Economic policy with bounded controls

When investigating optimal policies for macroeconomic models, it is common practice to modify the objective function so that the resulting optimal control trajectories become acceptable from a practical point of view. In this paper we argue that the sole purpose of the objective function should be to express the preference of the decision makers, and that explicit bounds on the controls should be used to ensure that the optimal controls will be practical. Using a piece-wise quadratic objective function involving only the unemployment and inflation rates, which are state (endogenous) variables, we first develop a discrete minimum principle, giving necessary and sufficient optimality conditions. Then we perform various bounded control experiments with the 35-equation quarterly CLEAR model of the Canadian economy, which is very briefly described. The empirical results which were obtained using a version of the GRG algorithm are discussed in view of the conclusions that might be drawn for a real-world practical policy analysis.     

Full information estimation and stochastic simulation of models with rational expectations

A computationally feasible method for the full information maximum-likelihood estimation of models with rational expectations is described in this paper. The stochastic simulation of such models is also described. The methods discussed in this paper should open the way for many more tests of the rational expectations hypothesis within macroeconomic models.     

Security Choice, Information Effects and Firm Characteristics: A Factor Analytic Approach

Abstract:   We examine the marginal choice between debt and equity securities using a factor analytic approach. This data reduction property eliminates the need to select the one best variable to proxy for a particular theoretical construct. Our results reinforce numerous existing findings using traditional methods and suggest both static tradeoff and asymmetric information based considerations are relevant in determining security choice. Two new results are presented related to the accounting liquidity of the firm. First, the preference for equity is increasing with liquidity as suggested by the window of opportunity hypothesis. Secondly, the market response to equity issuance announcements is inversely related to the liquidity of the firm. Profitability and growth measures support Jensen's (1986) agency cost of free cash flow as a potential explanation for the second finding.     

Recent evidence on the relationship between anonymity and response variables for mail surveys

Although most marketing researchers and texts recommend guaranteeing respondents anonymity in mail surveys, emirical evidence on this issue is dated, and often is based on results from student or occupational samples. The present study examines the impact of anonymity on item omission, response bias, and response quality. Based on a representative sample of respondents from a Southern SMSA, it was found that lack of anonymity had minor effects on response variables. Anonymous respondents provided slightly less information to complex questions, and lower-income respondents, nonwhites, and homeowners were more likely to identify themselves on the return envelope. Yet, the responses of these groups did not differ substantively from answers of other respondents on the range of questionnaire items examined.     

Moral rules and moral ideals: A useful distinction in business and professional practice

The distinction between moral rules and moral ideals is presented and explained in various ways. The authors propose that people in business are required to obey the moral rules and have a choice with respect to ideals. Thus, they are not in a different position from that of anyone else in society.Four case studies are presented and discussed. The analytical approaches used by the authors' students are summarized and evaluated. The moral rules/ideals paradigm is described as helping discussants of the cases to establish congruence between business ethics and their personal set of values. Other values of the classroom discussion of ethics cases are considered.John W. Hennessey, Jr., is Jones Professor of Management at the Amos Tuck School of Business Administration, Dartmouth College. Previously he was Dean of this school and President of the American Assembly of Collegiate Schools of Business. Bernard Gert is Stone Professor of Intellectual and Moral Philosophy at the Dartmouth College. From 1971 until 1974 and from 1979 until 1981 he was Chairman of the Philosophy Department and he was awarded the NEH-NSF Sustained Development Award 1980–1984. His most important publications are: The Moral Rules: A New Rational Foundation for Morality, Harper and Row, 1970, Harper Torchbook 1973, 2nd edition 1975, and Philosophy in Medicine: Conceptual and Ethical Issues in Medicine and Psychiatry, Oxford University Press, 1982 (co-authored with Charles M. Culver).Prof. Gert acknowledges support from the National Endowment for the Humanities, Grant RII-8018088 A03.     

Privatisation — by Political Process or Consumer Preference?

Dr Keith Hartley called, in the June/July Economic Affairs, for contracting-out in the provision of local government services to replace state supply. John Blundell, Executive Vice President of the Institute for Humane Studies, Virginia, and a former Lambeth Councillor, warns of the dangers that contracting-out offers in stagnation, political corruption and 'capture' by interested parties. Dr Hartley defends contracting-out as a step along the path towards free competition.     

Modeling the density variations of urban land uses with transportation network congestion

Perhaps the single most distinctive character of urban activity that distinguishes it from rural and regional activities is the intensive use of urban land. While the nature of density variations of urban land uses and their associated land rents are well understood, there have been few operational urban models that explicitly address the density variations of land uses. The paper presents a combined land use-transportation model, in which transportation congestion costs on networks of various transportation modes are simultaneously determined with the efficient intensity level of land uses. The procedure uses a nonlinear programming approach within the context of a multicommodity flow/input-output model.     

The NHS: Quasi-market, Quasi-hierarchy and Quasi-network?

It has been argued that the British National Health Service (NHS) has moved from a hierarchical and bureaucratic organization to a market and, more recently, towards a network. The authors believe that this view is too simplistic: the three organizational forms have co-existed and continue to do so. It is more accurate to view moves over time as a changing mix between quasi-hierarchies, quasi-markets and quasi-networks.