Agency costs and the discount rate for public sector enterprises

In this paper, we examine the implications of agency costs on the discount rate for public sector enterprises (PSEs); we do this in the framework of the Capital Asset Pricing Model. With the addition of agency costs, the discount rate for Public Sector Enterprises (PSEs) under uncertainty becomes the risk-adjusted discount rate plus a premium for agency costs; under certainty, the discount rate for PSEs is shown to be the risk-free rate plus a premium for agency costs. Use of a discount rate by PSEs without adjusting for agency costs both under certainty and uncertainty, will lead to sub-optimal capital investment decisions by PSEs.     

Production theory,uncertain prices and investment portfolios

This paper examines the allocative decisions of a competitive firm where input and output prices are uncertain and where the capital asset pricing model prevails. The firm behaves much as a profit maximizer under certainty, except that certainty equivalent prices formally replace the known prices. These certainty equivalent prices are composed of the expected price, the covariance of the price with the market (a measure of systematic risk) and a measure of risk aversion in the economy. Both static and comparative static propositions emerge in a natural way as extensions of standard, competitive and profit maximizing behavior. In addition, the model contains both the certainty case and the risk-neutral case as limiting examples.     

Optimal adaptation strategies to face shocks on groundwater resources

We consider an exogenous and reversible shock to a groundwater resource, namely a decrease in the recharge rate of the aquifer. We compare optimal extraction paths and the social costs of optimal adaptation in two cases: under certainty, i.e. when the date of occurrence of the shock is known, and under uncertainty, when the date of occurrence of the shock is a random variable. We show that an increase in uncertainty leads to a decrease in precautionary behavior in the short run and to an increase in precautionary behavior in the long run. We apply our model to the particular case of the Western la Mancha aquifer in Spain. We show that, in this context, it is advantageous for the water agency to acquire information on the date of the shock, especially for high-intensity and intermediate-risk events.     

Steuern und Risikobereitschaft in Modellen irreversibler Investitionen

This paper provides an overview of the literature on the influence of taxation on investment behavior under uncertainty, especially under the real options paradigm. We analyze the impact of taxation on risk-taking under irreversibility. Extending the existing literature we integrate a simple tax system into a real option model. Under irreversibility and risk neutrality, raising the tax rate can either increase or reduce risk-taking. Referring to combinations of volatility and tax rate it is possible to identify conditions for an unambiguous influence of taxes on risk-taking. Numerical simulations indicate that raising the tax rate increases risk-taking under low volatility. Implementing a final withholding tax on capital income tends to reduce risky investment. Our findings confirm the well-known results under certainty and extend them with respect to uncertainty, irreversibility, and risk-taking.     

Option value and the price of teardown properties

The introduction of uncertainty over the future price of structural capital into a model of teardowns implies a value to delaying the demolition vs. preservation decision, and that the market price of a redeveloped property may increase with its quantity of structural capital. Using data from an active teardown market, we test the model’s prediction that hedonic price function coefficients depend on the expected time between sale and demolition. As predicted, structural variables have significant effects on the sales prices of both teardown and non-teardown properties, and the effects are generally much larger the lower the estimated teardown probability.     

Formal education and public knowledge

In this paper, I examine the transitional dynamics of an economy populated by individuals who split their time between acquiring a formal education, producing final goods, and innovating.The paper has two objectives: (i) uncovering the macroeconomic circumstances that favored the rise of formal education; (ii) to reconcile the remarkable growth of the education sector with the constancy of other key macroeconomic variables, such as the interest rate, the consumption-output ratio, and the growth rate of per capita income (Kaldor facts).The transitional dynamics of human capital growth models, such as Lucas (1998), would attribute the arrival of education to the diminishing marginal productivity of physical capital. Conversely, the model proposed here suggests that it is the rate of learning that catches up with the rate of return on physical capital. As technical knowledge expands, the rate of return on education increases, inducing individuals to stay longer in school. The model's transitional paths are matched with long run U.S. educational and economic data.     

Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and Systemic Uncertainty*

This paper applies current theory recognizing the irreversibility of investment, in order to test for the impact of uncertainty on investment expenditure for a middle income country. The contribution of the paper is unique in two respects. First, it employs dynamic heterogeneous panel estimation techniques not previously applied to investment functions. Secondly, it explicitly tests for the impact of both sectoral and systemic uncertainty on investment expenditure. We find that both sectoral (as measured by output volatility) and systemic uncertainty (as measured by political instability) have a negative impact on investment rates in a middle income country context. Liquidity constraints and growth in total factor productivity are found to have no impact on investment, while trade liberalization has the impact predicted by Heckscher‐Ohlin trade theory. Finally, we find complementarity effects between physical capital and skilled human capital, suggesting that South African educational policies may have hampered investment in physical capital as well as the growth performance of the economy. Policy implications emphasize the importance of lowering uncertainty for investors, and the need for sound human capital investment.     

