deforestation and optimal management in a general discrete time model of optimal forest management where land may be diverted to alternative use and stocks of standing trees may yield flow benefits we investigate the economic and ecological conditions under which optimal paths lead to total deforestation i e complete long term removal of forest cover we show that if deforestation occurs from some initial state then it must occur in finite time along every optimal path so that zero forest cover is the globally stable optimal steady state we develop a condition that is both necessary and sufficient for deforestation deforestation is less likely if the immediate profitability of timber harvest the benefits from stocks of standing forests and the timber content of trees are higher we characterize the minimum forest cover along optimal paths when deforestation is not optimal we design a simple linear subsidy on standing forest biomass that can motivate a private owner who does not take into account the external benefits from standing trees to conserve forests

on the economically optimal exploitation of a renewable resource the case of a convex environment and a convex return function we investigate optimal policies for the exploitation of a renewable resource subject to a concave growth function and a convex return function we prove an important result on the elasticity of the objective function and apply it to give a characterization of the optimal harvesting paths in this class of models in particular we derive conditions such that all optimal programs converge to a fixed point or to a cycle of finite period and hence result in the conservation of the resource we also show which assumptions guarantee that extinction of the stock is optimal that nonconvex preferences or technologies cause problems for economic theory is well known as our model can formally be interpreted as an optimal growth model with nonconcave utility function our results are a further contribution on the dynamics of optimal paths in the general class of economic models with nonconcavities journal of economic literatureclassification numbers c61 e32 q20

the harvesting decisions when a standing forest with multiple age classes has value a solution is demonstrated to an infinite horizon discrete time utility model describing the consumption and cutting behavior of a nonindustrial private landowner who is managing a multiple age class forest and who values both consumption derived from harvesting the trees and amenity derived from the standing trees a policy rule is derived to attain a normal forest from any initial age class distribution it is demonstrated that a noncyclical forest allowing a constant periodic harvest is typically not a normal forest therefore an even flow timber harvesting is not tied to the existence of a normal forest forest economics literature has a long tradition of looking at the optimal management of one single stand this tradition goes back to faustmann s work in the nineteenth century faustmann however a characteristic feature in forest management is the existence of and possible interdependencies between multiple age classes stands these interdependencies become especially difficult to ignore when one is dealing with multiple use forest management problems forest economics literature recognizing the feature of multiple stands has two main strains one has been interested in landowner timber and nontimber decisions in the presence of spatial interactions of two or more adjacent stands swallow and wear swallow talukdar and wear koskela and ollikainen the other has incorporated stand or age class dynamics into models describing landowner or timber market behavior this latter literature has modeled optimal behavior either based on timber benefits berck 1976 berck 1979 johansson and l ofgren lyon and sedjo sedjo and lyon mitra and wan 1985 mitra and wan 1986 salo and tahvonen 2002 2003 sohngen mendelsohn and sedjo or both

the academic analysis of the 2008 financial crisis round 1 academics responded to the challenges posed by the 2008 financial crisis with a flurry of studies this collection of articles is just the academic community s first look into it the articles begin with an examination at the last national housing price crash the great depression of the 1930s this is followed by articles looking at the current mortgage market and how it behaved did modern innovations reflect or add to the downturn the next set of papers examines how non financial firms were impacted by the crash to what degree did credit worthy firms nevertheless find themselves without access to capital the papers then end with a look into how the banking sector itself fared throughout this period the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

a real options approach to the valuation of a forestry investment abstract the theory of real options is used to model the optimal tree harvesting decision the value of the option to harvest is estimated using a dynamic programming approach and a general numerical solution technique suitable for any type of stochastic process for prices the conditions under which the optimal harvest time is independent of price are examined in addition the impact of assuming future lumber prices are mean reverting is considered it is found that option value and optimal cutting time are significantly different under the mean reversion assumption compared to geometric brownian motion

