Accounting Price of an Exhaustible Resource: Response and Extensions

Wei (Environ Resour Econ 60:579–581, 2015) presents a novel derivation of the accounting price for an exhaustible resource in a non-optimal economy subject to an allocation mechanism. We show that Wei (2015) and Hamilton and Ruta (Environ Resour Econ 42:53–64, 2009) are in fact employing different and mutually exclusive allocation mechanisms for the economy, and this explains the differences between the respective accounting prices. Because accounting prices must be defined subject to the allocation mechanism for the economy, the prices derived in the two papers are equally valid within their respective allocation domains. Further analysis shows that if there is declining marginal product of factors, a ‘Hartwick investment rule’ for the model economy (set investment just equal to depletion, valued at the accounting price) will lead to declining consumption for the Wei (2015) accounting price, and increasing consumption for the Hamilton and Ruta (2009) accounting price. This result is extended to consider the accounting standards recommended in the UN SEEA (System of environmental-economic accounting 2012: central framework. United Nations, European Commission, Food and Agriculture Organization of the United Nations, International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank, 2012), as well as accounting for environmental externalities from resource use.     

Divorce as a risky prospect

In 1910, the divorce rate per 1000 members of the US population stood at 0.9. ^{1 1}Histroical divorce rates can be found in the Statistical Abstract for the US (1981). . This rate showed a slow upward trend for the next 50 years, and by 1960 had more than doubled to 2.2. It took only 20 years for the rate to more than double again so that by 1980, the rate was 5.3. For the last 20 years, the marriage rate, by contrast, has experienced mild fluctuations between 10.0 and 11.0 per 1000 in the population with no discernible trend. If the same pattern for both rates holds until the year 2000, the annual number of divorces will exceed the annual number of marriages.

Although sociologists have researched divorce extensively, only a few economic studies exist. This is unfortunate since divorce is likely to have considerable impact on economic vaiables such as hours of work, labour force participation, human capital accumulation, work performance and earnings. ^{2 2}For a recent study of hours at work and labour supply, see Green and Quester (1982); for studies on earnings and work performance, see Santos (1975) or Hoffman and Holmes (1976). King (1982) argues that couples anticipating divorce will individually invest more heavily in human capital since the costs of any current investment are at least partially absorbed by the spouse. Without denying the influences of peer groups, social norms and role models, it seems reasonable to suggest that pecuniary considerations may also help to explain divorce.

A search through the economics literature uncovered only two studies of the determinants as opposed to the implications of divorce: one by Orcutt, Caldwell and Wertheimer (1976) and another by Becker, Landes and Michael (BLM) (1977). The study by BLM is by far the most widely cited of the two. The authors of both studies argue that the current state of marriage is the primary determinant of divorce. BLM, for example, assert that ‘the probability of divorce is smaller the greater the expected gain from marriage, and the smaller the variance of the distribution of unanticipated gains from marriage’. BLM, in other words, view marriage as a risky investment with a distribution of returns. The alternative is divorce which, by implication in BLM, involves a certain return.

The first contribution of this study is to draw the implications for an alternative view in which the investment in marraige is certain, but the investment in divorce is risky.

The second contribution lies in presenting formal expected utility-maximizing models of an individual and/or a couple contemplating divorce which can be tested empirically. The thrid contribution is the method developed to test the predictions of the models.

The paper of follows a simple format. Section I presents the models. Section II provides an explanation of the data used in the empirical tests. Methodology and results are presented in sections III and IV. Caveats are observed in section V. The final section closed with a summary of the arguments and evidence.     

Agent-based modelling of novelty creating behavior and sectoral growth effects—Linking the creative and the destructive side of innovation

For grasping the relationship between novelty creating activities of agents and growth of economic aggregates, a multi-level approach is suggested. The first level specifies the triggering conditions for novelty creating activities for the agents, i.e. firms. Here the behavioral elements and the modes of actions for the firms are portrayed using an agent-based approach (Section?2). On the second level, the consequences of successful innovations and imitations in a given sector of economic activities are dealt with (Section?3). This depends on the frequency of successful novelties and on the way they diffuse in that sector. We use an agent-related functional approach, applying difference equations for depicting the stylized facts of the diffusion dynamics. Only if these different levels of economic dynamics are distinguished as well as related to each other, is it possible to derive aggregate effects of novelties for the whole economy. This will be done by way of computer simulations (Section?4). Conclusions are drawn in Section?5.     

