Asset price volatility and trading volume with rational beliefs

Summary. This paper develops a model of speculative trading in a large economy with a continuum of investors. In our model the investors are assumed to have diverse beliefs which are rational in the sense of being compatible with observed data. We demonstrate the existence of price amplification effects and show that the equilibrium prices can be higher or lower than the rational expectation equilibrium price. It is also shown that trading volume is positively related to the directions of price changes. Moreover, we study how asset price volatility and trading volume are influenced by belief structures, short selling constraints and the amount of fund available for investment.Received: 23 January 2003, Revised: 30 April 2003, JEL Classification Numbers: D84, G12.We are grateful to Professors Mordecai Kurz, Kenneth Arrow, Kenneth Judd, Carsten Nielsen, Maurizio Motolese, Mark Garmaise, Jean-Michel Grandmont, Peter Hammond, Karl Shell, Jan Werner and participants of the Society for the Advancement of Economic Theory (SAET) Conference and Stanford Institute of Theoretical Economics (SITE) Conference for many helpful suggestions. Correspondence to: H.-M. Wu     

Non-convex Technologies and Cost Functions: Definitions,Duality and Nonparametric Tests of Convexity

This contribution is the first systematic attempt to develop a series of nonparametric, deterministic technologies and cost functions without maintaining convexity. Specifically, we introduce returns to scale assumptions into an existing non-convex technology and, dual to these technologies, define non-convex cost functions that are never lower than their convex counterparts. Both non-convex technologies and cost functions (total, ray-average and marginal) are characterized by closed form expressions. Furthermore, a local duality result is established between a local cost function and the input distance function. Finally, nonparametric goodness-of-fit tests for convexity are developed as a first step towards making it a statistically testable hypothesis. An erratum to this article is available at .     

Arrow's equivalency theorem in a model with neoclassical firms

Summary. In this paper we consider a two-period general equilibrium model with uncertainty and real assets as financial instruments. The novelty of the analysis is that real assets are the stocks of neoclassical firms, so that both returns and yields depend on anticipated spot goods prices (and, of course, the yield matrix may change rank with prices). Assuming that financial markets are potentially complete, we establish generic existence of financial equilibrium and prove that there exists a dense set of economies such that financial equilibria are efficient.Received: 19 April 2001, Revised: 23 April 2003, JEL Classification Numbers: C60, D51, G10, D60.I am extremely grateful to Dave Cass for drawing my attention to this problem and inspiring me to work on it as well as for many stimulating discussions. I also benefited from discussions with H. Polemarchakis, M. Stinchcombe, and A. Villanacci. I am thankful to the anonymous referee of the first versions of the paper for thoughtful comments and suggestions, and to participants of a recruiting seminar at the University of Texas at Austin (January 2001), the Conference on Economic Design SED 2000, Istanbul, Turkey (June 2000), and Inter-University Student Conference, New York University, New York (May 2000).     

Cost information sharing with uncertainty averse firms

Summary. A homogeneous Cournot duopoly with asymmetric information is analyzed. Every firm learns its own marginal cost parameter, but not the marginal cost parameter of the opponent. Every firm can commit to revealing its private information to the other firm, i.e. to share information. The influence of uncertainty aversion on the readiness of the duopolists to share cost information is analyzed. Uncertainty aversion is modeled according to the Choquet utility theory. It is shown that low uncertainty aversion leads the firms to share information, while high uncertainty aversion leads the firms not to share. A simple economic explanation for this result is given.Received: 5 January 2001, Revised: 7 May 2003, JEL Classification Numbers: D43, D81, D82.I wish to thank Jürgen Eichberger, Volker Krätschmer, Willy Spanjers, seminar participants at Universität des Saarlandes, seminar participants at University College London, participants in the conference of the Verein für Socialpolitik in Mainz 1999 and an anonymous referee for helpful comments. The views expressed in this paper are those of the author and do not necessarily reflect the views of the European Central Bank.     

