dynamic value at risk under optimal and suboptimal portfolio policies abstract at present all value at risk var implementations i e all risk measures of the maximum loss at a given level of confidence type are based on the assumption that the portfolio mix will not change before the var horizon this hypothesis may be unrealistic especially when the var horizon is established by the regulators bis at the opposite we measure var dynamically i e taking into consideration portfolio mix adjustments over time adjustments do not occur continuously since they are costly we allow both optimal rebalancing policies which entail changing the portfolio mix whenever it is too far from the optimal one and suboptimal policies which mean adjusting at pre fixed dates we show that in both cases usual var measures underestimate portfolio losses even if the underlying returns are normal we study the dependence of the misestimate on the var horizon the initial portfolio mix and the risk aversion of the portfolio manager which in turn determines the frequency of interventions the bias can be more relevant over one day than over longer horizons and even if the initial portfolio is nearly optimal we also perform backtesting and estimate a coherent risk measure namely conditional var which confirms the inappropriateness of the usual static var

a factor analytic probit model for representing the market structure in panel data internal market structure analysis infers both brand attributes and consumer preferences for those attributes from preference or choice data the authors exploit a new method for estimating probit models from panel data to infer market structures that can be displayed in few dimensions even though the model can represent every possible vector of purchase probabilities

social labeling by competing ngos a model with multiple issues and entry in many settings firms rely on nongovernmental organizations ngos to certify prosocial attributes embodied in their products we provide a model of competition between ngos in the provision of labeling services competition between a fixed number of ngos features a race to the top in labeling standards but entry of ngos offering new labels pushes standards down in a wide range of settings ngo entry and competition results in too many labels being adopted with each label being too stringent compared to a setting in which firms can credibly communicate the social attributes of their products labels demand greater prosocial behavior than is desired by firms although with proliferation of the number of labels this discrepancy disappears in contrast to existing models firms may engage in excessive corporate social responsibility when they rely on an ngo as a certifying intermediary this paper was accepted by bruno cassiman business strategy

public goods self selection and optimal income taxation using the self selection approach to tax analysis this paper derives a modified samuelson rule for the provision of public goods when the government deploys an optimal nonlinear income tax this approach gives a straightforward interpretation of the central result in this area generalises it and provides a simple characterisation of optimal policy in a wide range of circumstances the analysis also emphasises and clarifies the significance of the choice of numeraire for the optimality of decentralising public spending decisions it is well known that the famous samuelson rule for the provision of public goods may not be applicable when the tax revenues used to finance the public goods come from distorting taxes the principle was recognized as long ago as pigou 1947 long before the samuelson rule was devised pigou saw that in addition to the resource cost involved in transferring funds from the private to the public sector there was a deadweight loss involved from this insight he suggested that the criterion for providing public goods should be more stringent than the samuelson rule would later suggest in particular one might expect that the inclusion of the deadweight loss of taxes as part of the cost of providing a public good would lead to a reduction in its optimal provision relative to a situation in which lump sum taxes were available the problem was investigated more systematically by atkinson and stern 1974 who considered the case in which a public good is financed by a set of optimal commodity taxes all individuals were assumed to be identical so efficiency alone dictated the objective they found that no prima facie case could be made for the pigou position that the use of distortionary taxes called for a reduction in the supply of the public good their analysis clearly showed that there were two influences at work when the financing of a public good was by distorting taxes on the one hand

regulating altruistic agents altruism or regard for others can encourage self restraint among generators of negative externalities thereby mitigating the externality problem we explore how introducing impure altruism into standard regulatory settings alters regulatory prescriptions the optimal calibration of both quantitative controls and externality taxes is affected it also leads to surprising results on the comparative performance of instruments under quantity based regulation welfare is increasing in the propensity for altruism in the population under price based regulation the relationship is non monotonic price based regulation is preferred when the population is either predominantly altruistic or predominantly selfish quantity based regulation is preferred for cases in between

