foreign direct investment and employment home country experience in the united states and sweden we compare the relation between foreign affiliate production and parent employment in us manufacturing multinationals with that in swedish firms us multinationals appear to have allocated some of their more labour intensive operations selling in world markets to affiliates in developing countries reducing the labour intensity in their home production swedish multinationals produce relatively little in developing countries and most of that has been for sale within host countries with import substituting trade regimes the great majority of swedish affiliate production is in high income countries the united states and europe and is associated with more employment particularly blue collar employment in the parent companies the small swedish owned production that does take place in developing countries is also associated with more white collar employment at home the effects on white collar employment within the swedish firms have grown smaller and weaker over time

the environmental economic impact of woodland a two stage hedonic price model of the amenity value of forestry in britain woodland is an important part of the environment providing economic benefits through its use in commercial timber production and through its value as an amenity as well as providing recreation for visitors woodland is also important to local residents for whom it provides leisure opportunities and a source of aesthetic enjoyment it is well known that the price of a house may reflect a household s willingness to pay to live near an environmental amenity such as a forest and to gain access to it the nature of this relationship may be examined by applying the hedonic price technique an econometric method which investigates house prices and the variation in structural and environment characteristics over space this study uses a two stage hedonic price model to explore the impact of forest type on house price and to estimate the demand for broadleaved woodland for a sample of houses adjacent to forestry commission land

japanese and u s firms as foreign investors do they march to the same tune during the 1980s u s and japanese multinationals were attracted by some similar country characteristics low wage inflation low country risk good infrastructure and an educated work force both groups of investors displayed a persistence being strongly attracted to locations with significant past investment japanese firms started the decade as somewhat more fluid but as their investment levels surged they became much more persistent overall u s firms were more influenced by domestic market conditions and moved contrary to changes in host country trade intensity japanese investment had a somewhat greater affinity for trade reflecting their long standing interest in east asia some limited evidence suggests that factors driving the two groups of investors converged in the second half of the 1980s

tax competition between developed emerging and developing countries same same but different abstract this paper analyzes tax competition between countries which differ in their country specific risks we show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits with high costs of profit shifting higher risk countries set lower tax rates than lower risk countries whereas the opposite is true if the costs of profit shifting are low the results provide an explanation for the patterns observed in the corporate income tax policies across countries differing in their level of development moreover for intermediate costs of profit shifting we show that countries absolute risk level plays an important role in tax rate setting these results carry important implication for the empirical tax competition literature

identification and stochastic specification in rosen s hedonic price model abstract the use of an explicitly specified utility function to derive the inverse demand functions in s rosen s hedonic price model provides considerable insight into the correct stochastic specification of the model it turns out that except in special cases the inverse demand equations are nonlinear in parameters and cannot be formulated conveniently as regression models moreover the inverse demand functions and the hedonic price function must be estimated simultaneously to obtain consistent estimates of the parameters of these functions a tractable estimation technique is described it is desirable to derive the inverse demand functions from a utility specification that is not a strongly separable function of houses attributes since strong separability implies the existence of deterministic relations among incomes prices and observed housing attributes that may fail to hold in applications finally it is shown that the use of an explicitly specified utility function does not guarantee identification of the parameters of rosen s model

firm specific assets and the gains from direct foreign investment it is widely held that multinational enterprises arise as a consequence of the existence of knowledge based firm specific assets such as superior technology or management know how these assets are much like public goods within the firm in that they can be costlessly supplied to additional plants thus leading to the efficiency of multiplant production foreign direct investment then consists of supplying the services of the assets to foreign operations and repatriated earnings are payments for these services these notions are formalized in a simple model of the multinational enterprise and welfare implications are analyzed copyright 1989 by the london school of economics and political science

