a test of independence of discounting from quality of life the quality adjusted life years qaly model assumes quality and quantity of life can be multiplied into a single index and requires quality and quantity to be mutually independent which need not hold empirically this paper proposes a new test for measuring independence of utility of life duration from quality of life in a riskless setting we use a large representative sample of dutch citizens and include two health states generally considered better than dead btd and one health state considered worse than dead wtd independence cannot be rejected when comparing the btd health states but is rejected when comparing the btd states with the wtd state in particular utility of life duration becomes more concave for the wtd state this may suggest that independence holds only for btd health states this has implications for the qaly model and would require using sign dependent utility of life duration functions

forecasting the yield curve with the arbitrage free dynamic nelson siegel model brazilian evidence abstract we assess the extent to which the imposition of a no arbitrage restriction on the dynamic nelson siegel model helps obtaining more accurate forecasts of the term structure for that purpose we provide an empirical application based on a large panel of brazilian interest rate future contracts and test for differences in forecasting performance among alternative benchmark specifications including the random walk vector autoregressions and the dynamic nelson siegel we show empirically that the arbitrage free nelson siegel model is able to outperform all other benchmark models when longer forecasting horizons are taken into account

the selection of preferences through imitation the paper presents a model in which a population of agents repeatedly play games against nature the rules of behaviour followed are revised over time through a process of imitation for binary decisions imitation selects rules consistent with a preference relation of the kind proposed by ssb utility theory and regret theory in general this preference relation need not satisfy either independence or transitivity we state conditions on imitation necessary for it to do so for decisions over three or more options the long run tendency is for options that are maximally preferred in terms of ssb preferences to be chosen if no maximally preferred option exists the process of imitation may not converge

strike three discrimination incentives and evaluation major league baseball umpires express their racial ethnic preferences when they evaluate pitchers strikes are called less often if the umpire and pitcher do not match race ethnicity but mainly where there is little scrutiny of umpires pitchers understand the incentives and throw pitches that allow umpires less subjective judgment e g fastballs over home plate when they anticipate bias these direct and indirect effects bias performance measures of minorities downward the results suggest how discrimination alters discriminated groups behavior generally they imply that biases in measured productivity must be accounted for in generating measures of wage discrimination

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

managerial quality team success and individual player performance in major league baseball this paper uses 1969 87 major league baseball data to investigate the impact of managerial quality on team winning and individual player performance managerial quality and player performance are measured as predicted pay based on salary regressions these market based measures permit conclusions about costs and benefits of managerial quality there are two major findings first when player inputs are controlled for higher quality managers lead to higher winning percentages second players tend to play better relative to their prior performance levels the higher the manager s quality these findings suggest that as emphasized by the human resource management literature the quality of management makes an important difference in the performance of organizations

measuring managerial efficiency the case of baseball in economic analysis the role of the entrepreneur is paramount to the production process the entrepreneur is engaged in a darwinian game of efficiently transforming scarce resource inputs into outputs in the modern business organization this role is delegated to managers despite the conceptual importance of the role of management in the production function very little is known about the actual effect on output of variations in managerial skill in part this is due to the lack of proprietory data in part it is due to difficulties in measuring the outputs and inputs of complex production processes in a meaningful way a number of investigators have employed the concept of the frontier production function as developed by forsund and hjalmarsson 1 and timmer 6 and more recently by schmidt and lovell 3 to measure the effect on technical and price efficiency of various property rights structures or institutional constraints to our knowledge estimates of managerial efficiency have not been obtained with firm specific data except for some regulated industries in this study we estimate managerial efficiency by manager and by firm managerial marginal revenue product the rate of change in managerial efficiency over years of experience and relative factor price efficiency we use major league baseball teams over the period 1961 1980 as our data source what is particularly appealing about the choice of major league baseball teams as the industry for analysis is that outputs win percent and inputs player skills are unambiguously measured and the production function is simply specified as shown by scully 5 our results indicate that managerial skill in baseball contributes very substantially to the production process the paper will evolve as follows first the concept of the frontier production function is briefly outlined then estimates of managerial efficiency by manager and by team are provided and discussed a managerial efficiency learning curve is estimated an estimate of managerial marginal revenue product provided and the managerial efficiency