neuroeconomics using neuroscience to make economic predictions neuroeconomics seeks to ground economic theory in detailed neural mechanisms which are expressed mathematically and make behavioural predictions one finding is that simple kinds of economising for life and death decisions food sex and danger do occur in the brain as rational theories assume another set of findings appears to support the neural basis of constructs posited in behavioural economics such as a preference for immediacy and nonlinear weighting of small and large probabilities a third direction shows how understanding neural circuitry permits predictions and causal experiments which show state dependence of revealed preference except that states are biological and neural variables

crowd out and diversity abstract research has shown that altruism is lower in diverse communities can this phenomenon be counteracted by government intervention to answer this question this paper introduces diversity to the canonical model of warm glow giving diversity may have two effects on incentives it may attenuate individuals altruistic preferences for public goods and it may cool off the warm glow that individuals get from voluntarism either of these effects leads to diverse communities having lower levels of public goods consistent with prior research however these effects have opposite implications for the efficacy of government intervention i then empirically investigate whether government intervention is more effective in diverse communities for identification i exploit the supreme court mandated 1991 expansion of the ssi program using a new dataset of united methodist churches from 1984 to 2000 the results show that the expansion of ssi crowded out charitable spending by churches the crowd out estimate for the average church is reasonably large but this masks significant differences in crowd out between communities crowd out occurred almost entirely in relatively homogeneous communities there is only modest evidence of crowd out in racially diverse communities thus diverse communities while having the lowest levels of altruism are in this instance the most amenable to government intervention

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

environmental quality competition and taxation in the presence of green network effect among consumers we examine the impact of a green network effect in a market characterized by consumers environmental awareness and competition between firms in terms of both environmental quality and product prices the unique aspect of this model comes from the assumption that an increase in the number of consumers of green brown product increases the satisfaction of each green brown consumer we show that paradoxically when the network effect of a green product is higher than that of a brown product this externality reduces product environmental quality and raises consumption of the green product conversely when the network effect of the brown product is higher the externality improves product environmental quality and raises consumption of the brown product in both cases the network effect does not affect the overall pollution level the externality correction requires the use of three optimal fiscal policies an ad valorem tax on products an emission tax and a subsidy or a tax on the green purchase a second best optimum can also be reached through the green taxation

tax transfer policies and the voluntary provision of public goods abstract the purpose of this paper is twofold first it extends previous models of non cooperative private funding of pure public goods by allowing both for distortionary taxation of private goods and for subsidies based on contributions to the public goods second it clarifies the type of behavioral and informational assumptions which are needed to insure neutrality of both lump sum and distortionary policies the analysis is developed in the context of fiscal federalism

the optimal treatment of tax expenditures abstract this paper analyzes the optimal treatment of tax expenditures it develops an optimal tax model where individuals derive utility from spending on a contribution good such as charitable giving the contribution good has also a public good effect on all individuals in the economy the government imposes linear taxes on earnings and on the contribution good so as to maximize welfare the government may also finance directly the contribution good out of tax revenue optimal tax and subsidy rates on earnings and the contribution good are expressed in terms of empirically estimable parameters and the redistributive tastes of the government the optimal subsidy on the contribution good is increasing in the size of the price elasticity of contributions the size of the crowding out effect of public contributions on private contributions and the size of the public good effect of the contribution good numerical simulations show that the optimal subsidy on contributions is fairly sensitive to the size of these parameters but that in most cases it should be lower than the earnings tax rate

a linearized value at risk model with transaction costs and short selling abstract though value at risk var has been widely applied by finance industry a possibility of multiple optimums that is caused by the nonlinearity in modeling can challenge its application to deal with this technical issue we propose a linearized var model that employs the mixed 0 1 programing in lin 2009 p4 model we further advance the previous models with considering various transaction costs and the optimization of short selling weights we compare the performance of buy and hold bh strategy the mean variance mv model the original p4 model and our linearized p4 lp4 model by rebalancing a wide scale of international and alternative investments during a period between 2001 and 2012 the results of numerical tests show the superior performance of the var models to the bh and the mv portfolios the lp4 model yields the global optimum and outperforms the corresponding p4 model in both return and risk the stability of portfolio value generated from the lp4 model supports its higher effectiveness in risk management than the p4 model