constrained non concave utility maximization an application to life insurance contracts with guarantees abstract we study a problem of non concave utility maximization under a fair pricing constraint the framework finds many applications in for example the optimal design of managerial compensation or equity linked life insurance contracts deriving closed form solutions we observe that the fair pricing constraint will reduce the riskiness of the optimal strategies substantially in an extensive numerical section we analyze innovative retirement products that adapt the investment strategy of the premium pool according to the policyholder s preferences modeled as constant relative risk aversion crra such products are a response to the loss of attractiveness of traditional life insurance contracts with guarantees that are negatively affected by increasing solvency requirements for return guarantees and a general decrease in interest rate levels taking into account that retirement products are usually tax privileged we find that fairly priced guarantee contracts that follow this optimal investment strategy lead to a higher expected utility level than asset investments

tax competition when governments lack commitment excess capacity as a countervailing threat consider a multinational firm that can produce for the world market from two countries in each country the firm has to make a costly ex ante investment in capacity after which each government chooses a tax rate and then the firm determines output levels if there were only one country there would be the standard timeinconsistency problem the government would set a confiscatory tax ex post the firm would realize this ex ante and no investment would be made the interesting point of this paper is that the situation is very different when there are two countries the firm invests in both countries so as to gain leverage ex post if the firm holds more capacity than is needed to meet world demand then this induces tax competition for capacity utilization among governments ex post because the firm can threaten to serve the market at least partially from a plant in a different country competition leads to low enough tax rates to justify the initial investment in excess capacity when capacity costs are sufficiently low when capacity costs are too high the firm will not invest at all as the standard timeinconsistency problem suggests thus the paper generates and combines tax competition and lack of government commitment within a single framework the above logic provides also a novel argument for becoming a multinational firm there is some evidence in support of the strategic use of excess capacity for example general motors gm announced it will build almost identical plants in several risky countries which allows gm to shift production easily at the same time the newly established capacity will probably exceed gm s sales another application is the problem of how multinationals export oil from the caspian sea the caspian sea is surrounded by politically unstable countries multinationals started to build and lobby for multiple pipelines through several countries in order to keep transit fees low these and other applications are discussed in more detail in section v the paper sheds new light on the relationship between multinational firms and host governments on the one hand a multinational firm can be viewed as the powerful agent in the relationship because the firm decides in which country to invest eager governments often offer substantial tax benefits in order to attract investment this view is underlying the literature on tax competition see for example john d wilson 1986 dan a black and william h hoyt 1989 ian king et al 1993 on the other hand and in a separate literature multinational firms are portrayed as the potential victims of host governments who may renege on tax promises after the firm has made a sunk investment and has become partially immobile see for example eric w bond and larry samuelson 1989 chris doyle and sweder van wijnbergen 1994 jonathan thomas and tim worrall 1994 hence the host government is the powerful agent and this may lead to underinvestment if anticipated by the firm 2 while both views capture elements of truth it is unsatisfactory that our understanding of the relationship seems to department of economics university of colorado boulder co 80309 e mail janeba colorado edu this research was undertaken while i was at indiana university in bloomington i am grateful to mike baye susanne janeba dave schmidt greg shaffer jay wilson and two anonymous referees as well as participants at the stanford institute for theoretical economics 1998 and workshop participants at the universities of bonn colorado indiana michigan munich pennsylvania state and toronto for very helpful comments the usual disclaimer applies l in a different context patrick j kehoe 1989 considers also tax competition after a private sector decision is made in his model however atomistic individuals decide on savings and cannot influence the degree of tax competition 2 it should be noted that in the second literature strand tax holidays are sometimes derived endogenously in an infinite horizon game tax holidays help overcome lack of commitment see for instance doyle and van wijnbergen 1994

comment sequential moment restrictions in panel data 1992 comment sequential moment restrictions in panel data journal of business economic statistics vol 10 no 1 pp 20 26