the tree cutting problem in a stochastic environment the case of age dependent growth abstract harvest policies are derived for growing biological assets e g forests livestock subject to stochastic age dependent growth and price uncertainty the task posed is analyzed as a continuous time optimal stopping problem for diffusion processes both single and ongoing rotation problems are considered qualitative comparative static and numerical results are provided

randomization vs selection how to choose in the absence of preference decision makers sometimes have to choose between alternative options about which they have no preference either they judge the options equally valuable indifference or they have no judgment about their relative value noncomparability choosing randomly is generally considered a natural way to deal with such situations this paper shows however that systematic randomization between noncomparable options may lead to a chain of decisions resulting in monetary losses a money pump furthermore these losses can be avoided by deliberately selecting one of the noncomparable options instead of randomizing thus randomization among noncomparable options is costly relative to deliberate selection on the other hand randomization among indifferent options is costless relative to deliberate selection

optimal forest rotation under monopoly and competition abstract the two main propositions of the paper establish sufficient conditions for the optimal rotation to be invariant to market structure whether monopolistic competitive or maximizing the temporal sum of consumer s surpluses a corollary to the second proposition yields sufficient conditions for the monopolistic rotation to be actually longer than the competitive one

when do banks take equity in debt restructurings this article examines the conditions under which bank lenders make concessions by taking equity in financially distressed firms i show that the role banks play in debt restructurings depends on the financial condition of the firm the existence of public debt in the firm s capital structure and the ability of public debt to be restructured empirically i find that for firms with public debt outstanding banks never make concessions unless public debtholders also restructure their claims when banks do take equity on average they obtain a substantial proportion of the firm s stock and they maintain their position for over two years article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

some theoretical results on the economics of forestry pose the value of timber from a tree is related to its age a according to a function ft and a discount rate of p 0 is given at what age should a tree or a stand of trees of the same vintage be cut down to maximize the present value of the timber content the answer to this question proposed by jevons 1871 wicksell 1911 and others can be stated as follows cut the tree at an age at which the increase in value of timber content of the standing tree over an additional unit time interval equals the interest that can be earned over an additional unit time interval if the revenue from cutting the tree is invested at an interest rate p from the point of view of the economics of forestry the above solution and indeed the above question is missing something more precisely the solution is based on the assumption that the land on which the stand of trees was growing is not used after the trees are cut down consequently it fails to encompass an important aspect of the forest rotation problem once trees are removed from a given area the land is available for new forest growth clearly the longer the felling of the existing forest is delayed the longer it takes to acquire revenues from future harvests the opportunity cost of utilizing the forest site for the existing stand of trees must be considered taking this reforestation aspect into account faustmann 1849 noted that the question to be asked is the following assuming that one had an empty tract of land and one were interested in maximizing the discounted sum of the value of timber content of trees harvested timber being evaluated at a constant price what pattern of planting and harvesting trees should one follow

insights on the effect of land use choice the perpetual option on the best of two underlying assets abstract we consider the effect of land use choice on speculative land value and on development timing as reflected in the optimal hurdle ratio which triggers immediate development we find that land use choice i e multiple use zoning may add over 40 to land value under typical economic circumstances the conditions for optimal development of the land become markedly more difficult to achieve higher hurdle ratio required when the two land uses have similar values indeed a rational indecision result obtains in theory development will never occur when the two land use choices have equal value

status quo maintenance reconsidered changing or incomplete preferences after reviewing the evidence for status quo maintenance sqm i consider how to reconcile sqm with traditional consumer theory behavioural economists usually let agents preferences change as a function of their endowments treating the same person with different endowments as a set of distinct agents many properties of preferences then become immune to empirical test and it becomes impossible to judge whether an agent s decisions make the agent better or worse off this impedes prediction of when decision rules are likely to change sqm can alternatively be explained with unchanging preferences if preferences are incomplete sqm is then consistent with self interest and there is no reason why it should not persist

