an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

dynamic control of a monopolist s product and process innovation with reference quality our main purpose is to investigate the dynamic control problem of a monopolist s product and process innovation under reference quality the main features of this article are i a monopolist deal

marketing margins and price uncertainty the case of the u s wheat market this paper seeks to determine the effect of changes in output price risk on marketing margins a theoretical model of price determination in a marketing channel with risk averse firms is developed this model shows that if marketing firms are competitive and decreasingly absolute risk averse then an increase in output price risk should result in higher expected marketing margins empirical evidence from the wheat marketing channel supports the theoretical model increased price variability significantly increases wheat marketing margins for both the farm mill margin and the mill retail margin these results suggest a potential benefit from price stabilization programs

a review essay about foundations of neuroeconomic analysis by paul glimcher neuroeconomics aims to discover mechanisms of economic decision and express them mathematically to predict observed choice while the contents of neuroeconomic models and evidence are obviously different than in traditional economics some of the goals are identical to explain and predict choice the effects of comparative statics and perhaps make interesting new welfare judgments that are defensible to this end paul glimcher s important book carefully describes how economics psychological and neural levels of explanation can be linked a structure which has been successful in visual neuroscience as glimcher shows the neural evidence is quite strong for a process of learning valuations through prediction error and a simple model of neural valuation and comparison that corresponds to random utility though subject to normalization which produces menu effects there is also rapidly growing evidence for more complicated constructs in behavioral economics including prospect theory s account of risky choice hyperbolic time discounting level k models of games and social preferences corresponding to internal reward based on what happens to other agents

bivariate garch estimation of the optimal commodity futures hedge six different commodities are examined using daily data over two futures contract periods cash and futures prices for all six commodities are found to be well described as martingales with near integrated garch innovations bivariate garch models of cash and futures prices are estimated for the same six commodities the optimal hedge ratio ohr is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures the estimated ohrs reveal that the standard assumption of a time invariant ohr is inappropriate for each commodity the estimated ohr path appears non stationary which has important implications for hedging strategies

a century of research on agricultural markets this article provides a perspective on major innovations in research on agricultural markets over the past century we review research on market structure and performance vertical coordination arrangements and institutions for producer collective action contributions to empirical modeling of agricultural price determination and marketing margins are also evaluated as are innovations in research on spatial market relationships and the role of storage finally we discuss contributions to understanding market information systems and the functioning of market based mechanisms for agri

endogenous risk in a portfolio balance rational expectations model of the deutschemark dollar rate abstract a portfolio balance model of the dm s rate under rational expectations is specified in which systematic risk induced deviations from uncovered interest parity are allowed this leads to a reduced from containing a potentially time varying risk premium which we approximate and estimate using an arch in mean approach the maximum likelihood estimator and a lagrande multiplier test for arch in mean are developed the estimation results indicate a small but non negligible time varying risk premium

dynamic pricing strategies with reference effects we consider the dynamic pricing problem of a monopolist firm in a market with repeated interactions where demand is sensitive to the firm s pricing history consumers have memory and are prone to human decision making biases and cognitive limitations as the firm manipulates prices consumers form a reference price that adjusts as an anchoring standard based on price perceptions purchase decisions are made by assessing prices as discounts or surcharges relative to the reference price in the spirit of prospect theory we prove that optimal pricing policies induce a perception of monotonic prices whereby consumers always perceive a discount respectively surcharge relative to their expectations the effect is that of a skimming or penetration strategy the firm s optimal pricing path is monotonic on the long run but not necessarily at the introductory stage if consumers are loss averse we show that optimal prices converge to a constant steady state price characterized by a simple implicit equation otherwise the optimal policy cycles the range of steady states is wider the more loss averse consumers are steady state prices decrease with the strength of the reference effect and with customers memory all else equal offering lower prices to frequent customers may be suboptimal however if these are less sensitive to price changes than occasional buyers if managers ignore such long term implications of their pricing strategy the model indicates that they will systematically price too low and lose revenue our results hold under very general reference dependent demand models

