Income distribution and the neoclassical paradigm: Introduction to a symposium

A simple graphical analysis is presented, for dissection of the growth and distributional responses of a one-sector neoclassical model. How the one-sector model fits in with the somewhat more elaborate models discussed in the subsequent symposium is also pointed out, to shed light on their properties.     

Rituals of cruise consumption and the 'new' middle class: desiring and 'devouring' maritime cruises

The consumption of maritime cruises is one of the most striking facets of the phenomenon of a new middle class emergence in Brazil. This study investigates the use of maritime cruises by emerging middle-class consumers to enact their new social status. Specifically, the research looks at ritualistic behaviour performed by consumers before, during, and after a cruise. The research uses a multi-method design characterised by a combination of ethnography and group discussions. The study contributes to enlarge McCracken’s typology of consumption rituals, showing how emerging consumers use the cruise as a rite of passage, during which they perform rituals of preparation, production, possession, and divestment. It also sheds light on specific rituals performed by consumers in order to transfer meanings from the cruise to their own selves. Finally, the findings suggest that consumption rituals in the context of social ascent may not have the transformative power of traditional rites.     

International portfolio diversification: Currency,industry and country effects revisited

We examine the relative importance of country, industry, world market and currency risk factors for international stock returns. Our approach focuses on testing the mean-variance efficiency of the various factor portfolios. An unconditional analysis does not show significant differences between country, industry and world portfolios, nor any role for currency risk factors. However, when we allow expected returns, volatilities and correlations to vary over time, we find that equity returns are mainly driven by global industry and currency risk factors. We propose a novel test to evaluate the relative benefits of alternative investment strategies and find that including currencies is critical to take full advantage of the diversification benefits afforded by international markets.     

Why do intermediaries divert search?

We analyze the incentives to divert search for an information intermediary who enables buyers (consumers) to search affiliated sellers (stores). We identify two original motives for diverting search (i.e., inducing consumers to search more than they would like): (i) trading off higher total consumer traffic for higher revenues per consumer visit; and (ii) influencing stores’ choices of strategic variables (e.g., pricing). We characterize the conditions under which there would be no role for search diversion as a strategic instrument for the intermediary, thereby showing that it occurs even when the contracting space is significantly enriched. We then discuss several applications related to online and brick‐and‐mortar intermediaries.     

Functional Itô calculus†

We extend some results of the Itô calculus to functionals of the current path of a process to reflect the fact that often the impact of randomness is cumulative and depends on the history of the process, not merely on its current value. We express the differential of the functional in terms of adequately defined partial derivatives to obtain an Itô formula. We develop an extension of the Feynman-Kac formula to the functional case and an explicit expression of the integrand in the Martingale Representation Theorem. We establish that under certain conditions, even path dependent options prices satisfy a partial differential equation in a local sense. We exploit this fact to find an expression of the price difference between two models and compute variational derivatives with respect to the volatility surface.     

American-style options in jump-diffusion models: estimation and evaluation

We propose dynamic programming coupled with finite elements for valuing American-style options under Gaussian and double exponential jumps à la Merton [J. Financ. Econ., 1976, 3, 125–144] and Kou [Manage. Sci., 2002, 48, 1086–1101], and we provide a proof of uniform convergence. Our numerical experiments confirm this convergence result and show the efficiency of the proposed methodology. We also address the estimation problem and report an empirical investigation based on Home Depot. Jump-diffusion models outperform their pure-diffusion counterparts.     

The political economy of pricing and capacity decisions for congestible local public goods in a federal state

This paper studies the political economy of pricing and investment for excludable and congestible public goods in a federal state. Although the model applies to many local congestible public facilities (such as libraries, museums and public swimming facilities), our main motivation is the problem of providing and pricing road infrastructure in federal states. The two-region model we develop allows for spill-overs between regions, it takes into account congestion, and it captures demand heterogeneity both between and within regions. Regional decisions are taken by majority voting; federal decisions are taken by a minimum winning coalition in a legislature of regionally elected representatives. We have the following results. First, when users form the majority in at least one region, decentralized decision making performs certainly better than centralized decision making if spill-overs are not too large. Centralized decisions may yield higher welfare than decentralization only if users have a large majority and the infrastructure in a given region is intensively used by both local and outside users. Second, if non-users form a majority in both regions, centralized decision making and decentralized decision making yield the same socially undesirable outcome, with prices that are much too high. Third, the performance of decentralized supply is strongly enhanced by local self-financing rules; this prevents potential exploitation of users within regions.     

Customer satisfaction and dissatisfaction in retail banking: Exploring the asymmetric impact of attribute performances

The paper presents the results of an extensive study on the determinants of customer satisfaction for a retail bank. In doing so, it uses a revised version of the traditional analyses based on derived measures of attribute importance. The need for a revised methodology is prompted by the insights of the two- and three-factor theories of customer satisfaction, such as Kano's framework. Indeed, the evidence from 5000 customers of a prominent Italian bank confirms a non-linear and asymmetric relationship between attribute performances and overall customer satisfaction. The results from both a traditional and our revised approach are compared. While this approach can be applied across different industries, it should not be assumed that the numerical results presented in the paper apply to contexts with substantially different underlying characteristics. General trends and implications for banking services are reported in the conclusions.