing unemployment pischer 10 suggested that rpd is not necessarily harmful but when coupled with unexpected inflation it may be associated with information confusion leading to a loss through the misallocation of resources these concerns have raised the interest in understanding the factors causing and affecting rpd both theoretically and empirlcally the prevailing theoretical explanations of the factors affecting rpd are based on two main approaches c ne approach is based on misinformation type models inspired by lucas s work 14 where individuals are confused between aggregate shocks and relative marketspecific ones barro 3 and cukierman and wachtel 9 have proposed that the greater the vanance of the aggregate shocks the greater the rpd barro 3 pp

payments for ecosystem services and agricultural intensification evidence from a choice experiment on deforestation in zambia agriculture is considered to be one of the major drivers of deforestation worldwide in developing countries in particular this process is driven by small scale agriculture at the same time many african governments aim to increase agricultural productivity empirical evidence suggests however that win win relationships between agricultural intensification and forest conservation are the exception payments for ecosystem services pes could be linked to agriculture support programmes to simultaneously achieve both goals due to potentially higher profits from intensified agriculture than from pure cash transfers potential payment recipients may prefer in kind over conventional cash payments nevertheless little scientific evidence exists regarding the preferences of potential pes recipients for such instruments we report from a discrete choice experiment in zambia that elicited preferences of smallholder farmers for pes contracts our results suggest that potential pes recipients in zambia value in kind agricultural inputs more highly than cash payments even when the monetary value of the inputs is lower than the cash payment highlighting that pes could potentially succeed in conserving forests and intensifying smallholder agriculture respondents who intended to clear forest within the next three years were found to require higher payments but could be motivated to enrol in appropriately designed pes

commodity market dynamics and the joint executive committee 1880 1886 using weekly spot and future commodity prices in chicago and new york we construct expected transportation rates for grain between these two cities expected inventory levels in new york and realized errors in the expectations of such variables we incorporate these exogenous commodity market dynamics into porter s 1983 structural modeling of the joint executive committee railroad cartel as in porter we model marginal cost as a parametric function of instrumented output among other factors unlike porter we model pricing over marginal cost as a nonparametric function of a set of variables which include expectations of deterministic demand cycles and cartel stability we estimate the pricing and demand equation simultaneously and semiparametrically our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles as modeled in haltiwanger and harrington 1991 periods of cartel instability are proven to be trigger

anticipated and unanticipated effects of crude oil prices and gasoline inventory changes on gasoline prices abstract this paper examines the effect of anticipated and unanticipated changes in oil prices and gasoline inventory on us gasoline prices we estimate empirical responses to anticipated and unanticipated changes in oil prices and gasoline inventory and show that gasoline price adjustments are faster and stronger for anticipated changes in oil prices and inventory levels than for unanticipated changes furthermore this difference is statistically significant we use these findings to evaluate the cost of adjustment hypothesis suggested by borenstein and shephard 2002 we also find that there is an asymmetry in the effect of gasoline inventory on gasoline and oil prices this finding complements a well known result that positive and negative changes in oil prices have asymmetric effect on gasoline prices

some empirical evidence on the production level and production cost smoothing models of inventory investment the production smoothing model of inventories has long been the basic paradigm within which empirical research on inventories has been conducted the basic hypothesis embedded in this model is that inventories of finished goods serve primarily to smooth production levels in the face of fluctuating demand and convex cost functions however once we allow for shocks to technology and the costs of producing output firms will also use inventories to shift production from periods in which production costs are relatively high to periods in which production costs are relatively low in this sense inventories can serve to smooth production costs rather production levels in this paper we examine the empirical plausibility of the production level and production cost smoothing models of inventories our basic strategy is to derive and contrast a set of unconditional moment restrictions implied by these models in a way that minimizes the role of auxiliary assumptions regarding market structure and industry demand we find overwhelming evidence against the production level smoothing model and very little evidence against the production cost smoothing mode1 we conclude that the variance of production exceeds the variance of sales in most manufacturing industries because the production cost smoothing role of inventories is quantitatively more important than the production level smoothing role of inventories this abstract was borrowed from another version of this item