60 years of portfolio optimization practical challenges and current trends abstract the concepts of portfolio optimization and diversification have been instrumental in the development and understanding of financial markets and financial decision making in light of the 60 year anniversary of harry markowitz s paper portfolio selection we review some of the approaches developed to address the challenges encountered when using portfolio optimization in practice including the inclusion of transaction costs portfolio management constraints and the sensitivity to the estimates of expected returns and covariances in addition we selectively highlight some of the new trends and developments in the area such as diversification methods risk parity portfolios the mixing of different sources of alpha and practical multi period portfolio optimization

identifying the hand of past distinguishing state dependence from heterogeneity a basic problem in social science is to ascertain the importance of initial endowments on subsequent outcomes of a dynamic process interest in this topic centers on two distinct issues a do initial endowments have a temporally persistent effect on outcomes i e is there heterogeneity b are the effects of initial endowments attenuated or accentuated by subsequent experiences of the process being studied or by related processes i e is there state dependence these two questions show up in a variety of contexts 1 the importance of family background on a person s subsequent education and earnings is a hotly debated topic do market or nonmarket mechanisms reinforce or diminish initial endowments 2 the incidence of criminal activity is concentrated among a small population of repeated offenders are certain persons prone to criminality or does crime breed crime 3 are persons who experience unemployment more likely to experience future unemployment due to loss of work experience or market stigma 4 does early entry into an industry confer an advantage of incumbency or does it merely proxy the basic managerial and innovative ability of early entrants many formal models of state dependent processes or processes with persistent effects of initial conditions have been formulated invariance of steady states to initial endowments was viewed as a desirable feature of an economic model in the 1960 s and 1970 s path dependent synergism and nonergodicity are fashionable features of models today is the choice between models with long run dependence on initial conditions and those without solely a matter of intellectual esthetics can data discriminate between these two classes of models how many economically extraneous statistical regularity conditions have to be imposed in order to distinguish between these models how many and what kind of maintained assumptions are required in order to let the data speak on these important questions in this paper i focus on one nonergodic model that receives much attention in the literature the model of duration dependence and heterogeneity discussed by herbert silcock 1954 and also examined by tony lancaster 1979 chris elbers and geert ridder 1982 myself and burton singer 1984 and myself and bo honore 1989

how do respondents process stated choice experiments attribute consideration under varying information load the popularity of stated choice sc experiments has produced many design strategies in which researchers use increasingly more complex choice settings to study choice behaviour when the amount of information to assess increases we wonder how an individual handles such information in making a choice defining the amount of information as the number of attributes associated with each choice set we investigate how this information is processed as we vary its complexity four ordered heterogeneous logit models are developed each for an sc design based on a fixed number of attributes in which the dependent variable defines the number of attributes that are ignored we find that the degree to which individuals ignore attributes is influenced by the dimensionality of the sc experiment the deviation of attribute levels from an experienced reference alternative the use of adding up attributes where feasible the number of choice sets evaluated and the personal income of the respondent the empirical evidence supports the view that individuals appear to adopt a range of coping strategies that are consistent with how they process information in real markets and that aligning choice complexity with the amount of information to process is potentially misleading relevancy is what matters copyright 2006 john wiley sons ltd

has regulation of charitable foundations thrown the baby out with the bath water abstract regulations to curb tax avoidance and evasion through charitable foundations have been in place since the tax reform act of 1969 newly compiled longitudinal data makes it possible to estimate the effects of these regulations by comparing affected and unaffected foundations before and after the reform donations and entry dropped precipitously proxy variables suggest significant deterrence of abuses but half of the decline in donations can be explained by the increased cost of running a foundation the results highlight the potential for large reductions in the benefits of regulation when the cost of compliance affects externality producing actions such as charitable giving

