budget constrained search abstract a consumer with diminishing marginal utility in consumption who can search for lower prices will balance the gains from spreading consumption evenly through time against the benefits of delaying consumption until lower prices are revealed optimal programs of consumption savings and price are characterized for a general formulation of this problem intertemporal substitutability is measured by relative risk aversion that relative risk aversion is small is sufficient for the intuitive solution as the best current price rises more search and less consumption is done the general model is adapted to special cases among other things this shows that linear utility and sequential search implies ex nte calculable reservation prices and consumption only when search stops however this characterization is a consequence of the restriction to linear utility outside of this context reservation prices and consumption may not be calculable ex ante

sequential search with a budget constraint abstract for a buyer who searches sequentially for the lowest price from a known distribution but subject to a budget constraint the optimal policy will no longer have the reservation price property

protection with static collusion the present paper argues that when static collusion takes place there is a new justification for a tariff this occurs in the context of a model in which consumers observe prices at a cost and the industry structure is a duopoly with a home and a foreign firm because costly search induces imperfect information about prices on the part of consumers the ability to rapidly revise posted prices on the part of the duopolists leads to the appropriation of a substantial amount of consumer surplus the static collusion takes place under any trade policy thus a home tariff that shifts a duopoly equilibrium to the advantage of the home firm will be demonstrated to entail in the case of a nonprohibitive tariff no consumption cost from protection because this tariff generates revenue for the home government and greater profits for the home firm it will be welfare improving to the home country the concept of profit shifting as a motive for commercial policy in imperfectly competitive markets was pioneered by brander and spencer 6 2 in a model where home and foreign duopolists are nash courot competitors a tariff can shift profits from the foreign to the home firm by inducing the foreign firm to play less aggressively in the present paper the tariff shifts profits within the collusive outcome by precluding more aggressive play by the foreign firm 3 furthermore davidson 8 has disclosed that the level of a tariff can affect the incentives to collude in a quantity setting supergame with nash cournot punishments in the present model the tariff affects the collusive outcome that can be supported it does not however affect the incentives to collude

price determinants of aboriginal art and its role as an alternative asset class abstract this paper analyzes auction results for over 4000 paintings by australian aboriginal artists to investigate determinants of prices in the aboriginal art market this is the first financial study of an indigenous art market and hedonic repeat sales and hybrid regression analyses find it shares price determinants with traditional art markets with price premia attached to artist name death painting size leading auction house and winter sale however aboriginal art s unique features significantly affect prices particularly works that use traditional aboriginal media and those with reputation affirming traits an aboriginal art index provides 6 6 annual return standard deviation 17 9 which is comparable to traditional asset classes and superior on a risk adjusted basis returns to aboriginal art are negatively correlated with returns from other assets and so it adds value to a diversified investment portfolio

search and consumer theory a consumer faces list prices for commodities but can buy one at a discount discounts vary randomly between sellers the number of quotations sought depends on list prices search costs and wealth this function is homogeneous of degree zero and provided some sufficient conditions are satisfied is increasing in wealth decreasing in search cost independent of the list price of the discounted commodity if indirect utility is multiplicatively separable increasing in the list price if the commodity is a necessity increasing in the list price of substitutes slutsky s equation is generalized to include search

an analysis of portfolio selection with background risk abstract this paper investigates the impact of background risk on an investor s portfolio choice in a mean variance framework and analyzes the properties of efficient portfolios as well as the investor s hedging behaviour in the presence of background risk our model implies that the efficient portfolio with background risk can be separated into two independent components the traditional mean variance efficient portfolio and a self financing component constructed to hedge against background risk our analysis also shows that the presence of background risk shifts the efficient frontier of financial assets to the right with no changes in its shape moreover both the composition of the hedge portfolio and the location of the efficient frontier are greatly affected by a number of background risk factors including the proportion of background assets in total wealth and the correlation between background risk and financial risk

testing models of consumer search using data on web browsing and purchasing behavior using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models we nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data moreover we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution observed search behavior for given consumers over time is more consistent with non sequential search than sequential search with learning our