coaching for survival the hazards of head coach careers in the german bundesliga this article analyses how long head coaches survive in the clubs of the first german football league bundesliga where the dismissal of a presumably weak coach is a generally adopted procedure in case of a poor sporting performance of the team we use duration models for repeated events to accommodate the correlation within individuals we find that the head coaches of successful teams and those working during the more recent bosman effect period are more likely to survive in the bundesliga moreover the head coaches of clubs with relatively high team wage bills are likely to survive for shorter periods of time

the role of no arbitrage on forecasting lessons from a parametric term structure model abstract parametric term structure models have been successfully applied to numerous problems in fixed income markets including pricing hedging managing risk as well as to the study of monetary policy implications in turn dynamic term structure models equipped with stronger economic structure have been mainly adopted to price derivatives and explain empirical stylized facts in this paper we combine flavors of those two classes of models to test whether no arbitrage affects forecasting we construct cross sectional allowing arbitrages and arbitrage free versions of a parametric polynomial model to analyze how well they predict out of sample interest rates based on us treasury yield data we find that no arbitrage restrictions significantly improve forecasts arbitrage free versions achieve overall smaller biases and root mean square errors for most maturities and forecasting horizons furthermore a decomposition of forecasts into forward rates and holding return premia indicates that the superior performance of no arbitrage versions is due to a better identification of bond risk premium

the predictive validity of prospect theory versus expected utility in health utility measurement most health care evaluations today still assume expected utility even though the descriptive deficiencies of expected utility are well known prospect theory is the dominant descriptive alternative for expected utility this paper tests whether prospect theory leads to better health evaluations than expected utility the approach is purely descriptive we explore how simple measurements together with prospect theory and expected utility predict choices and rankings between more complex stimuli for decisions involving risk prospect theory is significantly more consistent with rankings and choices than expected utility this conclusion no longer holds when we use prospect theory utilities and expected utilities to predict intertemporal decisions the latter finding cautions against the common assumption in health economics that health state utilities are transferable across decision contexts our results suggest that the standard gamble and algorithms based on should not be used to value health

tests of utility independence when health varies over time in the conventional quality adjusted life year qaly model people s preferences are assumed to satisfy utility independence when health varies over time utility independence implies that the value attached to a health state is independent of the health state that arise before or after it two separate studies were conducted involving a total of 155 respondents in study one we conducted five tests of utility independence using a standard gamble question three of the tests of utility independence were repeated in study two after randomisation was introduced in order to take account of possible ordering effects utility independence holds in the majority of cases examined here and so our work generally supports the use of utility independence to derive more tractable models

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

the correction of tto scores for utility curvature using a risk free utility elicitation method this paper describes and employs a new method to correct time tradeoff tto scores for utility of life duration curvature in contrast to most previous attempts to do so it uses a risk free method that corresponds well to the risk free properties of the tto method in addition the method is robust to several biases that occur under methods that incorporate risk our results show a significant degree of curvature in utility of life duration and therefore a clear bias in tto scores the risk free method seems to be useful to correct tto scores for this influence and leads to significantly higher quality adjustment factors

prospect theory in the health domain a quantitative assessment it is well known that expected utility eu has empirical deficiencies cumulative prospect theory cpt has developed as an alternative with more descriptive validity however cpt s full function had not yet been quantified in the health domain this paper is therefore the first to simultaneously measure utility of life duration probability weighting and loss aversion in this domain we observe loss aversion and risk aversion for gains and losses which for gains can be explained by probabilistic pessimism utility for gains is almost linear for losses we find less weighting of probability 1 2 and concave utility this contrasts with the common finding of convex utility for monetary losses however cpt was proposed to explain choices among lotteries involving monetary outcomes life years are arguably very different from monetary outcomes and need not generate convex utility for losses moreover utility of life duration reflects discounting causing concave utility