dynamic quality policies with reference quality effects abstractdynamic pricing policies with reference price demand have been intensely analysed less studied are dynamic quality policies with reference quality demand this article studies the dynamic quality policy of a firm whose consumers use a reference point in their decision making in line with the principles of behavioural economics more specifically i consider reference quality formation in an optimal control setting by solving on the basis of pontryagin s maximum principle i obtain analytical solutions to the optimal quality policy the managerial implications of quality reference for dynamic quality policy are discussed

the volatility of australian traded goods prices it is generally accepted that the australian economy is continually subject to unanticipated shocks particularly unexpected swings in the prices of australia s internationally traded goods this article empirically investigates the nature and extent of volatility in import and export prices faced by the australian production sector it estimates multivariate garch models of the stochastic processes generating the prices of imports and exports and of important components of exports and imports this article proposes an index of volatility which is used to provide a summary measure of the extent of volatility in a multivariate context the overall conclusion is that the price growth rates for australia s traded goods exhibit considerable time variation in volatility and that these price growth rates are highly and positively correlated with each other

risk response in the beef marketing channel a multivariate generalized arch m approach a model of the farm retail price spread for beef is specified under rational expectations in which systematic risk response on the part of marketing intermediaries is allowed the three equation structural model contains potentially time varying risk terms in margin and supply equations which i approximate and estimate using a multivariate garch in mean approach the estimated model is used to infer relative risk premia in beef margins and to simulate short run equilibrium risk effects results indicate that price risk has at times had substantial impacts on farm and retail beef prices and production

risk behavior and rational expectations in the u s broiler market this study examines the empirical implications of extending the rational expectations hypothesis reh to include price uncertainty a general estimation framework that incorporates both the restrictions on structural parameters and the variance covariance terms is developed garch time series processes are used to generate time varying expectations of both the means and the variances of exogenous variables the empirical application is with a quarterly model of the u s broiler industry the results indicate that the rational expectation of price variance is an important determinant of broiler supply a formal test indicates that the restrictions implied by the reh cannot be rejected

retrospectives edgeworth s hedonimeter and the quest to measure utility in this article i discuss some earlier debates about the foundations of utility and its measurement focusing on the contributions of francis y edgeworth 1845 1926 a famous british economist who was a leader in the development of a more mathematically structured economics in the late 1800s and irving fisher 1867 1947 one of the first quantitative u s economists best known today for his work on the quantity theory and interest rate theory edgeworth argued that utility was directly measurable and that new developments in physio psychology would make it possible to develop a hedonimeter that would allow economists to develop a firm physiological underpinning of utility fisher while agreeing with edgeworth that it was important to have a workable measure of utility disagreed with edgeworth about the possibility of doing so with a hedonimeter and hence of having any physiological underpinnings of utility he argued that instead of searching for physiological underpinnings of utility economists should instead rely upon backward induction from observed behavior to measured utility neither of these views about the possibility of utility measurement carried through and attempts to measure utility were abandoned in the 1930s when utility measurement and happiness considerations were determined to be outside the purview of economics both edgeworth and fisher knew that their approaches to utility measurement opened up a pandora s box of problems they opened that box nonetheless because they felt that theoretical economics had to be relevant to policy and to be relevant it had to face the problems

turnpike properties in a finite horizon differential game dynamic duopoly with sticky prices the authors study the equilibrium price paths of a finite horizon dynamic duopoly model in which the market price does not have to adjust instantaneously in response to changes in the quantity supplied a complete analysis of the feedback nash equilibrium of a finite horizon linear quadratic differential game with a control constraint is presented two equilibrium price paths are identified and it is shown that they both remain close to the infinite horizon globally asymptotically stable stationary equilibrium except for some initial and final time copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

adding asymmetrically dominated alternatives violations of regularity and the similarity hypothesis an asymmetrically dominated alternative is dominated by one item in the set but not by another adding such an alternative to a choice set can increase the probability of choosing the item that dominates it this result points to the inadequacy of many current choice models and suggests product line strategies that might not otherwise be intuitively plausible

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

how basic are behavioral biases evidence from capuchin monkey trading behavior behavioral economics has demonstrated systematic decision making biases in both lab and field data do these biases extend across contexts cultures or even species we investigate this question by introducing fiat currency and trade to a colony of capuchin monkeys and recovering their preferences over a range of goods and gambles we show that capuchins react rationally to both price and wealth shocks but display several hallmark biases when faced with gambles including reference dependence and loss aversion given our capuchins inexperience with money and trade these results suggest that loss aversion extends beyond humans and may be innate rather than learned