the impact of bilateral free trade agreements on bilateral foreign direct investment among developed countries previous studies find that a trade treaty positively impacts foreign direct investment fdi but does a trade treaty always have positive effects on fdi what is the effect of bilateral free trade agreement fta on bilateral fdi among developed countries based on the knowledge capital model i hypothesize that bilateral fta has negative effects on bilateral fdi in developed developed country pairs but positive effects in developed developing country pairs to test this hypothesis empirically i conduct the within estimator the difference in difference estimator and the arellano bond estimator with panel data of bilateral fta and outward fdi in 30 oecd countries and 32 non oecd countries between 1982 and 2005 the result supports the hypothesis the existence of bilateral fta decreases bilateral fdi in the oecd oecd country pairs but increases bilateral outward fdi in the oecd non oecd country pairs the finding of negative effects of bilateral fta on fdi is robust to different country classifications by gross national income gni per capita and secondary school enrolment hence the results are consistent with what carr et al 2001 predicts about the effects of trade cost on fdi in developed developed country pairs and in developed developing country pairs

replicative evidence on the demand for owner occupied and rental housing some important results in urban economic theory and policy analysis rest upon housing demand and its associated price and income elasticities the extent to which the affluent choose to live away from the city s center thus increasing their commuting time depends on the relative income elasticities of housing demand and valuation of leisure in a more policy oriented framework the relative efficacies of income as opposed to housing price subsidies for low income households depend on the relative values of income and price elasticities

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

location costs product quality and implicit franchise contracts abstract in the literature on international trade only little attention has been given to informational asymmetries between firms and consumers with respect to product quality the few economic models that analyze the question of how asymmetric information about product quality might affect trade flows treat product quality as exogeneous in contrast our model takes product quality as an endogeneous variable i e firms can choose the quality they wish to produce in this case location costs can signal product quality under certain conditions and thereby affect international trade flows more specifically intra industry trade in vertically differentiated experience goods can be determined by information asymmetries about product quality

optimal portfolio choice under loss aversion this paper analyzes the optimal investment strategy for loss averse investors assuming a complete market and general ito processes for the asset prices the loss averse investor follows a partial portfolio insurance strategy when the investor s planning horizon is short less than 5 years he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility the empirical section of the paper estimates the level of loss aversion implied by historical u s stock market data using a representative agent model we find that loss aversion and risk aversion cannot be disentangled empirically

loss aversion in a consumption savings model abstract we propose a model of consumption and saving based on kahneman and tversky s prospect theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption when there is sufficient income uncertainty a person resists lowering consumption in response to bad news about future income this resistance is greater than the resistance to increasing consumption in response to good news we present empirical evidence from five countries that confirms this behavior

on the choice of funtional form for hedonic price functions this study examines how errors in measuring marginal attribute pric es vary with the form of the hedonic price function in simulations consumers with known utility functions bid for houses with given attributes various forms of the hedonic function are estimated using equilibrium housing prices errors in estimating marginal attribute prices are calculated by comparing each consumer s equilibrium marginal bid vector with the gradient of the hedonic function when all attributes are observed linear and quadratic box cox forms produce lowest mean percentage errors however when some attributes are unobserved or are replaced by proxies linear and linear box cox functions perform best copyright 1988 by mit press

benefits and consumption effects of public housing programs in belgium some aggregate results in this paper we estimate some aggregate consumption effects and the benefits of public housing programs in belgium on the basis of a small sample of individual households specifying a stone geary utility function defined on housing and other goods we develop estimates of all required inputs to calculate hick s equivalent variation we further analyze changes in consumption patterns as well as the distribution of benefits over the sample our results provide the first information on the effects of public housing in belgium derived from micro data

licensing versus direct investment a model of internalization by the multinational enterprise a firm must decide whether to serve a foreign market by exporting building a foreign branch plant or licensing the production to an existing foreign producer the existence of reputations implies that any licensing agreement must provide a licensee with the incentive to maintain the reputation this creates a motive for the firm to internalize transactions by building a branch plant i e by becoming a multinational the model reflects a more general notion that the inability of the firm to control a licensee s agent s actions can provide incentives for multinational activity the paper explores the determinants of the firm s mode of operation as well as the consequences of certain government policies