indecisiveness undesirability and overload revealed through rational choice deferral three reasons why decision makers may defer choice are indecisiveness between various feasible options unattractiveness of these options and choice overload this paper provides a choice theoretic explanation for each of these phenomena by means of three deferral permitting models of decision making that are driven by preference incompleteness undesirability and complexity constraints respectively these models feature rational choice deferral in the sense that whenever the individual does not defer he chooses a most preferred feasible option as a result choices are always consistent with the weak axiom of revealed preference the three models suggest novel ways in which observable data can be used to recover preferences as well as their indecisiveness desirability and complexity components or thresholds several examples illustrate the relevance of these models in empirical and theoretical applications

on the economics of forest vintages abstract we study optimal harvesting of a multiple vintage forest system under discounting discrete time and strictly concave utility it is shown that at the optimal stationary state timber harvest may evolve cyclically over time the cycles occur because in the forest vintage model space is measured continuously and time in discrete units cycles disappear as period length moves toward zero when the faustmann rotation is not unique or when the discount factor approaches unity we develop an equivalent model that can be used to solve the vintage problem numerically from any initial state numerical examples suggest that the optimal solution converges to the stationary cycle from any initial vintage structure

bank debt restructurings and the composition of exchange offers in financial distress this article examines the relation between bank debt forgiveness and the structure of public debt exchange offers in financial distress i find that the structure of exchange offers and the likelihood of an offer s success are significantly related to whether the bank participates in the restructuring transaction exchange offers made in conjunction with bank concessions are characterized by significantly greater reductions in public debt outstanding and significantly less senior debt offered to bondholders overall the results suggest that the structure of a firm s public and private claims significantly affects the firm s ability to modify its capital structure in financial distress recent empirical studies provide apparently conflicting evidence on the relation between the mix of private and public debt in a firm s capital structure and the ability of the firm to restructure its debt outside of bankruptcy for example gilson john and lang 1990 find that the likelihood of a successful debt restructuring is positively related to a firm s reliance on bank borrowing in contrast asquith gertner and scharfstein 1994 and james 1995 find that for firms with public debt outstanding banks rarely make unilateral concessions indeed the latter two studies suggest that the avoidance of bankruptcy depends on the ability to restructure public not private debt claims finally gilson 1994 finds less debt reduction in financial distress the higher the proportion of bank debt a firm uses in this article i examine the relation between bank debt restructurings and the composition of public debt exchange offers by financially distressed firms the secured status of bank debt and institutional constraints on bank debt for equity swaps imply that banks are unlikely to provide debt forgiveness unless their claims are impaired i e the face value of the bank s claim is greater than the value of the collateral net of transactions and bankruptcy costs 2 however drawing on theoretical work by gertner and scharfstein 1991 i argue that bank participation in a restructuring can play an important role in resolving

forestry and the bequest motive abstract with an overlapping generations model for trees and humans it is shown that in a small open timber producing economy both in a setting where the economy is planned in order to maximize an intertemporal social welfare function and in a decentralized market economy long term forest investments should be evaluated by their net present value this is so provided that the existing generation has some if even very small concern for the well being of the next generation a review of empirical studies among nonindustrial private forest owners in the u s and in sweden gives support to the suggestion that this mechanism based on a tinge of altruism may be more important in promoting long term silvicultural investments than the incentives given by existing land markets

on the faustmann solution to the forest management problem abstract this paper is concerned with optimal solutions to the forest management problem when future utilities are undiscounted by examining asymptotic properties of such solutions we find that i if the utility function is linear then the faustmann periodic solution is optimal ii if the utility function is increasing and strictly concave an optimal solution converges to the maximum sustained yield solution which we characterize as a golden rule these results may be viewed as a possible resolution to the debate in forestry economics about what constitutes an optimal policy in forest management

classical turnpike theory and the economics of forestry classical turnpike theory as originally conceived by samuelson pertains to optimal growth theory over a large but finite time horizon with given initial and terminal stocks in this paper we present two turnpike results in the context of the economics of forestry with given initial and terminal forest configurations our results depart from the general theory in that they concern a transitional production set which does not satisfy the assumptions of inaction and free disposal and rely on a recently discovered non interiority assumption on concave not necessarily differentiable benefit functions that implies and is implied by the asymptotic convergence of good programs