Nowcasting Chinese GDP: information content of economic and financial data

This article applies the factor model proposed by Giannone, Reichlin, and Small (2005 Giannone, D., Reichlin, L. and Small, D. 2005. “Nowcasting GDP and inflation: The real time information content of macroeconomic data release”. In Finance and Economic Discussion Series 2005–42, Washington, DC: Board of Governors of the Federal Reserve System.  [Google Scholar]) on a large data set to nowcast (i.e. current-quarter forecast) the annual growth rate of China's quarterly GDP. The data set contains 189 indicator series of several categories, such as prices, industrial production, fixed asset investment, external sector, money market, and financial market. This article also applies Bai and Ng's criteria (2002) to determine the number of common factors in the factor model. The identified model generates out-of-sample nowcasts for China's GDP with smaller mean-squared forecast errors than those of the random walk benchmark. Moreover, using the factor model, we find that interest rate data is the single most important block of information to improve estimates of current-quarter GDP in China. Other important blocks are consumer and retail prices data and fixed asset investment indicators.     

J. M. Keynes’ influence on institutional portfolio management

In the earlier part of his portfolio management career, J. M. Keynes pursued a short-term, asset allocation-based speculative approach to portfolio management, only to abandon it in the early 1930s in favor of a long-term, security selection approach based on identifying intrinsic value. It was the earlier Keynes who endorsed E. L. Smith’s 1924 Smith, E. L. Common Stocks as Long Term Investments. New York, NY: Macmillan, 1924. [Google Scholar] U.S. monograph, Common Stocks as Long Term Investments, encouraging his insurance company contacts to conduct a similar study in the United Kingdom. This suggestion was taken up in the 1920s and 1930s by U.K. insurance actuaries, whose lead was followed post-1945 by pension fund actuaries. Among the latter, George Ross Goobey is the most well-known, his name being closely associated with the Cult of the Equity, which, with the increasing formalization of institutional portfolio management over the last two or three decades, has transmuted into the Cult of the Benchmark. Underlying this latter cult is the emphasis on asset allocation, which can be traced back to Smith’s monograph. It is ironic that Keynes’ enduring influence is more likely to be felt through his endorsement of Smith rather than by the adoption of the genuine investment approach of his later career.     

Does Higher Education Affect Economic Growth? The Case of Greece

Abstract

The purpose of the study is twofold: first, it presents an extensive review of empirical studies that have examined the relationship between higher education and economic growth. Second, it estimates the effect of higher education on economic growth in Greece over the period 1960–2009. It applies the model introduced by Mankiw, Romer, and Weil (1992 Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437. doi: 10.2307/2118477[Crossref], [Web of Science ®] , [Google Scholar]) by using the higher enrolment rates as a proxy of human capital. The paper employs cointegration and an error-correction model to test the causal relationship between higher education, physical capital investments and economic growth. The empirical analysis reveals that there is a long-run cointegrating relationship between higher education, physical capital investments and economic growth. The elasticity of economic growth with respect to higher education is 0.52%. The results also suggest that there is evidence of unidirectional long-run and short-run Granger causality running from higher education and physical capital investments to economic growth.     

What (if any) are the returns to computer use?

Using North American data, we revisit the question first broached by Krueger (1993 Krueger, AB. 1993. How computers have changed the wage structure: evidence from microdata. Quarterly Journal of Economics, 108: 33–60. [Crossref], [Web of Science ®] , [Google Scholar]) and re-examined by DiNardo and Pischke (1997 DiNardo, JE and Pischke, J-S. 1997. The returns to computer use revisited: have pencils changed the wage structure too?. Quarterly Journal of Economics, 112: 291–303. [Crossref], [Web of Science ®] , [Google Scholar]) of whether there exists a real wage differential associated with computer use. Employing a mixed effects model with matched employer–employee data to correct for the fact that workers and workplaces that use computers are self-selected, we find that computer users enjoy an almost 4% wage premium over nonusers. Failure to correct for worker and workplace selection effect leads to a more than twofold overestimate of this premium.     

