Equity and Adverse Selection

We introduce concerns with inequity into the canonical adverse selection model. We find that aversion to ex post inequity is not constraining for the principal if the two agents are identical ex ante, but generally is constraining when the agents differ ex ante. Constraining equity concerns can lead to output levels that are either above or below standard levels, and can result in only one agent experiencing systematic inequity in equilibrium.     

Equilibrium asset pricing with Epstein-Zin and loss-averse investors

We study multi-period equilibrium asset pricing in an economy with Epstein-Zin (EZ-) agents whose preferences for consumption are represented by recursive utility and with loss averse (LA-) agents who derive additional utility of gains and losses and are averse to losses. We propose an equilibrium gain-loss ratio for stocks and show that the LA-agents are more (less) risk averse than the EZ-agents if their degree of loss aversion is higher (lower) than this ratio. When all the agents have unitary relative risk aversion degree and elasticity of intertemporal substitution, we prove the existence and uniqueness of the equilibrium and the market dominance of the EZ-agents in the long run. Finally, we extend our results to the case in which the LA-agents use probability weighting in their evaluation of gains and losses.     

Sales contests,promotion decisions and heterogeneous risk

This paper examines a general model of sales contests in which agents have heterogeneous attitudes toward risk. It shows that agents that are less risk averse have a higher probability of success. A corollary to this result shows that when absolute risk aversion is decreasing in wealth, wealthier agents have a higher probability of promotion. The same wealth effect makes it possible for more risk averse agents to take greater risks in a multi‐round promotion tournament. Next, a stability analysis shows that these equilibria are attractors under a best response dynamic. While it is well‐known that sales contests can be an effective incentive device for eliciting effort from employees, this research suggests the added benefit that when used as a basis for promotion decisions, sales contests act to filter the hardest working agents to the top of the corporate hierarchy. Copyright © 2008 John Wiley & Sons, Ltd.     

Efficient allocations and equilibria with short-selling and incomplete preferences

This paper reconsiders the theory of existence of efficient allocations and equilibria when consumption sets are unbounded below under the assumption that agents have incomplete preferences. Our model is motivated by an example in the theory of assets with short-selling where there is risk and ambiguity. Agents have Bewley’s incomplete preferences. As an inertia principle is assumed in markets, equilibria are individually rational. It is shown that a necessary and sufficient condition for the existence of an individually rational efficient allocation or of an equilibrium is that the relative interiors of the risk adjusted sets of probabilities intersect. The more risk averse, the more ambiguity averse the agents, the more likely is an equilibrium to exist. The paper then turns to incomplete preferences represented by a family of concave utility functions. Several definitions of efficiency and of equilibrium with inertia are considered. Sufficient conditions and necessary and sufficient conditions are given for the existence of efficient allocations and equilibria with inertia.     

Team Incentives and Reference‐Dependent Preferences

We investigate a multi‐agent moral‐hazard model where agents have expectation‐based reference‐dependent preferences à la K?szegi and Rabin (2006, 2007). We show that even when each agent's probability of success in a project is independent, a principal may employ team incentives. Because the agents are loss averse, they have first‐order risk aversion to wage uncertainty. This causes the agents to work harder when their own failure is stochastically compensated through other agents' performance. In the optimal contract, agents with high performance are always rewarded, whereas agents with low performance are rewarded if and only if other agents' performance is high.     

New conditions for the existence of Radner equilibrium with infinitely many states

In atomless differential information economies, equilibria are known not to exist prevalently even when agents are risk averse expected utility maximizers. The notion of prevalence involves essentially picking an economy at random. In this paper, however, we establish existence results with economically meaningful assumptions on the information structure. We obtain existence when agents have independent information, and also when the total endowment of the economy is common knowledge.     

On the strategic use of risk and undesirable goods in multidimensional screening

A monopolist sells goods possibly with a characteristic consumers dislike (for instance, he sells random goods to risk averse agents), which does not affect the production costs. We investigate the question whether using undesirable goods is profitable to the seller. We prove that in general this may be the case, depending somehow on the correlation between agent types and aversion. This is due to screening effects that outperform this aversion. We analyze, in a continuous framework, several multidimensional cases.     

On the shadow wage of urban jobs in less-developed countries

This paper examines the relationship between the social opportunity cost associated with the creation of an urban job, i.e., the shadow wage, and the market wage, taking into consideration induced rural-to-urban migration. We suggest that the shadow wage is lower than the market wage: first, when agents are risk averse and second, even if they are risk neutral but their contemporaneous consumption function is concave and the social value of savings exceeds the social value of consumption, as is likely to be the case in less-developed countries.     

On the Degree of Property Tax Assessment Inequity in Complex Tax Jurisdictions

A bstract . The extent of interest in the degree of inequity in property assessment is indicative of the importance of identifying determinants of assessment inequity. Previous attempts to identify such determinants were certainly incomplete. An additional variable is offered for the list that would be expected to explain statistically the degree of inequity in the distribution of property tax liabilities , in general, and to examine specifically the relationship between assessment, inequity and the degree of complexity for assessing Jurisdictions. The latter are often complex in the sense that individual properties, although subject to a set of two or more nominal tax rates on assessed values, are not subject to the same set of nominal tax rates. It is argued—to the extent that individual property tax liabilities are capitalized in sale prices for individual properties —that the greater the number of specific property tax rates on assessed value , the greater is the expected frequency of change in such specific property tax rates and, therefore, the higher the expected value of the measure of the degree of inequity.     

