asset pricing implications of pareto optimality with private information we compare the empirical performance of a standard incomplete markets asset pricing model with that of a novel model with constrained pareto optimal allocations we represent the models stochastic discount factors in terms of the cross sectional distribution of consumption and use these representations to evaluate the models empirical implications the first model is inconsistent with the equity premium in the united states united kingdom and italy the second model is consistent with the equity premium and the risk free rate in all three countries if the coefficient of relative risk aversion is roughly 5 and the quarterly discount factor is less than 0 5

the impact of national culture on software piracy this paper examines the impact of the level of economic development income inequality and five cultural variables on the rate of software piracy at the country level the study finds that software piracy is significantly correlated to gnp per capita income inequality and individualism implications for anti piracy programs and suggestions for future research are developed

job mobility and earnings instability there is still no consensus on the causes of the increase in the variance of transitory earnings earnings instability in the united states it is difficult to attribute the rise in instability to job mobility because there is no evidence of a concurrent increase in job turnover or separations using an error component model of the covariance structure of earnings on panel survey of income dynamics and survey of income and program participation data this study shows that job mobility and the increase in the variance of wage changes upon job change accounts for a substantial part of the increase in earnings instability the empirical evidence is consistent with the simulations of a search and matching model where an increase in the variance of productivity shocks increases on the job search and earnings instability among job changers while leaving job turnover approximately constant jel j21 j31

uninsurable risk and financial market puzzles abstract we compare the empirical performances of three risk sharing arrangements involving idiosyncratic skill shocks a where individuals are unable to directly insure their consumption against individual specific shocks b where agents strike long term insurance contract with financial intermediaries involving a truth revelation constraint as in kocherlakota and pistaferri 2009 c full risk sharing based on the widely accepted assumption of cross sectional log normality of individual consumption levels we work out closed form expressions of the pricing kernels for a and b we put these three models to test four financial market anomalies namely the equity premium currency premium risk free rate and consumption real exchange rate puzzles simultaneously in an integrated framework we find that the pricing kernel associated with a outperforms the other two models in terms of the produced estimates of the agent s preference parameters and the model ability to predict the equity and currency premia the risk free rate and the log growth in the exchange rate however the predictive ability is still far from satisfactory for all three models under scrutiny

international risk sharing with endogenously segmented asset markets abstract asset price data imply a large degree of international risk sharing while aggregate consumption data do not we show that a model with trade in goods and endogenously segmented asset markets can account for this puzzling discrepancy active households who pay a fixed cost to transfer money into or out of assets share risk within and across countries and their marginal utility growth prices assets so asset prices imply high risk sharing inactive households consume their current income and do not share risk so aggregate consumption which averages across all households reflects lower risk sharing the model also provides a resolution to the backus smith kollmann puzzle

making investment choices as simple as possible but not simpler target date funds tdfs for retirement also known as life cycle funds are being offered as a simple solution to the investment task of participants in self directed retirement plans a tdf is a fund of funds diversified across stocks bonds and cash with the feature that the proportion invested in stocks is automatically reduced as time passes empirical evidence suggests that a simple tdf strategy would be an improvement over the choices currently made by many uninformed plan participants this article explores a way to achieve even greater improvement for people who are very risk averse and have high exposure to market risk through their labor

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

the economic determinants of the brazilian nominal term structure of interest rates the purpose of this study is to identify the effects of monetary policy and macroeconomic shocks on the dynamics of the brazilian term structure of interest rates we estimate a near var model under the identification scheme proposed by christiano et al 1996 1999 the results resemble those of the us economy monetary policy shocks that flatten the term structure of interest rates we find that monetary policy shocks in brazil explain a significantly larger share of the dynamics of the term structure than in the usa finally we analyse the importance of standard macroeconomic variables e g gdp inflation and measure of country risk to the dynamics of the term structure in brazil