the validity of qalys under non expected utility this paper examines applications of non expected utility in the health domain the most widely used utility model in health economics the time linear qaly model assumes i separability of quality of life and life duration and ii linearity of the utility for life duration we perform new tests which are robust to violations of expected utility of these two assumptions the data support separability but show that the utility for life duration is concave rather than linear the finding of concave utility may not be surprising in itself the contribution of this paper is to demonstrate this empirically without being invalidated by violations of expected utility it has by now been widely recognised that expected utility is not valid as a descriptive theory of decision under uncertainty the descriptive violations of expected utility have led to the emergence of several non expected utility theories the increasing importance of non expected utility makes it necessary to reassess applications that were previously based on expected utility examples of such reassessments include karni and safra 1989 crawford 1990 and dekel et al 1991 for game theory machina 1995 and wakker et al 1997 for insurance theory and cubitt and sugden 1998 for the evolution of preferences see starmer 2000 for a review the present paper examines applications of non expected utility in the health domain we focus on the main utility model in health economics the quality adjusted life years qaly model and present new theoretical foundations for and empirical tests of this model under non expected utility qalys provide a simple way to combine the two dimensions of health life duration and health status into a single utility index they are intuitively appealing which facilitates communication to policy makers and analytically tractable which explains their widespread use in practical studies a disadvantage of qalys is that they only represent individual preferences over health under strong assumptions if these assumptions do not hold then the use of qalys may lead to incorrect policy recommendations to gain insight into the validity of qalys it is necessary to assess the restrictiveness of the assumptions that the qaly model imposes in the most common version of the qaly model the time linear qaly model the utility of the health outcome of spending t years in health state q is equal to tv g where v is a utility function over health states that is in the time linear qaly model the utility for duration is linear it is well known that under expected utility linearity of utility implies risk neutrality as it turns out risk neutrality with

optimal enlistment age a cost benefit analysis and some simulations abstract enlistment at the earliest viable age maximizes the country s wartime army size and thereby the country s attack deterrence capacity injuries and death generate a loss of quantity and quality of life that reduces the benefit from early age enlistment the benefit from any age of recruitment is also affected by the rise and decline of the individual s military performance and civilian productivity and by the changes in the individual s adjustment costs over his lifecycle the simulations of an optimization model incorporating these cost and benefit elements suggest that if the intensity of the rise and decline of the individual s military performance is sufficiently larger than the intensity of the rise and decline of his civilian productivity there exists an interior optimal enlistment age that is greater than the commonly practiced 18 in such a case most of the simulation results are closely scattered around 21 despite large parameter changes

existence and dynamic consistency of nash equilibrium with non expected utility preferences sufficient conditions for the existence of a nash equilibrium are given when preferences may violate the reduction of compound lotteries assumption rcla without rcla decision makers may not be indifferent between compound lotteries which have the same probabilities of final outcomes therefore the conditions depend on how players perceive the game whether they view themselves as moving first or second we also review conditions under which the equilibria will be dynamically consistent

shirking on the court testing for the incentive effects of guaranteed pay prior work on long term contracts and the incentive to shirk has focused almost exclusively on major league baseball the current inquiry is the first to examine shirking in the national basketball association we employed two different measures of player productivity when the nba s measure is used we find evidence consistent with allegations of shirking behavior but when productivity is measured in a fashion more consistent with economists definition of marginal product the evidence of shirking evaporates jel j41 j44 l83 i introduction

forecasting government bond yields with large bayesian vector autoregressions abstract we propose a new approach to forecasting the term structure of interest rates which allows to efficiently extract the information contained in a large panel of yields in particular we use a large bayesian vector autoregression bvar with an optimal amount of shrinkage towards univariate ar models the optimal shrinkage is chosen by maximizing the marginal likelihood of the model focusing on the us we provide an extensive study on the forecasting performance of the proposed model relative to most of the existing alternative specifications while most of the existing evidence focuses on statistical measures of forecast accuracy we also consider alternative measures based on trading schemes and portfolio allocation we extensively check the robustness of our results using different datasets and monte carlo simulations we find that the proposed bvar approach produces competitive forecasts systematically more accurate than random walk forecasts even though the gains are small

dynamic consistency revelations in auctions and the structure of preferences analyzing the optimal bidding behaviour in ascending bid auctions and second price sealed bid auctions with independent private values we show that expected utility maximizing behaviour is equivalent to a dynamically consistent bidding in ascending bid auctions b the equivalence of the optimal bids in ascending bid auctions and in second price sealed bid auctions c bidding the value of the object in second price sealed bid auctions in addition the optimal bid in ascending bid auctions equals the value of the object if and only if the bidder s preferences on lotteries are both quasi concave and quasi convex

