How good was the profitability of British railways, 1870–1912?

This article provides new estimates of the return on capital employed (ROCE) for major British railway companies. It shows that ROCE was generally below the cost of capital after the mid‐1870s and fell until the turn of the century. Addressing cost inefficiency issues could have restored ROCE to an adequate level in the late 1890s but not in 1910. Declines in ROCE hit share prices and investors made little or no money in real terms after 1897. Optimal portfolio analysis shows that, while railway securities were attractive to investors before this date, they would have been justified in rushing to the exits thereafter.     

Ambiguity and Public Good Provision in Large Societies

In this paper, we consider the effect of ambiguity on the private provision of public goods. Equilibrium is shown to exist and be unique. We examine how provision of the public good changes as the size of the population increases. We show that when there is uncertainty, there may be less free‐riding in large societies.     

RACIAL DIFFERENCES IN HEALTH-CARE UTILIZATION: ANALYSIS BY INTENSITY OF DEMAND

Health-care utilization is estimated for different subpopulations with respect to various measures of health status, which allows the classification of health-care consumers into groups with different intensities of demand. This specification allows us to determine whether racial differences vary between subgroups of consumers. In addition to blacks, we also consider utilization by Hispanics. The model is estimated separately for five measures of utilization: office-based physician visits, office-based nonphysician visits, outpatient department visits, emergency room visits, and hospital discharges using data from the Medical Expenditure Panel Survey. Results across numerous specifications indicate that racial differences remain a serious public policy concern, both among healthy and unhealthy minorities. ( JEL I11, I12)     

Accounting for Forward Rates in Markets for Foreign Currency

Forward and spot exchange rates between major currencies imply large standard deviations of both predictable returns from currency speculation and of the equilibrium price measure (the intertemporal marginal rate of substitution). Representative agent theory with time-additive preferences cannot account for either of these properties. We show that the theory does considerably better along these dimensions when the representative agent's preferences exhibit habit persistence, but that the theory fails to reproduce some of the other properties of the data—in particular, the strong autocorrelation of forward premiums.     

A Simple and Numerically Efficient Valuation Method for American Puts Using a Modified Geske-Johnson Approach

Geske and Johnson (1984) develop an equation for the American put price and obtain accurate prices using a method requiring quadrivariate normal integrals evaluated over an interval containing four equally spaced exercise points. We show that a modification of their method which uses optimal placement of exercise points yields in most cases accurate values using nothing more than bivariate normals. In the more difficult (deep-in-the-money) cases, trivariate normals suffice.