natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

ambiguity aversion and comparative ignorance decisions under uncertainty depend not only on the degree of uncertainty but also on its source as illustrated by ellsberg s observation of ambiguity aversion in this article we propose the comparative ignorance hypothesis according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals this hypothesis is supported in a series of studies showing that ambiguity aversion present in a comparative context in which a person evaluates both clear and vague prospects seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

rational overoptimism and other biases rational agents with differing priors tend to be overoptimistic about their chances of success in particular an agent who tries to choose the action that is most likely to succeed is more likely to choose an action of which he overestimated rather than underestimated the likelihood of success after studying the comparative statics of this mechanism i show that it also causes agents to attribute failure to exogenous factors but success to their own choice of action to disproportionately believe that they will outperform others to overestimate the precision of their estimates and to overestimate their control over the outcome

linking the insights of smith marx young and hirschman on the division of labour implications for economic integration and uneven development this article distinguishes between two types of division of labour discussed by smith the final product specialisation type has been adopted as the basis of mainstream trade models that champion the benefits of free trade the division of production operations type can be extended through the works of marx transition to modern industry based on forms of manufacture young industrial differentiation and hirschman linkages through this some countries started reaping more benefits from increasing returns engendering incipient uneven development that aggravates under unrestricted economic integration between them and the trailing countries in the modern era the leading countries trans national corporations have further shaped the international division of production operations resulting in different forms of enclave development when their activities are unregulated under recently reached multi lateral agreements that limit the use of subsidies and investment measures and strengthen the protection of intellectual property rights uneven development would be sustained some future research directions are considered

the significance of technical trading rule profits in the foreign exchange market a bootstrap approach abstract in this paper we present new evidence on the profitability and statistical significance of technical trading rules in the foreign exchange market we utilize a new data base currency futures contracts for the period 1976 1990 and we implement a new testing procedure based on bootstrap methodology our results suggest that simple technical trading rules have very often led to profits that are highly unusual splitting the entire sample period into three 5 year periods reveals that on average the profitability of some trading rules declined in the latest period although profits remained positive on average and significant in many cases jel f31 f47 g15

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

systems integration a core capability of the modern corporation many of the world s leading firms are developing a new model of industrial organization based on systems integration rather than performing all productive tasks in house companies are building the capabilities to design and integrate systems while managing networks of component and subsystem suppliers this article illustrates how systems integration evolved from its military engineering based origins in the 1940s and 1950s to a modern day strategic capability across a wide variety of sectors taking a resource based view of the firm the article shows how systems integration capabilities underpin the way high technology companies compete by moving selectively up and downstream in the marketplace through the simultaneous twin processes of vertical integration and disintegration systems integrators of capital goods move downstream into service intensive offerings to expand revenue streams and increase profitability by contrast producers of high volume components and consumer goods use systems integration capabilities to exploit upstream relationships with input suppliers in both cases strategic options and capabilities are shaped by the life cycle of each product the article develops a clearer understanding of systems integration arguing that it now represents a core capability of the modern high technology corporation

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

scaling in economics a reader s guide this paper discusses examples of scaling laws in economics and finance it argues that these regularities in data are useful for disciplining theory formation estimation of the conditional predictive distribution and estimation of impulse response functions is a main goal of econometric work scaling type regularities give useful information on the underlying data generating process the ability of scaling laws to suggest lines of potentially fruitful research was illustrated by the suggestion of several speculative research projects in this paper most importantly the paper stresses the challenges that face empirical and theoretical researchers who wish to make use of scaling law type regularities to improve econometric identification of the underlying causal data generating mechanism copyright 1999 by oxford university press

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

the global business revolution the cascade effect and the challenge for firms from developing countries the global business revolution since the 1980s has witnessed an unprecedented degree of industrial consolidation and concentration of business power at a global level firms with powerful globally recognised technologies and or brands constitute the systems integrators at the apex of extended supply chains this paper examines the supply chains in four different sectors aerospace telecommunications automobiles and beverages it finds that these sectors have striking similarities in the way in which the core systems integrators have stimulated industrial concentration across the whole supply chain this cascade effect has profound implications for firms from developing countries in catching up at the firm level

ambiguity aversion and incompleteness of contractual form subjective uncertainty is characterized by ambiguity if the decision maker has an imprecise knowledge of the probabilities of payoff relevant events in such an instance the decision maker s beliefs are better represented by a set of probability functions than by a unique probability function an ambiguity averse decision maker adjusts his choice on the side of caution in response to his imprecise knowledge of the odds the non additive expected utility model allows a formal characterization of such behaviour using this model this paper shows that ambiguity aversion can explain the existence of incomplete contracts the setting for the demonstration is the investment hold up model which has been the focus of much of the recent research on the implications of incomplete contracts

the supply of information by a concerned expert how much information should a policy maker pass on to a currently ill informed citizen in this paper we address this classic question of crawford and sobel 1983 in a setting in which beliefs impact utility as in kreps and porteus 1978 we show that this simple amendment has far reaching implications in particular our question cannot be answered using a utility function with standard revealed preference foundations revealed preference cannot tell us whether in a particular state s a decision maker prefers to believe incorrectly that the state is t or to know the truth to solve the model we go beyond the classical model in two respects relying on the psychological expected utility model of caplin and leahy 2001 to capture preferences and the psychological game model of geanakoplos pearce and stacchetti 1989 to capture strategic interactions