trying to estimate a monetary value for the qaly in this paper we study the feasibility of estimating a monetary value for a qaly mvq using two different surveys of the spanish population total n 892 we consider whether willingness to pay wtp is approximately proportional to the health gains measured in qalys we also explore whether subjects responses are prone to any significant biases we find that the estimated mvq varies inversely with the magnitude of health gain we also find two other ir regularities the existence of ordering effects and insensitivity of wtp to the duration of the period of payment taken together these effects result in large variations in estimates of the mvq if we are ever to obtain consistent and stable estimates we should try to understand better the sources of variability found in the course of this study

multiattribute utility theory without expected utility foundations methods for determining the form of utilities are needed for the implementation of utility theory in specific decisions an important step forward was achieved when utility theorists characterized useful parametric families of utilities and simplifying decompositions of multiattribute utilities the standard development of these results is based on expected utility theory which is now known to be descriptively invalid the empirical violations of expected utility impair the credibility of utility assessments this paper shows however that parametric and multiattribute utility results are robust against the major violations of expected utility they retain their validity under nonexpected utility theories that have been developed to account for actual choice behavior to be precise characterizations of parametric and multiattribute representations are extended to rank dependent utility state dependent utility choquet expected utility and prospect theory

analysing head coach dismissals in the german bundesliga with a mixed logit approach abstract this article analyzes the dismissal of head coaches in the top tier of german professional football the bundesliga a random parameter logit model is used to analyse the characteristics that are associated with the probability of a coach to be dismissed taking into account uncontrolled heterogeneity of the data policy implications are presented

expo power utility a flexible form for absolute and relative risk aversion a new utility function which i call expo power is proposed that exhibits decreasing constant or increasing absolute risk aversion and decreasing or increasing relative risk aversion depending on parameter values numerical analysis suggests that the expo power function performs well in incorporating these risk preference structures and that arbitrary risk preference specifications may lead to biased risk response estimates

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

equilibrium without independence abstract because players whose preferences violate the von neumann morgenstern independence axiom may be unwilling to randomize as mixed strategy nash equilibrium would require a nash equilibrium may not exist without independence this paper generalizes nash s definition of equilibrium retaining its rational expectations spirit but relaxing its requirement that a player must bear as much uncertainty about his own strategy choice as other players do the resulting notion equilibrium in beliefs is equivalent to nash equilibrium when independence is satisfied but exists without independence this makes it possible to study the robustness of equilibrium comparative statics results to violations of independence

misunderstanding of the binomial distribution market inefficiency and learning behavior evidence from an exotic sports betting market abstract this paper uses the setting of a volleyball game and an exotic sports betting on the point difference of volleyball games to test whether people correctly understand the probabilities related to outcomes of a process which follows a binomial distribution we find that people consistently underestimate the probabilities of outcomes that correspond to extreme ends of the distribution this is consistent with the extremeness aversion bias documented in decision making studies whereas previous studies on the extremeness aversion bias find the existence of the bias in a consumer choice setting we document that this bias also exists in an investment setting we find evidence of learning behavior over time however it is not sufficient to eliminate the bias

the sports business as a labor market laboratory with superior data on compensation and productivity as well as the occurrence of abrupt dramatic market structure and player allocation rules changes sports labor markets offer an excellent setting in which to test economic hypotheses this paper reviews evidence from sports in four areas employer monopsony discrimination the coase theorem and incentive contracts supervision and performance there is considerable evidence of monopsony as well as for the existence of some forms of discrimination against minority athletes incentive contracts have strong effects on player performance and behavior and there is mixed evidence on the predictions of the coase theorem

capabilities as menus a non welfarist basis for qaly evaluation quality adjusted life years qalys are the most widely used measure of health in economic evaluations of health care within a welfarist framework qalys are consistent with people s preferences under stringent assumptions several authors have argued that qalys are a valid measure of health within an extra welfarist framework this paper studies the applicability of qalys within the best known extra welfarist framework sen s capability approach we propose a procedure to value capability sets and provide a foundation for qalys within sen s capability approach we show that under appropriate conditions the ranking of capabilities can be represented locally by a qaly measure and that a willingness to pay for qalys can be defined the validity of qalys as a general measure of health requires the same stringent conditions as in a welfarist framework