optimal forestry control with variable forest area abstract this paper investigates the optimal forestry control problem when the forest area is variable a forester is considered who is endowed with effectively infinite area of land and whose objective is to maximize the discounted value of profit by controlling his planting and harvesting rates under a convex cost function necessary and sufficient conditions for optimality are established the uniqueness of the solution is examined changes in the timber price are shown to have possibly no effect upon the optimal steady state harvesting age but upon the forest area a case exhibiting monotonic convergence of the optimal paths is provided

liquidation values and the credibility of financial contract renegotiation evidence from u s airlines how do liquidation values affect financial contract renegotiation while the incomplete contracting theory of financial contracting predicts that liquidation values determine the allocation of bargaining power between creditors and debtors there is little empirical evidence on financial contract renegotiations and the role asset values play in such bargaining this paper attempts to fill this gap we develop an incomplete contracting model of financial contract renegotiation and estimate it using data on the airline industry in the united states we find that airlines successfully renegotiate their lease obligations downward when their financial position is sufficiently poor and when the liquidation value of their fieet is low our results show that strategic renegotiation is common in the airline industry moreover the results emphasize the importance of the incomplete contracting perspective to real world financial contract renegotiation

securitization and distressed loan renegotiation evidence from the subprime mortgage crisis abstract we examine whether securitization impacts renegotiation decisions of loan servicers focusing on their decision to foreclose a delinquent loan conditional on a loan becoming seriously delinquent we find a significantly lower foreclosure rate associated with bank held loans when compared to similar securitized loans across various specifications and origination vintages the foreclosure rate of delinquent bank held loans is 3 to 7 lower in absolute terms 13 to 32 in relative terms there is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers a quasi experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results

asset retirement with infinitely repeated alternative replacements harvest age and species choice in forestry abstract at what age should productive assets be retired how should replacements be chosen when they differ in their uncertain ability to generate future incomes as a particular version of that problem we study the tree harvesting decision with two possible replacement species whose values as timber are stochastic and whose growth functions are deterministic in the single rotation wicksell problem starting with a bare piece of land an empty shop it is optimal to choose and plant one species immediately if its current value is sufficiently high relative to that of the other species the alternative equipment however if the species are insufficiently price differentiated it is preferable to leave the land vacant the shop empty despite the opportunity cost of doing so in the repeated version of the problem it is never optimal to leave the land bare provided the cost of replacement is null furthermore the optimal harvest tree retirement age not only depends on the price and current productivity of the trees in place but also on the price and productivity of the other species because it may replace the current one the harvest age reaches a peak at some critical threshold of the relative price that signals the necessity to switch to the alternative species indeed this is when the opportunity cost of choosing one alternative replacement over the other is the highest the land value and also the value of the firm is similar to an american option with free boundary infinite expiry period and endogenous payoff the paper highlights the opportunity cost of alternative replacement options and the central role of their volatility in both asset retirement and replacement choice decisions all results are derived analytically a numerical treatment by the penalty method completes the resolution

the incredible holc mortgage relief during the great depression this paper examines the relief provided by the home owners loan corporation holc a new deal program that purchased and refinanced over 1 million distressed residential mortgages i document that the holc paid relatively high prices for its mortgages most likely in an effort to encourage lender participation and stimulate the housing market the consequence was that lenders were able to remove poorly performing assets from their balance sheets at attractive prices while this meant the holc s ability to seek principal reductions was somewhat limited borrowers still received significant relief through the terms of the holc s more modern and forgiving mortgage contracts

vintage capital investment and growth abstract we study the dynamics of growth and investment in a continuous time model with vintage capital vintage capital models may be characterized by non exponential rates of depreciation and technical change and can incorporate gestation lags as well as learning by using we investigate the effect of such features on the dynamics of investment and growth and show how they can contribute to explaining the volatile nature of investment time series

on equilibrium cycles and normal forests in optimal harvesting of tree vintages abstract a normal forest that has an even land allocation between tree vintages has traditionally been taken as a desirable long run goal in forestry in contrast the presently favored economic hypothesis suggests that under positive discounting the optimal forest vintage structure typically evolves to a cycle without convergence toward the normal forest this paper proves the existence of the cyclical solution and its global stability properties using elementary methods the occurrence of cycles in forest harvesting is given a resource economics interpretation a numerical example that was previously analyzed incorrectly is clarified in the existing vintage model forest land has no competing uses in an extension with competitive land use the stationary cycles are shown to be replaced by a saddle point path with damped oscillations and convergence toward the normal forest

renewable resources with endogenous age classes and allocation of land it is shown that if it is optimal to allocate all land to forestry the long run stationary state is a cyclical solution around an equilibrium with an even timber flow the equilibrium cycles vanish when it is optimal to allocate some fraction of land outside forestry we present numerical examples on the transitional dynamics and long and short run timber supply when land conversion is costly the cycles do not vanish and the long run equilibrium between forestry and agriculture is represented by a continuum

the principal principle i analyze optimal loan modification schemes in a stochastic home price and stochastic interest rate environment lenders maximize loan values by managing the borrower s option to default on the loan and prepayment option given negative equity controlling for the borrower s ability to pay rate reductions and maturity extensions result in a higher probability of redefault by homeowners even after modification of their loans in contrast loan write downs the principal principle not a favored recipe are value maximizing for the lender a shared appreciation mortgage enhances the ability to pay mitigates adverse selection and reduces the present value of expected deadweight foreclosure costs

rational choice with status quo bias abstract motivated by the empirical findings concerning the importance of one s current situation on her choice behavior the main objective of this paper is to propose a rational choice theory that allows for the presence of a status quo bias and that incorporates the standard choice theory as a special case we follow a revealed preference approach and obtain two nested models of rational choice that allow phenomena like the status quo bias and the endowment effect and that are applicable in any choice situation to which the standard static choice model applies

optimal forest rotation with in situ preferences abstract this study develops a utility maximization infinite horizon forest rotation model that includesin situvalues and the forest owner s consumption savings decision making the value of forest land becomes owner specific and depends on property rights related toin situbenefits the length of the rotation period depends e g on the wealth of the forest owner and may evolve in time a forest owner with accumulating nonforest assets never continues harvesting forever in contrast with decreasing nonforest assets the rotation period converges toward the faustmann solution in a multiple stand version of the model the harvesting decisions regarding different stands are linked together via the budget constraint and the dependence of an individual stand sin situvalue on the age structure of the whole forest numerical simulation with two stands suggests that within the class of concavein situvaluation functions the optimal solution yields convergence toward forests with increasing heterogeneity of age structures

indifference or indecisiveness choice theoretic foundations of incomplete preferences abstract a commonly held belief in economics is that an individual s preferences that are revealed by her choices must be complete this paper takes issue with this position by showing that one may be able to distinguish between indifference and indecisiveness of an agent upon observing her choice behavior we relax the standard weak axiom of revealed preferences warp and show that a potent theory of individual choice with and without risk can be founded on this weaker axiom when it is coupled with some other standard postulates the most notable features here are that an agent is allowed to be indifferent between certain alternatives and indecisive about others moreover an outside observer can identify which of these actually occur upon examining the observable choice behavior of the decision maker as an application we also show how our theory may be able to cope with the classical preference reversal phenomenon

species preservation and biodiversity value a real options approach abstract we evaluate biodiversity in a real options framework when the resources in use are substitutable we examine optimal conservation decisions given that a biodiversity loss is irreversible and that future use values are uncertain while species substitutability has been shown to reduce the value of diversity we show that the flexibility associated with substitutability is a source of value marginal species value is decreasing in the number of species but rising and convex in the value of the marginal species as we show in the two species homogenous model increased volatility raises biodiversity value and a positive correlation between species values both reduces the value of the pool of species and the value of biodiversity the role played by the correlation between the value of a species and the value of other species is reminiscent of the beta of a financial asset just like an asset with a negative beta derives additional value by providing insurance against fluctuations in the market portfolio a species whose value tends to move in the opposite direction as the species in use derives additional value from its higher probability to be available for substitution if the value of the species in use diminishes