domino dumping i competitive exporters when exporting firms face the prospect of voluntary export restraints they have an incentive to export more than with no prospect of a voluntary export restraint since greater exports lead to larger license allocations in the event of a voluntary export restraint export country governments incentives differ leading either to export tax or subsidy depending on the circumstances the prospect of one departure from free trade thus leads to another a domino effect antidumping enforcement will ordinarily not eliminate and ironically may increase dumping copyright 1992 by american economic association

the location of overseas production and production for export by u s multinational firms abstract the location of overseas manufacturing production is influenced by common factors that operate in all industries notably proximity to the united states and to other markets within industries opposites attract low wage and low capital intensity parents choose high wage countries production for export is attracted by large internal markets in host countries economies of scale in production presumably make large markets economical as export bases another factor is high trade propensities of host countries u s firms tend to export from high wage countries but labor cost is not in general a major influence on the location of export production

lifetime consumption and investment retirement and constrained borrowing retirement flexibility and inability to borrow against future labor income can significantly affect optimal consumption and investment with voluntary retirement there exists an optimal wealth to wage ratio threshold for retirement and human capital correlates negatively with the stock market even when wages have zero or slightly positive market risk exposure consequently investors optimally invest more in the stock market than without retirement flexibility both consumption and portfolio choice jump at the endogenous retirement date the inability to borrow limits hedging and reduces the value of labor income the wealth to wage ratio threshold for retirement and the stock investment

ec members fighting about surplus vers fdi and japanese cars the distribution of consumer and producer surplus among ec members of three different trade regimes free trade a voluntary export restraint ver and a ver in conjunction with foreign direct inv

an econometric model of housing price permanent income tenure choice and housing demand abstract this paper addresses the determination of housing price permanent income tenure choice and housing demand full housing demand elasticities incorporate the interactive effects among the four stages of the model price and income have major effects in the tenure choice equation sociodemographic variables such as age have complex effects that may be lost in simpler forms of estimation

optimal investment and consumption when allowing terminal debt we analyze a dynamic optimization problem which involves the consumption and investment of an investor with constant relative risk aversion for consumption but with a risk aversion for final wealth which does not necessarily imply that terminal wealth must always be positive we require risk aversion for terminal wealth to be positive but not monotone there is a point of maximal risk aversion at zero wealth and the investor may continue to consume when wealth is negative using dual optimization methods we can derive explicit solutions and we find that the optimal solution differs in a fundamental way from the case where risk aversion is monotone it turns out that the optimal consumption function is convex and concave at different wealth levels and that the optimal investment strategy may no longer be monotone as a function of the remaining time to invest and consume

merton s portfolio problem including market frictions a closed form formula supporting the shadow price approach abstract this paper formulates a portfolio optimization in a friction market as a suitable stochastic control problem with hyperbolic absolute risk aversion utility functions under a specific functional form of the amount of wealth invested in the risky asset inspired by the merton optimal dynamics the state variable is the amount of wealth invested in the risky asset while the control variable is the share rate this formulation has two advantages first it provides a portfolio where the optimality is obtained by minimizing the probability of large changes in the portfolio composition with consequently low frictions while allowing for an explicit solution to the optimal control problem second with this formulation it can be proven that this optimal solution is the optimal solution of the frictionless merton problem for corrected price dynamics the corrected dynamics shows that the market friction increases the risk premium by an additional term that is an elementary function of the risk associated with the market frictions as well the price of the risk which also depends on the risk aversion of the investor in addition the corrected dynamics supports the existence of a shadow price in friction markets as already shown in kallsen and muhle karbe 2010 finally an empirical analysis to assess the model performance is illustrated on five minute data of four major traded stocks three market indexes and four exchange rates including the bitcoin usd rate