Equilibria in an overlapping generations model with transfer policies and exogenous growth

For an overlapping generations economy with varying life-cycle productivity, non-stationary endowments, continuous time starting at $-\infty $ (hence allowing for full anticipation), constant-returns-to-scale production and ces utility, we fully characterise equilibria where output is higher than investment, which is strictly positive. Net assets (aggregate savings minus the value of the capital stock) are constant in any equilibrium, and, for balanced growth equilibria (bge, defined for an economy with stationary endowments), net assets are non-zero only in the golden rule equilibrium, in accord with Gale (1973). The number of bge is finite. Their parity, however, depends on the life-cycle productivity, in particular, on the relation between the intertemporal elasticity of substitution, the minimal working age and the minimal tax age.     

Inflation,growth, and distribution: The Brazilian economy after the post war

Abstract

Following Marglin and Bhaduri (1990 Marglin, S.A., and Bhaduri, A. “Profit Squeeze and Keynesian Theory.” In S.A. Marglin and J. Schor (eds.), The Golden Age of Capitalism. Reinterpreting the Postwar Experience. Oxford: Clarendon, 1990. [Google Scholar]), the purpose of this paper is to investigate empirically the interaction between income distribution and growth of aggregate demand during the 1951–89 period in Brazil. Applying Hein and Vogel’s (2008) methodology we conclude that the Brazilian economy showed a profit-led demand regime. In a context of high inflation, high concentration of markets, and wage control, retained profits were the main source to finance new capital. In this sense, we found a large sensitivity of investment relative to the wage share, a result that is compatible with a consumption pattern based on high income, which supported the growth trend with low wages observed during the period.     

Productive physical investment and growth: testing the validity of the AK model from a panel perspective

In this article, we analyse the relationship between productive physical investment and economic growth from a panel perspective for a sample of 61 countries spanning the period 1950 to 1992. The analysis can be thought of as two-fold. First, we test the empirical validity of AK models following the logic by Jones (1995 Jones, CI. 1995. Time series properties of endogenous growth models. Quarterly Journal of Economics, 110: 495–525. [Crossref], [Web of Science ®] , [Google Scholar]). For that purpose, we determine the degree of persistence of physical investment rates and growth by employing recently developed panel unit-root tests that enable us to make more reliable inferences about the existence of stochastic trends in the series. Second, we estimate the long-run effect of physical investment on growth by using panel data techniques rather than cross-section regressions. Overall, our findings cast doubts on the rejection of the empirical validity of the AK model, as suggested by Jones’ analysis.     

Anchoring-Adjusted Capital Asset Pricing Model

What happens when the capital asset pricing model is adjusted for the anchoring and adjustment heuristic of Tversky and Kahneman [1974 Tversky, A., and D. Kahneman. “Judgment Under Uncertainty: Heuristics and Biases.” Science, 185, (1974), pp. 1124–1131.[Crossref], [PubMed], [Web of Science ®] , [Google Scholar]]? The surprising finding is that adjusting the capital asset pricing model for anchoring provides a plausible unified framework for understanding almost all of the key asset pricing anomalies. The anomalies captured in the theoretical framework include the well-known size and value effects, high alpha of low beta stocks, accruals, low volatility anomaly, momentum effect, stock splits, and reverse stock splits. The market equity premium is also larger with anchoring. This suggests that the anchoring-adjusted capital asset pricing model may provide the needed unifying structure to behavioral finance.     