expectation puzzles time varying risk premia and dynamic models of the term structure abstract linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory this paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models specifically we match all the key empirical findings reported by fama and bliss 1987 american economic review 77 4 680 692 and campbell and shiller 1991 review of economic studies 58 495 514 among others within large subclasses of affine and quadratic gaussian term structure models additionally we show that certain risk premium adjusted projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly and not only through factor volatilities the risk premiums have a simple form consistent with fama s findings on the predictability of forward rates and are also shown to be consistent with interest rate feedback rules used by a monetary authority in setting monetary policy

eliciting von neumann morgenstern utilities when probabilities are distorted or unknown this paper proposes a new method the gamble tradeoff method for eliciting utilities in decision under risk or uncertainty the elicitation of utilities to be used in the expected utility criterion turns out to be possible even if probabilities are ambiguous or unknown a disadvantage of the tradeoff method is that a few more questions usually must be asked to clients also the lotteries that are needed are somewhat more complex than in the certainty equivalent method or in the probability equivalent method the major advantage of the tradeoff method is its robustness against probability distortions and misconceptions which constitute a major cause of violations of expected utility and generate inconsistencies in utility elicitation thus the tradeoff method retains full validity under prospect theory rank dependent utility and the combination of the two i e cumulative prospect theory the tradeoff method is tested for monetary outcomes and for outcomes describing life duration we find higher risk aversion for life duration but the tradeoff method elicits similar curvature of utility apparently the higher risk aversion for life duration is due to more pronounced deviations from expected utility

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

varying risk premia in international bond markets abstract cochrane and piazzesi cochrane j h piazzesi m 2005 bond risk premia american economic review 95 138 160 use forward rates to forecast future bond returns we extend their approach by applying their model to international bond markets our results indicate that the unrestricted cochrane and piazzesi 2005 model has a reasonable forecasting power for future bond returns the restricted model however does not perform as well on an international level furthermore we cannot confirm the systematic tent shape of the estimated parameters found by cochrane and piazzesi 2005 the forecasting models are used to implement various trading strategies these strategies exhibit high information ratios when implemented in individual countries or on an international level and outperform alternative approaches we introduce an alternative specification to forecast future bond returns and achieve superior risk adjusted returns in our trading strategy bayesian model averaging is used to enhance the performance of the proposed trading strategy

a new and more robust test of qalys previous empirical tests of quality adjusted life years qalys the most widely used outcome measure in economic evaluations of health care generally yielded negative results these tests were however for the most part based on expected utility which is now widely acknowledged to be descriptively inaccurate the observed violations might therefore have been caused by violations of expected utility we performed a new test of qalys which is valid under expected utility and under the two most influential non expected utility theories rank dependent utility and prospect theory and found considerable support for the qaly model our findings suggest that qalys may be valid if nonexpected utility formulas are used to compute health state utilities