a dynamic analysis of market structure based on panel data internal market structure analysis infers brand positions in an attribute space from preference and choice data given a market in which consumers have heterogeneous tastes for attributes previous market structure models have adopted a static framework e g elrod 1988 chintagunta 1994 elrod and keane 1995 furthermore they assumed that consumer perceptions of brand attributes do not vary across consumers yet these approaches may render inaccurate representations of market structure if there is state dependence in consumer choice behavior this paper attempts to incorporate consumer choice dynamics into market structure models by specifying the source of choice dynamics explicitly in particular the process by which past purchases affect current choices is modeled in a framework which captures both consumer habit persistence and variety seeking behavior more specifically consumer preferences for brand attributes are modeled to depend on the attributes of brands bought on the previous purchase occasion furthermore the modeling approach adopted incorporates heterogeneity in both consumer preferences and perceptions of brand attributes the audience of this paper includes practitioners and academics interested in understanding consumer choice processes and inferring market structure from consumer choice data the proposed models are estimated on nielsen scanner panel data for margarine peanut butter yogurt and liquid detergent using simulated maximum likelihood techniques the empirical results suggest that accounting for choice dynamics improves both in sample and out of sample fit the results indicate that the average consumer is habit persistent in all the product categories studied this result is consistent with the findings of kannan and sanchez 1994 who conducted an aggregate analysis of consumer variety seeking behavior across product categories however the results obtained in this paper suggest that consumers are heterogeneous with respect to the processes by which past purchases affect current purchases these results provide strong evidence for habit persistence and variety seeking in brand attributes to be the behavioral source of consumer choice dynamics in food categories thus consumer tastes utility weights seem to be affected by the attributes of the brands consumed in the past given the empirical result that a large proportion of consumers are habit persistent this suggests that tastes are reinforced by the brand attributes consumed in the past the empirical results also show that not accounting for state dependence in market structure models for panel data may produce misleading results that is depending on consumer behavior patterns models that do not account for state dependence may distort the true nature of competition among brands more specifically the results confirm the expectation that if there is habit persistence that is if consumer tastes are reinforced by attributes of brands consumed in the past models that do not capture this choice dynamics will overestimate the distance between similar brands furthermore the policy experiments conducted suggest that 1 static models overestimate the short run impact of a price cut on the sales of the brand on promotion 2 price cuts hurt the sales of the more similar brands more and 3 free samples affect relatively less similar brands the most finally this paper studies variety seeking and habit persistence across brands over purchase occasions however variety seeking behavior may also involve the purchase of a portfolio of brands or items at a purchase occasion consumers may buy multiple items knowing that prior to the next trip they may want to consume different items simanson 1990 walsh 1995 this type of behavior can be modeled within the context of dynamic expected utility maximization with forward looking consumers the development and estimation of market structure models that include forward looking consumers who maximize expected utility over a planning horizon incorporating their future tastes and needs and shopping for an inventory of brands remain an important future research issue

multivariate dependence and portfolio optimization algorithms under illiquid market scenarios we propose a model for optimizing structured portfolios with liquidity adjusted value at risk lvar constraints whereby linear correlations between assets are replaced by the multivariate nonlinear dependence structure based on dynamic conditional correlation t copula modeling our portfolio optimization algorithm minimizes the lvar function under adverse market circumstances and multiple operational and financial constraints when we consider a diversified portfolio of international stock and commodity market indices under multiple realistic portfolio optimization scenarios the obtained results consistently show the superiority of our approach relative to other competing portfolio strategies including the minimum variance risk parity and equally weighted portfolio allocations

position bias in best worst scaling surveys a case study on trust in institutions this paper investigates the effect of physical position on best and worst choices in the bestworst scaling technique although the best worst scaling technique has been used widely in many fields the phenomenon of consumers adoption of processing strategies while making choices has been largely overlooked we examine this issue in the context of consumers perception of trust in institutions to provide information about a new food technology namely nanotechnology and its use in food processing our results show that around half of the consumers used position as a schematic cue when making choices we find the position bias is particularly strong when consumers chose their most trustworthy institution compared to their least trustworthy institution in light of our findings we recommend researchers in the field to be aware of the possibility of position bias when designing best worst scaling surveys we also encourage researchers who have already collected best worst data to investigate whether their data shows such heuristics