Trade-induced Industrialization and Economic Growth

Based on a modified Heckscher-Ohlin model of Deardorff and Park (2010 Deardorff, A. and Park, J.-H. 2010. A story of trade-induced industrialization. International Economic Journal, 24: 283–296. [Taylor & Francis Online] , [Google Scholar]), this paper develops a dynamic model of trade-induced industrialization and economic growth. It shows that a developing country may grow out of its autarky steady state with no industrialization into a new steady state with full industrialization by opening to trade with a large industrialized country, exporting the labor-intensive intermediate input in exchange for the capital-intensive intermediate input for the modern good. Even when the developing country is on its path toward complete industrialization under autarky, free trade may induce it to grow faster with its return to capital being raised and sustained at a level that is higher than its autarky level during its industrialization process. Once it completes its industrialization process by having all of its resources in the modern sector, then diminishing returns to capital come back to accompany further capital accumulation, slowing down the growth of the economy. This trade-induced industrialization and economic growth, having an expansion of international trade both in its absolute value and in its ratio to the size of the developing country, correspond well with the dynamic profiles of East Asian Miracle countries’ economic growth based on their export-oriented industrialization strategy.     

The Value of Air Quality in Chinese Cities: Evidence from Labor and Property Market Outcomes

Using a dual-market sorting model of workers’ location decisions, this paper studies the capitalization of air pollution in wages and property prices across Chinese cities. To account for endogeneity of air pollution in the determination of wages and property prices, we exploit quasi-experimental variation in air quality induced by a policy subsidizing coal-based winter heating in northern China, and document a discontinuity in average air quality for cities located north and south of the policy boundary. Using data for all 288 Chinese cities in 2011, we estimate an equilibrium relationship between wages and house prices for the entire system of Chinese cities, and specify a regression discontinuity design to quantify how variation in air quality induced by the policy affects this relationship locally. Our preferred estimates of the elasticity of wages and house prices with respect to \(\text {PM}_{10}\) concentration are 0.53 and \({-}\) 0.71 respectively. At the average of our sample, the willingness to pay for a unit reduction in \(\text {PM}_{10}\) concentration is CNY 261.28 (\(\simeq \) USD 40.50), with a significant share reflected in labor market outcomes.     

Confidence and alternative Keynesian methods of asset choice

Abstract

This article elaborates the analysis of asset choice proposed by Keynes and later adopted by Post Keynesians such as Paul Davidson and Hyman Minsky. The article incorporates the essential aspects of the theory of confidence presented in Dequech (1999) Dequech, D. 1999. Expectations and confidence under uncertainty. Journal of Post Keynesian Economics, 21: 415–430. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar], first into an investigation of the relation between confidence and the liquidity premium and then into the broader theory of asset choice. Keynes considered two methods of determining planned investment expenditures: one method is based on the comparison between the marginal efficiency of capital and the interest rate; the other is based on the comparison between the demand price and the supply price of a particular capital good. Both methods can be generalized for asset choice, with investment as a particular case. The article refines and develops these two methods so as to specify more precisely the influence of confidence and speculation on the determination of liquidity premia and hence on the several assets' profitability.     

Endogenous population with human and physical capital accumulation

This paper proposes an economic growth model with population growth and physical and human capital accumulation. The physical capital accumulation is built on the Solow growth model (Solow in Q J Econ 70:65–94, 1956). The education and human capital accumulation is influenced by the Uzawa–Lucas model (Uzawa in Int Econ Rev 6:18–31, 1965; Lucas in J Monet Econ 22:3–42, 1988). The population dynamics are influenced by the Haavelmo population model (Haavelmo in a study in the theory of economic evolution. Haavelmo, Amsterdam, 1954) and the Barro–Becker fertility choice model (Barro and Becker in Econometrica 57:481–501, 1989). We synthesize these dynamic forces in a compact framework, applying an alternative utility function proposed by Zhang (Econ Lett 42:105–110, 1993). The model describes a dynamic interdependence between population change, wealth accumulation, human capital accumulation, and division of labor. We simulate the model to demonstrate the existence of equilibrium points and to plot the motion of the dynamic system. We also examine the effects of changes in the propensity to have children, the mortality rate parameter, the propensity to receive education, the human capital utilization efficiency, and the mortality rate elasticity of human capital upon dynamic paths of the system.     

