new perspectives on capital sticky prices and the taylor principle abstract our main result is that dynamic new keynesian dnk models with firm specific capital feature a substantial amount of endogenous price stickiness we use this insight to assess the desirability of alternative interest rate rules and make the case for combining active monetary policy with interest rate smoothing and or some responsiveness of the nominal interest rate to real economic activity the key mechanism behind our results is also useful from a positive point of view the feature of firm specific capital increases the empirical appealingness of dnk models as documented by a growing body of literature

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

effects of household shocks on risk preferences and loss aversion evidence from upland smallholders of south east asia avoiding risk in financial decisions is credited to be a key contributor to persistent poverty and poverty traps in spite of this the methods used to measure behaviour under risk rarely reflect a

risk averters that love risk marginal risk aversion in comparison to a reference gamble we propose an analytical distinction between standard risk aversion based on the valuation of a single gamble and marginal risk aversion based on the change in valuation between two gambles we measure marginal risk aversion in two dimensions mean and variance data from a field experiment is used to study marginal risk aversion our results suggest that individuals rely on a reference gamble when assessing marginal risk individual responses to marginal changes in mean and variance are nearly identical in direction and magnitude suggesting that information on both standard and marginal risk aversion is needed to accurately model behavior copyright 2008 oxford university press

linking risk aversion time preference and fertilizer use in burkina faso this paper investigates whether burkinabe maize farmers fertilizer use decisionsare correlated with their risk and time preferences we conducted a survey and a se ries of hypothetical experiments on a sample of 1 500 farmers we find that morepatient farmers do use more fertilizer but it is only because they plant more maize afertilizer intensive crop rather than because they use more fertilizer per hectare ofmaize planted conversely we find no statistically significant link between risk aver sion and fertilizer use we use a simple two period model which suggests that riskaversion may indeed have an ambiguous effect on fertilizer use

the impact of agricultural biotechnology on yields risks and biodiversity in low income countries abstract this paper shows that the current generation of transgenic crop varieties has significant potential to improve economic welfare in low income countries these varieties might increase crop yields in low income countries in cases when pesticides have not been used they will reduce negative health effects of chemicals when they replace them with low transaction costs appropriate infrastructure and access to intellectual property multiple varieties of transgenics will be introduced the gain from transgenics will be reduced and crop biodiversity may be lost when only a small set of varieties is transgenetically modified the adoption of transgenics will also be affected by risk and credit considerations

risk preferences and pesticide use by cotton farmers in china abstract despite that insect resistant bt cotton has been lauded for its ability to reduce the use of pesticides studies have shown that chinese bt cotton farmers continue to use excessive amounts of pesticides using results from a survey and an artefactual field experiment we find that farmers who are more risk averse use greater quantities of pesticides we also find that farmers who are more loss averse use lesser quantities of pesticides this result is consistent with our conceptual framework and suggestive evidence where farmers behave in a loss averse manner in the health domain and place more weight on the importance of health over money in the loss domain

consistency of risk preference measures an artefactual field experiment from rural china a variety of measures have been developed to elicit individual risk preferences how these measures perform in the field in particular in developing countries with non student subjects is still a

simultaneous estimation of risk and time preferences among small scale cattle farmers in west africa this article reports results from economic field experiments with cattle dependent small scale farmers in west africa we simultaneously estimate both risk and time preferences and examine how demographic and socio economic characteristics are correlated with each preference the empirical basis for our analysis is a panel data survey of 211 households conducted in mali and burkina faso in 2007 and 2011 and economic experiments conducted with the heads of these households in 2011 the theoretical basis for our analysis is a discounted utility model we apply prospect theory and quasi hyperbolic discounting to estimate the present values of future utility streams we apply a maximum likelihood approach to jointly estimate risk and time preferences and to investigate the correlations among the preference parameters and observable characteristics we find that on average the west african cattle farmer is generally more risk averse and more patient than similarly situated respondents from asia additionally risk and time preferences are correlated with wealth education and religion we find that constraints in wealth and education are associated with greater risk aversion and impatience furthermore time spent in a koranic school is positively related to the overweighting of small probabilities greater risk taking behavior and patience

new evidence on labor supply employment versus hours elasticities by sex and marital status using the tri annual micro panel data of the survey of income and program participation we estimate fixed effects labor supply models separating the extensive and intensive margins the employment elasticity is 0 6 for single men versus 1 1 for married men the employment elasticity is 2 4 for single women versus 1 8 for married women the compensated hours worked elasticity is 0 4 for employed single and married men and 0 7 for employed single and married women the implied aggregate employment elasticity of 1 5 and hours per employee elasticity of 0 5 indicate employment fluctuations account for three fourths of wage induced variation in labor hours