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

effects of forward sales on spot markets pre commitment sales and prices for fresh strawberries increasingly agricultural markets are vertically coordinated often a thinning spot market coexists with coordinated transactions raising the question of how private coordination affects the market as a whole one of the greatest challenges when analyzing such market level effects is obtaining information on private transactions we utilize publicly available data to evaluate how informal contracts in the fresh strawberry market affect spot market prices using a generalized autoregressive conditional heteroskedastic in mean garch m model we find that these informal contracts increased spot prices as argued by some industry members while the effect on spot price volatility varied by production region

market transparency and market structure the livestock mandatory reporting act of 1999 the premise of the livestock mandatory reporting act of 1999 is that enhanced transparency promotes competition this article provides a theoretical study of the consequences of such transparency for the structure conduct and performance of the livestock industry i conclude that the usefulness of the act to the livestock industry may not be in the value of reported information to feeders as the supporters of the act claim rather by forcing packers to pool information at negligible marginal cost the act may foster more competitive conduct in the procurement of livestock copyright 2003 oxford university press

alternative estimates of fed beef supply response to risk supply response models for fed beef incorporating risk by including both the mean and variance of output price are developed estimated and compared six different estimates of the mean and variance are obtained from futures prices arima processes and naive adaptive and rational expectations models empirical estimates are compared using nonnested testing procedures and indicate that the choice of the expectations model significantly influences elasticity estimates and whether supply response is positive or negative empirical evidence does not support any one model in particular suggesting that expectations are heterogenous rather than homogenous most agricultural production is characterized by a lag between the time input decisions are made and the time output actually reaches the market as a result supply response functions are based on the hypothesis that quantity produced depends on known input prices and producers expectations of output price expectations frequently have been modeled based solely on past prices examples include naive expectations adaptive expectations extensively reviewed by askari and cummings and autoregressive integrated moving average arima schemes gardner as well as others have used futures prices to estimate producers expected prices although chavas pope and kao found that futures prices are not good proxies for producers expectations

a cue theory of consumption psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue based complementarities the presence of the cue raises the marginal utility derived from consumption in this paper such dynamic preferences are embedded in a rational choice model behavior that arises from this model is characterized by endogenous cue sensitivities costly cue management commitment and cue based spikes in impatience the model is used to understand addictive habit forming behaviors and marketing the model explains why preferences change rapidly from moment to moment why temptations should sometimes be avoided and how firms package and position goods

a comparative analysis of reference price models the effect of reference price on brand choice decisions has been well documented in the literature researchers however have differed in their conceptualizations and therefore in their modeling of reference price in this article we evaluate five alternative models of reference price of which two are stimulus based i e based on information available at the point of purchase and three that are memory based i e based on price history and or other contextual factors we calibrate the models using scanner panel data for peanut butter liquid detergent ground coffee and tissue to account for heterogeneity in model parameters we employ a latent class approach and select the best segmentation scheme for each model the best model of reference price is then selected on the basis of fit and prediction as well as on the basis of parsimony in cases where the fits of the models are not very different in all four categories we find that the best reference price model is a memory based model namely one that is based on the brand s own price history in the liquid detergent category however we find that one of the stimulus based models namely the current price of a previously chosen brand also performs fairly well we discuss the implications of these findings

a market equilibrium analysis of the impact of risk on the u s rice industry an economic model of supply demand for u s rice suggests that increases in risk result in decreased acreage and increased marketing margins in a market equilibrium context the empirical results also suggest rice production and rice prices are more responsive to changes in risk faced by marketing firms than changes in risk faced by producing firms

testing for regret and disappointment in choice under uncertainty much of the experimental evidence concerning violations of von neumann morgenstern expected utility theory has been collected fr om experiments designed with conventional theory in mind and does not provide direct tests of alternative models such as regret theory and disappointment theory this paper reports and discusses recent evidence produced by an exp erimentspe cifically designed to test for the impacts of regret and disappointment and to indicate their relative importance copyright 1987 by royal economic society