payments for ecosystem services as commodity fetishism abstract payments for ecosystem services pes economically reward resource managers for the provision of ecosystem services and are thus characterised by i an ecological function subject to trade ii the establishment of a standard unit of exchange iii and supply demand and intermediation flows between those who sell and buy ecosystem services this paper departs from the term commodity fetishism broadly understood as the masking of the social relationships underlying the process of production to illuminate three invisibilities in the commodification of ecosystem services firstly we argue that narrowing down the complexity of ecosystems to a single service has serious technical difficulties and ethical implications on the way we relate to and perceive nature secondly the commodification of ecosystem services denies the multiplicity of values which can be attributed to these services since it requires that a single exchange value is adopted for trading finally we suggest that the process of production exchange and consumption of ecosystem services is characterised by power asymmetries which may contribute to reproducing rather than addressing existing inequalities in the access to natural resources and services

the viability of local payments for watershed services empirical evidence from matiguas nicaragua abstract using both qualitative and quantitative approaches this article investigates the under researched demand side of locally financed payments for environmental services pes it assesses downstream users willingness to pay wtp for improved tap water quality in a setting where upstream landowners are clearing watersheds the research findings are indicative of a considerable wtp for improved drinking water services and a definite local awareness of upstream downstream interdependencies suggesting potential for successful pes contingent valuation cv however found a substantially lower wtp under a pes scenario than under an alternative scenario involving infrastructure investments the qualitative research angle indicates that the feasibility of a locally financed pes system may have been negatively affected by the prevailing discursive framing of agricultural externalities and entitlements raising issues about the fairness of such payments moreover low levels of mutual trust were found to undermine the credibility of the pes framework these results confirm that institutional failures contribute to environmental degradation and that pes should not be viewed as a market panacea transcending the local institutional context but rather as a potentially complementary instrument within a broader rearrangement of environmental governance

futures markets a consequence of risk aversion or transactions costs a two period model of an industry of risk neutral processors who have nonlinear production costs and who face transact ions costs in the spot and futures markets is put forth as a countere xample to the models of commodity markets in which processors risk a version plays the major role the model s equilibrium exhibits the sa lient endogenous features of actual commodity markets namely that t he futures price is below the current spot price that processors hol d inventories despite this opportunity cost that those holding inven tories are short in futures and that processors as a group hold an u nbalanced usually net short position in the futures market copyright 1987 by university of chicago press

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

efficiency of payments for environmental services equity and additionality in a case study from a biosphere reserve in chiapas mexico payments for environmental services pes have been claimed as a more efficient way of accomplishing conservation and development goals than other indirect strategies reaching their optimum when the buyer pays the opportunity costs of the foregone benefits different inefficient situations have been described like lack of additionality where payments are given for practices that would have been adopted anyway trade offs between efficiency and equity of pes have usually emerged as well in this paper we assess the equity additionality and stakeholders perceptions of a pes scheme in a mexican community inside a biosphere reserve we applied structured interviews to all adults a total of 66 people from 31 households our results show a dual response in equity and additionality depending on land tenure pes have an egalitarian effect within landowners and landless groups but it broadens the gap between them additionality is low for landowners and high for the landless people in the community even though the former are the ones with full decision over the land although the scheme does not seem efficient under the classical pes paradigm it is perceived as a reward reinforcing conservation attitudes even though most of the interviewees claim it to be insufficient

convenience yield without the convenience a spatial temporal interpretation of storage under backwardation a mathematical programming model of the wheat marketing system of western australia manifests a typical pattern of regionwide stocks held at a negative intertemporal spread measured at the port no stocks are held at a monetary loss in terms of local prices any apparent loss is an illusion from spatial aggregation of stocks and attribution of incentives at one locality to storers at all locations moreover as the premium for immediate delivery at the port rises stocks increase at relatively inaccessible inconvenient locations where prices are low allowing more to be shipped from locations more convenient to the port

selling two environmental services in kind payments for bird habitat and watershed protection in los negros bolivia abstract marketing several environmental services from a single area can help access diverse sources of funding and make conservation a more competitive land use in bolivia s los negros valley department of santa cruz bordering the amboro national park 46 farmers are currently paid to protect 2774 ha of a watershed containing the threatened cloud forest habitat of 11 species of migratory birds in this payment for environmental services pes scheme annual contracts prohibit tree cutting hunting and forest clearing on enrolled lands farmer landowners as service providers submit to independent yearly monitoring and are sanctioned for non compliance facilitated by a local ngo fundacion natura bolivia one service buyer is an international conservation donor the us fish and wildlife service interested in biodiversity conservation the second service users are downstream irrigators who likely benefit from stabilized dry season water flows if upstream cloud forests are successfully protected individual irrigators have been reluctant to pay but the los negros municipal government has on their behalf contributed us 4500 to the scheme the negotiated payment mode is annual quid pro quo in kind compensations in return for forest protection predominantly payments are made as contingent project implementation transferring beehives supplemented by apicultural training with regard to service provision environment committees and education programs have increased awareness in downstream communities of the probable water supply reduction effect of continued upstream deforestation external donors have funded subsequent studies providing basic economic hydrological and biodiversity data and covered pes start up us 40 000 and running transaction costs us 3000 per year over the last three years the greatest challenges in the development of the pes mechanism have been the slow process of building trust between service buyers and providers and in achieving clear service provision additionality

what do inventories tell us about news driven business cycles there is widespread disagreement over the quantitative contribution of news shocks to business cycle fluctuations this paper provides a simple identifying restriction based on inventory dynamics that tightly pins down this contribution structural models predict that finished good inventories should fall when there is an increase in consumption and investment induced by news shocks a structural var with these sign restrictions indicates that news shocks account for at most 20 percent of output volatility since inventories comove positively with consumption and investment in the data shocks that generate negative comovement cannot account for the bulk of fluctuations

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

a comparison of futures and forward prices abstract this paper uses the pricing models of cox ingersoll and ross 1981 richard and sundaresan 1981 and french 1982 to examine the relation between futures and forward prices for copper and silver there are significant differences between these prices the average differences are generally consistent with the predictions of the futures and forward price models however these models are not helpful in describing intra sample variations in the futures forward price differences this failure is apparently caused by measurement errors in both the price differences and in the explanatory variables

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

paying for environmental services an analysis of participation in costa rica s psa program summary costa rica has long been a leader among developing countries in the design of and experimentation with innovative environmental programs since 1997 costa rica s pagos de servicios ambientales payments for environmental services program has provided payments to more than 4 400 farmers and forest owners for reforestation forest conservation and sustainable forest management activities econometric analysis of a survey of farmers and forest owners including both psa participants and nonparticipants shows that farm size human capital and household economic factors and information variables significantly influence participation in psa program alternatives large farmers and forest owners are disproportionately represented among program participants

an institutional analysis of payments for environmental services abstract in this paper the characteristics and functioning of pes is analyzed from an institutional perspective while in theory pes is seen as a market solution to environmental problems as an alternative to state hierarchical and community governance a review of a large amount of case studies shows that pes in practice depends rather fundamentally on state and or community engagement hence pes are foremost a reconfiguration of the roles of public bodies and communities becoming core intermediaries or buyers first to establish pes rights to the land that delivers the environmental service must be clarified this demands public action second transacting over environmental amenities is very costly creating markets for environmental services depends therefore crucially on state and community facilitation hence buyers are often public agencies high transaction costs also influence price setting payments do not follow the market format as intermediaries frequently are setting the price with users often being unaware even of the fact that they pay finally the distinction between payments as incentives and as fair compensations is emphasized while payments may strengthen community relations and simplify action for environmental care they may also introduce a purely instrumental logic and in some cases worsen the environmental status by crowding out environmental virtues for the future greater awareness of these dynamics is warranted