assessing the energy implications of replacing car trips with bicycle trips in sheffield uk a wide range of evidence supports policies which encourage people to cycle more and drive less for health and environmental reasons however the likely energy implications of such a modal shift have remained relatively unexplored in this paper we generate scenarios for increasing the cycling rate in sheffield between 2010 and 2020 this is done through the novel application of a simple model borrowed from population ecology the analysis suggests that pro cycling interventions result in energy savings through reduced consumption of fuel and cars and energy costs through increased demand for food the cumulative impact is a net reduction in primary energy consumption the magnitude of which depends on a number of variables which are subject to uncertainty based on the evidence presented and analysed in this paper we conclude that transport policy has a number of important energy implications some of which remain unexplored we therefore advocate the formation of closer links between energy policy and transport policy in academia and in practice our approach provides a simple yet flexible framework for pursuing this aim in the context of modal shift

access based consumption the case of car sharing access based consumption defined as transactions that can be market mediated but where no transfer of ownership takes place is becoming increasingly popular yet it is not well theorized this study examines the nature of access as it contrasts to ownership and sharing specifically the consumer object consumer consumer and consumer marketer relationships six dimensions are identified to distinguish among the range of access based consumptionscapes temporality anonymity market mediation consumer involvement the type of accessed object and political consumerism access based consumption is examined in the context of car sharing via an interpretive study of zipcar consumers four outcomes of these dimensions in the context of car sharing are identified lack of identification varying significance of use and sign value negative reciprocity resulting in a big brother model of governance and a deterrence of brand community the implications of our findings for understanding the nature of exchange consumption and brand community are discussed

preferred solutions to the energy crisis as a function of causal attributions results of two studies support the hypotheses that those accepting personal responsibility for the energy crisis favor and report adopting the personal solution of voluntary energy conservation and those making attributions to nonpersonal causes opec oil companies u s government are most likely to favor nonpersonal solutions implications are discussed

the efficiency of the health system in south africa evidence from stochastic frontier analysis the availability of increased resources and the lack of parallel improvement in health status have renewed interest on health system performance particularly where progress towards the millennium development goals has been slow since the political transition in 1994 south africa has consistently invested over eight of its gross domestic product gdp on health but so far returns remain uneven with some localities delivering lower outcomes than others even when they have comparable input levels this study measures the performance of the country s health system following a stochastic production frontier approach results have revealed that eight of the 52 districts in the country had an efficiency score of below 60 and in four of these the score was below 50 technical inefficiency was positively and significantly associated with hiv prevalence and illiteracy rates reported for districts overall mean technical efficiency te in the country was around 80 given this further improvements in he

inequality and real exchange rates kocherlakota and pistaferri 2007 describe two different models private information pareto optimal and incomplete markets of how households partially insure themselves against idiosyncratic shocks they demonstrate that the models differ in terms of their implications for real exchange rates in this paper we use data from a wide range of countries and document that there is a statististically significant relationship between real exchange rate growth and between country differences in the growth rates of right tail but not left tail inequality growth this finding is consistent with the private information pareto optimal model of partial insurance but not the incomplete markets model jel f31 d30 d91

household heterogeneity and real exchange rates we assume that individuals can fully insure themselves against cross country shocks but not against individual specifi cs hocks we consider two particular models of limited risk sharing domestically incomplete markets di and private information pareto optimal pipo risk sharing for each model we derive a restriction relating the cross sectional distributions of consumption and real exchange rates we evaluate these restrictions using household level consumption data from the us and the uk we show that the pipo restriction fits the data well when households have a coefficient of relative risk aversion of around 5 the restrictions implied by the complete risk sharing model and the di model fare poorly this paper was prepared for the economic journal lecture at the 2006 royal economic society meetings kocherlakota thanks winnie choi for many stimulating conversations about real exchange rates kocherlakota acknowledges the support of nsf 0305833 and 0606695 we thank an associate editor of the journal george alessandria and ivan werning for helpful comments jaromir nosal and sonam sherpa for research assistance orazio attanasio and andrew leicester for help with the fes data and joan gieseke and hakki yazici for editorial assistance the views expressed herein are those of the authors and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