comparing four models of aggregate fluctuations due to self fulfilling expectations abstract this paper compares four equilibrium business cycle models with increasing returns to scale production technologies that allow for aggregate fluctuations due to self fulfilling expectations necessary and sufficient conditions for the existence of stationary sunspot equilibria are derived numerical examples demonstrate that the degree of increasing returns necessary for the existence of stationary sunspot equilibria lies in the upper range of available empirical estimates the paper also shows that persistent fluctuations are not a necessary property of these four models when the only source of fluctuations is changes in people s expectations about the future path of the economy journal of economic literature classification numbers e32 d43

the econometrics of damage control why specification matters the contribution of damage control agents to production differs fundamentally from that of standard inputs lands labor capital this paper develops an econometric model based on the key characteristics of damage control agents and examines its properties it demonstrates that standard production function specifications overestimate damage control agent productivity and have erroneous implications for the evolution of damage control agent productivity and use in response to changing environments e g the spread of pest resistance it also proposes several alternative specifications and discusses methods for estimating them

revisiting the home bias puzzle downside equity risk deviations from normality in financial return series have led to the development of alternative portfolio selection models one such model is the downside risk model whereby the investor maximizes his return given a downside risk constraint in this paper we empirically observe the international equity allocation for the downside risk investor using nine international markets returns over the last 34 years the results hold for both daily and monthly data and also from an international perspective due to greater downside risk investors may think globally but instead act locally the model s results therefore provide an alternative view of the home bias puzzle

the quest for a balanced ethnic mix singapore s ethnic quota policy examined to achieve a balanced ethnic mix singapore has implemented an ethnic quota policy on public housing since 1 march 1989 with 86 per cent of the population living in public housing this policy has immense repercussions on the configuration of the ethnic residential landscape this article examines the impact of the quota policy on the buying and renting as well as the selling or letting of public housing the differential response by the various ethnic groups is revealed the policy per se may not achieve its intended impact and may ironically have the least impact on the group it was most intended for integration policies must be more holistic in approach and more sympathetic in execution

returns to scale market power and the nature of price rigidity in new keynesian models with self fulfilling expectations increasing returns to scale and firms market power are two potential sources of sunspot expectations in neoclassical models we show that in new keynesian models returns to scale and market power can have fundamentally different implications for broad macroeconomic issues including self fulfilling expectations depending on the nature of price rigidity our findings suggest that the design of stabilization monetary policy can depend on precise knowledge about the economy s real and nominal features therefore a clear understanding of the specific economic environment and its relevance to monetary policymaking for ensuring macroeconomic stability can be an integrated part of monetary policy practice

the design of monetary and fiscal policy a global perspective abstract we study the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies we show that the presence of capital is indeed another independent source of local and global multiplicities even under active policies that yield local determinacy we also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation we then explore the design of monetary policies that avoid multiple equilibria we show that interest rate policies that respond to the output gap while potentially a source of significant inefficiencies may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics

investment interest rate policy and equilibrium stability abstract carlstrom and fuerst 2005 investment and interest rate policy a discrete time analysis journal of economic theory 123 4 20 show that in the presence of investment activity and price stickiness indeterminacy of equilibrium is induced by forward looking monetary policy that sets the interest rate in response only to future inflation in a stochastic version of their model we find that this indeterminacy problem is due to a cost channel of monetary policy whereby inflation expectations become self fulfilling and the problem can be overcome once the forward looking policy responds also to current output or contains sufficiently strong interest rate smoothing since this prevents the self fulfilling expectations we also show that when e stability is adopted as the selection criterion from multiple equilibria even the forward looking policy generates a locally unique non explosive e stable fundamental rational expectations equilibrium as long as the policy response to expected future inflation is sufficiently strong

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

the impact of violence on individual risk preferences evidence from a natural experiment this study estimates the impact of kenya s post election violence on individual risk preferences because the crisis interrupted a longitudinal survey of more than five thousand kenyan youth this timing creates plausibly exogenous variation in exposure to civil conflict by the time of the survey the study measures individual risk preferences using hypothetical lottery choice questions which are validated by showing that they predict migration and entrepreneurship in the cross section the results indicate that the post election violence sharply increased individual risk aversion immediately after the crisis the fraction of subjects who are classified as either risk neutral or risk loving dropped by roughly 26 percent the findings remain robust to an iv estimation strategy that exploits random assignment of respondents to waves of surveying

endogenous matching and the empirical determinants of contract form empirical work on contracts typically regresses contract choice on observed principal and agent characteristics if i some of these characteristics are unobserved or partially observed and ii there are incentives whereby particular types of agents end up contracting with particular types of principals estimated coefficients on the observed characteristics may be misleading we address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early renaissance tuscany controlling for endogenous matching has an impact on parameters of interest and tenants risk aversion appears to have influenced contract choice

