Influence of strategies and heuristics on farmers' response to change under uncertainty

Hierarchical Decision Models of woolproducers' decisions provide unique insights into the impact of major price changes. Producers' lagged response in some contexts appear to be due to the ambiguous decision environment they face, their strategic goals and responses to that environment apart from lags caused by factors such as attitude to risk, expectations adjustment, adjustment costs and learning costs. Much of the response to major price changes comes from strategic decisions to change enterprises rather than marginal changes to existing enterprises. In ambiguous environments, methods may need to be found that incorporate simplifying behavioural rules and strategies.     

A Bayesian Multiple Comparison Procedure for Order-Restricted Mixed Models

A Bayesian hierarchical mixed model is developed for multiple comparisons under a simple order restriction. The model facilitates inferences on the successive differences of the population means, for which we choose independent prior distributions that are mixtures of an exponential distribution and a discrete distribution with its entire mass at zero. We employ Markov Chain Monte Carlo (MCMC) techniques to obtain parameter estimates and estimates of the posterior probabilities that any two of the means are equal. The latter estimates allow one both to determine if any two means are significantly different and to test the homogeneity of all of the means. We investigate the performance of the model-based inferences with simulated data sets, focusing on parameter estimation and successive-mean comparisons using posterior probabilities. We then illustrate the utility of the model in an application based on data from a study designed to reduce lead blood concentrations in children with elevated levels. Our results show that the proposed hierarchical model can effectively unify parameter estimation, tests of hypotheses and multiple comparisons in one setting.     

Accessing other people’s technology for non–profit research

As patents and other forms of intellectual property become more pervasive in the next generation of biotechnologies, designing policies and practices to ensure sufficient freedom to operate (i.e., the ability to practice or use an innovation) will be crucial for non–profit research agencies, especially those intent on developing technologies destined for commercial release. Are non–profit organisations exempt from intellectual property claims? What constitutes infringement of a patent? How does a non–profit establish its freedom to operate? We address these issues in this paper and evaluate various options for accessing other people’s technologies. Options include cross–licensing agreements, research–only or cost–free licences, market segmentation strategies, mergers or joint ventures, and patent pooling or clearinghouse mechanisms. Responding creatively to the new intellectual property environment will have far reaching consequences for the future of non–profit research.     

Multinational activity and CEO compensation: Preliminary evidence from large UK firms

Multinational Activity and CEO Compensation: Preliminary Evidence from Large UK Firms. — Since the early 1980s the rate of growth in executive remuneration has consistently outpaced that of average earnings. This phenomenon has been widely assumed to be part of an internationalization of the executive labor market. This paper starts from the premise that the multinational enterprise will be a major agent in such a market and presents some preliminary tests for the impact of multinational activity in general, and specific regional effects in particular, on CEO remuneration using a sample of large UK firms. Surprisingly, we find no evidence to support our conjecture that CEO pay will be positively related to firm involvement in the United States. However, multinational activity does generate a significant premium over purely domestic activity.     

One little Lebanese cucumber is not going to break the bank: Price in the choice of fresh fruits and vegetables

This paper reports on empirical research into individual consumer behaviour in the context of fresh fruit and vegetable purchases. The discussion draws on research results from two studies conducted around the actual shopping process. The findings suggest that consumers' price response behaviour may not be consistent with that predicted by economic theory and that this could be significant at the aggregate level. The existence of 'acceptable price ranges' points to the presence of price thresholds within which consumers are relatively insensitive to price movements. Also of relevance is that the primary influence of the budget constraint may be at a broader level rather than at the level of choosing particular products.     

More on money as a medium of exchange

Summary We extend the analysis of Kiyotaki and Wright, who study economies where the commodities that serve as media of exchange (or, commodity money) are determined endogenously. Kiyotaki and Wright consider only steady-state, pure-strategy equilibria; here we allow dynamic and mixed-strategy equilibria. We demonstrate that symmetric, steady-state equilibria in mixed-strategies always exist, while sometimes no such equilibria exist in pure-strategies. We prove that the number of symmetric steady-state equilibria is generically finite. We also show, however, that for some parameter values there exists a continuum of dynamic equilibria. Further, some equilibria display cycles.We thank the National Science Foundation and the University of Pennsylvania Research Foundation for financial support, as well as seminar participants at Stanford University, the London School of Economics, the Econometric Society World Congress in Barcelona, and the Conference on Monetary Theory and Financial Institutions at the Federal Reserve Bank of Minneapolis for their comments or suggestions. Alberto Trejos provided research assistance. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.     

Indivisibilities,lotteries, and sunspot equilibria

Summary We analyze economies with indivisible commodities. There are two reasons for doing so. First, we extend and provide some new insights into sunspot equilibrium theory. Finite competitive economies with perfect markets and convex consumption sets do not allow sunspot equilibria; these same economies with nonconvex consumption sets do, and they have several properties that can never arise in convex environments. Second, we provide a reinterpretation of the employment lotteries used in contract theory and in macroeconomic models with indivisible labor. We show how socially optimal employment lotteries can be decentralized as competitive equilibria without lotteries once sunspots are introduced.We thank Kenneth Arrow, Aditya Goenka, Ed Green, Jeremy Greenwood, Walter Heller, Steve Matthews, Herve Moulin, Roger Meyerson, Jim Peck, Patrick Kehoe, Ramon Marimon, Ed Prescott, Richard Rogerson, Nancy Stokey and Raghu Sundaram for their comments. We also thank participants in seminars at Northwestern, Yale, USC, Cornell, Barcelona, Madrid, Santander, and the Canadian Economics Association annual meetings in Victoria. We are grateful to the National Science Foundation (through grants SES-8606944 and SES-8821225), the Center for Analytic Economics, the Thorne Fund, and the University of Pennsylvania Research Foundation for research support. The views expressed here are those of the authors, and not necessarily those of the Federal Reserve System or the Federal Reserve Bank of Minneapolis.     

Tax Clientele Effects in the Term Structure of UK Interest Rates

This paper tests for tax clientele effects in the term structure of UK interest rates. Five empirical models of the term structure of interest rates, incorporating tax effects, are estimated with daily data covering the period 31 March, 1995 to 3 August, 1995. In May 1995, the British government announced its intention to eliminate the tax exemption on capital gains from government bonds, but subsequently in July 1995 backtracked on some of its initial proposals. This period therefore forms the basis of a crude natural experiment in the sense that it provides an opportunity to examine tax clientele effects 'before' and 'after' an event which should have levelled greatly the taxing of government bonds. The empirical analysis suggests large tax clientele effects. However, there is little evidence of tax-specific term structures of interest rates.     

A pilot study of venture capital investment appraisal in Australia

Illiquidity, volatile returns and lack of information are sources of the high risk that characterise the investments made by venture capitalists (VCs). Despite the importance of such investments in the contemporary business and technological environment, and the associated risk-related difficulties, little Australian research has been conducted into the decision-making processes of VCs. This study investigates both the investment process and some of the strategies used by VCs for reducing selected risks. The specific source of risk examined is information asymmetry, which is caused by lack of information on the part of the VCs, and which can lead to the added risks of adverse selection and moral hazard. Four Australian VC firms were surveyed using a comprehensive open-ended questionnaire. A manual content analysis was employed to analyse the questionnaire responses. Consistent with prior research, the Australian VCs sampled are found to employ Berger and Udell' three steps of investment: selection, contracting and monitoring. Furthermore, the semi-formal selection step of the investment process is found to consist of three distinct stages: deal sourcing, screening and evaluation. A number of techniques are used to minimise the risks of information asymmetry during the screening and evaluation stages, as well as during the later steps of contracting and monitorin.