Risk aversion in a model of endogenous growth

Despite the evidence on incomplete financial markets and substantial risk being borne by innovators, current models of growth through creative destruction predominantly model innovators’ as risk neutral. Risk aversion is expected to reduce the incentive to innovate and we might fear that without insurance innovation completely disappears in the long run. The present paper introduces risk averse agents into an occupational choice model of endogenous growth in which insurance against failure to innovate is not available. We derive a clear negative relationship between the level of risk aversion and long run growth. Surprisingly, we show that in an equilibrium there exists a cut-off value of risk aversion below which the growth rate of the mass of innovators tends to a strictly positive constant. In this case, innovation persists on the long run and consumption per capita grows at a strictly positive rate. On the other hand, for levels of risk aversion above the cut-off value, the economy eventually stagnates.     

Risk averse retail pricing with robust demand forecasting

Good demand estimates are the key to effective pricing decision-making. However, they are subject to a high degree of uncertainty due to various factors that are unpredictable or difficult to model, thus making pricing decisions risky. This research provides a simple proposal for a robust optimization methodology that incorporates both demand uncertainty and the decision maker's degree of risk aversion. Uncertainty is explicitly considered for two coefficients of a linear demand function, price expressions are derived, and a criterion is proposed for defining the degree of risk aversion. The resulting model is also applied to an exponential demand case to better reflect a more realistic retail setting.     

浅析铜川市接续产业转移风险分析与规避

资源型产业是城市经济的核心和命脉,因资源濒临枯竭的城市需要产业转移,产业结构需要调整,接续产业转移是资源枯竭城市可持续发展的一条有效途径。本文通过对铜川资源枯竭型城市产业转移存在着不确定风险因素的剖析,分析了承接产业转移给铜川市所带来的实现资源合理优化和接续产业的有效协调发展效应,以期为铜川市的转型和持续发展提供有益参考。     

Cost-effective compensation to avoid carbon emissions from forest loss: An approach to consider price-quantity effects and risk-aversion

Analyses were carried out on financial compensation to avoid loss of tropical forests and related carbon (C) emissions when marginal financial yield declined for land-use options with extended areas, and when a risk-averting perspective (modeled according to financial theory around the capital asset pricing model) is assumed. The approach in this study was to consider natural forest, forest plantation, pasture, and cropland simultaneously to investigate how an optimized land-use distribution may reduce the amount of compensation necessary to avoid C emissions from forest loss.The financial compensations derived were as high as US$ 176 per hectare per year when comparing natural forests only with the most profitable alternative (croplands). However, compensation decreased to US$ 124 for risk-neutral decision-makers, who would strive for optimized land-use allocation, and to only US$ 47 per hectare per year for risk-avoiders, who would look to maximize the reward-to-variability ratio. Sensitivity analyses indicated that the compensation under risk-aversion increased much less than under risk-ignoring when increased productivity of agricultural land-use or growing demand for agricultural products was simulated. It was concluded that considering appropriate diversification strategies and the well documented human behavior to avoid risks is an important step in developing cost-effective compensation policies.     

A choice experiment on fuel taxation and earmarking in Norway

Pigouvian taxes are efficient — but unpopular among voters — and hence often politically infeasible. Earmarking of revenues has been widely reported to increase public support for taxes, but earmarking is generally not the most efficient use of the revenues. This trade-off between efficiency and political feasibility is the motivation for our primary research objective: to quantify the effect of earmarking on support for fuel tax rises. Our secondary research objective is to investigate why earmarking increases support. Using data from a representative sample of the Norwegian voter population (N = 1147), we estimate models of voter preferences for fuel taxes using logistic regression models. Our results show that, in the absence of earmarking, the majority of voters would like to reduce fuel taxes, but earmarking the revenues for environmental measures has a substantial effect on voter support for fuel tax increases, garnering a majority for increases of up to 15% above present levels. Further analysis indicates that a prime reason why earmarking for environmental measures is popular is that it increases the perceived environmental effectiveness of the tax, and hence its legitimacy as an environmental rather than a fiscal policy instrument.     

Revisiting the risk/return relations in the Asian Pacific markets: New evidence from alternative models

This paper examines the risk/return relations in eleven Asian Pacific stock markets and explores if the 1997 Asian financial crisis significantly influenced market behavior in the region. We use a plain vanilla time-series regression approach as well as various GARCH models. Although results significantly vary across model specifications, the overall evidence from GARCH models supports a significantly positive risk/return relation in several markets but only prior to the Asian financial crisis. These results accord with Glosten et al. (1993) and Harvey (2001) and suggest that the relative risk aversion is sensitive to both model specifications and structural breaks.     

Career Risk

The author defines asset manager career risk as the risk that asset owners terminate an existing manager due to an extended period of underperformance relative to a benchmark or peer group even though the manager has skill (defined here as positive information ratio). The author shows that myopic loss aversion gives rise to career risk even for skilled asset managers and that the current industry practice of quarterly or annual performance evaluations puts even the most skilled asset managers at risk of undue termination. The author also investigates how a reduction of tracking error leads to a reduction of career risk even though this comes at the expense of lower long-term performance. Finally, the author computes the minimum evaluation period needed to reduce career risk for asset managers of different skill levels.     

The equilibrium exchange rates of European currencies and the transition to euro

This study estimates the demand system using Japanese micro data and calculates the cost of living index (COLI) to assess the substitution bias in the Consumer Price Index. The estimated bias during the sample period of 1982–2000 is about 0.06 percentage points, which is larger than the estimates calculated from a superlative index. The difference between the COLI and a superlative index can be explained with the upward movements of the average utility level in Japan, since the cost of living for the rich has grown more rapidly than that for the poor.     

风险厌恶测定与我国银行治理效率的实证研究

基于FDIC对商业银行贷款损失所设定的概率分布,本文利用VaR方法对商业银行风险厌恶程度进行了测定,并利用我国上市银行2004～2008年间的财务数据对商业银行的风险厌恶程度进行了实证分析,结果表明商业银行的风险控制可以反映其风险厌恶程度,风险厌恶程度在风险控制中得到充分体现.银行的风险厌恶程度越高,净资产回报率越高.     

Productivity and Producer Welfare in the Presence of Production Risk

Production risk is an inherent characteristic of agriculture and changes in production risk will affect the welfare of risk‐averse producers. Using standard concepts from the literature on uncertainty, we introduce a welfare measure which comprises total factor productivity (TFP), production risk and farmer risk preferences, and which reflects the impact on producer welfare of changes in production technology. An empirical application is carried out using data from a sample of Spanish dairy farms which shows how the positive impact of increases in TFP on welfare can be offset by increases in the risk premium (‘cost of risk’) to the point where welfare may decrease.