A comment on “A hedging deficiency in eurodollar futures”

Professor Chance's analysis shows that hedge results from eurodollar futures are imperfect; and he credits the futures contract design as being the source of the error. This comment argues that the unanticipated outcomes that Professor Chance evidences stem not from the design of the contract, but rather from improperly sizing hedge transactions. If appropriately sized hedges are used, perfect hedge outcomes in fact, will follow. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:187–193, 2007     

Impediments to Exports in Small Transition Economies: The Case of Bulgaria

MOCT-MOST: Economic Policy in Transitional Economies -     

Pollution Regulation and Incentives for Pollution-Control Research

We study the firm's incentives to engage in research for pollution-control technologies and to adopt new technologies that if discovers or that are discovered by other firms. Licensing of discoveries is assumed possible. We also study the regulator's problem in designing optimal environmental regulations that both control pollution and provide incentives for research. Technology adoption standards are part of the optimal regulation. Another finding is that making the adoption standard stricter reduces research.     

Investment in Hierarchical Human Capital

Advanced human capital requires "basic" human capital as an input. Physical capital does not, in general, have such hierarchical structure. This paper models optimal investment in hierarchical human capital as well as nonhierarchical physical capital. The authors analyze the steady state, transition dynamics, and endogenous growth properties of the system. The optimal program exhibits non-monotonicities in human capital stocks. This result has important implications for the optimal timing of investment in hierarchical human capital. The analysis also addresses the debate regarding the distribution of education expenditures and the divergence between ex-post and ex-ante rates of return to education.     

Revenue Motives and Trade Liberalization

Governments in more-developed economies partially compensate import-competing industries when world prices fall, i.e., they lean against the wind. Less-developed economies often liberalize in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policymaker would respond to lower woild prices by reducing tariff protection for an import-competing industry. An initial tariff that exceeds the maximum revenue level proves necessary but not sufficient for politically optimal liberalization following a fall in the world price of the importable good.     

Sibling donation games: pure-altruism,strategic-altruism,and the interaction of familial and public transfers

Accompanying the rapidly aging populations of high-income countries are increasing transfers of time and money from adult children to elderly parents (ascending altruism). In this paper we first develop a theoretical model to characterize the general reaction-functions of two adult siblings choosing transfer amounts (possibly time) to their needy parents under two alternative motivations: pure altruism and strategic altruism. We show that transfers are strategic substitutes under pure altruism and strategic complements under strategic altruism. The Nash-equilibrium generates distinct predictions associated with each motivation and we then explore some implications of our findings. A result with potentially important policy implications is that the response of children transfers to increased pension payments to the parents depends on the children's motivations. This contrasts with much of the literature which assumes transfers decrease with increased pension payments.     

The role of the list price in housing markets: Theory and an econometric model

Houses are routinely sold at prices below, but rarely sold at prices above, their list prices. List prices appear to be price ceilings that preclude the possibility of sales at higher prices. This paper presents a theory of sellers' behaviour that explains why there are list prices in housing markets and why list prices are distinct from sellers' reservation prices. The theory forms the basis of an econometric model that has been estimated using data from the Baltimore, MD, area. The estimated model predicts sale and reservation prices conditional on list prices. The predictions of sale prices are considerably more accurate than those obtained from a standard hedonic price regression. The estimated model also explains why sellers may not be willing to reduce their list prices even after their houses have remained unsold for long periods of time.