time frequency causality and connectedness between international prices of energy food industry agriculture and metals abstract this study analyzes the lead lag relationship between the price indices of energy fuels and each of food industrial inputs agriculture raw materials metals and beverages in the time frequency domain to this end we first use the wavelet coherency and phase differences next we use the diebold and yilmaz 2012 and barunik and krehlik 2017 spillover indices to analyse the connectedness among the set of the price indices under consideration the period of the study is 1990m1 to 2017m5 the wavelet coherency results reveal that there are important and significant relations between the fuel and food prices the fuel and industrial prices and the fuel and metal prices these results also show that there are phase relationships between those paired prices the volatility spillover results indicate that the agricultural sector is the most affected by shocks from the other markets the return series of the industrial input prices at all frequencies appears to be the main source of volatility transmission to the prices of the other commodities over the whole period this finding underlines the relevance of the industrial inputs to policy makers particularly when they design policies to provide incentives related to industrial production

statistical study of foreign exchange rates empirical evidence of a price change scaling law and intraday analysis abstract in this paper we present a statistical analysis of four foreign exchange spot rates against the u s dollar with several million intra day prices over 3 years the analysis also includes gold prices and samples of daily foreign exchange prices over 15 years the mean absolute changes of logarithmic prices are found to follow a scaling law against the time interval on which they are measured this empirical law holds although the distributions of the price changes strongly differ for different interval sizes systematic variations of the volatility are found even during business hours by an intra day analysis of price changes seasonal heteroskedasticity is observed with a period of one day as well as one week as the result of an analogous intra week analysis taking this into account is necessary for any future study of intra day price change distributions and their generating process the same type of analysis is also made for the bid ask spreads

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

imperfect memory and choice under risk this paper presents a model of choice based on imperfect memory and self deception i assume that people have preferences over their own attributes e g skill knowledge or competence and can manipulate their memories the model provides a prior dependent theory of regret aversion and allows for prior dependent information attitudes it implies that behavior will converge to the one predicted by expected utility theory after a choice has been faced a sufficiently large number of times

linear non linear and essential foreign exchange rate prediction with simple technical trading rules abstract this paper investigates the predictability of spot foreign exchange rate returns from past buy sell signals of the simple technical trading rules by using the nearest neighbors and the feedforward network regressions the optimal choices for nearest neighbors hidden units in a feedforward network and the training set are determined by the cross validation method which minimizes the mean square error although this method is computationally expensive the results indicate that it has the advantage of avoiding overfitting in noisy environments and indicate that simple technical rules provide significant forecast improvements for the current returns over the random walk model

cognition and incomplete contracts thinking about contingencies designing covenants and seeing through their implications is costly parties to a contract accordingly use heuristics and leave it incomplete the paper develops a model of limited cognition and examines its consequences for contractual design

a theoretical and empirical investigation of the effects of public health subsidies for std testing the paper investigates both theoretically and empirically the private demand for std testing and for protection against infection with emphasis on testing for the aids virus hiv and on the effects of public subsidies for such testing on the incidence of sexually transmitted diseases we discuss the theoretical conditions under which subsidizing testing either increases or decreases disease incidence and provide evidence on the empirical significance of those conditions

intra firm trade abstract the study analyses intra firm trade that is the estimated one third of world trade which is transacted between affiliated parties as firms realize the increasing potential for integrating their operations throughout the world they are contributing to significant shifts in the patterns of interntional trade and industrial development as emphasized here international trade is inextricably linked to the growing and substantial share of transactions between affiliated parties conveyed through multinational enterprises

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

a memory based model of bounded rationality in order to investigate the impact of limited memory on human behavior i develop a model of memory grounded in psychological and biological research i assume that people take their memories as accurate and use them to make inferences the resulting model predicts both over and underreaction but provides enough structure to predict when each effect dominates i then use this framework to study the consumption decision the results match empirical work on consumption predictability as well as differences in the marginal propensity to consume from different income streams most importantly because it ties the extent of bias to a measurable aspect of the stochastic process being forecasted the model makes testable empirical predictions

real time trading models and the statistical properties of foreign exchange rates the contributions of this article are twofold first the performance of a widely used commercial real time trading model is compared with the performance of systematic currency traders second the real time trading model is used to evaluate the statistical properties of foreign exchange rates the out of sample test period is seven years of high frequency data for four major rates the trading model yields positive annualized returns net of transaction costs in all cases the null hypothesis of whether the real time performances of the foreign exchange series are consistent with traditional statistical processes is tested under the probability distributions of the performance measures

maintaining a reputation when strategies are imperfectly observed this paper studies reputation effects in games with a single long run player whose choice of stage game strategy is imperfectly observed by his opponents we obtain lower and upper bounds on the long run player s payoff in any nash equilibrium of the game if the long run player s stage game strategy is statistically identified by the observed outcomes then for generic payoffs the upper and lower bounds both converge as the discount factor tends to 1 to the long run player s stackelberg payoff which is the most he could obtain by publicly committing himself to any strategy

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists