protecting endangered species when are shoot on sight policies the only viable option to stop poaching abstract protecting endangered species that offer poachers from low income countries high economic benefits remains a policy challenge a broadly applicable economic model of poaching shows why cites international bans have not always been successful especially in situations where black markets exist and nonpoaching wages are low in these situations poachers may have nothing left to lose since low nonpoaching wages impose a practical cap on the potential economic costs of fines and imprisonment thus the model suggests shoot on sight policies as the only viable option trends in animal populations appear to support the efficacy of the shoot on sight policies which also suggests an inherent value of life traditionally not captured in value of a statistical life estimates

domestic taxation and international portfolio choice abstract given uncertain domestic currency denominated tax payments risk averse investors hold a portion of their wealth in a tax hedge portfolio which empirical results show is comprised chiefly of the domestic bond tax hedging may therefore explain the observed preference for home country assets

profit sharing capital formation and the nairu this paper reconsiders the impact of different remuneration systems on aggregate employment contrary to common wisdom on this topic we show that the switch from a fixed wage economy to a share economy results in lower aggregate unemployment an additional innovation of this paper is the endogeneity of the capital stock decision of the firm which enables us to assess and reject the common disincentive to invest criticism of a share economy

the minimum variance hedge ratio under stochastic interest rates in an environment where interest rates are stochastic we examine the case of a pure hedger endowed with a fixed position in a long term bond in contrast to conventional wisdom according to which the difference between hedging through forward contracts and futures is immaterial it turns out that the minimum variance hedge ratio using forwards comprises two terms instead of one only when using futures the magnitude of the difference between the two hedge ratios may be important under some plausible assumptions this result is due to the presence of additional interest rate risk that bears on the profit and loss statement associated with the forward position this sheds some additional light on the respective features of forward and futures contracts written on interest rate sensitive securities

on the optimal hedge of a nontraded cash position in this paper we focus on the optimal demand for futures contracts by an investor with a logarithmic utility function who attempts to hedge a nontraded cash position when the analysis is conducted in the cash commodity price space we show that the value function associated with the bernoulli investor program is not additively separable thus suggesting that this investor hedges against shifts in the opportunity set as represented by the commodity price by establishing the equivalence between the cash formulation of the problem and the wealth formulation we are able to analyze the problem in the wealth commodity price space in this space we show the additive separability of the value function when the futures settlement price process is perfectly locally correlated with the commodity price process the demand for futures in this instance is composed of a a mean variance term and b a minimum variance component that is a classic feature of models with nontraded assets since the first best nonmyopic optimum is attained however the deviation from a mean variance demand should not be interpreted as the expression of a nonmyopic behavior but rather as an attempt to restore a first best optimum on the other hand when the correlation between the futures price and the underlying commodity price is imperfect in general the value function does not separate additively the first best solution cannot be attained and the optimal futures trading strategy involves a hedging term against shifts in the opportunity set in the classic dynamic portfolio problem the investor selects a trading strategy in risky and riskless assets so as to maximize his or her expected lifetime utility in this environment where all assets can be freely traded the logarithmic investor behaves myopically to the extent that he or she ignores shifts in the opportunity set when making current choices samuelson 271 mossin 24 hakansson 16 merton 22 in particular in models with continuous trading it turns out that the value function corresponding to the investor s program is additively separable in wealth and state variables the implication is that his or her behavior will be myopic i e that his or her demand functions for assets will be of the pure meanvariance efficiency type and in particular will not include any dynamic hedging components that are characteristic of financial markets with shifting opportunities in this paper we investigate the structure of the bernoulli investor s demand functions in the situation where one asset cannot be freely traded in the market

nontraded assets and the capm abstract asset pricing models that rely on the presence of non tradable assets such as human wealth to solve the equity premium puzzle have to confront the effect of decreasing absolute risk aversion rich investors who according to micro data hold the stock market and whose behavior is the one that matters at the margin for the determination of equilibrium asset prices are less risk averse ceteris paribus than the average consumer this paper highlights a channel through which the effect of decreasing absolute risk aversion can be overcome the existence of a positive correlation between the rates of return on traded assets and on the human capital of marginal investors

international capital mobility net versus gross stocks and flows abstract feldstein and horioka 1980 observed that net capital flows have been small in relation to domestic saving and investment flows for oecd countries in the post war period which they interpreted as evidence of low capital mobility this paper argues that the correlation between gross domestic and international financial flows can be a better indicator of capital mobilitythan net capital flows contrary to the conventional wisdom among international economists gross flows have been small in relation to gross domestic asset creation for oecd countries although by this measure the degree of capital mobility increased in the 1980s

equilibrium in securities markets with heterogeneous investors and unspanned income risk abstract in a finite time horizon incomplete market continuous time setting with dividends and investor incomes governed by arithmetic brownian motions we derive closed form solutions for the equilibrium risk free rate and stock price for an economy with finitely many heterogeneous cara investors and unspanned income risk in equilibrium the sharpe ratio is the same as in an otherwise identical complete market economy whereas the risk free rate is lower and consequently the stock price is higher the reduction in the risk free rate is highest when the more risk averse investors face the largest unspanned income risk

exchange rate variability and asset trade in popular discussion about the merits of different international monetary arrangements it is often maintained that increased exchange rate variability has a negative influence on international tra

in search of the exchange risk premium a six currency test assuming mean variance optimization abstract a number of authors examining deviations of actual rates of currency depreciation from forward discounts have claimed to find evidence of risk premiums if these deviations are indeed partly due to risk premiums rather than being entirely due to expectational errors then they should be systematically related to those variables on which risk premiums are thought to depend finance theory tells us that if investors optimize with respect to mean and variance the risk premium depends in a specific way on 1 the supplies of assets denominated in the various currencies 2 the variance covariance matrix of the rates of return and 3 the coefficient of risk aversion the null hypothesis of this paper is that the coefficient of risk aversion is zero countries assets are perfect substitutes and risk premiums are nonexistent the alternative hypothesis is that rates of return are systematically related to asset supplies by a macroeconomic portfolio balance function the maximum likelihood technique used dominates previous attempts to find such a relationship in that the parameters of the portfolio balance function are constrained to depend on the variance covariance matrix as the finance theory says they should on the other hand the technique also dominates previous applications of the finance theory in that the expected returns are allowed to vary over time as the macroeconomic portfolio balance theory says they should the paper s finding is a statistical inability to reject the null hypothesis for a portfolio of six currencies although this could be due to low power in the test

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

profit sharing credit market imperfections and equilibrium unemployment we investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing in a partial equilibrium with exogenous outside options increased bargaining power of banks has adverse employment effects in a general equilibrium with endogenous outside options this relationship is frequently reversed reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections measured by the bargaining power of trade unions are sufficiently strong and the benefit replacement ratio is sufficiently high finally we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions

how firms should hedge substantial academic research explains why firms should hedge but little work has addressed how firms should hedge we assume that firms can experience costly states of nature and derive optimal hedging strategies using vanilla derivatives e g forwards and options and custom exotic derivative contracts for a value maximizing firm facing both hedgable price and unhedgable quantity risks customized exotic derivatives are typically better than vanilla contracts when correlations between prices and quantities are large in magnitude and when quantity risks are substantially greater than price risks finally we discuss how our model may be applied in practice copyright 2002 oxford university press

profit shares bargaining and unemployment i introduction weitzman 1987 has argued that in an economy with long term unemployment due to extra competitive wages profit sharing can eliminate this unemployment by lowering the marginal cost of labor jackman 1988 provides additional microfoundations for this claim by modeling long term unemployment as arising from an externality in decentralized wage setting in that model a mandated profit share lowers wages and raises net profits thereby inducing the entry of firms into the market unambiguously lowering unemployment and leaving the real wage unchanged in general equilibrium the generality of this result is put into question by holmlund 1990 who considers a similar case but with the capital stock fixed economy wide and shows that profit sharing may raise or lower unemployment depending on standard properties of the production function in that short run model firms implicitly operate on downward sloping labor demand curves so profit sharing expands employment only to the degree that it reduces wages in general equilibrium if the labor demand elasticity is great enough the general equilibrium effect of profit sharing is to raise wages and lower employment holmlund also shows that his result is independent of whether the profit share is bargained over or mandated in models with variable capital the question of the effect of profit sharing on employment does not reduce to the question of its effect on wages the introduction of profit sharing also affects net profitability and so may lead to an inflow or withdrawal of capital in the market in the long run further influencing employment in jackman s model employment unambiguously increases however jackman only considers a mandated profit share under monopoly union wage setting leaving the impact of bargaining over profit shares and wages unresolved further substantial structural differences in the models of jackman and holmlund make direct comparisons of these models difficult in the present paper i present a model in the spirit of holmlund s but with free entry of firms subject to overhead costs and show that under nash wage bargains the effect of profit sharing on both employment and compensation depends on whether the profit share is bargained over or mandated as well as on the profit accounting used to determine share payments of particular interest is the possibility that profit sharing may reduce both aggregate employment and total compensation per worker due to general equilibrium effects no such possibility exists in the models of jackman and holmlund profit sharing employment and bargaining as is well known if nash bargaining is over both wages and employment then profit sharing leaves microeconomic employment and incomes unchanged further under unilateral employment setting by firms nash union wage and profit share bargains emulate nash bargains over wages and employment pohjola 1987 anderson and devereux 1989 johnson 1990 in partial equilibrium the ability to bargain over either profit shares or employment in addition to wages raises employment and is pareto improving in general equilibrium however reservation utilities may rise enough to cause wages to rise and employment to fall this is shown by layard and nickell 1990 for bargaining over employment and by holmlund 1990 for bargaining over profit shares both models are short run models in which the capital stocks are fixed economy wide holmlund goes further to show that the same mechanism also operates for mandated profit shares in the long run model presented here holmlund s result for bargained profit shares continue to hold as does layard and nickell s for bargained employment though for different reasons the introduction of profit sharing does not produce upward wage pressure since free entry eliminates profits and thus any direct effect of profit sharing on reservation utilities rather employment is reduced if it reduces profitability and so yields exit of capital sufficient to offset the positive effect of reduced wages on employment

