ACCOUNTING FOR EXHAUSTIBLE RESOURCES IN THE CANADIAN SYSTEM OF NATIONAL ACCOUNTS: FLOWS, STOCKS AND PRODUCTIVITY MEASURES

The paper shows that the Canadian System of National Accounts includes exhaustible resources but treats them as if they were produced goods. Thus, the claim that conventional accounts ignore the contribution of exhaustible natural resources is partly true. To fully account for exhaustible resources, we present an alternative national accounting framework that incorporates natural resource flows and stocks. The framework modifies the measure of the net domestic product by a factor that differs from the Hartwick-Solow-Weitzman rule and leads to different estimates of GDP, national wealth, and productivity growth. An application to the Canadian oil and gas industry shows order-of-magnitude effects.     

General equilibrium in economies with adverse selection

We model economies of adverse selection as Arrow–Debreu economies. In the spirit of Prescott and Townsend (Econometrica 52(1), 21–45, 1984a), we identify the consumption set of the individuals with the set of lotteries over net transfers. Thus, prices are linear in lotteries, but they may be non linear in commodity bundles. First, we study a weak equilibrium notion by viewing the economy of adverse selection as a pure exchange economy. The weak equilibrium set is non empty, but some of the allocations may be inefficient, and the equilibria indeterminate. Second, following Prescott and Townsend (Econometrica 52(1), 21–45, 1984a), we introduce an intermediary (firm) supplying feasible and incentive compatible measures. Equilibria are constrained efficient, but the equilibrium set is empty for an open set of economies containing the Rothschild and Stiglitz insurance economies. The research of A. Rustichini was supported by the NSF grant NSF/SES-0136556.     

Rising household debt: Its causes and macroeconomic implications--a long-period analysis

The article analyses the rise in household indebtedness fromthe point of view of its causes and long-run macroeconomic implications.The analysis is focussed on the US case. Differently from life-cycleinterpretations of the phenomenon, and from interpretationsin terms of erratic deviations of current income flows fromtheir long-run trend, the rising household debt is viewed asthe outcome of persistent changes in income distribution andgrowing income inequalities. Through household debt, low wagesappear to have been brought to coexist with relatively highlevels of aggregate demand, thus providing the solution to thecontradiction between the necessity of high and rising consumptionlevels, for the growth of the system's actual output, and aframework of antagonistic conditions of distribution which keepswithin limits the real income of the vast majority of society.The question of the long-run sustainability of this substitutionof loans for wages is finally discussed.     

PORTFOLIO SELECTION WITH MONOTONE MEAN-VARIANCE PREFERENCES

We propose a portfolio selection model based on a class of monotone preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated with this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem and we derive a monotone version of the capital asset pricing model (CAPM), which has two main features: (i) it is, unlike the standard CAPM model, arbitrage free, (ii) it has empirically testable CAPM-like relations. The monotone CAPM has thus a sounder theoretical foundation than the standard CAPM and a comparable empirical tractability.     

Self-confidence and strategic behavior

We suggest that overconfidence (conscious or unconscious) is motivated in part by strategic considerations, and test this experimentally. We find compelling supporting evidence in the behavior of participants who send and respond to others’ statements of confidence about how well they have scored on an IQ test. In two-player tournaments where the higher score wins, a player is very likely to choose to compete when he knows that his own stated confidence is higher than the other player’s, but rarely when the reverse is true. Consistent with this behavior, stated confidence is inflated by males when deterrence is strategically optimal and is instead deflated (by males and females) when luring (encouraging entry) is strategically optimal. This behavior is consistent with the equilibrium of the corresponding signaling game. Overconfident statements are used in environments that seem familiar, and we present evidence that suggests that this can occur on an unconscious level.     

Preferences over characteristics and utility functions over commodities

Following Lancaster, preferences are defined over a set of characteristics, while commodities vectors are transformed into characteristics by a production function. We assume that both the preferences over the characteristics and the production functions are “neoclassical” and we characterize the set utility functions over the consumption space derived as the composition of preferences over characteristics and production functions. We prove that, under regularity conditions, any function can be derived by such a composition. Thus, the theories of characteristics does not impose any restrictions on derived utility functions. We thank an anonymous referee for helpful suggestions. The research of Aldo Rustichini was supported by the NSF grant NSF/SES-0136556. Paolo Siconolfi acknowledges the support of the Graduate School of Business, Columbia University.     

Introduction to model uncertainty and robustness

This article introduces the symposium on model uncertainty and robustness.     

State capitalism in international context: Varieties and variations

State interventions in markets assume varieties of forms in different economic systems. To capture this variety, we consider state capitalism as a multidimensional concept, first reviewing its historical evolution from both practical and scholarly vantages. We describe several dimensions of state capitalism and demonstrate how cross-national variations can be captured through positioning countries along these dimensions. We use cross-sectional data for a large sample of countries to derive factors that represent key dimensions of state capitalism. We demonstrate how cross-national and historical variation in state capitalism is captured by this Virtual Special Issue and offer suggestions for future research.     

A test of stability in a linear altruism model

Linear altruism predicts the estimated preferences to be independent of the subject’s position in the game, if the role allocation is randomly determined, because subjects, in each role, have the same preferences ex ante. We test and reject this hypothesis.