disjoint search for the prices of two goods consumed jointly the extensive literature on searching for price information deals almost exclusively with the search for the price of a single good casual empiricism shows that consumers buy more than one good and search for the price of more than one good before any single purchase more importantly not all of these goods are sold at the same store search theory should therefore consider the problem of multiple search in order to determine the robustness of conclusions based on a theory developed from the problem of search for the price of a single good this paper reveals a number of insights that emerge when decisions taken in other markets are made explicit consider the situation facing the builder and designer of a new house among other things the builder must decide on the amount of insulation and the method of heating before construction starts the decision depends on the prices offered hence the builder will search for an acceptable offer when prices are not known with certainty if a low price for heat is found then little insulation is needed because the cost of lost heat is relatively low when relatively little insulation is needed the potential savings from a lower price of insulation are also small therefore the builder may be willing to accept a relatively high price for insulation in the event of costly search and having already found a low price for heat more generally the price that would be accepted in one market depends on what has been found in the other market the influence of one market on another is not clear consider another example when a low price for heating is known the cost in terms of lost heat of windows may be low thus the builder can install more windows at a lower opportunity cost

art investment an empirical inquiry investment in art and especially in paintings by the masters is often considered to be highly profitable particularly in the united states but also in the richer european nations there is an even larger number of investors who believe that buying works of art is not only fun but also a good investment from a purely financial point of view american banks have recently strengthened this trend toward art as an investment by employing art investment counselors thus suggesting that it is a financially rewarding activity to engage in and also suggesting that superior knowledge helps to improve financial success in this market buying and selling art has in fact become an increasingly popular activity since the end of world war ii the auction houses report record turnovers and record prices are paid in increasingly rapid sequence in april 1987 van gogh s sunflowers was sold at christie s london for 39 9 million only to be surpassed in november 1987 by van gogh s irises sold by sotheby s new york for 53 9 million including the auction house s 10 percent commission this last painting had been bought by the seller s mother in 1947 for 84 000 less than 0 5 million in today s money which gives a real rate of return of about 12 percent per year these enormous prices that are paid today for some masterpieces create a widespread belief that the rate of return on such investments is in general and on average very high books devoted to the subject 40 385 27 24 12 215 et seq seem to confirm that the rate of return from investment in paintings at least during the 1950s and 1960s was far greater than the rate obtainable from comparable risky assets in financial markets that the financial profitability in the 1970s and 1980s is believed to be if anything even larger than before is confirmed by many articles in financial and investment newspapers and journals up to now only very few scientific studies of the subject exist but they also have serious limitations the most recent one by baumol 5 covers a period of over 300 years but ends in 1960 two other studies by anderson 1 and stein 42 extend up to the end of the 1960s but do not go any further all three studies are practically limited to transactions by anglo saxon auction

multi commodity consumer search abstract this paper analyses the optimal search strategy for consumers who wish to purchase several different commodities possibly from several different firms but are not perfectly informed about the prices charged by each firm for every commodity it is shown that in general the optimal search strategy will not possess the reservation property the multi commodity equivalent of a reservation price necessary and sufficient conditions are identified for the optimal search strategy to possess the reservation property and it is shown that a critical sufficient condition is that the indirect utility function is submodular comparative static results are also presented journal of economic literature classification numbers d11 d81 d83

revisiting baumol s art as floating crap game we show that baumol s conclusion that returns on bonds are higher than returns on paintings is too pessimistic there are segments in the market for which returns are significantly higher than returns on bonds and stocks during long periods of time 20 to 40 years since tastes do change slowly though not in a predictable way this may imply that beating the market is not impossible we also construct price indexes for paintings over the last 200 years

on money and output is money redundant abstract there is an emerging consensus that money can be largely ignored in making monetary policy decisions rudebusch and svensson 1999 policy rules and inflation targeting in taylor j b ed monetary policy rules university of chicago press chicago 203 246 2002 eurosystem monetary targeting lessons from us data european economic review 46 417 442 provide some empirical support for this view we reconsider the role of money and find that money is not redundant more specifically there is a significant statistical relationship between lagged values of money and the output gap even when lagged values of real interest rates and lagged values of the output gap are accounted for we also find that inside and outside money provide significant information in predicting movements in the output gap

