Stochastic growth: a duality approach

We re-examine the representative agent's optimal consumption and savings under uncertainty in the presence of investment constraints using martingale representation and convex analysis techniques. This framework allows us to explicitly quantify precautionary savings which induces a higher average growth rate than in a certainty setup. We provide a closed form solution for a Cobb-Douglas economy. The effect of uncertainty on portfolio selection is analyzed. Consumption growth rate and risk free interest rate exhibit a U-shaped relationship. Uncertainty negatively affects expected consumption growth rate; such a result seems to be supported by empirical evidence.     

Optimal surveillance against foot‐and‐mouth disease: the case of bulk milk testing in Australia

Previous foot‐and‐mouth disease (FMD) outbreaks and simulation‐based analyses suggest substantial payoffs from detecting an incursion early. However, no economic measures for early detection have been analysed in an optimising framework. We investigate the use of bulk milk testing (BMT) for active surveillance against an FMD incursion in Australia. We find that BMT can be justified, but only when the FMD entry probability is sufficiently high or the cost of BMT is low. However, BMT is well suited for post‐outbreak surveillance, to shorten the length of time and size of an epidemic and to facilitate an earlier return to market.     

Securitization and regulatory arbitrage within the ABCT framework

This paper discusses the consequences of securitization and how it links to the Austrian Business Cycle Theory (ABCT). The argument that securitization is behind fiduciary credit expansion preceding the 2008 crisis is incomplete. Consolidated balance sheet analysis demonstrates that securitization per se actually sterilizes the inflationary effect of previous fiduciary credits by transforming them into credits backed by voluntary savings. This sterilization stage is subsequently followed by new fiduciary credits issuance as securitization creates excess reserves and excess capital for banks. However, when securitization is used as a tool to implement arbitrage strategies of the Basel prudential rules, it enables banks to create more fiduciary credit while time preference remains unchanged. This creates the conditions for business cycle amplification.     

The Technical and Price Efficiency of Fertiliser use in Irrigated Rice Production

Rapid growth in chemical fertiliser use has been key to Indonesia's rice production increase during the past two decades. Very high fertiliser application rates in the country's major irrigated rice areas prompt concerns about technical and economic inefficiency, as well as possible adverse environmental impacts, particularly since fertiliser subsidies constitute a significant financial burden to the government. A 1989 national farm cost survey shows that rates of nitrogen and phosphorus use in wide areas of Java and Bali, and in some parts of Sumatra, are often far higher than those recommended by agronomists both in Indonesia and in similar Asian countries. The analysis indicates that fertiliser rates presently exceed profit maximising levels on much of Java, leading to a net financial loss estimated at over $29 million annually. More intensive extension efforts and changes in pricing strategy are proposed to improve technical and economic efficiency.