understanding collaborative consumption an extension of the theory of planned behavior with value based personal norms collaborative consumption is proposed as a potential step beyond unsustainable linear consumption patterns toward more sustainable consumption practices despite mounting interest in the topic little is known about the determinants of this consumer behavior we use an extended theory of planned behavior to examine the relative influence of consumers personal norms and the theory s basic sociopsychological variables attitudes subjective norms and perceived behavioral control on collaborative consumption moreover we use this framework to examine consumers underlying value and belief structure regarding collaborative consumption we measure these aspects for 224 consumers in a survey and then assess their self reported collaborative consumption behavior in a second survey our structural model fits the data well collaborative consumption is more strongly through intentions influenced by personal norms and attitudes than by subjective norms personal norms to consume collaboratively are determined by consumers altruistic biospheric and egoistic value orientations cost savings efficient use of resources and community with others are found to be consumers attitudinal beliefs underlying collaborative consumption we conclude that collaborative consumption can be pin pointed neither as a mere form of economic exchange nor as a primarily normative form of sharing resources instead collaborative consumption is determined by economic egoistic e g cost savings and normative e g altruistic and biospheric value orientations motives implications for collaborative consumption research the theory of planned behavior and practitioners are discussed

repeated insurance relationships in a costly state verification model with an application to deposit insurance abstract we consider the problem of an insurer who enters into a repeated relationship with a set of risk averse agents in the presence of ex post verification costs the insurer wishes to minimize the expected cost of providing these agents a certain expected utility level we characterize the optimal contract between the insurer and the insured agents we then apply the analysis to the provision of deposit insurance our results suggest in a deposit insurance context that it may be optimal to utilize the discount window early on and to make deposit insurance payments only later or not at all

institutionalisation of sustainable consumption patterns based on shared use the product service system pss concept has been proposed as a way of dealing with unsustainable patterns of consumption in the business to consumer b2c domain existing alternatives to traditional consumption based on ownership such as car sharing communal washing centres and tool sharing schemes indicate that more sustainable patterns of consumption may be found for other household functions however the low profile of these examples in society and on the market calls for a query into factors that may facilitate or hinder broader acceptance of more sustainable alternatives in this study the aforementioned examples are analysed from institutional and product service system perspectives and it is suggested that the embodiment of alternative consumption patterns into every day routines depends on institutional arrangements regulatory and normative on how the product service systems are designed and applied in practice and oil the socio cultural background of the society the systems are implemented in c 2004 elsevier b v all rights reserved less

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

labour market institutions and household consumption insurance within oecd countries this paper tests empirically whether the effect of idiosyncratic income shocks on aggregate consumption depends on institutional features of national labour markets the results show that in a sample of 15 oecd countries institutional heterogeneity is a significant determinant of the response of household consumption to country specific income shocks this is consistent with the idea that institutionally provided social insurance may help increase income stability when people differ in their ability to access financial markets and smooth consumption fluctuations

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

sharing sustainability how values and ethics matter in consumers adoption of public bicycle sharing scheme this study investigates the antecedents and mechanisms of consumers adoption of a public bicycle sharing scheme pbss as a form of shared sustainable consumption drawing on marketing ethics and sustainability literature it argues that cultural and consumption values drive or deter the adoption of pbss through the mediating mechanism of ethical evaluation this study tests its hypotheses using a sample of 755 consumers from one of the largest pbss programs in china the results confirm the significance of collectivism man nature orientation materialism and face consciousness as key determinants of the adoption of pbss interestingly these values play mixed roles in influencing pbss adoption it also finds that such values and beliefs need to be effectively translated into ethical evaluations of pbss adoption and need to be addressed in the specific social context thus ethical evaluation constitutes a cognitive strategy that allows consumers to justify and defend their adoption of sustainability practices the results suggest that a desirable sustainability program needs to not only cater to the cultural and psychological motivations of consumers but also reflect the social norms and social context in which the sustainability practices and consumers are embedded