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

corporate tax holidays and investments governments of developing countries commonly adopt tax holidays to encourage investment this article evaluates the incentives provided by company income tax holidays and explains the importance of the timing of depreciation allowances in determining the effective tax rates and the cost of capital to firms considering additional investment during the holiday if an asset is long lived and depreciation allowances for tax purposes are accelerated the tax holiday by preventing depreciation deductions during the periods of peak profits may actually penalize a company for investing during the holiday the closer the investment to the end of the holiday period the more severe the penalty if instead depreciation allowances may be deferred until after the holiday this program of incentives is quite generous to the firm how these sharply contrasting results may emerge is illustrated through estimation of effective tax rates and user costs of capital under tax holiday systems in bangladesh cote d ivoire malaysia morocco and thailand

the impact of bilateral investment treaties on fdi dynamics this paper investigates the impact of bilateral investment treaties bits on foreign direct investment fdi in transition countries fdi stocks are characterised by sluggish adjustment and a dynamic pattern this leads to biased estimates of the contemporaneous impact of bits on fdi in static models in our application the contemporaneous short run impact of bits amounts to 4 8 per cent and the long run effect to 8 9 per cent in the preferred model copyright 2007 the authors journal compilation blackwell publishing ltd 2007

estimating the demand for the characteristics of housing a hstract estimates of the demand for the characteristics contained in a differentiated product such as housing can be based on hedonic regressions however previous studies have not dealt with several potential problems in such estimation a more appropriate framework for the estimation is provided in this paper also data from a number of cities are used to eliminate the identification problem and the endogeneity of the marginal prices derived from non linear hedonic equations is considered in the estimation the results on own and cross price elasticities expenditure elasticities and the effects of socio economic vafiables accord well with expectations

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

consumption and portfolio rules for time inconsistent investors abstract this paper extends the classical consumption and portfolio rules model in continuous time merton r c 1969 lifetime portfolio selection under uncertainty the continuous time case review of economics and statistics 51 247 257 merton r c 1971 optimum consumption and portfolio rules in a continuous time model journal of economic theory 3 373 413 to the framework of decision makers with time inconsistent preferences the model is solved for different utility functions for both naive and sophisticated agents and the results are compared in order to solve the problem for sophisticated agents we derive a modified hjb hamilton jacobi bellman equation it is illustrated how for crra functions within the family of hara functions logarithmic and power utilities the optimal portfolio rule does not depend on the discount rate but this is not the case for a general utility function such as the exponential cara utility function

does the quality of investment protection affect fdi flows to developing countries evidence from latin america studies on the impact of international investment agreements iias including bilateral investment treaties bits on foreign direct investment fdi inflows have been inconclusive this paper contributes to the debate about the effectiveness of iias using an original database that differentiates between investment agreements according to the quality of investor protection and which covers a wide variety of trade and investment agreements signed and ratified in the americas we find evidence that in the least likely case of south south fdi flows high quality international investment treaties have a demonstrable effect on foreign direct investment inflows moreover international investment agreements appear to be most effective in a context of deeper economic integration that is they work better when they provide higher quality protection to investors and when they are combined with other preferential economic integration agreements such as trade agreements

voting for protection does direct foreign investment influence legislator behavior the political economy of trade protection has long been of interest to economists and policy makers the idea that levels of protection may be endogenous with trade flows has been a particularly important issue in the literature in general the endogenous protection literature postulates that import penetration will cause domestic interests to lobby more intensely for protection thus higher levels of import penetration lead to increased protection as a result a number of papers see for example arye l hillman 1982 wolfgang mayer 1984 robert e baldwin 1985 stephen p magee et al 1989 ronald d fischer 1992 have established that foreign firms will import less under a regime of endogenous protection than one where the level of protection is exogenous to trade flows on the empirical side daniel trefler 1993 finds that ignoring the endogeneity of trade and protection understates the impact of u s protection on imports by a magnitude of ten this abstract was borrowed from another version of this item

quid pro quo foreign investment and welfare a political economy theoretic model abstract the classic paper by brecher and diaz alejandro 1977 analyzed the implications of tariff jumping direct foreign investment dfi induced by the imposition of an import tariff we analyze a new type of dfi where it occurs with a view to defusing not circumventing protection or rather the threat of protection by the host country an example is the dfi by japan in the united states the decision about the level of foreign investment is taken in the first of a two period horizon period this together with the level of exports in the first period determines the probability of a quota on exports being imposed in the second period policy makers aware of the effects of the first period decisions on the second period will impose an optimal tariff and an optimal tax subsidy on capital exports