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

rationality of choices in subsidized crop insurance markets the u s crop insurance market has several features that set it apart from other insurance markets these include explicit government subsidies with an average premium subsidy rate of about 60 in recent years and the legislative requirement that premium rates be set at actuarially fair levels where the federal government sets rates and pays all costs related to insurance policy sales and services bearing these features in mind we examine the extent to which farmers crop insurance choices conform to economic theory a standard expected utility maximization framework is constructed to analyze trade offs between higher risk protection and larger subsidy payments we decompose the effect of coverage level on expected utility into insurance premium loading and subsidy transfer effects where the loading effect vanishes if rates are actuarially fair given an actuarially fair premium we infer that a rational farmer should choose either the coverage level with the highest premium subsidy or a higher coverage level evidence from a large insurance unit level dataset contradicts this theoretical inference and so suggests anomalous insurance decisions in a novel application of the mixed logit framework we show that the probability an insurance product is chosen declines as out of pocket premium expenditures increase even though higher values of these expenditures should reflect improved grower welfare premium expenditures appear to be more salient than the uncertain future benefits they support we apply our regression to the recent trend yield adjustment innovation in crop insurance

the alaskan labor market during the pipeline era built between 1974 and 1977 the trans alaska pipeline was the largest privately financed construction project in world history the alaskan labor market during the pipeline era provides an ideal opportunity to view labor market responses to a large anticipated and temporary shock to labor demand the paper presents several theoretical models of market responses to temporary demand shocks and then assesses the ability of each model to explain the alaskan data among the findings are that alaskan wages were very flexible labor supply was quite elastic on both the intensive hours per worker and extensive number of workers margins and even a major short run demand shock need not have a long run impact

the role of risk and transaction costs in contract design evidence from farmland lease contracts in u s agriculture the objective of this article is to provide new empirical evidence on landlord tenant choices of share versus cash rent contracts in u s agriculture the focus is on the contribution of explanatory variables that represent transaction costs risk sharing incentives or both an empirical model of contract choice is tested against the 1999 agricultural economics and land ownership survey aelos and finds mixed evidence for low transaction cost and risk sharing incentive motives for landlord tenant choices of a share versus cash rent contract however the behavior of landlords and tenants is consistent with them being risk averse although it is standard to control for the riskiness of the principal s task that is contracted we find that other attributes of the landlord are an important part of a relatively complex story for u s land tenancy contacting the latter results have generally been ignored in other published landlord tenant contracting studies

estimation of multicrop production functions this paper considers whether separability or nonjointness is the better approach for attaining tractability for multicrop production function estimation characteristics of agricultural production associated with allocated inputs physical constraints and output determination imply sufficient nonjointness for estimation whereas separability is less plausible the paper also addresses estimation of production functions with allocated inputs where allocations are not observed and demonstrates a proposed approach by way of example

impact of bt cotton in china abstract a sample of 283 cotton farmers in northern china was surveyed in december 1999 farmers that used cotton engineered to produce the bacillus thuringiensis bt toxin substantially reduced the use of pesticide without reducing the output ha or quality of cotton this resulted in substantial economic benefits for small farmers consumers did not benefit directly farmers obtained the major share of benefits and because of weak intellectual property rights very little went back to government research institutes or foreign firms that developed these varieties farmers using bt cotton reported fewer pesticide poisonings than those using conventional cotton

on the mis use of wealth as a proxy for risk aversion tests of risk sharing in the contracting literature often rely on wealth as a proxy for risk aversion the intuition behind these tests is that since contract choice is monotonic in the coefficients of risk aversion which are themselves assumed monotonic in wealth the effect of a change in wealth on contract choice is clearly identified we show that tests of risk sharing relying on wealth as a proxy for risk aversion are identified only insofar as the econometrician is willing to assume that a the principal is risk neutral or her preferences exhibit constant absolute risk aversion cara and b the agent is risk neutral