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

investment and uncertainty is there a potential role for a common european policy abstract this paper contributes to the long running debate on the relationship between uncertainty and investment our results show that uncertainty negatively affects investment they are also favorable towards a common european economic policy oriented both to the support and the stabilization of aggregate demand

upstream downstream transactions and watershed externalities experimental evidence from kenya abstract where environmental policies or projects seek behavioral change understanding underlying norms and preferences is essential to securing environmental outcomes this study models a payment for environmental services intervention in an experimental field laboratory in nyanza province kenya upstream and downstream individuals are paired in a standard investment game in which the upstream mover s investment represents land use decisions and the downstream mover responds with a choice of compensation payment the experimental intervention introduces an enforcement treatment on the downstream movers compensation decisions for a single round underlying social preferences and identity appear to shape individual transactions between upstream and downstream individuals upstream first movers are sensitive to the removal of the enforcement on their downstream partners in the second round and make decisions consistent with crowding out of social preferences the results suggest that environmental interventions may affect resource decisions for individuals who are not themselves direct targets of enforcement

risk aversion and the investment uncertainty relationship the role of capital depreciation abstract some recent contributions nakamura t 1999 risk aversion and the uncertainty investment relationship a note journal of economic behavior and organization 38 357 363 saltari e ticchi d 2005 risk aversion and the investment uncertainty relationship a comment journal of economic behavior and organization 56 121 125 suggest that investments react negatively to uncertainty when the risk aversion index characterizing firm s preferences is lower than one but higher than the labour income share of output we show that this result crucially depends on the assumption of complete capital depreciation after production when realistic values for the capital depreciation parameter are taken into account the investment uncertainty relation is negative for values of the risk aversion index larger than unity

can payments for environmental services help reduce poverty an exploration of the issues and the evidence to date from latin america summary this paper examines the main ways in which payments for environmental services pes might affect poverty pes may reduce poverty mainly by making payments to poor natural resource managers in upper watersheds the extent of the impact depends on how many pes participants are in fact poor on the poors ability to participate and on the amounts paid although pes programs are not designed for poverty reduction there can be important synergies when program design is well thought out and local conditions are favorable possible adverse effects can occur where property rights are insecure or if pes programs encourage less labor intensive practices 2004 elsevier ltd all rights reserved

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

an investigation of the harvest decision of timber firms in the south east united states in the forestry literature stochastic extensions of the classic faustmann model have become the predominant models of optimal harvesting on even aged timber stands a recent attempt to estimate a stochastic version of the faustmann model left several puzzling results unexplained provencher 1995 this paper reports on new estimation and analyses undertaken to resolve these puzzles of particular note is the result that the value of using correct price forecasts in the harvest decision is much lower than indicated by recent simulation studies perhaps because variability in convenience yield dampens the expected gain from exploiting stochastic variation in timber prices

inventories as an asset the volatility of copper prices the spot price of copper metal is known to be extremely volatile from 1958 to 1980 the mean monthly average price was 0 49 per pound in constant 1967 dollars while the standard deviation of month to month changes in the real price was 0 06 claims to copper inventories are traded on the london metal exchange lme a competitive world asset market this paper empirically investigates the dynamics of copper spot prices on the lme focusing on the rate of return to holding copper metal and on the implications of inventory stockouts for this rate of return we make one major departure from the standard economic theory of exhaustible resources 2 instead of assuming constant short run marginal cost srmc we incorporate rising srmc of extraction into the model 3 this technological assumption provides an economic motive for production smoothing by holding inventories equilibrium inventory holdings ameliorates rising srmc by moving extraction to low srmc time periods we show that this amelioration is imperfect because of inventory stockouts when stockouts can occur the spot price of a resource reflects transient shocks to its scarcity value as well as permanent shifts more specifically the economic motive for inventory holding affects the equilibrium price dynamics of exhaustible resources in two ways first as long as positive inventories are being held their holders should earn the competitive rate of return thus the price of extracted resource should rise at the rate of interest in expected value this result differs from most recent theoretical studies of exhaustible resources which conclude that price minus marginal extraction cost should rise at the rate of