compensating variation consumer s surplus via succesive approximations many economists agree that the best measure of consumer s surplus is the compensating variation consumer s surplus cvcs howerver because the compensated demand function is not observable there are problems in using this measure in emperical applications there are ways around this limitations that work well under certain circumstances however until now there has been no solution that always works well we introduce a sucessive approximations method of calculating compensating variation consumer s surplus using data from the ordinary demand curve in doing so we numerically identify the compensated demand fuction over the price interval involved this procedure can be made extremely small we also use our method to calculate cvcs for three applications in the literature where marshallian surplus was reported

endogenous protection foreign direct investment and protection building trade abstract we introduce the possibility of foreign direct investment fdi in a strategic oligopolistic setting with endogenous protection and find that a number of unique subgame perfect equilibria may arise including a new result we call protection building trade this phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country through increased exports to provide larger barriers against other foreign competitors in future periods we discuss how the foreign firm behavior surrounding significant u s protectionist actions including the vers on japanese automobiles may be consistent with protection building trade behavior

mergers and acquisitions trade a global value chain analysis the present paper deals with how the insertion in international trade and global value chains gvcs of countries affects their capacity of attracting foreign mergers and acquisitions m as to this end we combine data for bilateral m as and trade in value added for the period 2001 15 and estimate an augmented gravity equation results indicate that trade openness per se does not favour m as nevertheless bilateral free trade agreements heterogeneity of destinations sources for exports imports of intermediate and final goods and position and participation in global value chains are relevant for explaining bilateral m as moreover their role is significantly different depending on the level of development of the home and host countries

tax incentives for import substituting foreign investment abstract this paper constructs a game theoretic model to study host country policy to attract import substituting foreign direct investment fdi investors are assumed to be incompletely informed about local investment conditions and taxes and tariffs are determined endogenously we show that in certain situations countries will offer tax incentives while in others they will impose a tariff wall to induce fdi tax incentives are motivated by the need to signal favorable investment conditions the paper predicts that tax incentives are more likely to be used the larger is the investment risk the smaller is the local market the smaller is the stock of previous fdi and the lower are trade barriers moreover we conjecture that incentives are positively correlated with the number of jobs created by the investment we test these predictions using data from the us department of commerce benchmark survey of us foreign investment and find that they are supported by the empirical evidence

portfolio insurance and prospect theory investors popularity and optimal design of capital protected financial products abstract portfolio insurance strategies are used on both the institutional and the retail side of the asset management industry while standard utility theory struggles to provide an explanation this study justifies the popularity of portfolio insurance strategies in a behavioral finance context we run monte carlo simulations as well as historical simulations for popular portfolio insurance strategies and benchmark strategies in order to evaluate the outcomes using cumulative prospect theory our simulation results indicate that most portfolio insurance strategies are the preferred investment strategy for a prospect theory investor moreover the analysis provides insights into how portfolio insurance products should be designed and structured to meet the preferences of prospect theory investors as accurately as possible

fdi in space spatial autoregressive relationships in foreign direct investment abstract there are a number of theoretical reasons why foreign direct investment fdi into a host country may depend on the fdi in proximate countries such spatial interdependence has been largely ignored by the empirical fdi literature with only a couple recent papers accounting for such issues in their estimation this paper conducts a general examination of spatial interactions in empirical fdi models using data on us outbound fdi activity we find that estimated relationships of traditional determinants of fdi are surprisingly robust to inclusion of terms to capture spatial interdependence even though such interdependence is estimated to be significant however we find that both the traditional determinants of fdi and the estimated spatial interdependence are quite sensitive to the sample of countries one examines

an index of loss aversion to a considerable extent risk aversion as it is commonly observed is caused by loss aversion several indexes of loss aversion have been proposed in the literature the one proposed in this paper leads to a clear decomposition of risk attitude into three distinct components basic utility probability weighting and loss aversion the index is independent of the unit of payment the main theorem shows how the indexes of different decision makers can be compared through observed choices