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

analysis of a supply control program under uncertainty and imperfect competition chinese cabbage in taiwan researchers have often attributed the farm wholesale price spread after adjusting for marketing costs as compensation for marketing firms risk bearing however price spreads in excess of marketing costs can also be due to marketing firms exercise of market power in settings where both imperfect competition and marketer risk aversion are plausible a modeling framework must be sufficiently general to accommodate both types of behavior this article develops and estimates such a model in the context of fresh produce marketing and develops the implications for analysis of supply control programs the model is applied to the production and marketing of chinese cabbage in taiwan and specifically to the analysis of supply control programs implemented in this industry by the taiwanese government the empirical results provide little support for the hypothesis that marketing firms exhibit risk averse behavior but they do show that marketing firms exercise oligopsony power in procurement of the product from farmers and that this power is positively related to the quantity supplied in each market period this provides a heretofore unexplored impetus for supply controls intended to raise producer incomes however such controls are also rendered less effective by imperfect competition because marketing firms capture part of the benefits from supply reduction

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

psychological expected utility theory and anticipatory feelings we extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty we show how these anticipatory feelings may result in time inconsistency we provide an example from portfolio theory to illustrate the potential impact of anticipation on asset prices

market and welfare effects of the u s livestock mandatory reporting act author affiliation kenneth njoroge department of accounting the fuqua school of business duke university box 90120 durham nc 27708 0120 usa kn14 duke eduamalia yiannaka department of agricultural economics 314d filley hall university of nebraska lincoln lincoln ne 68583 0922 usa yiannaka unl edukonstantinos giannakas department of agricultural economics 216 filley hall university of nebraska lincoln lincoln ne 68583 0922 usa kgiannakas unl eduazzeddine m azzam department of agricultural economics 103b filley hall university of nebraska lincoln lincoln ne 68583 0922 usa aazzam1 unl edu corresponding author acknowledgment senior authorship is shared authors names appear in reverse seniority order 1 introductionthe livestock mandatory reporting act the act was enacted in 2001 to provide market participants with information on all cash and noncash transactions reported by packers to the agricultural marketing service ams on a daily basis the information is aggregated under specific confidentiality guidelines1 to preserve the anonymity of the source2 and published in the mandatory livestock and meat market news reports reports 3 ams is responsible for setting the confidentiality guidelines as well as for enforcing the act as stated in the act federal register 2000 the reports intend to provide information that can be readily understood by producers packers and other market participants improve the price and supply reporting services of the department of agriculture and encourage competition in the marketplace for livestock and livestock products the rationale is that as more animals have been purchased under marketing arrangements neither the arrangements nor the final purchase prices are publicly disclosed 4about two years after the act went into effect schroeder grunwald and ward 2002 reviewed the early literature on livestock mandatory reporting lmr a consensus appeared to be forming that while lmr could be beneficial by reducing uncertainty and increasing competition in cattle markets revealing too much information about rival pricing could facilitate collusion and reduce competition among packers schroeder grunwald and ward 2002 p 11 the uncertainty reducing effect of lmr was deduced from two experimental studies by anderson et al 1998 and bastian koontz and menkhaus 2001 in the first experiment price and quantity information in the fed cattle market simulated through the fed cattle market simulator fcms 5 was varied and market outcomes were observed uncertainty measured by price dispersion was found to increase with the amount and type of information withheld in the second experiment also using the fcms market participants were provided with price and quantity information on cattle sold through the spot markets as well as through forward contracts the authors observed a substantial reduction in the variance of forward contract prices the effect of the forward market information on the variance of spot prices was negative but not statistically significant maintaining the hypothesis that mandatory reporting reduces uncertainty through the provision of more information azzam 2003 studied the effects of the reduction in uncertainty on the structure conduct and performance of livestock markets azzam s theoretical findings suggest that in a setting where cattle feeders and packers are risk averse and packers hold consistent conjectures increased transparency due to mandatory reporting promotes competition and results in higher livestock prices however since increased transparency can make it easier for packers to collude wachenheim and devuyst 2001 azzam s assumption of consistent conjectures is restrictive because it rules out the possibility of collusion njoroge 2003 provides a formal model of collusion that is in line with the arguments in wachenheim and devuyst 2001