A visualization system for mineral elasticity

The authors have developed an efficient visualization system to gain insight into large collections of mineral elasticity data produced by an increasing number of both theoretical calculations and experiments. The system allows us to visualize multivariate elastic moduli (i.e., elastic constant tensors) and their variation with composition, pressure and temperature. Moreover, it supports visualization of elastic wave propagation in an anisotropic medium by rendering the wave velocity data, which are calculated as a function of propagation direction in a three-dimensional space. This paper describes the design, implementation and application of the visualization scheme we have developed for mineral elasticity. In particular, our scheme exploits a combination of parallel coordinates, star plot, scatter plot and polygon-surface rendering techniques, which are implemented using OpenGL, GLUI and C++. The result is a highly portable and flexible interactive visualization system. For illustration, the elastic properties of several important oxide and silicate minerals are successfully visualized as a function of pressure and temperature.     

Overburden deformation associated with halokinesis in the Southern North Sea: implications for the origin of the Silverpit Crater

Gravitational collapse in response to the creation of salt swells and diapirs is a common phenomenon within regions such as the Southern North Sea. Although collapse faulting and slumping of linear salt swell flanks has previously been documented, the existence of concentric collapse structures surrounding diapirs and isolated salt lows is a recently recognised feature. 3-D seismic data from the Southern North Sea demonstrates that concentric collapse faulting around both diapirs and subcircular salt lows is common. The recognition of concentric collapse structures formed in response to salt withdrawal, and adjacent inflation, provides an alternative mechanism for the origin of the proposed Silverpit impact crater.     

Possible economic impacts of a shutdown of the thermohaline circulation: an application of <Emphasis Type="Italic">FUND</Emphasis>

Climate change can lead to a substantial reduction of the strength of the thermohaline circulation in the world oceans. This is often thought to have severe consequences particularly on the North Atlantic region and Northern and Western Europe. The integrated assessment model FUND is used to estimate the extent of these impacts. The results indicate that, owing to a slower warming (rather than cooling) of the regions most affected by a thermohaline circulation collapse, climate change induced damages in these regions would be smaller in case of a shutdown of the thermohaline circulation. However, even with a thermohaline circulation collapse, the total and marginal impacts of climate change are negative.JEL Classification: Q510, Q540We are grateful to Till Kuhlbrodt for providing the CLIMBER data and to Andre Krebber for processing them. The German Federal Ministry for Education and Research through the INTEGRATION project, the US National Science Foundation through the Center for Integrated Study of the Human Dimensions of Global Change (SBR-9521914) and the Michael Otto Foundation provided welcome financial support.     

Chapter 11 and Asbestos: Encouraging Private Enterprise or Conspiring to Avoid Liability?

This paper explores the American bankruptcy system -- especially the Chapter 11 code -- which since 1978 has allowed insolvent companies the opportunity to restructure and reorganise with the benefit of court protection from creditors. Particular attention is focused on asbestos companies, such as Johns--Manville, which have been among the most consistent and controversial filers for bankruptcy under Chapter 11. The history of asbestos and Chapter 11 is explored, against the backdrop of the burgeoning asbestos crisis, caused by increasing mortality and litigation. Some of the business and ethical issues involved are highlighted by examining in detail a recent bankruptcy (Federal Mogul/T&N in 2001) that has implications in both Britain and America. Chapter 11 bankruptcy is evaluated, particularly in the light of the trend towards similar mechanisms of insolvency in the UK, Europe and the rest of the world. It is concluded that, certainly as regards the experience with asbestos, Chapter 11 offers an inefficient and inequitable method of rehabilitating or rescuing failing businesses.     

Non-binding sequential exchange between discounting agents

When exchange is sequential, and no binding agreements can be written, the agent acting first is exposed to the possibility that even if he honors the agreement his trading partner might not. Repeated interaction of this nature is modeled. Exchange will successfully occur when there are ample gains from trade for the second agent, implying that the first agent may be better off with less bargaining power. Thus, the first agent may want to bargain at less than his full ability in order to ensure that an otherwise unsuccessful transaction will successfully occur. Additionally, if the first agent can facilitate exchange by hiring an escrow service, he will do so when his bargaining advantage is sufficiently large.JEL subject classification C70, D40, L14