A new stock-price bubble with stochastically deflating trajectories

We propose a new, rational stock-price bubble that is able to generate recurringly explosive and stochastically deflating trajectories. Our flexible bubble process entails stock-price volatility dynamics that are consistent with real-world data. To demonstrate this, we fit our bubble specification to NASDAQ data and analyse the volatility dynamics.     

An experimental analysis of tax avoidance policies

Policies to reduce aggressive tax avoidance are increasingly being implemented or discussed in many countries around the world. Tax authorities hope that such policies will generate new tax revenue by increasing overall tax compliance. We present an experimental design to investigate the effect of a stylized anti-avoidance tax policy on tax compliance behavior. We highlight that anti-avoidance tax policies that reduce tax avoidance can also induce an increase in tax evasion (“substitution effect”), which limits the additional tax revenue these policies will generate. We show that the degree of substitution depends crucially on behavioral factors such as tax morale. Policymakers therefore also need to consider behavioral features while designing such policies and estimating their potential effects.     

Online distributed learning in wind power forecasting

Forecasting wind power generation up to a few hours ahead is of the utmost importance for the efficient operation of power systems and for participation in electricity markets. Recent statistical learning approaches exploit spatiotemporal dependence patterns among neighbouring sites, but their requirement of sharing confidential data with third parties may limit their use in practice. This explains the recent interest in distributed, privacy preserving algorithms for high-dimensional statistical learning, e.g. with auto-regressive models. The few approaches that have been proposed are based on batch learning. However, these approaches are potentially computationally expensive and do not allow for the accommodation of nonstationary characteristics of stochastic processes like wind power generation. This paper closes the gap between online and distributed optimisation by presenting two novel approaches that recursively update model parameters while limiting information exchange between wind farm operators and other potential data providers. A simulation study compared the convergence and tracking ability of both approaches. In addition, a case study using a large dataset from 311 wind farms in Denmark confirmed that online distributed approaches generally outperform existing batch approaches while preserving privacy such that agents do not have to actively share their private data.     

Capital taxation,investment, growth,and welfare

This paper formulates a model of economic growth to study the effects of broad capital taxation (of profits, dividends, and capital gains) on macroeconomic outcomes in small open economies. A framework of exogenous growth permits modeling countries in transition to a country-specific steady state and to discern steady-state and transitory effects of shocks on economic outcomes. The chosen framework is amenable to structural estimation and, in view of the parsimony of the model, fits data on 79 countries over the period 1996–2011 well. The counterfactual analysis based on the estimated model suggests that capital-tax reductions induce positive effects on output and the capital stock (per unit of effective labor) that are economically significant and are accommodated within time windows of 5 years without much further economic response after that. The responses of economic aggregates are found to be relatively strongest to changes in corporate-profit-tax rates and weaker for dividend and capital-gains taxes.     

Won’t we scare them? The impact of communicating uncontrollable risks on the public’s perception

Authorities often refrain from communicating risks out of fear to arouse negative feelings amongst the public and to create negative reactions in terms of the public’s behavior. This study examines the impact of communicating risks on the public’s feelings and behavioral intentions regarding an uncontrollable risk related to fresh produce. In addition, the impact of risk communication is compared between a situation in which the risk either does or does not develop into a crisis, by means of a 2 (risk communication vs. no risk communication)?×?2 (crisis communication vs. no crisis communication) between-subjects factorial design. The results show that communicating risks has a positive impact on the behavioral intention to keep on eating fresh produce compared to when no risk communication was provided, as it reduces negative feelings amongst the public. In addition, the findings illustrate that when a risk develops into an actual crisis, prior risk communication can result in greater trust in the government and reduce perceived government responsibility for the crisis when the crisis hits. Based on these findings, it can be suggested that risk communication is an effective tool for authorities in preparing the public for potential crises. The findings indicate that communicating risks does not raise negative reactions amongst the public, on the contrary, and that it results in more positive perceptions of the authorities.     

The economics of the Books of Moses

The Books of Moses contained economic precepts that made a twofold impact in the history of economic thought. First, Mosaic precepts shaped Israel's transition from a nomadic to a sedentary economy. This transition as such had parallels in many other societies, but Israel's case was unique in that Moses grounded economic precepts on theology. Second, Moses shaped conceptions of economics by Jews and by non‐Jews, in two ways: first, he laid a path for theologically derived economics that continued in Christianity and in Islam; second, he cast terms of reference for the right to own property that were dominant in Western economic thinking until the Enlightenment.     

ISLAMIC FINANCE AS A PROGENITOR OF VENTURE CAPITAL

The antecedents of corporate limited liability are commonly seen to emerge amongst medieval Italian merchant bankers in so‐called commendas, commercial arrangements combining investors and entrepreneurs. Italian merchants trading with the Levant may have adapted the Islamic concept of a risk‐sharing partnership, the qirâd, as a model. Western corporations thus may owe their origins to the influence of Islam's entrepreneurial founder, Mohammed.     

Sparse estimators and the oracle property,or the return of Hodges’ estimator

We point out some pitfalls related to the concept of an oracle property as used in Fan and Li [2001. Variable selection via nonconcave penalized likelihood and its oracle properties. Journal of the American Statistical Association 96, 1348–1360; 2002. Variable selection for Cox's proportional hazards model and frailty model. Annals of Statistics 30, 74–99; 2004. New estimation and model selection procedures for semiparametric modeling in longitudinal data analysis. Journal of the American Statistical Association 99, 710–723] which are reminiscent of the well-known pitfalls related to Hodges’ estimator. The oracle property is often a consequence of sparsity of an estimator. We show that any estimator satisfying a sparsity property has maximal risk that converges to the supremum of the loss function; in particular, the maximal risk diverges to infinity whenever the loss function is unbounded. For ease of presentation the result is set in the framework of a linear regression model, but generalizes far beyond that setting. In a Monte Carlo study we also assess the extent of the problem in finite samples for the smoothly clipped absolute deviation (SCAD) estimator introduced in Fan and Li [2001. Variable selection via nonconcave penalized likelihood and its oracle properties. Journal of the American Statistical Association 96, 1348–1360]. We find that this estimator can perform rather poorly in finite samples and that its worst-case performance relative to maximum likelihood deteriorates with increasing sample size when the estimator is tuned to sparsity.     

Patience and achievement test results

I investigate the relation between high-stakes achievement test scores and students’ patience. I use an experimentally validated measure of time preferences to assess patience in a large sample of Dutch students in secondary school. A one SD increase in the achievement test at the age of 12 predicts 26% of an SD greater level of patience at the age of 15. The results hint at the fact that education can shape preferences.