Undesirable outputs and a primal Divisia productivity index based on the directional output distance function

Despite their great popularity, all the conventional Divisia productivity indexes ignore undesirable outputs. The purpose of this study is to fill in this gap by proposing a primal Divisia-type productivity index that is valid in the presence of undesirable outputs. The new productivity index is derived by total differentiation of the directional output distance function with respect to a time trend and referred to as the Divisia–Luenberger productivity index. We also empirically compare the Divisia–Luenberger productivity index and a representative of the conventional Divisia productivity indexes–the radial-output-distance-function-based Feng and Serletis (2010) productivity index–using aggregate data on 15 OECD countries over the period 1981–2000. Our empirical results show that failure to take into account undesirable outputs not only leads to misleading rankings of countries both in terms of productivity growth and in terms of technological change, but also results in wrong conclusions concerning efficiency change.     

On the equivalence of the static and dynamic asset allocation problems

A classic dynamic asset allocation problem optimizes the expected final-time utility of wealth, for an individual who can invest in a risky stock and a risk-free bond, trading continuously in time. Recently, several authors considered the corresponding static asset allocation problem in which the individual cannot trade but can invest in options as well as the underlying. The optimal static strategy can never do better than the optimal dynamic one. Surprisingly, however, for some market models the two approaches are equivalent. When this happens the static strategy is clearly preferable, since it avoids any impact of market frictions. This paper examines the question: when, exactly, are the static and dynamic approaches equivalent? We give an easily tested necessary and sufficient condition, and many non-trivial examples. Our analysis assumes that the stock follows a scalar diffusion process, and uses the completeness of the resulting market model. A simple special case is when the drift and volatility depend only on time; then the two approaches are equivalent precisely if (μ (t)? r)/σ²(t) is constant. This is not the Sharpe ratio or the market price of risk, but rather a nondimensional ratio of excess return to squared volatility that arises naturally in portfolio optimization problems.     

How Do Switching Costs Affect Market Concentration and Prices in Network Industries?

I investigate the effects of switching costs on the market outcome in network industries using a dynamic duopoly model of price competition in the presence of an outside option. I find that the role of switching costs depends on network effects and the outside option. Without a viable outside option, high switching costs can neutralize the tendency towards high market concentration associated with network effects, but with a viable outside option, switching costs increase market concentration. Furthermore, switching costs lower prices if network effects are modest and there exists a viable outside option, but generally raise prices otherwise.     

An integrated model of the effects of service evaluation,corporate image,and switching barriers on customer loyalty

The purpose of this study was to examine the relationships between service evaluation, corporate image, switching barriers, and customers’ intentional loyalty. The proposed model was tested and valuated in the mobile services context. A field survey was conducted using a structured questionnaire about the investigated concepts. To test the proposed hypotheses, a model was constructed and estimated using the method of partial least squares. Findings indicate that service evaluation constructs have both direct and indirect effects, through customer satisfaction and corporate image, on customers’ intentional loyalty. The outcomes suggest that marketers, in their effort to develop more customer-oriented marketing plans, should consider both the pool-in factors, reflecting the value of the provided services, customer satisfaction, and corporate image, and the interactions among them, as well as the push-back factors, as they all impact on customers’ behavioral intentions. The research was limited to one service setting and the proposed model should be cross-validated in other service settings before the relationships among its components are fully clarified. Also, the use of cross-section design reduces inference ability regarding temporal changes in research constructs. This article contributes in adding to the body of the existing knowledge by considering both corporate image and switching barriers, along with service evaluation constructs, as antecedents of consumer’s intentions determination, resulting in a model that has not been investigated thus far.     

Iso-risk: an analysis of risk-taking in fixed income markets

We test the hypothesis that portfolio managers trade-off variance and kurtosis in asset returns. We find empirical evidence that supports the iso-risk hypothesis using fixed income mutual fund data. Managers appear to systematically ‘swing for the fences’ when the probability of outperformance is low. This resolves previous enigmas of preference reversals and adheres to both Prospect Theory and tournament effects. The methodology developed enables reconciliation of active return metrics and managers’ total return behaviour. As the data set includes the great recession, we provide an economic interpretation of the results in light of the trade-off hypothesis.     

The welfare effects of innovative pharmaceuticals: an international perspective from the Dutch experience

Policy discussions on new medicines are often focused on cost containment rather than on the benefits they produce, such as health gains and cost savings in other sectors. In this study, we identify systematic differences in policies towards pharmaceuticals between countries and calculate the welfare gains of 39 innovative pharmaceuticals introduced in the Dutch market after 1997. Welfare gains are defined as the difference between the value of a QALY gained by innovative pharmaceuticals and their costs. The review shows that there are systematic differences among pharmaceutical policies and regulations between countries. It is further found that the welfare gains of pharmaceuticals are substantial and amount to €77 per capita per year in the Netherlands. The welfare gains could be higher if institutional barriers for an efficient utilization of innovative pharmaceuticals are removed.     

Openness in the Canadian economy: 1870–1988

The causal relation between openness and GDP and between exports and imports are examined. Causality test carried out in growth rates showed that over the period 1870–1988 openness, both narrowly and broadly defined, Granger-causes GDP growth; tests for the inverse causality produced mixed results, validating causality from GDP growth to export plus import growth, but rejecting causlaity from GDP growth to export growth; it was also found that export growth causes import growth, but not the opposite. Causality tests over four subperiods indicated the importance of openness for only the earliest phase of Canadian economic development. While the absence of causality in the later subperiods is largely compatible with the experience of the industrial countries, no meaningful comparison can be made between the experience of Canada and that of developing countries owing to causality variations of openness and to large differences in resource endowments.     

THE DEMAND FOR GASOLINE: EVIDENCE FROM HOUSEHOLD SURVEY DATA

In this paper we investigate the demand for gasoline in Canada using recent annual expenditure data from the Canadian Survey of Household Spending, over a 13‐year period from 1997 to 2009, on three expenditure categories in the transportation sector: gasoline, local transportation, and intercity transportation. In doing so, we use three of the most widely used locally flexible functional forms, the Almost Ideal Demand System (AIDS) of Deaton and Muellbauer (1980), the quadratic AIDS (QUAIDS) of Banks et al. (1997)—an extension of the simple AIDS model that can generate quadratic Engel curves—and the Minflex Laurent model of Barnett (1983), which can also generate quadratic Engel curves. We pay explicit attention to economic regularity, argue that unless regularity is attained by luck, flexible functional forms should always be estimated subject to regularity as suggested by Barnett (2002), and impose local curvature to produce inference consistent with neoclassical microeconomic theory. Our findings indicate that the curvature‐constrained Minflex Laurent model is the only model that is able to provide theoretically consistent estimates of the Canadian demand for gasoline. Our estimates show that the own‐price elasticity for gasoline demand in Canada is between ? 0.738 and ? 0.570 —less elastic than previously reported in the literature. Copyright © 2013 John Wiley & Sons, Ltd.     

BREXIT referendum’s impact on the financial markets in the UK

Review of World Economics - BREXIT might be considered the most paramount event of the past 40 years in modern English history. The present research attempts to examine the impact of...