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

the effects of monetary policy in japan this article interprets time series facts regarding the sources of business fluctuations in japan and attempts to uncover possible characteristics of the effects of monetary policy over the last two decades it argues that given the institutional features of the bank of japan s operating procedures a simple recursive vector autoregressive var model that consists of interest rates money stock prices and output all in first differences may serve as a useful benchmark for japan the main finding is that monetary policy shocks in fact have a persistent effect on real output especially in the rise and fall of japan s bubble economy in the late 1980s

rhetoric and action what are central banks doing before elections central bank rhetoric need not always be followed bycorresponding measures in a number of regressions coveringgermany japan and the u s we examine differences in rhetoricand actual behavior before elections using a standard pbcmodel our results indicate that these three central bankshave not been influenced by electoral consideration in thepolicies they implement but the case of the german bundesbankindicates that it may be helpful to distinguish betweenrhetoric and action

the perverse effects of wage and price controls in search markets abstract this paper examines the effects of price ceilings and minimum wages on the performance of markets in which agents must invest in costly search to become informed about prices or wages in this context it is found that the market equilibrium may respond to changes in policy instruments in strikingly counterintuitive ways in particular the imposition of price ceilings and minimum wages may respectively result in consumer price increases and wage decreases thus an important implication of our analysis is that when unions fight to increase wages by raising the minimum wage they may paradoxically actually be reducing the average wage of its members

the sensitivity of consumer search to wages abstract while intuition suggests that an increase in wages should increase the time cost of consumer search for low prices this note shows that under reasonable conditions the resulting increase in consumption actually increases search intensity

house prices non fundamental components and interstate spillovers the australian experience abstract using australian capital city data from 1984q3 2008q2 this paper utilizes a dynamic present value model within a var framework to construct time series of house prices depicting what aggregate house prices should be given expectations of future real disposable income the fundamental price and continues by comparing capital city fundamental prices with actual prices the extent to which revealed capital city non fundamental components spillover from state to state as well as their long term impact is also investigated results provide evidence of periods of sustained deviations of house prices from values warranted by income for all state capitals with the greatest deviations arising in the nsw market and starting around 2000 in general nsw is relatively more susceptible to spillovers transmitted from other states while act and wa are most isolated from the rest of the country

information multiprice search and cost of living index theory this paper derives the cost of living index of an individual who faces imperfect and costly information about prices traditional cost of living in dexes assume that the consumer passively accepts prices as given the authors derive a multiprice search model in which the consumer choos es the search strategy that minimizes the expected cost of buying a g iven level of utility in contrast to existing search models the mod el allows the consumer to change the allocation of expenditures among goods as information about prices changes and enables them to constr uct a cost of living index for an agent who searches across distribut ions of offer prices unlike traditional cost of living measures that ignore search behavior the searcher s cost of living index depends on search costs copyright 1987 by university of chicago press

the monetary appreciation of paintings from realism to magritte this study investigates how investments in painted arts compare to those in stocks in terms of risk return trade off using sharpe and treynor ratios and markowitz efficient frontiers a large database was analysed consisting of more than 10500 auction prices of belgian painted art over the period 1970 1997 hedonic art returns are influenced by auction location and auction house current of art painters reputation medium signature and painting size surrealism and luminism were the most popular currents of art in monetary terms while expressionism and symbolism gained financial esteem this study concludes that art investments underperform equity market investments due to high riskiness transaction costs capital gains resale rights and insurance premia in addition the markowitz efficient frontier shows limited diversification potential for art

the collateral value of fine art in this paper we examine the effect of implicit seller reserves on the estimation of value at risk based on historical asset sales data we direct our examination toward how and whether fine art might prove an appropriate form of loan collateral for banks and other financial institutions using a data set of french impressionist paintings brought to auction from 1985 to 2001 we control for the effect of works that are bought in house to construct a distribution of potential sale values that corrects for sample selection bias it turns out that the downside risk surrounding deviations of auction prices from expert presale estimates depends critically on how buy ins are incorporated if downside risk is assessed solely on historical experience with successful auction sales the data appear to support loan to value ratios between 50 and a 100 larger than loan to value ratios that countenance the existence of seller reserves the auction process however is quantifiable and can reveal the necessary risk information required for loan consideration