payments systems design in deterministic and private information environments abstract the first setup we study is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare a payments system with period by period settlement in outside money improves on decentralized exchange an efficient allocation is supported by a payments system where settlement is not imposed in the second model there is random matching and unobserved productivity shocks and preference shocks we explore how risk should be shared optimally in this economy and interpret the results in terms of how actual payments systems should operate journal of economic literature classification numbers e4 e5

consumption and real exchange rates in dynamic economies with non traded goods abstract we examine the possibility that non traded goods may account for several striking features of international macroeconomic data large persistent deviations from purchasing power parity small correlations of aggregate consumption fluctuations across countries and substantial international real interest rate differentials a dynamic exchange economy is used to show that non traded goods in principle can account for each of these phenomena in the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates but we find little evidence for this relation in time series data for eight oecd countries

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

persistent real exchange rates abstract three well known facts that characterize exchange rate data are a the high correlation between bilateral nominal and real exchange rates b the high degree of persistence in real exchange rate movements and c the high volatility of real exchange rates this paper attempts a joint albeit partial rationalization of these facts in an environment with no staggered contracts and where prices are preset for only one quarter there are two key innovations in the paper first we augment a standard two country open economy model with learning by doing in production at the firm level this induces monopolistically competitive firms to endogeneize the productivity effect of their price setting behavior specifically firms endogenously choose not to adjust prices by the full proportion of a positive monetary shock in order to take advantage of the productivity benefits of higher production second we introduce habits in leisure this makes the labor supply decision dynamic and adds an additional source of propagation we show that the calibrated model can quantitatively reproduce significant fractions of the aforementioned facts moreover as in the data the model also produces a positive correlation between the terms of trade and the nominal exchange rate

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

communication commitment and growth abstract we study the effect on the growth of an economy of alternative financing opportunities in a stochastic growth model with incentive constraints efficient accumulation mechanisms are designed and computed for economies that differ in their incentive structure we show that when borrowing is subject to information constraints there is a computable efficient transfer mechanism that does not affect capital accumulation and investment patterns even though consumption patterns and the distribution of wealth are affected in contrast enforcement constraints can severely reduce the outside financing opportunities and affect investment patters and economic growth we adapt numerical algorithms for obtaining numerical solutions of these models

how national culture and ethics matter in consumers green consumption values abstract going green in consumption is gaining momentum globally but little is known how national cultural values and consumers ethical ideologies explain green consumption with a culturally rich sample of 1929 responses from consumers in finland germany portugal and the united kingdom the present study examines how cultural long term orientation and collectivism predict consumers green consumption values and if these relationships are moderated by ethical ideologies the study finds that cultural collectivism has a significant positive effect on green consumption values as expected however the results show that the two long term orientation constructs namely planning and tradition point in opposite directions when predicting green consumption we demonstrate that while long term planning has a significant positive effect on green consumption values the effect of traditional values is negative we further show that this negative effect varies across consumers ethical ideologies so that the effect is the greatest for exceptionists and absolutists that is those who rely in their actions on universal moral principles rather than particular circumstances therefore our research contributes to the literature by providing new evidence for the cultural and ethical aspects in green consumption values furthermore the study suggests that managers pay special attention to the consumers who have high collectivistic and future oriented values to promote environmentally friendly consumption

the equivalence of lending equilibria and signalling based insurance under asymmetric information i present a model in which a continuum of individuals have stochastic idiosyncratic income shocks complete insurance is physically feasible but unattainable due to an information asymmetry income shocks are observable only by the individuals receiving them any insurance institution must therefore rely on self reporting of income innovations two ways of achieving incentive compatible self reporting are presented the first is a debt market with an explicit lending restriction the second is an insurance contract that linearly filters a signal transmitted by individuals the two are then demonstrated to be identical equilibrium consumption fluctuates in a random walk which is inefficient given the physical potential for complete insurance but is efficient given the information constraints the results are complementary to those of green 1987 but permit more general stochastic processes of income to be analyzed serial correlation of income reduces the efficiency of the insurance