contextual inference in markets on the informational content of product lines context can influence decisions this malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings in a market equilibrium however context conveys payoff relevant information to consumers consequently these consumers rationally violate naive formulations of standard choice theoretic principles i identify informational asymmetries under which apparently anomalous behaviors namely the compromise effect and choice overload arise as market equilibria firms respond to consumers contextual inference in case of the compromise effect a firm may introduce premium loss leaders expensive goods of overly high quality that increase the demand for other goods

liberalization and food price distributions arch m evidence from madagascar abstract there is no well articulated theory of how stochastic food prices respond to economic liberalization measures a surprising oversight in the vast literature on market oriented reforms this paper presents reduced form estimates of the effects of liberalization measures on food commodity prices in madagascar using autoregressive conditional heteroskedastic in mean arch m methods the data indicate that the short term effects of liberalization on the mean and variance of food prices vary substantially by commodity region and season in the long term liberalization increases both the mean and the variance of food prices the abandonment of a quantity rationed state marketing system with administrative pricing also leads to smaller inter regional and interseasonal differences in mean food prices and a sharp increase in price autocorrelation real exchange rates have pronounced positive effects on mean food prices but these effects emerge indirectly rather than directly through induced changes to border parity prices

explicit solutions of optimization models and differential games with nonsmooth asymmetric reference price effects models in marketing with asymmetric reference effects lead to nonsmooth optimization problems and differential games which cannot be solved using standard methods in this study we introduce a new method for calculating explicitly optimal strategies open loop equilibria and closed loop equilibria of such nonsmooth problems application of this method to the case of asymmetric reference price effects with loss aversive consumers leads to the following conclusions 1 when the planning horizon is infinite after an introductory stage the optimal price stabilizes at a steady state price which is slightly below the optimal price in the absence of reference price effects 2 the optimal strategy is the same as in the symmetric case but with the loss parameter determined by the initial reference price 3 competition does not change the qualitative behavior of the optimal strategy 4 adopting an appropriate constant price strategy results in a minute decline in profits

reference effects of price and promotion on brand choice behavior when consumers are exposed to pricing and promotional activity by frequently purchased packaged goods they may develop expectations that are used as points of reference in evaluating future activi

the impact of reference price effects on the profitability of price promotions this paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable first we analyze the profit impact of reference price effects generated by a single period of promotion the promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods we then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon examples of such strategies are presented for a retailer selling a national brand of peanut butter we obtain insights into how promotion prices timing and profits are affected by changes in costs interest rates consumers reactions to reference price effects and error in estimates used in the model the retailer s optimal reaction to a trade deal is also examined this strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity we explain these results using the effects described in the single period model

search and satisficing many everyday decisions are made without full examination of all available options and as a result the best available option may be missed we develop a search theoretic choice experiment to study the impact of incomplete consideration on the quality of choices we find that many decisions can be understood using the satisficing model of herbert simon 1955 most subjects search sequentially stopping when a satisficing level of reservation utility is realized we find that reservation utilities and search order respond systematically to changes in the decision making environment jel d03 d12 d83

modeling the impact of product quality on dynamic pricing and advertising policies abstract the marketing mix of price quality and advertising quality relationship is well studied less understood is the price advertising quality relationship this article fills the gap investigating the interplay between price advertising and quality in an optimal control model our results generalize the condition of dorfman steiner in a dynamic context also they point to the impact of greater product quality on the dynamic policies of pricing and advertising furthermore a phase diagram analysis shows that quality develops monotonically in time and converges to a unique steady state we also show that quality investment could either decrease or increase over time but this depends on its effectiveness our results spot the profitable opportunities of a firm managing a more complex marketing mix

an investigation of reference price segments abstract empirical research on reference price has typically assumed that consumers use either an internal reference price irp or an external reference price erp but not both in brand choice decisions in this article the authors assume that consumers use both irp and erp but may consider one of them more salient than the other the authors develop a model that segments consumers on the basis of the differences in the importance they assign to each type of reference price as well as in their brand preferences and responses to marketing mix variables the authors calibrate the model on data for four categories liquid detergents ketchup tissue and yogurt in all four categories the proposed model performs significantly better than the one that assumes that consumers use either irp or erp exclusively the authors discuss the managerial implications of this finding

