Portfolio flows and the US dollar–yen exchange rate

This paper investigates the effects of portfolio flows on the US dollar–Japanese yen exchange rate changes over the period 1988:01–2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar–yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar–yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.     

Intertemporal production and intertemporal substitution in output supply and input demand

This article presents an intertemporal model of production with multiple inputs to investigate substitution opportunities facing firms over time. The firm’s intertemporal profit maximization problem is characterized with the familiar cost function, and various intertemporal substitution elasticities are delineated for output supply and input demand. The absence of intertemporal substitution in production can imply production smoothing, and allowance for intertemporal substitution in labour demand reinforces the prediction of the real business cycle model. For aggregate US manufacturing, we find substantial substitution in output supply and labour demand over time due to intertemporal changes in output price and wage rates.     

Market competition, social welfare in an entry-constrained differentiated-good oligopoly

This paper studies a differentiated-good oligopoly where the socially optimal number of firms (varieties) may be smaller or greater than under the free-entry equilibrium. We show that, under certain conditions, social welfare may be higher when entry is restricted into the industry.     

The unanimity rule and religious fractionalisation in the Polish-Lithuanian Republic

This paper analyses the role of the unanimity rule—known as liberum veto—in medieval Poland. We argue that the primary effect of the liberum veto was that it secured religious freedom and established domestic peace in an otherwise deeply divided and fractionalised country. What is more, this institution succeeded in doing so during an era which was characterised by violent religious conflicts and rise of absolutist monarchies throughout the European continent. Even after 1652, when the liberum veto seemed to have practically paralysed the decision-making of Polish-Lithuanian parliament, there were still reasons—related to religious issues—why its use could have been preferable to less inclusive voting rules. It can be argued, however, that the use of unanimity was not warranted in questions related to defence, especially in situations of national emergency, although it is questionable to which extent the sole presence of the liberum veto was susceptible to bring about the demise of the Polish-Lithuanian Republic.

Credit constraints and smallholder dairy production in the East African highlands: application of a switching regression model

Accurate assessment of farmers' credit constraint condition is important in order to understand the circumstances under which credit would have its greatest impact. In this study a switching regression model was used to determine the impact of credit on smallholder dairy farms in the East African highlands using farm level data from Ethiopia and Kenya. Farmers were classified as credit constrained or credit non-constrained based on their responses from the farm level surveys. No consistent relationship was found between farmers' credit constraint condition and their borrowing status. Most of the variation in milk output per farm was explained by the number of crossbred milking cows in the dairy herd. As credit is likely to facilitate investment in crossbred dairy cows it will have substantial impacts on smallholder dairy farms especially if it is targeted to credit constrained farms.     

RISK OF ACCIDENTS AND THE POLICY OF FORCED RETIREMENT

In 1960, the Federal Aviation Administration put in place the Age 60 rule forcing airline pilots to retire upon reaching the age of 60 years. This paper uses data from the National Transportation Safety Board and the Federal Aviation Administration to determine if having pilots above 59 years of age carries a social cost. Statistical evidence indicates that the severity of aircraft accidents is related to pilot age for some classes of pilots but not for others. Findings are that small-airplane accidents tend to be more severe for pilots over 59 with private and commercial licenses than for younger pilots with equal qualifications. Thus, some (though not convincing) evidence suggests that private and commercial pilots above 59 years of age impose a greater social cost on the flying public than do younger pilots. However, among ATP pilots—that is, those who are licensed to fly large airplanes—no evidence indicates that pilots over 59 have more severe accidents when flying small airplanes than do younger ATP pilots flying such airplanes. Moreover, no evidence indicates that age is a factor in serious and fatal accidents for ATP pilots flying large airplanes up to the mandatory retirement age of 60 years. The extra screening and training of ATP pilots may explain the differences in accident severity between these and other pilots.     

Subjective evaluations of n-person games

Using an axiomatization of subjective expected utility due to Fishburn, we characterize a class of utility functions over a set of n-person games in characteristic-function form. A probabilistic value is defined as the expectation of some player's marginal contribution with respect to some probability measure on the set of coalitions of other players. We decribe conditions under which a utility function on the set of n-person games is a probabilistic value; we prove as well an analogous result for simple games. We present additional axioms that characterize the semivalues and, in turn, the Shapley and Banzhaf values.