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

optimal tax treatment of private contributions for public goods with and without warm glow preferences abstract tax favored contributions for financing some public goods may be a useful part of optimal nonlinear income tax and expenditure policy there are two sides to the potential gain from subsidized donations first for a given level of public good provision higher private donations from high earners than low earners eases the incentive compatibility constraint for donors and so can raise social welfare this follows since considering a lower paid job includes a perception of a drop in public good provision second private donation reduces consumption easing the resource constraint this paper explores optimal policy using first a model with standard preferences and then a model with a warm glow of giving in addition to showing the conditions for the level of public goods the paper considers the pattern of optimal subsidization across earnings levels analysis of optimal taxation with warm glow preferences is sensitive to the choice of preferences that are relevant for a social welfare evaluation after considering optimal rules with formulations of social welfare which do and do not include warm glow utility the paper considers the choice of normative criterion like the earlier literature this paper assumes that organizing private donations is costless while tax collection has a deadweight burden since private charitable fundraising is very far from costless the paper is an exploration of economic mechanisms not a direct guide to policy

a case for taxing charitable donations abstract we develop a model that allows for public goods and status signaling through charitable contributions we use this setup to re examine the conventional practice of rendering a favorable tax treatment to charitable contributions

incorporating asymmetric distributional information in robust value at risk optimization value at risk var is one of the most widely accepted risk measures in the financial and insurance industries yet efficient optimization of var remains a very difficult problem we propose a computationally tractable approximation method for minimizing the var of a portfolio based on robust optimization techniques the method results in the optimization of a modified var measure asymmetry robust var arvar that takes into consideration asymmetries in the distributions of returns and is coherent which makes it desirable from a financial theory perspective we show that arvar approximates the conditional var of the portfolio as well numerical experiments with simulated and real market data indicate that the proposed approach results in lower realized portfolio var better efficient frontier and lower maximum realized portfolio loss than alternative approaches for quantile based portfolio risk minimization

a framework for investigating habits the hand of the past and heterogeneity in dynamic brand choice in this paper we develop a general class of dynamic brand choice models called lightning bolt lb models which are consistent with the theory of random utility maximization of consumer choice behavior the underlying random utility process is markov and the inter temporal evolution of the utility maximizing brand choice process is also markov the models permit parsimonious parameterizations of the random utility process in brand choices with the resulting switching probabilities being functionally related to explanatory variables the model allows for structural state dependence feedback habit persistence inertia and unobserved heterogeneity the theoretical development shows that several well known stochastic brand choice models can be deduced from random utility maximization theory from a managerial perspective the usefulness of the proposed model stems from its ability to separate out the effects of habits state dependence and heterogeneity strong state dependence effects imply incentives for inducing trial of a brand e g product sampling in contrast with state dependence a strong habit persistence effect may be indicative of buyer behavior where inducement of trial of a different brand may not be sufficient to maintain a sustained defection of the consumer from the habitually purchased brand to the trial brand failure to distinguish between these two effects has important implications for example a model that only accounts for state dependence effects would in the presence of only habit persistence incorrectly attribute it to state dependence based on this the manager could decide to embark on an expensive sampling program that might prove ineffective due to the absence of state dependence it is also important to distinguish between the effects of unobserved heterogeneity and state dependence in the absence of true state dependence failing to account for unobservable variations across households such as differences in price sensitivities results in the temporally persistent unobservable elements showing up as state dependence in the model hence a manager may incorrectly opt for sampling as the appropriate marketing action whereas a couponing or price promotion strategy should have been preferred we estimate the model parameters using the ac nielsen household scanner panel data set on catsup purchases further we investigate empirical techniques for overcoming the initial conditions problem that affects many dynamic models of brand choice through simulation analysis using the estimated parameters we show that the calculated profitability of a promotion must take into account the multi period impact due to state dependence further we demonstrate how ignoring heterogeneity can result in spurious state dependence thereby making marketing tactics such as product sampling appear far more attractive than they actually are specifically the model that accounts only for habit persistence and state dependence effects predicts a share increase of 2 4 points through sampling for one of the brands in the empirical analysis once the effects of unobserved heterogeneity are accounted for however this number drops precipitously to 0 3 while even this low number might fulfill the objectives of the brand manager it ensures that expectations are not eight times that number it is important to note that this paper is a first attempt at analyzing the three fundamental dimensions of dynamic brand choice behavior our formulation represents a reduced form approach as opposed to a structural approach other limitations of the model include our focus on time invariant choice sets extensions of the model to situations where choice sets vary over time are possible but are difficult another limitation is the dependence on multivariate extreme value distributions an alternative would be to use multivariate normal distributions i e a probit like structure which has certain useful properties a comparison of the two approaches would be useful empirical extensions of the model to allow for higher order processes and nested logit type model structures could also be fruitful explicitly incorporating variety seeking behavior in the model would further enrich the theoretical framework proposed in this paper