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

external cost of coal based electricity generation a tale of ahmedabad city abstract electricity production causes unintended impacts their exclusion by the market leads to suboptimal resource allocations monetizing and internalizing of external costs though challenging and debatable leads to a better allocation of economic resources and welfare in this paper a life cycle analysis lca on the production of electricity from conventional coal based electricity generation system has been performed in order to examine the environmental impacts of coal based electricity generating systems in the twin city of ahmedabad and gandhinagar in western india by using dose response functions we make an attempt to estimate the damages to human health crops and building materials resulting from the operation of coal power plants and its associated mines further we use geographic information system to account for spatially dependent data finally monetary values have been assigned to estimate the damage to human health crops and building materials this study reveals that the health as well as on non health impacts of air pollution resulting from coal based electricity generation may not be ignored both in absolute as well as economic value terms

valuations of life and injury risks a research on valuing risks to life and health in thecontext of a developing country is practicallynon existent this study provides the first estimatedvalues of life and health using data from india these values can aid policy makers internationalagencies and researchers in evaluating health projectsin developing nations they can also be used to carryout comparisons with values obtained for developedcountries

unemployment persistence under profit sharing abstract in a simple dynamic model with an employment externality generated by union bargaining an increase in a mandated rate of profit sharing reduces not only the steady state unemployment rate but also the persistence of unemployment out of steady state

optimal consumption and portfolio policies when asset prices follow a diffusion process abstract we consider a consumption portfolio problem in continuous time under uncertainty a martingale technique is employed to characterize optimal consumption portfolio policies when there exist nonnegativity constraints on consumption and on final wealth we also provide a way to compute and verify optimal policies our verification theorem for optimal policies involves a linear partial differential equation unlike the nonlinear partial differential equation of dynamic programming the relationship between our approach and dynamic programming is discussed we demonstrate our technique by explicitly computing optimal policies in a series of examples in particular we solve the optimal consumption portfolio problem for hyperbolic absolute risk aversion utility functions when the asset prices follow a geometric brownian motion the optimal policies in this case are no longer linear when nonnegativity constraints on consumption and on final wealth are included by these examples one can see that our approach is much easier than the dynamic programming approach

profit sharing wage bargaining and unemployment bertil holmlund the paper examines the effects of profit sharing in an economy with decentralized wage bargaining profit sharing makes workers income more sensitive to wage changes and this leads to wage moderation but economy wide profit sharing may also improve workers outside income opportunities and this strengthens the union s hand in bargaining and tend to raise wages it turns out that equilibrium unemployment is reduced by profit sharing as long as the elasticity of substitution between labor and capital is less than one whereas unemployment is increased if the elasticity of substitution is greater than one i introduction martin weitzman s book the share economy 1984 proposes fundamental changes in labor compensation systems the basic idea is that the traditional fixed wage remuneration should be replaced by a scheme with a fixed base wage plus a share of profits or revenues hiring decisions are assumed to rest with the employers who will expand employment until workers marginal product equals the pre determined base wage the latter is taken to be lower in the profit sharing economy than the wage level in the corresponding wage economy the lack of widespread use of profit sharing arrangements is attributed to externalities and weitzman therefore argues in favor of tax incentives to promote the sharing system does profit sharing actually lead to wage moderation this paper examines this issue within a simple model where wages are set through negotiations between unions and firms profit sharing creates a direct link between the performance of the firm and workers income and this involves incentives to settle for lower wages and higher employment an economy wide profit sharing system will however also affect workers income opportunities outside their current firm this will strengthen the union s hand in bargaining by raising its threat point i e the expected income available to workers if an agreement is not reached in the wage negotiations it turns out that the general equilibrium effect of economy wide profit sharing is crucially dependent on the elasticity of substitution between labor and capital profit sharing leads to wage moderation thereby reducing unemployment when the elasticity of substitution is less than one but increases unemployment when the elasticity of substitution is greater than one the next section of the paper outlines the bargaining model that is used in the analysis sections 3 and 4 examine profit sharing and section 5 concludes the paper ii bargaining in a wage economy imagine an economy with a perfectly competitive output market with output prices normalized to unity suppose that wage negotiations take place at the level of the firm and that the employer determines the employment level after the wage negotiations have been settled to characterize the bargaining outcome we invoke the widely used right to manage framework of nickell and andrews 1983 in this model there is bargaining over the wage in contrast to a monopoly union model in which the union simply calls out its desired wage to which firms passively respond by adjusting employment to the profit maximizing level the negotiated wage is assumed to be given by a nash bargain between the local union and the firm and the bargain pertaining to firm union pair i maximizes the product substitute mathematical expression omited 1 where lambdal sub i is workers utility from agreement and lambdal sub 0 is the union s threat point i e the utility available in case of disagreement pi sub i is the firm s profits when there is an agreement and pi sub i is the fall back level of profits the degree of union power is captured by beta if beta is equal to one we have the monopoly union case where the union simply chooses its desired point on the labor demand curve each union is assumed to care about the expected income of its members

labor income and risky investments can part time farmers compete abstract in the developed countries a majority of farm households receive at least as much income from nonfarm sources as from the farm such part time farms have survived inspite of lower returns than full time farms this paper considers when lower returns to part time farming could be compensated by risk reduction due to diversification of income sources the paper uses a dynamic portfolio choice model with labor income the model and results could be applied in other contexts as well

capital income taxation and international portfolio choice abstract distortionary proportional capital income taxation is shown to cause both static effects via portfolio re allocation and dynamic effects via changes in the value of a claim to future transfers as well as via perceived changes in the future investment opportunity set the stochastic structure of returns to investment is important for understanding the consequences of a unilateral increase in the domestic tax rate a government choosing optimal tax policy makes a tradeoff between the increase in the perceived value of future transfers and the distortion to portfolio allocation produced by taxation with corporate taxation the optimal tax rate is positive

the fixed wage puzzle why profit sharing is so hard to implement abstract profit sharing arrangements pareto dominate fixed wage contracts but are far less than ubiquitous we account for this fixed wage puzzle by adopting a perspective of bounded rationality specifically plausible share arrangements are not generally acceptable to both firms and unions

dynamics of unemployment vacancies and real wages with trade unions this paper considers the response of wages unemployment and vacancies to shocks when the number of job slots and real wages are determined by a nash bargain between a firm and a small union unemployment and vacancies co exist because of search considerations there is a unique natural unemployment rate which ensures that every firm union s bargained wage is stationary shocks that are eventually absorbed by wages cause deviations of unemployment from its natural rate because the firm union initial response to a shock is to change vacancies and possibly wages which cause changes in unemployment flows via the search process

robustly strategic consumption portfolio rules with informational frictions this paper provides a tractable continuous time constant absolute risk aversion gaussian framework to explore how the interactions of fundamental uncertainty model uncertainty due to a preference for robustness and state uncertainty due to information processing constraints rational inattention affect strategic consumption portfolio rules and precautionary savings in the presence of uninsurable labor income specifically after solving the model explicitly i compute and compare the elasticities of strategic asset allocation and precautionary savings to risk aversion robustness and inattention furthermore for plausibly estimated and calibrated model parameters i quantitatively analyze how the interactions of model uncertainty and state uncertainty affect the optimal share invested in the risky asset and show that they can provide a potential explanation for the observed stockholding behavior of households with different education and income levels this paper was accepted by neng wang finance

aggregate supply and demand factors in oecd unemployment an update unemployment in the oecd countries has continued to rise to unprecedented levels the eec countries which on average ended the turbulent 1970s with an unemployment rate of close to 7 per cent are now in the mid 1980s approaching an 11 per cent level the united states is virtually the only country for which the changes in unemployment during the 1970s have not been systematically upward and for which the 1984 rate was more or less back to where it had been both ten years and five years earlier see figure 1 the reasons for the sustained increase in unemployment during the 1970s as well as the possible reasons for differences in patterns across industrial countries have been studied but question marks undoubtedly remain our own emphasis in an earlier study has been on the combination of the great supply shocks of the previous decade and the contractionary macro policy response of most oecd countries to these shocks as well as on the more recent policy coordination problem between the united states and europe with a few more years that have elapsed and quite a few percentage points of additional unemployment there is obviously room for both an update and a reappraisal starting from a fairly conventional aggregate supply as and aggregate demand ad macro framework an increase in unemployment may come

nontraded assets in incomplete markets pricing and portfolio choice this paper examines portfolio choice and asset pricing when some assets are nontraded for instance when a country cannot trade claims to its output on world capital markets when a government cann

the effects of union owned shares on the outcome of wage bargaining abstract the paper investigates the consequences of employee stock ownership in firms where the local union determines the purchase of shares who wins and who loses depends on the type of conflict threat that is used by the union however no employee share arrangement can simultaneously benefit all union members and external owners on the contrary there may be a total loss to be shared due to overmanning egalitarian employee stock ownership may therefore not be viable inegalitarian employee ownership may be viable paradoxically all union members are better off the more weight the union gives to the members with no shares

the value of statistical life and the economics of landmine clearance in developing countries this paper presents estimates of the value of statistical life vsl in rural thailand using the contingent valuation cv method these estimates are applied to an economic analysis of landmine clearance the estimated vsl of us 250 000 suggests that the value of lives saved from landmine clearance is at least an order of magnitude greater than the values used in existing studies

optimal hedging in a dynamic futures market with a nonnegativity constraint on wealth abstract this paper examines the issue of optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of lognormal rather than normal returns and of a constant absolute risk aversion utility function in this context the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical with those encountered in the bulk of the literature which has largely overlooked this problem negative results concerning the derivation of equilibrium in the futures markets and the computation of the open interests then follow

steady state unemployment under profit sharing this paper demonstrates how asymmetric treatment of high seniority insider workers and non tenured outsiders gives rise to bad macroeconomic st eady states in a wage economy the framework uses a nash bargaining solution where workers may bargain over pay but firms control hiring profit sharing is then considered as an alternative payment mechanism having the automatically corrective incentive property that employers want to hire more outsiders given the assumptions of the model it is shown that widespread profit sharing results in lower unemployment and more output even though it is individually rational for insiders to prefer wages over profit shares copyright 1987 by royal economic society

valuing risk in the workplace market price willingness to pay and the optimal provision of safety the theory of compensating wage differentials attributable to adam smith suggests that jobs with disagreeable characteristics will command high wages ceteris paribus most empirical tests of this theory with hedonic wage equations implicitly assume that workers willingness to pay for risk reduction safety in the workplace through diminished wages and market valuations of the price of these reductions are equivalent it is shown that this is not the case within the manufacturing sector where willingness to pay exceeds the price cost of risk reduction at current levels of risk exposure implications for implied value of life estimates are also examined copyright 1990 by mit press

consumption and portfolio policies with incomplete markets and short sale constraints the infinite dimensional case abstract we employ a martingale approach to study a dynamic consumption portfolio problem in continuous time with incomplete markets and short sale constraints we introduce a notion of minimax local martingale and transform the dynamic problem into a static problem of maximizing expected utility over the consumption bundles that satisfy a single budget constraint formed using that measure we establish the existence of and characterize the minimax local measure provide sufficient conditions for the dynamic consumption portfolio problem to have a solution and relate the optimal policies to the solution of quasi linear partial differential equation

optimal consumption investment policies with undiversifiable income risk and liquidity constraints abstract this paper examines the continuous time optimal consumption and portfolio choice of an investor having an initial wealth endowment and an uncertain stream of income from non traded assets the income stream is not spanned by traded assets and the investor is not allowed to borrow against future income so the financial market is incomplete we solve the corresponding stochastic control problem numerically with the markov chain approximation method prove convergence of the method and study the optimal policies in particular we find that the implicit value the agent attaches to an uncertain income stream typically is much smaller in this incomplete market than it is in the otherwise identical complete market our results suggest that this is mainly due to the presence of liquidity constraints

international investment barriers in general equilibrium abstract this paper examines quantitative international investment barriers in a general equilibrium model the constraints force otherwise similar agents to hold different portfolios of risky assets we show that this induces lending and borrowing this in turn instroduces a hedging motive against shifts in the interest rate the factors affecting agents portfolio choice the allocation of capital across countries as well as the interest rate are charcterized we conjure that the equilibrium world interest rate will be lower in the constrained situations than with free capital flows