Investment in site-specific crop management under uncertainty: implications for nitrogen pollution control and environmental policy

This paper applies an option‐pricing model to analyze the impact of uncertainty about output prices and expectations of declining fixed costs on the optimal timing of investment in site‐specific crop management (SSCM). It also analyzes the extent to which the level of spatial variability in soil conditions can mitigate the value of waiting to invest in SSCM and influence the optimal timing of adoption and create a preference for custom hiring rather than owner purchase of equipment. Numerical simulations show that while the net present value (NPV) rule predicts that immediate adoption is profitable under most of the soil conditions considered here, recognition of the option value of investment indicates that it is preferable to delay investment in SSCM for at least 3 years unless average soil quality is high and the variability in soil quality and fertility is high. The use of the option value approach reveals that the value of waiting to invest in SSCM raises the cost‐share subsidy rates required to induce immediate adoption above the levels indicated by the NPV rule.     

A dynamic model of OPEC trade and production

A dynamic simulation model is presented of the world energy market, covering the period 1974–1995. It is used to assess and rank six possible price or output policies that OPEC may adopt with respect to oil exports, given a range of assumptions relating to such important variables as the rate of growth of domestic absorption of oil revenues within OPEC, the rate of capacity expansion for oil production, the responsiveness of investment in alternative sources of energy to changes in oil prices, and the rate of growth of world demand for energy. Furthermore, an illustrative analysis is given of possible conflict situations within OPEC, and their impact on the choice of price or output policy is discussed. The main conclusion drawn is that the supply response of alternative energy sources to OPEC oil will be the key to predicting whether oil prices will go up or down.     

Consensus analysts' earnings forecasts and security returns

This study examines the information content and informational efficiency of consensus analysts' forecasts in an Australian setting. Consistent with Lys and Sohn (1990) and Abarbanell (1991), analysts' forecasts were found to possess information content but did not incorporate all publicly available information. The empirical analysis in this paper suggests that negative security returns are associated with higher forecast errors. This contrasts with the results of Lys and Sohn (1990) and is consistent with a positive bias in forecasts. However, this did not preclude analysts' forecasts from being viable proxies for the market's expectations of future earnings.Michael Aitken, Alex Frino and Roland Winn are Professor, Senior Lecturer and Associate Lecturer, respectively, at the University of Sydney. The authors thank McIntosh Securities for the use of the McBARCEP database. However, the views expressed in this paper are those of the authors and are not intended to represent those of McIntosh Securities Ltd. The authors also thank two anonymous referees, Wai-Ming Fong and other participants at the Second Annual Asia-Pacific Finance Conference. The corresponding author for this paper is Roland Winn, Department of Finance H03, University of Sydney, NSW 2006, Australia.     

Aristotle's analysis of bilateral exchange: an early formal approach to the bargaining problem

Exchange, as analysed by Aristotle in the Nichomachean Ethics, should be viewed as a bilateral relation to be approached not as a market phenomenon but in terms of cooperation between two contractors. This paper accordingly proposes a reconsideration of Aristotle's analysis in the light of modern bargaining theory. This reconsideration reconciles the two principles of distributive and corrective justice as ruling simultaneously exchange relations through the figures of geometric and arithmetic proportions, respectively. It also suggests a new reconstitution of the missing diagram supposedly illustrating Aristotle's analysis, which — contrary to the conventional square endowed with diagonals, used since Albertus Magnus' commentary — fits the function to which such a diagram was probably designed, that of exhibiting Aristotle's solution to the bargaining problem.     

Mode choice,transport structure and urban land use

A theoretical model of the urban land market is solved to examine the impact of bimodal passenger transportation on equilibrium residential land use. In this model travel to the central business district occurs on a dense system of radial roads or bus routes and a competing system or radial expressways or mass transit lines fed by a subsidiary system of densely spread access streets. Under rational behavior assumptions for households, it is shown that various basic urban forms can result depending on the relative generalized cost characteristics of the competing dense and sparse radial networks. The basic urban forms yield fundamental shapes, differing as to the relative geometry and position of the market areas for the two modes. The standard Alonso-Muth model of unimodal travel and circular urban form is found to result as a special case in several of these cases. American urbanized areas of various sizes and modal mix provide plausible examples for each of the basic forms. The paper concludes with a discussion of the model's implications as a framework for examining optimum urban transport structure and the proliferation of transport routes as a function of urban size.