Sufficient conditions applied to an optimal control problem of resource management

The purpose of this paper is twofold. First, by solving an interesting problem in the theory of exhaustible resources, it is exemplified how direct sufficiency conditions should properly be used in optimal control problems. The motivation for this aspect of the paper is the almost complete negligence in the economic literature of dealing properly with sufficiency conditions. Second, an important point in the discussion of J. Aarrestad (Scand. J. Econom., 81 (1979), 522–565) is supplemented.     

Equity and fixed income markets as drivers of securitised real estate

This paper re-examines the sensitivity and importance of interest rates and stock market price behavior on securitised property by decomposing their long-run impact between transient and permanent effects. This is achieved in a framework that accounts for endogenously determined structural breaks within the data. The results provide a different perspective on the relationship securitised property has with these markets and sheds new light on their long-run interaction. Once structural breaks are accounted for the results show that securitised property is driven by both interest rate and stock market changes, regardless of the type of securitised property being examined. Evidence also points to companies with increased debt-to-asset ratios and companies that are tax-exempt entities are still all influenced by both the equity and fixed income markets over the long-run period, although the influence these factors have do vary across time.     

An Equilibrium Model of Catastrophe Insurance Futures and Spreads

This article presents a valuation model of futures contracts and derivatives on such contracts, when the underlying delivery value is an insurance index, which follows a stochastic process containing jumps of random claim sizes at random time points of accident occurrence. Applications are made on insurance futures and spreads, a relatively new class of instruments for risk management launched by the Chicago Board of Trade in 1993, anticipated to start in Europe and perhaps also in other parts of the world in the future. The article treats the problem of pricing catastrophe risk, which is priced in the model and not treated as unsystematic risk. Several closed pricing formulas are derived, both for futures contracts and for futures derivatives, such as caps, call options, and spreads. The framework is that of partial equilibrium theory under uncertainty.     

Multi-Market Collusion with Demand Linkages and Antitrust Enforcement

This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand-related markets. We show that cartel prosecution can have a knock-on effect: bringing down a cartel in one market reduces profits and cartel stability and leads to the break-up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We discuss the impact of dynamic cartel formation on consumer surplus, explore antitrust spillovers, the optimal scope of antitrust interventions and cartel formation with local firms.     

The Rule of Three, its Variants and Extensions

The Rule of Three (R3) states that 3/ n  is an approximate 95% upper limit for the binomial parameter, when there are no events in  n  trials. This rule is based on the one-sided Clopper–Pearson exact limit, but it is shown that none of the other popular frequentist methods lead to it. It can be seen as a special case of a Bayesian R3, but it is shown that among common choices for a non-informative prior, only the Bayes–Laplace and Zellner priors conform with it. R3 has also incorrectly been extended to 3 being a "reasonable" upper limit for the number of events in a future experiment of the same (large) size, when, instead, it applies to the binomial mean. In Bayesian estimation, such a limit should follow from the posterior predictive distribution. This method seems to give more natural results than—though when based on the Bayes–Laplace prior technically converges with—the method of prediction limits, which indicates between 87.5% and 93.75% confidence for this extended R3. These results shed light on R3 in general, suggest an extended Rule of Four for a number of events, provide a unique comparison of Bayesian and frequentist limits, and support the choice of the Bayes–Laplace prior among non-informative contenders.     

Market-oriented product innovation at Høyang Polaris and Jøtul

This report is concerned with an action research project on market oriented product innovation at Høyang Polaris and Jøtul, where a system for assessment of user needs has been planned and implemented. Based on experience from the project, a model has been developed for the introduction of a need assessment system comprising problem analysis, planning, information, training, demonstration, application, and development.The introduction of need assessment methods may be handled as an operational problem or treated as a strategic issue. When handled as an operational problem, systematic need assessment can be introduced as a project or treated as a process integrated with the daily activities of the product innovation staff.The practical operation of a need assessment system in product innovation projects involves definition of a target group, selection of one or several need assessment methods, implementation of the study, and formulation of the need specification.The responsibility for need assessment studies may be assigned to a special staff unit or to the employees participating in the product innovation process.     

Estimating the output gap in real time: A factor model approach

By using a dynamic factor model, we can substantially improve the reliability of real-time output gap estimates for the U.S. economy. First, we use a factor model to extract a series for the common component in GDP from a large panel of monthly real-time macroeconomic variables. This series is immune to revisions to the extent that revisions are due to unbiased measurement errors or idiosyncratic news. Second, our model is able to handle the unbalanced arrival of the data. This yields favorable nowcasting properties and thus starting conditions for the filtering of data into a trend and deviations from a trend. Combined with the method of augmenting data with forecasts prior to filtering, this greatly reduces the end-of-sample imprecision in the gap estimate. The increased precision has economic importance for real-time policy decisions and improves real-time inflation forecasts.     

Job search incentives and job match quality

We examine the impacts of time-limited unemployment insurance (UI) and active labor market programs (ALMP) on the duration and outcome of job search in Norway. We use a comprehensive simultaneous equations model accounting for i) the duration of unemployment spells; ii) their outcomes, iii) subsequent employment stability; and iv) the earnings level associated with the first job. We find that time invested in job search pays off in form of higher earnings once a job match is formed. ALMP raises the probability of eventually finding a job as well as expected earnings, but at the cost of lengthening job search.     

Regional differences in small firm entry in manufacturing industries: Lower Saxony, 1979–1991 †

This paper is an empirical study of inter-regional and inter-temporal variations in entry of new firms using longitudinal data covering all manufacturing establishments in Lower Saxony between 1979 and 1991. Patterns of entry are reported for sixteen regions based on gross rates of entry (number of new firms) and entry intensities (shares of employees). An empirical model is applied to detect regional characteristics that are highly correlated with entry. Pooling of cross-section and time-series data allows for control of influences of varying macroeconomic conditions and unobserved regional characteristics that turned out to be important. Small firm entry tends to be positively related to high overall economic growth, and to be higher in regions where both the small firm employment share and the level of wealth are high while the wage rate is low. We find no evidence for a negative impact of the business tax rate or for a positive effect of regional subsidies.