the specification and estimation of dynamic stochastic discrete choice models a survey our main goal is to quantify the returns to a career in the united states congress we specify a dynamic model of career decisions of a member of congress and estimate this model using a newly collected dataset given estimates of the structural model we

financing public goods public goods can be financed by direct taxation or a subsidy to private spending this paper examines the relative efficiency and distributional consequences of the two methods efficiency is shown to depend on the price elasticity of private spending and the trade off between public and private spending when this trade off is dollar for dollar however a subsidy is always more efficient than direct taxation the gains from a subsidy are larger for a mixed good than for a pure public good looking a t distributional effects the author shows when richer taxpayers may prefer a tax credit to deductibility even though they face lower prices with deductibility and also shows when richer taxpayers prefer direct taxation to either type of subsidy copyright 1987 by university of chicago press

optimal income taxation and job choice in this paper we study optimal income taxation when different job types exist for workers of different skills each job type has some feasible range of incomes from which workers choose by varying labor supply workers are more productive than others in the jobs that suit them best the model combines features of the classic optimal tax literature with labor variability along the intensive margin with the extensive margin approach where workers make discrete job choices and or participation decisions we find that first best maximin utility can be achieved in the second best and marginal tax rates below the top can be negative or zero

a semiparametric bayesian approach to the analysis of financial time series with applications to value at risk estimation abstract garch models are commonly used for describing estimating and predicting the dynamics of financial returns here we relax the usual parametric distributional assumptions of garch models and develop a bayesian semiparametric approach based on modeling the innovations using the class of scale mixtures of gaussian distributions with a dirichlet process prior on the mixing distribution the proposed specification allows for greater flexibility in capturing the usual patterns observed in financial returns it is also shown how to undertake bayesian prediction of the value at risk var the performance of the proposed semiparametric method is illustrated using simulated and real data from the hang seng index hsi and bombay stock exchange index bse30

accounting for heterogeneity and nonstationarity in a cross sectional model of consumer purchase behavior when calibrating a brand choice model cross sectionally a measure of brand loyalty is often introduced into the utility function to account for differences in utility across households and over time one of the most widely used measures of brand loyalty proposed by guadagni and little 1983 is an exponential smoothing model of past choice behavior by the household in this study we argue that the exponential smoothing model of brand loyalty cannot properly distinguish between sources of variation in utility due to heterogeneity across households and sources of variation due to nonstationarity within household over time we introduce a new measure of brand loyalty derived from a nonstationary dirichlet multinomial choice model in which heterogeneity and nonstationarity are handled distinctly

ranking crop yield models using out of sample likelihood functions there has been considerable debate regarding which probability distribution best represents crop yields this study ranks six yield densities based on their out of sample forecasting performance the forecasting ability for each density was ranked according to its likelihood function value when observed at out of sample observations results show that a semiparametric model offered by goodwin and ker best forecasts county average yields

designing choice sets for stated preference methods the effects of complexity on choice consistency abstract we vary the complexity of choice sets used in stated preference methods to evaluate the impact on choice consistency we define five measures of complexity that capture either the amount of information or the correlational structure of information in a choice set using these measures as randomly assigned treatments in a large experiment we analyze the consistency of respondents choices using a heteroskedastic multinomial logit model we find that i all of our measures of choice set complexity affect choice consistency ii changes in the correlational structure of information have the largest impact on choice consistency and iii choice complexity significantly distorts welfare estimates our results confirm economists initial worry that moving from contingent valuation to conjoint methods will increase complexity induced choice inconsistency however our analysis also shows that these negative impacts may be mitigated if precautions are taken at the design and estimation stages of stated preference methods