team effects on compensation an application to salary determination in the national hockey league leo h kahane studies of salary determination largely model pay as a function of the attributes of the individual and the workplace i e employer size job characteristics and so forth this article empirically investigates an additional factor that may influence individual pay specifically coworker productivity data from professional sports are used to evaluate this question because both salary and teammate performance measures are readily available we find that team attributes have both direct effects on an individual s pay and indirect effects through altering the rates at which individual player productive characteristics are valued jel j31 l83 i introduction when complementary exists between labor inputs individual productivity may be poorly measured by treating the individual worker separately from the character of the organization or team within which he works namely individual productivity may vary when working in different settings to the extent that coworkers offer different degrees of assistance 1 if such complementary between human capital inputs is present say a team dynamic it suggests the possible existence of both team and individual effects on productivity and hence compensation empirical analysis of team effects has been hindered by the lack of data on individuals and their coworkers including managers one source though that contains much of this requisite information is data on professional sports teams in this article we exploit this unique attribute of professional sports data in order to empirically assess the effect of complementarities between labor inputs on individual compensation specifically we use a team sport setting to situate the worker in an organizational environment where we can observe the impact of coworkers on individual productivity thereby allowing us to examine the separate effects of individual and team productivity on salary determination the general question asked is whether individual attributes are valued or rewarded differently in different work environments or in our specific case on different teams this study will investigate these questions by empirically assessing the effects of coworker productivity that is the effects of the qual ity productivity of teammates on individual compensation although a number of different highly team oriented sports would serve our purpose such as basketball this particular study uses data from professional hockey to investigate team effects on compensation 2 the remainder of the article is organized as follows section ii outlines the empirical framework used to analyze the posited team effects and discusses some of the theoretical issues relating to team effects on compensation section iii describes the data used in the analysis section iv reports the empirical results and section v reports our conclusions and directions for further work ii team and coworker effects as noted above the goal of this study is to evaluate empirically whether average coworker attributes 1 affect individual salaries 2 affect the rate at which individual attributes are valued by the firm and 3 are complementary inputs to the attributes of individual team members the question arises though as to why we might expect on theoretical grounds that individual players would earn any part of the team s contribution the classic model of alchian and demsetz 1972 suggests that the capitalist manager will reap the returns from any incremental team output as the primary function of the manager is to discover complementarities between inputs and enhance organizational output by optimally combining resources and to monitor effort so as to reduce shirking as a result the manager will capture all of the returns that are not specific to the inputs in which case we would not expect to observe team effects on individual compensation yet although a manager acting as the residual claimant is one solution to the problem of reducing shirking in the context of complementary inputs whose effort is difficult to monitor other models suggest that it may be desirable to compensate team members based on the value of team output in order to provide optimal incentives for effort for example see akerlof 1982

models of quality adjusted life years when health varies over time survey and analysis quality adjusted life year qaly models are widely used for economic evaluation in the health care sector in the first part of the paper we establish an overview of qaly models where health varies over time and provide a theo retical analysis of model identification and parameter estimation from time trade off tto and standard gamble sg scores we investigate deterministic and probabilistic models and consider five different families of discounting functions in all the second part of the paper discusses four issues recurrently debated in the literature this discussion includes questioning the sg method as the gold standard for estimation of the health state index re examining the role of the constant proportional trade off condition revisiting the problem of double dis counting of qalys and suggesting that it is not a matter of choosing between tto and sg procedures as the combination of these two can be used to disen tangle risk aversion from discounting we find that caution must be taken when drawing conclusions from models with chronic health states to situations where health varies over time one notable difference is that in the former case risk aversion may be indistinguishable from discounting models of quality adjusted life years qalys are widely used as health related quality of life measures for economic evaluation in the health care sector in its simplest form the qaly approach assumes that the utility of a profile of health states over time may be estimated by adding the values of the constituent health states in the health profile in more sophisticated models health events occurring in the future may be discounted or risk adjusted

coaching team production coaching team production the actual function of managers is the subject of much debate using data on more than 3000 male college basketball players their coaches and their skill levels we find a positive and significant relation between our ability to replicate an individual coach s allocation of playing time across players and his winning percentage although this result does not answer the central question of just what it is that managers contribute the results do support the property rights paradigm managers are the employees of workers and more generally sports data can be used to help understand related economic processes where quantifiable measures of inputs and outputs are more costly to obtain what is meant by performance input energy initiative work attitude perspiration rate of exhaustion or output sometimes by inspecting a team member s input activity we can better judge his output effect it is not always the case that watching input activity is the only or best means of detecting measuring or monitoring output effects of each team member but in some cases it is a useful way i introduction a major tenet of the alchian demsetz 1972 representation of the firm is that managers are hired by workers to prevent shirking and malfeasance in their own ranks absent overseers individual workers bear only a fraction of the cost of shirking and hence everyone undersupplies labor relative to its opportunity cost in this world the managerial function is to monitor inputs and meter rewards thereby reducing the incentive to shirk and raising each worker s marginal productivity the more dependence there is in the marginal products of laborers the more important the role of management this view of supervision is simultaneously intuitively pleasing and difficult to quantify this paper investigates the role of management in a setting where indisputably there is team production intercollegiate basketball 1 data on 3012 college basketball players across ten years and sixty five teams are used to replicate one aspect of coaching the allocation of playing time next we attempt to link coaching decisions to winning the goal is to determine if coaches who manage well by our standards are successful section ii motivates the paper in section iii the empirical methodology is detailed the monitoring function is estimated and related to coaching success section iv contains a summary and conclusion ii coaching decisions the essence of team production is interdependence and the inherent immeasurability of marginal productivity across workers however this does not mean that proxies for marginal productivity cannot be developed managers monitor worker inputs and deduce marginal products accordingly of course some inputs are more cheaply quantified than others attitude is hard to measure but heart rate is easy sweat is observed cheaply but workers can feign exhaustion in the famous chinese boatpullers fable the coxswain uses his whip to insure that coolies pull efficiently to persuade each worker to give the appropriate effort 2 mcmanus 1975 341 relates a story told by cheung boats are pulled upstream by a team of coolies prodded by an overseer with a whip an american lady horrified at the sight of the overseer whipping the men as they strained at their harness demanded that something be done about the brutality she was quickly informed those men own the rights to draw boats over this stretch of water and they have hired the overseer and given him his duties here the monitor uses his vision intuition and experience to determine shirking counseling the loafers with his whip but employing subjective observation is just one way to monitor