The limitation of monotonicity property of option prices: an empirical evidence

Many option pricing models are based on the assumption that the underlying asset price follows one-dimensional diffusion process. An alternative approach is to test the properties that should hold for all models based on a given stochastic process for the underlying asset. Following Pérignon (2006 Pérignon, C. 2006. Testing the monotonicity property of option prices. Journal of Derivatives, 14: 61–76. [Crossref] , [Google Scholar]), we test the empirical validity of the monotonicity property for option prices by collecting all transaction data from 1 July 2006 to 31 December 2006 for option contracts traded on the Taiwan Futures Exchange (TAIFEX). We find that sampled intraday option prices violate the monotonicity property between 29.97% and 57% of the time, and that call and put prices often increase, or decrease, together. We also find evidence to show that the frequent violations of the monotonicity property are to a large extent attributable to microstructure effects and that they arise from rational trading tactics.     

A Model of U.K. Exports of Manufactures to Industrial Countries

THIS paper describes a model of U.K. exports of manufactures to industrial countries. The model is outlined in the first section and estimated in the succeeding section. The next section compares the relative efficiencies of aggregate and micro-relations. The paper ends with a discussion of a partially reduced form of the model.

Industrial countries are defined as 1967 OECD members (excluding Iceland); ¹ 1. That is: Canada, U.S.A., Austria, Belgium-Luxembourg, Denmark, France, Germany, Greece, Ireland, Italy, Japan. Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and the U.K. This definition thus includes some countries often classified as ‘semi-industrial’. these countries accounted for 50 per cent of world imports of manufactures and 70 per cent of total world imports and took about 56 per cent of U.K. total exports of manufactures, in 1967. Manufactured goods are defined as SITC Sections 5–8 inclusive. Quarterly data from 1956 to mid-1968 are used. All trade and price series are expressed at 1963 U.S. dollar prices, and activity indicators are also expressed in real terms. This was because it was thought that the structural parameters of the model could be better estimated using volume rather than value flows. Also the full London Business School macro-economic model measures national income as the sum of expenditures corresponding to output produced at home at 1963 prices. So, in forecasting G.D.P., estimates are needed of U.K. exports at 1963 prices. Conversion to current price forecasts, for balance of payments purposes, is made using an explanatory relationship for U.K. export prices of manufactures. Conversion into sterling terms from dollar values is straightforward, after allowing for the sterling devaluation of November, 1967.

The present model is only a partial version of a larger system explaining individual trade flows between countries; it is concerned only with indiliidual relations for British exports by markets and with total import flows for the other industrial countries.     

Is there really a gap between aggregate productivity and technology?

The important contribution by Basu and Fernald (2002 Basu, S and Fernald, JG. 2002. Aggregate productivity and aggregate technology. European Economic Review, 46: 963–91.  [Google Scholar]) shows that, in practice, there is a statistically significant gap between aggregate productivity and technology that can be attributed to inefficient product and labour markets. This is important, as it implies that the Solow residual is an imperfect index for aggregate technology change. We take a related approach and find that when we control for capacity utilization, time varying markup and account for externalities between industries, by employing a superior system estimator, the gap between the aggregate productivity and technology is shown to narrow considerably.     

Global Capitalism and Imperialism Theory: Methodological and Substantive Insights from Rosa Luxemburg

This paper analyses some issues raised by Rosa Luxemburg's theory of imperialism that are central to current debates on globalisation. Methodologically, despite widespread scepticism on the use of mathematics in Marxist social science, Luxemburg's rigorous analysis of Marx's schemes of reproduction forcefully shows the importance of theoretical abstraction and formal modelling. Indeed, this paper analyses Luxemburg's theory by means of an intertemporal generalisation of Roemer's (1983) Roemer, J. E. 1983. “Unequal exchange, labor migration, and international capital flows: a theoretical synthesis”. In Marxism, Central Planning and the Soviet Economy, Edited by: Desai, P. Cambridge, MA: MIT Press.  [Google Scholar] economy with a global capital market. It focuses in particular on two substantive issues: the relation between capital accumulation and imperialism, and the role of force and non-competitive distortions in imperialistic international relations. It argues that differences in development and competitive credit markets, rather than realisation problems, are important to understand the emergence of international exploitation, whereas extra-economic coercion may be important to understand its persistence.