costs and benefits of housing subsidies to tenants from voluntary and involuntary rent control a comparison between tenures and income groups this paper estimates the economic subsides to housing for different groups using the 1988 joseph rowntree memorial trust sample survey of households an olsen type model is used to estimate consumber surplus to households from subsidized housing these estimates are compared to costs and housing services in the owner occupier market poorer families receive larger benefits than richer families transfer efficiency is not high but the local authority sector receives the greatest benefits from controlled rents

the choice of functional forms for hedonic price equations comment abstract rosen 13 freeman 4 halvorsen and pollakowski 6 and others have stressed that economic theory does not suggest an appropriate functional form for hedonic price functions 1 it consequently is reasonable to try several functional forms and utilize the multiple regression equation with the best performance in this spirit halvorsen and pollakowski 6 recommend using the box cox flexible functional form for hedonic analysis and measuring best performance with a goodness of fit test the box cox methodology has also been adapted in hedonic studies by goodman 5 linneman 10 blomquist and worley 1 and eberts and gronberg 3 2 the box cox is particularly suited for testing functional forms because many familiar forms such as semilog log linear and translog are subsets of the flexible box cox permitting nested hypothesis testing in this note we illustrate that the formal hypothesis testing advantage of the box cox functional form is purchased at the expense of other important goals the goal of most hedonic studies is to estimate the prices of the characteristics to measure the response to changes in the prices and or to predict future expenditures using a best fit criterion to choose functional forms does not necessarily lead to more accurate estimates of characteristic prices in fact the large number of coefficients estimated with the box cox functional form reduces the accuracy of any single coefficient which could lead to poorer estimates of specific prices second because any negative number raised to a noninteger real power is imaginary the traditional box cox functional form is not suited to any data set containing negative numbers third the box cox functional form may be inappropriate for prediction since the mean predicted value of the untransformed dependent variable need not equal the mean of the sample upon which it is estimated the predicted untransformed variable housing value will be biased the predicted untransformed dependent variable may also be imaginary fourth the nonlinear transformation results in complex estimates of slopes and elasticities which are often too cumbersome to use properly we discuss each of these drawbacks and quantify them when possible in the remainder of this note

free trade agreements and foreign direct investment the role of endogeneity and dynamics this article studies the impact of free trade agreements fta on outbound foreign direct investment fdi from one perspective fta may promote fdi since fta aim to promote economic activity between countries however lower trade barriers may lower the incentive of firms to conduct fdi therefore the net impact is an empirical question using a panel of countries for the years 1990 2006 this article effectively controls for participation in an fta when analyzing the impact on outbound fdi the lengthy time series also allows us to examine effectively the dynamic nature of the relationship failing to account for endogeneity and dynamics would likely generate inaccurate conclusions regarding the impact of fta on outbound fdi our analysis finds that outbound fdi is either unrelated to participation in an fta or is negatively affected

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

the amenity value of woodland in great britain a comparison of economic estimates forests produce benefits over and above the revenue yielded from timber and other wood based products most important among these may be the recreational benefits for visitors which have been examined in several studies total benefits for residents are perhaps more accurately captured in property values since ceteris paribus the price of a house reflects willingness to pay to live near an environmental amenity such as a forest to gain access to it and also the amenity non use value of the forest in so far as it creates a pleasant landscape however the total non priced value of forestry is not the sum of hpm and itcm benefit estimates recreational benefits will typically be less and will be subsumed in the hpm estimates since the hedonic price is partly induced by the value of recreational access

