Finding Pareto Optimal Insurance Contracts

This paper deals with on-line computation—or step-wise learning—of Pareto optimal insurance contracts. Our approach tolerates that the loss distribution might be unknown, intractable, or not well specified. Thus we accommodate fairly inexperienced parties. Losses are here simulated or observed, one at a time, and they cause iterated revisions of the premium. The mechanical and global nature of probability calculus thereby yields to more tentative, myopic procedures, possibly closer to how humans operate or reason in face of risk. Sequential revisions may also reduce the expense of insurers' time and money in seeking sufficient statistics. Emphasized below is the remarkable simplicity and stability of the resulting adaptive procedures. Special attention goes to catastrophic risks, and to subsidized or competitive insurance.     

Carbon Trading with Imperfectly Observable Emissions

The Kyoto Protocol foresees emission trading but does not yet specify verification of (uncertain) emissions. This paper analyses a setting in which parties can meet their emission targets by reducing emissions, by investing in monitoring (reducing uncertainty of emissions) or by (bilaterally) trading permits. We derive the optimality conditions and carry out various numerical simulations. Our applications suggest that including uncertainty could increase compliance costs for the USA, Japan and the European Union. Central Europe and the Former Soviet Union might be able to gain from trading due to higher permit prices. Emissions trading could also lower aggregate uncertainty on emissions.     

Optimization of Harvesting Return from Age-Structured Population

Synopsis Maximization of the net profit from harvesting in a one-species age-structured population is analyzed. One of the control functions is the age of harvested individuals. The constructed mathematical model is similar to vintage capital models used in economics for optimal capital replacement. The optimization technique developed by authors for the capital replacement is disseminated to the formulated problem. A qualitative analysis of the problem is provided and the interpretation of results is given. Such economic topics as a zero-investment period, optimal balanced growth, and turnpike properties are discussed.     

Small transaction costs, absence of arbitrage and consistent price systems

The aim of this note is to establish a criterion of absence of arbitrage opportunities under small transaction costs for a family of multi-asset models of financial markets.     

The Impact of Agricultural Import Tariff on Economic Growth： Evidence From Mercosur Countries

This research paper attempts to determine the relationship between agricultural import tariff and economic growth of Mercosur countries over the period 1996-2007 using regression analysis as well as evaluates the gains and losses from the group＇s trade policy over the same period. The introductory part of this paper focuses on the dynamics of changes in economic growth, trade, and import tariff of these countries over the last two decades. The results of the performed regression analysis of panel data suggest that trade liberalization has a quantitatively significant positive effect on growth. By using the coefficient estimates on tariff, the authors perform a quantitative evaluation of gains and losses from trade policy, for which tariff measures to trade （imports） are used as a proxy.     

The dynamics of immigrant participation in entitlement programs: evidence from Canada, 1993–2007

Abstract Using uniquely rich Canadian administrative data from the 1993–2007 period, I find no evidence of rising Employment Insurance (EI) participation across recent‐immigrant cohorts and no evidence of rising EI participation with number of years spent in Canada beyond the short period following entrance into the Canadian labour market. I also find little evidence of the rising immigrant participation in Social Assistance (SA), either across recent arrival cohorts or with years in Canada. The results do not appear to be seriously affected by emigration and attrition within each immigrant cohort. While the immigrant participation in traditional ‘welfare’ programs such as Social Assistance has generally declined from 1993 to 2007, I show that Canada Child Tax Benefit and other federal and provincial programs aimed at providing financial assistance to families with children have become a major source of transfer income to immigrant families.     

A geometric approach to portfolio optimization in models with transaction costs

We consider a continuous-time stochastic optimization problem with infinite horizon, linear dynamics, and cone constraints which includes as a particular case portfolio selection problems under transaction costs for models of stock and currency markets. Using an appropriate geometric formalism we show that the Bellman function is the unique viscosity solution of a HJB equation.Mathematics Subject Classification (1991): 60G44JEL Classification: G13, G11This research was done at Munich University of Technology supported by a Mercator Guest Professorship of the German Science Foundation (Deutsche Forschungsgemeinschaft). The authors also express their thanks to Mark Davis, Steve Shreve, and Michael Taksar for useful discussions concerning the principle of dynamic programming.     

A baseline model of industry evolution

The paper analyses some general dynamic properties of industries characterized by heterogeneous firms and continuing stochastic entry.After a brief critical assessment of some significant drawbacks of recent contributions to modeling of stochastic industrial dynamics, we propose a novel analytical apparatus able to derive some generic properties of the underlying competition process combining persistent technological heterogeneity, differential growth of individual firms and turnover. The basic model, we suggest, is indeed applicable with proper modifications to a large class of evolutionary processes, well beyond industrial dynamics.JEL Classification: L11, O30, C60Support to this research by the International Institute for Applied Systems Analysis (IIASA), Austria; the Fujitsu Research Institute for Advanced Information (FRI), Japan; the Italian National Research Council (CNR), the Italian Ministry of Education, University and Research (MIUR, prot. 2002132413 003) and the Free University of Bozen Bolzano, Italy, is gratefully acknowledged. Comments by Andrea Bassanini, Francesca Chiaromonte, Steven Klepper, Uwe Cantner, Drew Fudenberg and the anonymous referees helped in shaping the paper to its present form. Mariele Berté provided the computer simulations of the model. The usual caveats apply.Correspondence to: G. Dosi