prosocial behavior and incentives evidence from field experiments in rural mexico and tanzania abstract incentive based schemes for natural resource conservation are based on the premise that offering payments to groups of land users will motivate them to organize collectively to provide environmental services in contrast research from behavioral economics shows that introducing monetary incentives can undermine collective action that is motivated by social norms in such a case payment could have perverse impacts in view of this dichotomy we conducted choice and field experiments in rural mexico and tanzania to test the response of prosocial behavior to incentives the field experiments involved voluntary participation in real communal tasks under different incentive structures findings suggest that payments help raise participation where people are otherwise uninterested but that participation in communal tasks can be high irrespective of the incentive if social norms favoring participation are present in tanzania high individual payments do not undermine participation although they appear to reduce people s satisfaction from the task relative to when there is no payment in mexico group payments made through village authorities yield lower participation where people distrust leaders challenges to conducting field experiments in our research settings limit what we can conclude from our work but the findings raise important points and suggest areas for further research

forward trading and storage in a cournot duopoly a dynamic game is presented that models the effects of forward trading and storage in an imperfectly competitive market it is shown that the pro competitive effects of forward trading found in previous work are weakened by the addition of storage but not eliminated the price level lies between that of a cournot game and that of a game with forward trading but without storage

risk aversion and the uncertainty investment relationship a note abstract this paper demonstrates that the effect of output price uncertainty on firm investment may be negative for a competitive risk averse firm with a constant return to scale technology it shows that a degree of relative risk aversion compared to an elasticity of output to labor in a production function is a crucial factor in determining the sign of the investment uncertainty relationship for a competitive firm

community conservation and a two stage approach to payments for ecosystem services recent revisions to the theory and definition of payments for ecosystem services pes challenge the generally accepted dominance of direct incentives provided in a buyer seller relationship the revisionist thinking insists indirect incentives and a cooperative reciprocal relationship are often more appropriate those characteristics however hark back to the indirect cooperative interventions that constitute community conservation which pes was originally designed as an improvement over in that context this study revisits the criticisms and potential benefits of community conservation we analyze a case study of community conservation in peru and find that it supported an uptake of forest friendly behaviors we take up the suggestion of a two stage approach to pes but refine it based on our results that indicate an important role for cognitive e g education alongside structural interventions e g provision of alternatives and a strong role for social consensus to support conservationist behavior community conservation can provide these elements in a first stage of pes to create a social context conducive to conservation without creating that context first pes could destabilize local resource management norms rather than improve on them with the social context established however a market mechanism can be implemented in the second stage to reinforce the new conservationist behavior

centralized and decentralized management of local common pool resources in the developing world experimental evidence from fishing communities in colombia this paper uses experimental data to test for a complementary relationship between formal regulations imposed on a community to conserve a local natural resource and nonbinding verbal agreements to do the same our experiments were conducted in the field in three regions of colombia each group of five subjects played 10 rounds of an open access common pool resource game and 10 additional rounds under one of five institutions communication alone two external regulations that differed by the level of enforcement and communication combined with each of the two regulations our results suggest that the hypothesis of a complementary relationship between communication and external regulation is supported for some combinations of regions and regulations but cannot be supported in general we therefore conclude that the determination of whether formal regulations and informal communication are complementary must be made on a community by community basis