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

repeated principal agent relationships with lending and borrowing abstract it is shown optimal long term contracts are strictly better than a series of unrelated short term contracts for two reasons long term contracts allow risk to be spread over time and the agent s intertemporal choices provide information about the unobservable random variable

do traditional chinese cultural values nourish a market for pirated cds on one hand chinese consumers are well known for conspicuous consumption and the adoption of luxury products and named brands on the other hand they also have a bad reputation for buying counterfeit products their simultaneous preferences for two contrasting types of product present a paradox that has not been addressed in the literature this study attempts to present an explanation of this paradox by examining the effects of traditional chinese cultural values and consumer values on consumers deontological judgment of pirated cds and the amount of social benefits they perceive they gain from them we interviewed 300 hong kong chinese consumers and found that face consciousness increased materialism and risk aversion thereby producing a favorable deontological judgment of pirated cds face consciousness also has a direct effect on the amount of social benefits perceived in pirated cds both favorable deontological judgment and perceived social benefits contributed to a strong intention to buy pirated cds the results are discussed in a cultural perspective

intertemporal distortions in the second best we consider a very general class of public nance problems that encompasses ramsey models of optimal taxation as well as economies with limited commitment private information and political economy frictions we identify a su cient condition to rule out permanent intertemporal distortions at the optimum if there exists an admissible allocation that converges to the rst best steady state then all intertemporal distortions are temporary in the second best we analyze a series of applications to illustrate the signi cance of this result

consumption and real exchange rates in professional forecasts standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange rate depreciations across countries the striking lack of evidence for this link the consumption realexchange rate anomaly or backus smith puzzle has prompted research on risk sharing indicators with incomplete asset markets that research generally implies that the association holds in forecasts rather than realizations using professional forecasts for 28 countries for 1990 2008 we find no such association thus deepening the puzzle independent evidence on the weak link between forecasts for consumption and real interest rates suggests that the presence of hand to mouth consumers may help to explain the evidence

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

explorations into factors explaining money market returns in this article we measure and interpret the common factors that describe money market returns results are presented for both three and four factor models we find that the three factor model explains on average 86 percent of the total variation in most money market returns while the four factor model explains on average 90 percent of this variation using mimicking portfolios we provide an interpretation of the systematic risks represented by these factors in this article we attempt to measure and interpret the common factors that describe money market returns the factor approach we employ assumes that the covariance matrix of a set of random variables in this case excess returns can be decomposed into common or systematic components and idiosyncratic or nonsystematic components this decomposition into systematic and nonsystematic components is based on an assumption of a linear relationship between the returns of each security and a set of common factors this is the assumption of linear return generating models which form an integral part of the structure of many asset pricing theories for example arbitrage pricing theory apt as developed by ross 1976 the interpretation is that the common factors represent sources of systematic or nondiversifiable risk and the idiosyncratic component of returns represents diversifiable risks our focus here is not on testing a particular asset pricing model per se but on developing empirical evidence for the existence of stylized facts regarding money market returns the stylized facts take the form of the existence measurement and interpretation of the common factors that are found in money markets our attempt to measure and interpret these sources of systematic risk may eventually lead to the construction of observable eco

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

an empirical investigation of the trade benefit function we introduce new definition and estimation procedures of trade benefit functions that allow researchers to generate estimable import share functions the method is based on the work of chau and fare while it is more general in permitting the estimation of hicksian import share systems which are explicit in an unobservable variable but may lack a closed form representation in terms of observable variables an empirical application demonstrates the feasibility of the proposed method

international lending with moral hazard and risk of repudiation in this paper i examine the constrained optimal pattern of capital flows between a lender and a borrower in an environment in which there are two impediments to forming contracts the first impediment to contracting arises from the assumption that lenders cannot observe whether borrowers invest or consume borrowed funds this assumption leads to a moral hazard problem in investment the second impediment arises from the assumption that the borrower as a sovereign nation may choose to repudiate his debts the optimal contract is shown to specify that the borrowing country experience a capital outflow when the worst realizations of national output occur this seemingly perverse capital outflow forms a necessary part of the optimal solution to the moral hazard problem in investment