trade policy issues and empirical analysis interest in u s trade policy has been stimulated in recent years by the massive american trade deficit by the belief that intervention by foreign governments in international markets has given other countries a competitive edge over the united states and by concern about the increase in protectionism among industrial countries in turn major analytical developments in international economics have revolutionized trade theory broadening its scope both by introducing in a more formal manner such concepts as imperfect competition increasing returns product differentiation and learning effects and by including the study of political and economic factors that shape trade policy decisions this collection of papers the result of a conference held by the nber applies these new trade theories to existing world cases and also presents complementary empirical studies that are grounded in more traditional trade theories the volume is divided into four parts the papers in part 1 consider the problem of imperfect competition empirically assessing the economic effect of various trade policies introduced in industries in which the new trade theory seems to apply those in part 2 isolate the effects of protection from the influences of the many economic changes that accompany actual periods of protection and also examine how the effects from exogenous changes in economic conditions vary with the form of protection part 3 provides new empirical evidence on the effect of foreign production by a country s firms on the home country s exports finally in part 4 two key bilateral issues are analyzed recent u s japanese trade tensions and the incident involving the threat of the imposition of countervailing duties by the united states on canadian softwood lumber

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

liberalisation and protection under overlapping free trade agreements dynamic interplay between free trade agreements and investment two decades into the most recent wave of regionalism many of its implications remain to be fully understood a vast literature has explored the impacts of free trade agreements ftas on investment flows but less attention has been given to how existing patterns of investment alter fta liberalisation it is contended here that the dynamic interplay between overlapping fta areas and the investment sunk in them shapes governments and firms positions regarding further fta liberalisation during trade negotiations a country may decide to exclude a sector from fta liberalisation to prevent concession prevention future fta partners from making similar demands concession prevention could also occur when a foreign firm holding a dominant market position in a host country relinquishes liberalisation demands in an fta between host and home countries to prevent its current position being eroded if the host country grants similar or better concessions to competing firms from other countries in future ftas conversely investment sunk into a country s sensitive sector in the territory of partners from previous ftas could pre empt concession pre emption the protectionist position of that country when it subsequently negotiates ftas with the investment source countries these arguments were tested in the negotiations around the liberalisation of the automotive industry that thailand and malaysia had with japan in their respective bilateral ftas the distinct interaction between investment and the ftas in which these countries participate resulted either in entrenchment of protectionism in the sector or its liberalisation across subsequent ftas

a knowledge and physical capital model of international trade flows foreign direct investment and multinational enterprises abstract this paper addresses two important issues at the nexus of the literatures on international trade foreign direct investment fdi foreign affiliate sales fas and multinational enterprises mnes first the introduction of a third internationally mobile factor physical capital to the standard 2 2 2 knowledge capital model of mnes with skilled and unskilled labor allows us to resolve fairly readily the puzzle in the modern mne literature that foreign affiliate sales among two identical economies completely displace their international trade intra industry trade and intra industry fdi and fas can coexist for national and multinational firms with identical productivities in identical countries second the introduction also of a third country to the model suggests a formal n country theoretical rationale for estimating gravity equations of bilateral fdi flows and fas in a manner consistent with estimating gravity equations for bilateral trade flows

how a firm can induce legislators to adopt a bad policy this paper shows why a majority of legislators may vote for a policy that benefits a firm but harms all legislators the firm may induce legislators to support the policy by suggesting that it is more likely to invest in a district where voters or their representative support the policy in equilibrium no one vote may be decisive so each legislator who seeks the firm s investment votes for the policy though all legislators would be better off if they all voted against the policy and when votes reveal information about the district the firm s implicit promise or threat can be credible unlike influence mechanisms based on contributions or bribes the behavior considered is time consistent and in line with the low campaign contributions by special interests

trade policy and productivity abstract previous studies on the determinants of productivity emphasized the role of trade and institutions but omitted trade policy due to endogeneity concerns this paper considers the role of one important element of trade policy free trade agreements ftas based on recent work on the determinants of ftas we suggest an instrument which is based on the propensity to enter an fta due to exogenous geographical characteristics we find that differences in institutional quality and trade due to variations in geography and trade policy have a sizeable effect on productivity and can explain the huge variation in per capita income across countries

on the concavity of the consumption function at least since keynes 1935 many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases nonetheless standard perfect certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth we show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which as keynes suggested the marginal propensity to consume out of wealth or transitory income declines with the level of wealth