price and inventory dynamics in petroleum product markets abstract unlike many studies of commodity inventory behavior this paper estimates a model with endogenous spot and forward prices inventories production and net imports our application involves markets for refined petroleum products in the united states our model is built around the supply and demand for storage we estimate the model using generalized method of moments and perform dynamic simultaneous simulations to estimate the impacts of supply and demand shocks supply curves for the industry are inelastic and upward sloping high inventory levels depress prices inventories fall in response to higher sales consistent with production smoothing under higher input prices refiners reduce their stocks of crude oil but increase their product inventories consistent with cost smoothing in some cases imports of products are more variable than production or inventories

the production smoothing model is alive and well abstract monthly data in physical units for seven industries are used to examine the production smoothing hypothesis the results strongly support this hypothesis significant effects of expected future sales on current production are found for four industries and the estimated decision equations for all seven industries imply production smoothing behavior the previous negative results appear to be due to the use of data biased against the hypothesis the shipments and inventory data of the department of commerce the paper also shows that sensible results can be obtained from estimating approximations to decision equations as opposed to estimating euler equations

payments for ecosystem services from local to global abstract payment for ecosystem services pes is becoming increasingly popular as a way to manage ecosystems using economic incentives the environmental economics approach to pes tries to force ecosystem services into the market model with an emphasis on efficiency the ecological economics approach in contrast seeks to adapt economic institutions to the physical characteristics of ecosystem services prioritizing ecological sustainability and just distribution and requiring a transdisciplinary approach this paper summarizes the results of a participatory atelier workshop held in costa rica we developed a set of principles the heredia declaration for pes systems and report on evolving initiatives in several countries we discuss how the distinction between ecosystem goods which are stock flow resources and ecosystem services which are fund service resources and the physical characteristics of the fund services affect the appropriate institutional form for pes we conclude that pes systems represent an important way to effectively manage fund service resources as public goods and that this represents a significant departure from conventional market institutions

reconciling theory and practice an alternative conceptual framework for understanding payments for environmental services article i nfo this article provides an alternative and novel theoretical approach to the conceptualization and analysis of payments for environmental services pes we devote special emphasis to institutional and political economy issues which have been somewhat neglected in the literature on pes we argue that the coasean and pure market approach dominating the conceptualization of pes in the literature cannot be easily generalized and implemented in practice by contrast taking into account complexities related to uncertainty distributional issues social embeddedness and power relations permits acknowledging the variety of contexts and institutional settings in which pes operate the alternative approach presented in this introductory article to the special section may be more appealing to pes practitioners since while avoiding restrictive and prescriptive standpoints it allows some key sources of complexities they usually deal with on the ground to be more easily understood

volatility of sales expectation errors and inventory investment firm level evidence abstract this paper tests whether demand uncertainty which is measured by the volatility of sales affects inventory investment based on the accelerator buffer stock inventory model using a panel of dutch listed firms in the period 1984 1996 we find that the estimated coefficient of the speed parameter of adjusting inventories increases vastly when the volatility of sales is used as the proxy for unexpected sales in the stock adjustment equation dutch firms on average overstate future sales leading firms to accumulate inventories partially due to the concern of avoiding stock out in case of highly unexpected demand

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

exploration activity long run decisions and the risk premium in energy futures investment by oil firms positively affects the futures basis and negatively predicts excess returns on crude oil futures i build an equilibrium model of drilling exploration and storage to understand these facts firms capital stock lowers extraction costs as firms drill in increasingly expensive fields drilled wells produce the resource at a geometrically declining rate however by specifying consumers habit level equaling production from old wells the futures basis and risk premium are only related to drilling investment and inventory investment leads to a more elastic drilling response by firms and dampens oil price increases from demand shocks thus lowering the risk premium received october 10 2015 editorial decision march 30 2018 by editor philip strahan author has furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

speculative carryover an empirical examination of the u s refined copper market this article develops and estimates an empirically tractable model of equilibrium storage the method bridges the gap between theoretical rational expectations models and applied commodity market work the application to the u s refined copper market provides estimates of structural supply and demand rational price forecasts and the risk of copper storage that is consistent with modern portfolio theory