why don t lenders renegotiate more home mortgages redefaults self cures and securitization we document the fact that servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007 having performed payment reducing modifications on only about 3 percent of seriously delinquent loans we show that this reluctance does not result from securitization servicers renegotiate similarly small fractions of loans that they hold in their portfolios our results are robust to different definitions of renegotiation including the one most likely to be affected by securitization and to different definitions of delinquency our results are strongest in subsamples in which unobserved heterogeneity between portfolio and securitized loans is likely to be small and for subprime loans we use a theoretical model to show that redefault risk the possibility that a borrower will still default despite costly renegotiation and self cure risk the possibility that a seriously delinquent borrower will become current without renegotiation make renegotiation unattractive to investors

harvest decisions and asset valuation for biological resources exhibiting size dependent stochastic growth optimal harvest rules and preharvest valuation procedures are derived for biological assets with stochastic size dependent growth in a stochastic price environment these issues are analyzed as continuous time optimal stopping problems both the single rotation and ongoing rotations problems are addressed the sensitivity of harvest and valuation rules is assessed the results are compared with those derived from a myopic look ahead procedure and with the corresponding findings for age dependent growth copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

indifference and incompleteness distinguished by rational trade abstract we use an agent s strict preferences to define indifference and incompleteness relations that identify the sequences of trades that are rational to undertake if an agent makes sequences of trades of options labeled indifferent the agent will never be led to an inferior outcome but trades of options where no preference judgments obtain can lead to diminished welfare for one shot choices in contrast there can be no behavioral distinction between indifference and incompleteness applications include an isomorphism for incomplete preferences that indicates when weak and strict preferences contain interchangeable information a characterization of the possibly incomplete preference relations consistent with a one shot choice function and an equivalent definition of incompleteness that relies on the philosophical theory of incommensurability

optimal forest rotation when stumpage prices follow a diffusion process a key assumption in the faustmann rule for financial maturity is that stumpage prices are constant over time timber price series however exhibit wide fluctuations over time which this paper models as a lognormal diffusion process comparing the diffusion results modeled here to the fixed price faustmann results show 1 the prescribed rotation length is generally longer 2 computed stand values are higher using the diffusion model with the greatest divergence occurring when a stand is about the midpoint of a rotation 3 as the stumpage price volatility increases the gain in computed npv increases though in a nonlinear fashion

investment under uncertainty the case of replacement investment decisions we analyze the determinants of replacement investment decisions in a contingent claims model with maintenance and operation cost uncertainty we find that the optimal time between replacements is increasing in the volatility of cost the purchase price of a new asset and the corporate tax rate and is decreasing in the systematic risk of cost the salvage value of the asset and the investment tax credit the optimal time between replacements can either increase or decrease with an increase in the depreciation rate extensions of the model to examine the effects of technological and tax policy uncertainty on replacement investment decisions give intuitive but striking results uncertainty about the arrival of a technological innovation that would decrease maintenance and operation cost results in a significant decrease in replacement investment uncertainty in a tax law change that would encourage investment decreases current investment and uncertainty in a tax law change that would discourage investment increases current investment

valuing the impact of large scale ecological change in a market the effect of climate change this paper establishes a methodology for valuing the impact of large scale ecological changes in a market given the large capital stocks inherent in most ecological systems the dynamic nature of most ecological change and the dynamic response of markets it is critical to build dynamic models to capture the resulting effects this paper demonstrates how to construct such a model using the impacts of climate change on u s timber markets as an example across a wide range of scenarios and models warming is predicted to expand timber supplies and thus benefit u s timber markets copyright 1998 by american economic association

