Sources of Entropy in Representative Agent Models

We propose two data‐based performance measures for asset pricing models and apply them to models with recursive utility and habits. Excess returns on risky securities are reflected in the pricing kernel's dispersion and riskless bond yields are reflected in its dynamics. We measure dispersion with entropy and dynamics with horizon dependence, the difference between entropy over several periods and one. We compare their magnitudes to estimates derived from asset returns. This exercise reveals tension between a model's ability to generate one‐period entropy, which should be large, and horizon dependence, which should be small.     

INTEGRATING TRADITIONAL CAPITAL BUDGETING CONCEPTS INTO AN INTERNATIONAL DECISION-MAKING ENVIRONMENT

The capital budgeting policies of 146 multinational companies are analyzed in light of current financial theory. Extensions of domestic practices into the international area are examined. There are a number of misapplications such as applying corporatewide weighted average cost of capital to foreign affiliate cash flows rather than to cash flows actually remitted to the corporation. Also, risk is frequently measured on a local project basis (in a foreign country) rather than considering the portfolio effect on the total corporation. Ultimately, it is shown that the survey respondents hedge against the uncertainty of the procedures by adding a premium to the weighted average cost of capital as computed by financial analysts.     

THE SOVIET PATH TO ECONOMIC GROWTH: A COMPARATIVE ANALYSIS

Considerable attention has been devoted in the past to the methodological issues involved in the measurement and explanation of economic growth. Following the method pioneered by Denison and applied by him to the United States and Western Europe, comparative studies have been made of various other countries; that for Japan is of special interest. The present paper extends the analysis to the Soviet Union. In order to preserve comparability, the analysis follows the Denison methodology exactly, and compares the results with those for the United States, Northwest Europe, and Japan.