an international examination of affine term structure models and the expectations hypothesis we examine the yield curve behavior and the relative performance of affine term structure models atsms using government bond yield data from canada germany japan the u k and the u s we find strong predictability of forward rates for excess bond returns and reject the expectations hypothesis in all five countries a three factor model is sufficient to capture movements in the yield curve of canada japan the u k and the u s but may not be enough for germany an exhaustive comparison among atsms with no more than three factors reveals that the three factor essential affine model a 1 3 e with only one factor affecting the volatility of the short rate but with all three factors affecting the price of risk performs best in all five countries simulations provide inconclusive evidence on whether this best affine model can successfully generate the rich yield curve behavior observed in the data

rule changes and competitive balance in japanese professional baseball i introduction since rottenberg s 1956 classic analysis of baseball s reserve clause economists have been interested in whether the rules for initially allocating players among major league baseball mlb teams affect their final allocation el hodiri and quirk 1971 formalized rottenberg s analysis of player allocation rules for a sports league in which each team independently maximizes its profits within the league s institutional constraints 1 consider the effect of a player draft regime and an open bidding regime on the allocation of new players often called rookies if a player draft allows team a to claim initially a particular new player and that player would generate a higher marginal product with team b then the two teams have incentives to make an exchange and send the player to team b alternatively under an open bidding regime the new player signs with the team presenting the highest offer i e team b with which he generates the highest marginal product assuming that transaction costs of exchanging players are zero el hodiri and quirk showed that the final allocation of players across teams will be the same in both regimes this result that the final allocation of players does not depend on the rules governing the initial allocation of players is baseball s version of the coase theorem following coase s 1960 analysis this invariance result vanishes if there are obstacles to exchanging players after the initial allocation in an open bidding regime players are initially allocated to the team with which they have the highest marginal product thereby eliminating the need for player exchanges since the best players are likely to generate the highest marginal product with teams in cities that have a high demand for winning games in an open bidding regime these teams are likely to have higher winning percentages and win more championships than other teams 2 by contrast in a draft regime the best players are often initially allocated to a team located in a city with a low demand for winning games if there are obstacles to player exchange then players will be allocated more evenly across teams under a draft regime and competitive balance should improve both within a given season and over time 3 empirical studies have used performance data from north american mlb to analyze whether changes in the rules for allocating rookies among teams affect competitive balance fort and quirk s 1995 recent study found that mlb s change in 1965 from an open bidding to a draft regime for allocating new players increased competitive balance in the american league and had little effect on competitive balance in the national league the power of statistical tests conducted with the mlb data is however severely limited due to the small number of observations from the draft regime period this article uses a larger data set from japanese baseball to examine the same rule change that economists have analyzed for mlb remarkable as it may seem the japanese professional baseball league jpbl adopted the same rule change from an open bidding to a draft regime for rookies in the same year 1965 as major league baseball our goal is to examine how the rule change in the jpbl affected competitive balance in its two leagues and to compare the outcomes of these two remarkably similar experiments set in two very different cultures ii studies of north american mlb and japanese jpbl daly and moore 1981 compared player allocation in the two regimes for allocating rookies by examining mlb s 1965 switch from an open bidding to a draft regime they used pre and post 1965 performance data from the american and national leagues to examine several measures of competitive balance in the post 1965 draft regime they found substantially more competitive balance in the american league and somewhat more competitive balance in the national league using different tests for competitive balance fort and quirk 1995 1 282 86 also found evidence for more competitive balance in the american league but found no change in competitive balance in the national league