U-type versus J-type tournaments as alternative solutions to the unverifiability problem

This paper discusses the properties of stylized U.S. (“U-type”) and Japanese tournaments (“J-type”), which can both solve the unverifiability problem of labor contracts. Under a zero-profit condition, both tournament types will yield first-best efforts if workers are homogeneous and risk neutral. This result will no longer hold for J-type tournaments if the employer has all the bargaining power. Moreover, if workers are risk averse, or if there is intermediate information, heterogeneity or unfairness, J-type tournaments may dominate U-type tournaments.     

Monetary policy and the term premium

The term premium has become increasingly important in discussions of monetary policy formulation. This paper reviews two approaches to embedding a variable term premium into an otherwise standard modern DSGE model. The first approach maintains frictionless asset trade but alters preferences so that agents are more averse to the risk in long bonds. The second approach uses traditional preferences, but segments asset trade between long and short bonds. Policy issues are also discussed.     

中国城市居住分异研究

对城市居住空间的研究是城市社会学的一个重要内容.自建国以来,我国城市居住空间经历了逐渐分异的历史变迁过程.如果不对居住分异加以适当的调控就会出现居住空间极化与隔离问题.城市居住空间极化是社会不公正在居住空间上的表现.城市政治经济转变与城市规划、土地制度改革与房地产开发、住房制度改革与住房商品化是转型过程中城市居住分异形成的三个主要原因.扩大中等收入群体规模、增加社会自组织力量、制定公正的社会政策是优化城市居住空间结构的有效途径.     

Comparative Ross risk aversion in the presence of mean dependent risks

This paper studies comparative risk aversion between risk averse agents in the presence of a background risk. Our contribution differs from most of the literature in two respects. First, background risk does not need to be additive or multiplicative. Second, the two risks are not necessarily mean independent, and may be conditional expectation increasing or decreasing. We show that our order of cross Ross risk aversion is equivalent to the order of partial risk premium, while our index of decreasing cross Ross risk aversion is equivalent to decreasing partial risk premium. These results generalize the comparative risk aversion model developed by Ross for mean independent risks. Our theoretical results are related to utility functions having the n-switch independence property.     

The rate of convergence of the core for a purely competitive sequence of economies

The purpose of the paper is to show that for ‘most’ purely competitive sequences of economies on a compact set of agents' characteristics the core converges to the set of equilibria at least as fast as the inverse of the number of agents. It is assumed that agents have smooth, convex preferences with non-zero Gaussian curvature. This rate of convergence is obtained for a purely competitive sequence with regular limit distribution.     

WELFARE AS EQUITY EQUIVALENTS

Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfare in different dimensions. In this paper, we revisit the concept of inequity – in the sense of unequal distributions – across individuals, time, and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach. We propose a general measure of welfare as equity equivalents and a corresponding inequity index. We show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations. We then prove that the order of aggregation across the different dimensions matters for welfare evaluations. Finally, we show that many of the welfare-theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework.     

Probabilistic assignments of identical indivisible objects and uniform probabilistic rules

We consider a probabilistic approach to the problem of assigning k indivisible identical objects to a set of agents with single-peaked preferences. Using the ordinal extension of preferences we characterize the class of uniform probabilistic rules by Pareto efficiency, strategy-proofness, and no-envy. We also show that in this characterization no-envy cannot be replaced by anonymity. When agents are strictly risk averse von Neumann-Morgenstern utility maximizer, then we reduce the problem of assigning k identical objects to a problem of allocating the amount k of an infinitely divisible commodity.     

Accident risk,gender, family status and occupational choice in the UK

Many studies show that women are more risk averse than men. In this paper, following DeLeire and Levy [Deleire T. and Levy H. (2004) ‘Worker Sorting and the Risk of Death on the Job’, Journal of Labor Economics, Vol. 22, No. 4, pp. 210–217.] for the US, we use family structure as a proxy for the degree of risk aversion to test the proposition that those with strong aversion to risk will make occupational choices biased towards safer jobs. In line with DeLeire and Levy we find that women are more risk averse than men and those that are single with children are more risk averse than those without. The effect on the degree of gender segregation is somewhat smaller than for the US.     

Unequal Pay,Unequal Responses? Pay Referents and their Implications for Pay Level Satisfaction

Pay referents are those with whom workers make pay comparisons. The five referents used in this study are: market, organizational, financial, social and historical. Of particular interest is the importance attached to each of these referents and the implications of inequity (under and over) for pay level satisfaction. The study also examines reactions to pay inequity on the basis of union status. The data for the study derive from a survey of 2867 public sector research workers. The study finds that the market referent is the most important to all workers, irrespective of union status; type of inequity (over or under) with this referent has the greatest impact on pay level satisfaction. The paper concludes with an examination of the implications for management, unions and the design of pay systems.     

Portfolio choice,behavioral preferences and equity home bias

We provide a plausible explanation of aggregate portfolio behavior, in a framework where economic agents have behavioral (narrow framing) preferences. The representative agent derives utility not only from consumption (standard models) but also from risky financial wealth fluctuations. Moreover, the investor frames the stock market risk narrowly and has loss averse preferences. We numerically solve, for the foreign equity share, a simple model of international portfolio choice, providing a possible explanation for the equity home bias puzzle. Only economic agents able to process correctly information deriving from stock markets exploit the diversification opportunities provided by international financial markets.     

Optimal advance selling discount strategy with future-oriented consumers

This paper examines the advance selling decisions over two periods and considers future-oriented consumers who are more concerned about the product quality than price discounts. We find that the advance selling strategy is not always best, and its merits are contingent on parameters of the market and consumers. Moreover, there is no need to set a deep advance selling discount for the retailer if consumers are highly risk averse. Next, we analyze the feasible advance selling pricing strategies for the retailer. Finally, we observe that the retailer can announce a higher advance selling price if consumers are moderately risk averse.