household portfolio diversification a case for rank dependent preferences the proliferation of novel preference theories in financial economics is hampered by a lack of non experimental evidence and by the theories additional complexity which has not been shown to be critical in applications in this article i present arguments in support of preferences with rank dependency using the survey of consumer finances data i document two widespread patterns inconsistent with expected utility i many households simultaneously invest in well deversified funds and in poorly diversified portfolios of stocks and ii some households with substantial savings do not invest anything in equities i show that portfolio choice models with rank dependent preferences plausibly parameterized and under fully rational assumptions are quantitatively consistent with the observed diversification these results call for further efforts to integrate the models of rank dependent preferences in portfolio theory and asset pricing the decision theoretic literature has long acknowledged the shortcomings of the expected utility theory of von neumann and morgenstern 1944 several generalizations of the theory are inspired by the experimental evidence and aimed at improving its descriptive accuracy however there are few applications of new models of preferences in finance and expected utility continues to dominate the field 1 two principal hurdles slow the proliferation of novel preferences in financial economics first the lack of empirical non experimental or field data confirming that the behavior motivating non expected utilities is widespread outside the laboratory settings second the additional and often significant complexity of the alternative preferences which has not been shown to be critical in applications where the models based on expected utility fall short of reasonable predictions this article presents empirical and theoretical this paper was previously circulated under the title household portfolio diversification the paper has benefited from the comments of shlomo benartzi luca benzoni markus brunnermeier john dickhaut maria perozek raj singh hersh shefrin and workshop participants at minnesota finance bag lunch 2003 wharton conference household financial decision making and portfolio choice and 2003 summer meetings of econometric society i would like to thank cam harvey the editor and an anonymous referee for many helpful comments and suggestions a special thanks to jack kareken for comments and editorial help on an earlier draft i am grateful to donna zerwitz for editorial assistance the views expressed herein are those of the author and not necessarily of the federal reserve bank of minneapolis or the federal reserve system all errors and omissions are the sole responsibility of the author address correspondence to valery polkovnichenko finance 3 122 csom 319 19 th

moral hazard land fertility and sharecropping in a rural area of the philippines abstract introducing concerns about land fertility for landlords in a principal agent model of sharecropping with moral hazard we show that the optimal contract under limited commitment reflects a trade off between production and land quality maintenance using data from the philippines a model where the leasing out and contract choices are simultaneous is estimated and avoids the selectivity bias of observed contracts landlords prefer to use more incentive contracts for more fertile plots and less incentive ones when crop choices induce land overuse empirical tests reject the model of pure risk sharing in production and show the interest of taking land quality maintenance into account

are risk preferences stable across contexts evidence from insurance data using a unique dataset we test whether households deductible choices in auto and home insurance reflect stable risk preferences our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household coverage specific poisson processes we find that the hypothesis of stable risk preferences is rejected by the data our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices our results are robust to several alternative modeling assumptions jel d11 d83

time to change what to sow risk preferences and technology adoption decisions of cotton farmers in china this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in china i conducted a survey and a field experiment to elicit the risk preferences of chinese farmers who faced the decision of whether to adopt genetically modified bt cotton a decade ago in my analysis i expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory i find that farmers who are more risk averse or more loss averse adopt bt cotton later farmers who overweight small probabilities adopt bt cotton earlier

an empirical analysis of risk aversion and income growth risk aversion enters many theoretical models of human capital investment but attitudes toward risk have not been incorporated in empirical models of human capital investment this article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion using data from the survey of consumer finances i find that wage growth is positively correlated with preferences for risk taking more educated individuals are also more likely to be risk takers thus risk taking explains a portion of the returns to education

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

homework in labor economics household production and intertemporal substitution abstract we argue that estimates of intertemporal substitution elasticities obtained from standard life cycle models are subject to a downward bias because they neglect changes in work done at home over the life cycle we extend the standard life cycle model to include home production and estimate it using data from three time use surveys we find that the downward bias is large

theft gift giving and trustworthiness honesty is its own reward in rural paraguay in developing countries lacking legal enforcement villagers may use implicit contracts to minimize crime i construct a dynamic limited commitment model in which a thief cannot commit to forego stealing but is induced to steal less by the promise of future gifts combining survey data on production theft gifts and trust with experiments measuring trustworthiness i provide supporting evidence farmers living near more relatives or with plots that are difficult to steal from give fewer gifts and trust more and those living near more relatives also experience less theft giving increases when trust is lower and the threat of theft is greater

lab and life does risky choice behaviour observed in experiments reflect that in the real world risk preferences play a crucial role in a great variety of economic decisions measuring risk preferences reliably is therefore an important challenge in this paper we ask the question whether risk preferences observed in economic experiments reflect real life risky choice behaviour we investigate in a sample representative for a rural region of eastern uganda whether pursuing farming strategies with both a higher expected profit and greater variance of profits is associated with willingness to take risks in an experiment controlling for other determinants of risk taking in agriculture we find that risky choice behaviour in the experiment is correlated with risky choice behaviour in real life in one domain i e the purchase of fertiliser but not in other domains i e the growing of cash crops and market orientation more broadly our findings suggest that economic experiments may be good at capturing real world risky choice behaviour that is narrowly bracketed