Optimal monetary policy in a regime-switching economy: The response to abrupt shifts in exchange rate dynamics

This paper examines the trade-offs that a central bank faces when the exchange rate can experience sustained deviations from fundamentals and occasionally collapse. The economy is modelled as switching randomly between different regimes according to time-invariant transition probabilities. We compute both the optimal regime-switching control rule for this economy and optimised linear Taylor rules, in the two cases where the transition probabilities are known with certainty and where they are uncertain. The simple algorithms used in the computation are also of independent interest as tools for the study of monetary policy under general forms of (asymmetric) additive and multiplicative uncertainty. An interesting finding is that policies based on robust (minmax) values of the transition probabilities are usually more conservative.     

AN EMPIRICAL GROWTH MODEL FOR MAJOR OIL EXPORTERS

This paper develops a long‐run output relation for a major oil‐exporting economy where the oil income‐to‐output ratio remains sufficiently high over a prolonged period. It extends the stochastic growth model developed in Binder and Pesaran (1999) by including oil exports as an additional factor in the capital accumulation process. The paper distinguishes between the two cases where the growth of oil income, g^o, is less than the natural growth rate (the sum of the population growth, n, and the growth of technical progress, g), and when g^o ≥ g + n. Under the former, the effects of oil income on the economy's steady growth rate will vanish eventually, while under the latter oil income enters the long‐run output equation with a coefficient which is equal to the share of capital if it is further assumed that the underlying production technology can be represented by a Cobb–Douglas production function. The long‐run theory is tested using quarterly data on nine major oil economies. Overall, the test results support the long‐run theory, with the existence of long‐run relations between real output, foreign output and real oil income established for six of the nine economies considered. Copyright © 2012 John Wiley & Sons, Ltd.     

Ramsey policies in a small open economy with sticky prices and capital

This paper analyzes jointly optimal fiscal and monetary policies in a small open economy with capital and sticky prices. We allow for trade in consumption goods under perfect international risk-sharing. We consider balanced-budget fiscal policies where authorities use distortionary taxes on labor and capital together with monetary policy using the nominal interest rate. First, as long as a symmetric equilibrium is considered, the steady state in an open economy is isomorphic to that of a closed economy. Second, sticky prices’ allocations are almost indistinguishable from flexible prices allocations both in open and closed economies. Third, the open economy dimension delivers results that are qualitatively similar to those of a closed economy but with significant quantitative changes. Tax rates are both more volatile and more persistent to undo the distortions implied by terms of trade fluctuations.     

The Austrian Theory of the Business Cycle

The Austrian school theory of the business cycle is based on the proposition that an artificial expansion of the money supply reduces the transaction rate of interest below its natural rate, which stimulates excessive investment in capital goods of long duration, and then when the rate of interest rises back up, these investments stop, and the economy falls into recession.     

Good timing: The economics of optimal stopping

This paper presents an economic interpretation of the optimal “stopping” of perpetual project opportunities under both certainty and uncertainty. Prior to stopping, the expected rate of return from delay exceeds the rate of interest. The expected rate of return from delay is the sum of the expected rate of change in project value and the expected rate of change in the option premium associated with waiting. At stopping the expected rate of return from delay has fallen to the rate of interest. Viewing stopping in this way unifies the theoretical and practical insights of the theory of stopping under certainty and uncertainty.     

中美两国经济实力与潜力的比较分析

改革开放以来,经过30多年的发展,中国已重新成为全球经济大国之一。本文利用C-D生产函数和索洛增长模型对中国中长期经济发展进行预测,在国内外研究成果的基础上对美国中长期经济发展进行预测,探讨了在不同情况下中美两国经济的对比分析和追及问题。本文预测结果表明,中国经济只要保持平稳增长,将在2030年前实现多个目标：一是GDP总量超过美国;二是人均GDP超过1.7万美元;三是人均国民总收入接近高收入国家行列;四是商品零售额、商品进口额等宏观指标赶上美国。     

The political intergenerational welfare state

Using a three-period overlapping generations economy framework, we characterize an intergenerational welfare state with endogenous education and pension under voting. We show that although politically establishing Pay-As-You-Go (PAYG) social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected, in contrast politically implementing education-pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire. However for this the political influence of the old has to be small thus limiting the size of the PAYG social security program.     

