Uban Tolled Roads and the Value of Travel Time Savings*

The recent interest in the privatization of major urban roads has opened up the debate on the tolling of such facilities. Central to the identification of optimal tolls is a knowledge of the amount of money individuals are willing to outlay to save travel time. This paper combines a utility maximization framework with stated response data to determine values of time savings in the presence of varying levels of toll for the full set of urban journey purposes. The empirical results provide a basis for establishing one benchmark for toll setting, in the context of substantial lengths of urban roads. There are no tolled urban roads in any major urban area throughout the world     

Forward Rates,Interest Rates,and Expectations Under Alternative Exchange Rate Regimes*

A model comprising spot and forward foreign exchange markets and a domestic credit market is used to examine the trade-off between volatility in the nominal exchange rate and domestic interest rate. It also shows how a slowly crawling spot rate can raise interest rate volatility and the amplitude of reserve flows. Finally, the paper extends a finding by Driskill and McCafferty that the exchange rate effects of external shocks are differently affected by the responsiveness of speculation to expected profits; high responsiveness makes the spot exchange rate more sensitive to foreign financial shocks but less sensitive to trade balance shocks.     

The Valuation of Sequential Exchange Opportunities

Sequential exchange opportunities are valued using the techniques of modern option-pricing theory. The vehicle for analysis is the concept of a compound exchange option. This security is shown to exist implicitly in several contractual settings. A valuation formula for this option is derived. The formula is shown to generalize much previous work in option pricing. Several applications of the formula are presented.     

Real Options Models of the Firm,Capacity Overhang,and the Cross Section of Stock Returns

We use a stochastic frontier model to obtain a stock‐level estimate of the difference between a firm's installed production capacity and its optimal capacity. We show that this “capacity overhang” estimate relates significantly negatively to the cross section of stock returns, even when controlling for popular pricing factors. The negative relation persists among small and large stocks, stocks with more or less reversible investments, and in good and bad economic states. Capacity overhang helps explain momentum and profitability anomalies, but not value and investment anomalies. Our evidence supports real options models of the firm featuring valuable divestment options.     

STAGFLATIONARY CONSEQUENCES OF PRUDENT MONETARY POLICY IN A UNIONIZED ECONOMY

Stylised models of the policy game between monetary policy makersand the private sector have suggested that discretionary policyregimes suffer from an inherent inflationary bias and that pre-commitmentto a target rate of inflation may be desirable. This paper showsthat in the presence of labour unions, the monetary policy gamecan lead to radically different results: a central bank thatis completely indifferent to the level of inflation may obtainoutcomes with high employment rates and zero inflation while‘prudent’, inflation-averse, central banks generatestagflation with positive inflation and low rates of employment.