bequests credit rationing and in situ values in the faustmann pressler ohlin forestry model the problem of determining the optimal time to stop the pure aging process has a 150 year history in forestry the success of the rotation model lies in the fact that it is taken to be theoretically sound empirically testable and has clear practical relevance nonetheless empirical findings show that timber supply depends on variables missing from the original formulation previous research has addressed the problem by abandoning the pure aging description of forests this study demonstrates that the optimal aging process becomes forest owner specific under imperfect land and capital markets and if the owner has in situ preferences

the optimal forest rotation with evolving prices timber is unique among natural resources in that its price shows a long term increasing trend relative to the price of other goods ruttan and callahan 1962 manthy 1978 adams and haynes 1980 in the best known forest econometric model project this trend to continue one explanation for this secular rise in price relates to the virtual mining of the standing stock of old growth mature timber and its positive effect on real stumpage prices hotelling s 1931 theory of the mine postulates that as a stock of nonrenewable re

securitization and mortgage renegotiation evidence from the great depression we use loan level data from the nyc metropolitan area to examine the extent to which lenders attempted to prevent foreclosures with concessionary modi cations during the great depression we nd no principal forgiveness in the sample and only a handful of concessionary mortgage modi cations of other types far more mortgages terminated through foreclosure than received any sort of concessionary modi cation the results indicate that there are signi cant impediments to renegotiation of residential mortgages beyond securitization as such less renegotiation seems unlikely to be a major cost of securitization of residential mortgages

forced asset sales and the concentration of outstanding debt evidence from the mortgage market we provide evidence that lenders differ in their ex post incentives to internalize price default externalities associated with the liquidation of collateralized debt using the mortgage market as a laboratory we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and thus are less inclined to foreclose we provide evidence consistent with our conjecture arguably as a consequence zip codes with a higher concentration of outstanding mortgages experience smaller house prices declines these results are not driven by unobservable zip code or lender characteristics

the stochastic rotation problem a generalization of faustmann s formula to stochastic forest growth abstract in the present paper we study the optimal cutting strategy 1 2 for an ongoing forest by using stochastic impulse control we show how faustmann s formula can be generalized to stochastic growing forests the paper extends and clarifies previous studies by miller and voltaire 1983 clarke and reed 1989 and reed and clarke 1990

nondiscriminating foreclosure and voluntary liquidating costs since liquidation and bankruptcy are costly researchers have tried to find out why the claimants of a troubled firm do not work out a deal to avoid these costs in this article we show that if a creditor has to deal with multiple borrowers who might default it may be optimal for the creditor to randomly reject requests for a loan workout we further demonstrate that the optimal acceptance rate used by a creditor is positively related to the liquidating cost and negatively related to the default benefit our model is particularly relevant when analyzing the default decisions of mortgage borrowers and small business owners copyright 2002 oxford university press

the economics of orchards an exercise in point input flow output capital theory abstract this paper is concerned with the qualitative properties of optimal intertemporal programs in a model of point input flow output capital theory when future utilities are discounted under a mild condition on the flow output vector we establish that optimal programs for every discount factor and every initial state other than a unique stationary optimal state will exhibit non convergence furthermore we provide a necessary and sufficient condition on the flow output vector for which a neighborhood turnpike theorem holds that is long run fluctuations on an optimal program are small when the discount factor is close to unity

the decision to conserve or harvest old growth forest abstract the decision to harvest or conserve old growth forest is formulated as a stochastic decision problem in continuous time uncertainty in future amenity values for standing forest and in future timber revenues for harvested forest are included in the model along with the risk of catastrophic destruction by fire pest infestation etc it is shown how the decision problem can be expressed as an optimal stopping problem which can be solved analytically the optimal decision rule is shown to depend on how the ratio of current timber value to the current expected present value of amenity benefits foregone through harvesting compares with some critical level the effects of changes in uncertainty and other parameters on the optimal rule are discussed also it is shown how the cost benefit analysis and certainty equivalence procedures lead to premature harvesting and the expected loss in survival time for these sub optimal procedures is calculated