The effect of defense program uncertainty on cost,schedule, and capital investment

Program instability, low levels of capital investment and uneconomical production rates have been recognized as significant problems in defense acquisition programs. In this paper, we use a dynamic programming model under uncertainty to investigate the relations among these problems. We show that capital investment and production rates that appear to be too low may be the result of cost minimizing responses by contractors to program instability. Attempts to change the level of capital investment or production rate on defense programs without regard to the nature of program instability may hinder efficient resource allocation.The refereeing process of this paper was handled through J.F. Muth.     

Bayes estimates of distance‐to‐market: transactions costs,cooperatives and milk‐market development in the Ethiopian highlands

Rationalizing non‐participation as a resource deficiency in the household, this paper identifies strategies for milk‐market development in the Ethiopian highlands. The additional amounts of covariates required for positive marketable surplus—‘distances‐to market’—are computed from a model in which production and sales are correlated; sales are left‐censored at some unobserved threshold; production efficiencies are heterogeneous; and the data are in the form of a panel. Incorporating these features into the modeling exercise is important because they are fundamental to the data‐generating environment. There are four reasons. First, because production and sales decisions are enacted within the same household, both decisions are affected by the same exogenous shocks, and production and sales are therefore likely to be correlated. Second, because selling involves time and time is arguably the most important resource available to a subsistence household, the minimum sales amount is not zero but, rather, some unobserved threshold that lies beyond zero. Third, the potential existence of heterogeneous abilities in management, ones that lie latent from the econometrician's perspective, suggest that production efficiencies should be permitted to vary across households. Fourth, we observe a single set of households during multiple visits in a single production year. The results convey clearly that institutional and production innovations alone are insufficient to encourage participation. Market‐precipitating innovation requires complementary inputs, especially improvements in human capital and reductions in risk. Copyright © 2008 John Wiley & Sons, Ltd.     

Technological Choices and Prices,and Their Implications for the US Economy, 1963–2000

This paper examines the influence of techological change and changing factor prices in the US economy on prices and incomes between 1967 and 2000. Dynamic input–output physical, price and income models provide the conceptual framework for the analysis. The investigation is focused on sectoral price changes, the distribution of income and outlays between capital and labor, and the changing real purchasing power of capital and labor. One major conclusion is that the shares of national income earned by labor and capital have remained relatively constant over the entire period due to offsetting changes which are explicitly identified. At the same time, labor's purchasing power has not increased as much as that of capital.     

Property Tax and Housing Returns

This paper evaluates the effects of property tax on housing. While land tax and capital gains tax are widely used for curbing hoarding of land and speculation, its effectiveness is inconclusive. The imposition of a capital gains tax will impair the liquidity of property transaction, lower the rate of return on property investment, and reduce revenue from land sales which represents an important tax resource for the communities. This paper shows that a capital gains tax is capitalized into housing prices. Individuals tend to postpone the purchase of houses because of transaction taxes. Using an impulse response function, we show that a transaction tax has a dynamic negative impact on housing returns. While this paper focuses on Hong kong, for the purpose of comparison Singapore and Taiwan are also discussed.     

基于延期支付和价格折扣策略的易变质物品库存模型

在资金具有时值、供应商给零售商提供定期信用支付和价格折扣的支付策略条件下,讨论了需求跟价格相关、变质率为常数的易变质物品库存问题,建立了优化补货周期和销售策略的库存模型,目的是极大化平均总利润。分析了模型最优解的存在性和唯一性,并给出数值实验。     

Explaining Sales Pay Strategy Using Agency,Transaction Cost and Resource Dependence Theories*

ABSTRACT The purpose of this study is to investigate, using data gathered from 325 French‐Canadian organizations, the influence of key constructs related to agency, transaction cost and resource dependence theories on the proportion of salary in sales compensation. Usefulness analysis showed that performance information (9 per cent), uncertainty (8 per cent) and dependence resource (5 per cent) constructs have a significant incremental contribution to sales compensation. Regarding specific hypothesis tests, results of full model show that the capacity to observe behaviour, team sales and financial resources offered are associated with an increased use of salary pay. In contrast, adaptability of product/service‐related resources, salesforce experience and high marginal salesforce productivity are associated with decreased use of the salary component. However, the results of full model have failed to support the direction or influence of relationships between programmability, span of control, market and selling uncertainty, the predominance of salespeople and TCA measures on proportion of salary. The results support the argument that integration of multiple theoretical perspectives better explains pay policy.