hedonics and demand analysis the implicit demand for player attributes i introduction hedonic analysis is the standard technique of applied econometrics for modeling differentiated products a hedonic price function relates the observed price of a differentiated good to the bundle of characteristics of which the good is composed the derivatives of the function with respect to the characteristics are the implied hedonic prices which empirical work typically seeks to estimate as has been recognized since at least the work of rosen 1974 underlying the hedonic price function is an implicit market for these characteristics a number of studies have attempted to estimate the associated supply demand system in particular applied contexts based on data on the quantities of the characteristics used in the estimation of the hedonic price function and the resulting estimated hedonic prices examples include nelson 1978 witte sumka and erekson 1979 and thomas 1993 rather than a complete supply demand system other authors focus only on the implicit demand for characteristics for example polinsky and rubinfeld 1977 harrison and rubinfeld 1978 agarwal and ratchford 1980 bender gronberg and hwang 1980 blomquist and worley 1981 quigley 1982 mendelsohn 1984 and palmquist 1984 a curious aspect of these studies which appears to have gone unrecognized is the failure to draw on modern econometric demand analysis in the estimation of the implied demand system for the characteristics instead the analysis of the implicit market proceeds on the basis of ad hoc typically linear or loglinear functional forms which involve no explicit derivation from consumer theory and which impose arbitrary and non testable restrictions on preferences as a consequence there is little means beyond descriptive econometric measures goodness of fit examination of signs and t ratios and so on for judging the adequacy or legitimacy of the results no use is made of contemporary flexible functional form methodology which provides a second order approximation to arbitrary preferences and which permits in addition to the calculation of elasticities the testing of fundamental hypotheses of consumer theory such as demand homogeneity and symmetry of the slutsky matrix and numerical checks on the concavity of the associated implied expenditure function the present work attempts to fill this gap however instead of a differentiated good in a product market to which consumer demand theory would apply we choose to study a good in a factor market so that the relevant demand equations are a system of factor demands for the underlying characteristics the good in question is the service of baseball players to major league baseball teams which is a differentiated good in that different players represent different bundles of alternative attributes such as pitching or hitting skills our focus is solely on the implicit demand system for these attributes no attempt is made to estimate the associated supply system reflecting player behavior there are several reasons for this seemingly peculiar choice of commodity first the factor market for baseball players is of some intrinsic interest as evidenced by the extent to which it has been studied by economists for a taste of this see the entry by quirk 1987 in the new palgrave and the recent survey by fort and quirk 1995 in particular the market has been the focus of work by labor economists examples are blass 1992 khan 1993a 1993b and sommers 1992 much of this literature derives from the seminal work of scully 1974 who estimated equations for baseball player salaries as functions of player skills although not previously recognized in these terms underlying scully s salary equations are implicit markets for player skills the previous work involving baseball salary equations by scully 1974 1989 and others for example blass 1992 hill and spellman 1984 fort 1992 pascal and rapping 1972 raimondo 1983 and sommers 1990 is useful because it provides guidance as to the appropriate specification of the hedonic price equation

extracting inflation expectations and inflation risk premia from the term structure a joint model of the uk nominal and real yield curves abstract this paper analyses the uk interest rate term structure over the period since october 1992 when the united kingdom adopted an explicit inflation target using an affine term structure model estimated using both government bond yields and survey data the model imposes no arbitrage restrictions across nominal and real yields which enables interest rates to be decomposed into expected real policy rates expected inflation real term premia and inflation risk premia the model is used to shed light on major developments over the period including the impact of bank of england independence and the low real bond yield conundrum