neural antecedents of a random utility model abstract for over a decade economists have sought to identify neural antecedents for economic theories more recently neuroeconomic work has sought to predict consumer choice using brain activations witnessed in non choice visual appraisals this paper combines these two emerging strains of inquiry using functional magnetic resonance imaging fmri data observed when consumers view a quality differentiated food product labeled with different attributes we seek to determine the predictive validity of the random utility model rum often used in economic studies of consumer choice our fmri data consist of changes in blood flow to the ventromedial prefrontal cortex a brain region previously associated with value formation observed when people saw low price and high labels and labels indicating high or low quality we couple the fmri data with data on 28 non hypothetical choices made by each participant which pitted higher priced higher quality good vs a lower priced lower quality good we find little evidence of a systematic difference in activation in brain areas thought to be associated with value formation when viewing high vs low levels of attributes prices and quality however differences in neural blood flow across participants related to quality but not price is significantly related to subsequent consumer choice both in and out of sample providing some qualified neuroeconomic support for the attribute based rum

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

provision of a pure local public good in a spatial model with many jurisdictions abstract this paper examines the provision of a pure local public good in jurisdictions that are spaced evenly along an infinite line each jurisdiction either supplies the local public good or else its residents travel to another jurisdiction to consume the local public good the equilibrium spacing between jurisdictions which supply the local public good which can be uneven varying between a minimum spacing and a maximum spacing for given exogenous parameters can be greater than equal to or less than the socially optimal spacing

worst case value at risk of nonlinear portfolios portfolio optimization problems involving value at risk var are often computationally intractable and require complete information about the return distribution of the portfolio constituents which is rarely available in practice these difficulties are compounded when the portfolio contains derivatives we develop two tractable conservative approximations for the var of a derivative portfolio by evaluating the worst case var over all return distributions of the derivative underliers with given first and second order moments the derivative returns are modelled as convex piecewise linear or by using a delta gamma approximation as possibly nonconvex quadratic functions of the returns of the derivative underliers these models lead to new worst case polyhedral var wpvar and worst case quadratic var wqvar approximations respectively wpvar serves as a var approximation for portfolios containing long positions in european options expiring at the end of the investment horizon whereas wqvar is suitable for portfolios containing long and or short positions in european and or exotic options expiring beyond the investment horizon we prove that unlike var that may discourage diversification wpvar and wqvar are in fact coherent risk measures we also reveal connections to robust portfolio optimization this paper was accepted by dimitris bertsimas optimization

are fast responses more random testing the effect of response time on scale in an online choice experiment scepticism over stated preference surveys conducted online revolves around the concerns over professional respondents who might rush through the questionnaire without sufficiently considering the information provided to gain insight on the validity of this phenomenon and test the effect of response time on choice randomness this study makes use of a recently conducted choice experiment survey on ecological and amenity effects of an offshore windfarm in the uk the positive relationship between self rated and inferred attribute attendance and response time is taken as evidence for a link between response time and cognitive effort subsequently the generalised multinomial logit model is employed to test the effect of response time on scale which indicates the weight of the deterministic relative to the error component in the random utility model results show that longer response time increases scale i e decreases choice randomness this positive scale effect of response time is further found to be non linear and wear off at some point beyond which extreme response time decreases scale while response time does not systematically affect welfare estimates higher response time increases the precision of such estimates these effects persist when self reported choice certainty is controlled for implications of the results for online stated preference surveys and further research are discussed

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments

giving overseas and public policy remarkable numbers of people give to overseas development charities the aim of this paper is to consider how such overseas giving is best modelled and the implications for public policy widely used theories of charitable giving based on warm glow or the provision of public goods provide insight but are not fully satisfactory as explanations of giving for the specific purpose of development instead an identification approach to individual giving is proposed here that combines the results focus of the public goods formulation with the scale of the warm glow model the theoretical model is used to examine the implications for public policy including the extent to which official aid crowds out private giving and how public policy should take account of private willingness to make charitable transfers overseas