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

measuring beliefs and rewards a neuroeconomic approach the neurotransmitter dopamine is central to the emerging discipline of neuroeconomics it is hypothesized to encode the difference between expected and realized rewards and thereby to mediate belief formation and choice we develop the first formal test of this theory of dopaminergic function based on a recent axiomatization by caplin and dean 2008a these tests are satisfied by neural activity in the nucleus accumbens an area rich in dopamine receptors we find evidence for separate positive and negative reward prediction error signals suggesting that behavioral asymmetries in response to losses and gains may parallel asymmetries in nucleus accumbens activity

dynamic pricing product and process innovation abstract the question of simultaneous dynamic pricing product and process investment policies is crucial for manufacturing and high tech industries this paper models these policies in an optimal control setting on the supply side the firm sets prices product and process investment levels over time on the demand side current demand depends on price and quality under an additive separable demand function dynamic pricing increases with quality and cost therefore both product innovation and process innovation impact the pricing policy under a multiplicative separable demand function dynamic pricing policy follows the dynamic of production cost and is independent of the evolution of product quality thus process innovation is the main determinant of a firm s pricing policy over time and product innovation has no impact

market reforms and commodity price volatility the case of east african coffee market the goal of this paper is to examine the impact of commodity market reforms on producer price volatility using evidence from the east african coffee market the results based on time varying volatility models and key summary statistics show that coffee market reforms in the east african community eac are associated with changes in producer price volatility and volatility persistence at both country and regional levels however reforms were not the only cause of changes in price volatility the study further shows that reforms had different effects on prices volatilities of arabica and robusta varieties of coffee grown in individual eac countries these findings have wider implication for commodity market reforms and producer price stabilisation policies in the eac and coffee producing countries in sub sahara africa

marketing margins market power and price uncertainty this paper provides a conceptual and empirical framework for analyzing marketing margins in a noncompetitive food processing industry facing output price uncertainty the framework allows the decomposition of observed margins into components reflecting the marginal cost of the processing industry oligopoly oligopsony price distortions and an output price risk component the empirical procedure is applied to a time series of spreads between wholesale pork prices and farm prices of market hogs the principal finding is that while farm wholesale margins are more consistent with competitive performance now than they were fifteen years ago the output price risk component persisted throughout the sample period

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

the effect of barge and ocean freight price volatility in international grain markets this paper looks at the potential role of time varying volatility of mississippi river barge and ocean freight prices on commodity prices in illinois at the us gulf and in rotterdam using a vector error correction garch in mean model the model is used to infer the extent to which transportation price risk affects price dynamics in international grain markets results from a simulation exercise indicate that both barge and ocean price volatility influence grain prices but barge price volatility tends to have a greater impact on grain prices and marketing margins than that arising from ocean price volatility consistent with most studies that evaluate the role of risk in marketing channels results here suggest that a reduction in barge rate risk would reduce marketing margins between illinois and the us gulf and between the us gulf and rotterdam the existence of an ocean freight futures contract coupled with the lack of a futures contract for barge rates may be partially responsible for the finding that barge rates have a significant influence on grain prices and contribute most to wide marketing margins found throughout the international grain marketing system

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict

modeling beef supply response and price volatility under cap reforms the case of greece abstract this study examines the supply response of the greek beef market and the possible effect of the european union s common agricultural policy cap on the greek beef sector during the period 1993 2005 a generalized autoregressive conditional heteroskedasticity garch process is used to estimate expected price and price volatility while several different symmetric asymmetric and non linear garch models are estimated the empirical results show that price volatility and feed price are important risk factors in the supply response function while the negative asymmetric price volatility that was detected implies that producers have a weak market position furthermore the empirical findings confirm that the annual premium paid by the eu to beef producers had a positive impact on the production level and also the change of the eu price support regime after 2006 is having negative effects on beef production level in greece

time varying risk premium further evidence in agricultural futures markets research has provided mixed results regarding the presence of a time varying risk premium in agricultural futures markets in this article we test for the presence of a time varying risk premium focusing on the properties of the underlying data our results show that accounting for the structural break in the 1970s plays a key role in the findings in contrast to recent research we find only limited evidence of time varying risk premium for a two month horizon the corn soybean meal and hog markets show no signs of a risk premium while very weak support for a time varying premium emerges in live cattle for the four month horizon no evidence of a time varying risk premium appears for any of the markets