The serial correlation structure for a random process with steps

Summary We derive the detailed correlation structure for the simple “staircase model”: a process where white noise is superimposed on a deterministic step function that has equal rises and equal treads. It turns out that this structure is an immediate generalisation of that for a linear trend (which, for discrete data, can be alternatively considered as a step function with equal rises and unit treads). We compare the structure obtained with that for a random walk, and those for a subset of other ARIMA(p, 1,q) models, and those of general ARIMA(p, d, q) processes withd>1.     

Utility and economics

Summary Although utility has been the central concept in economics, economists have paid relatively little attention to its measurement. Generally, utility is measured indirectly via the revealed preference approach. We discuss problems with this approach and next introduce alternative direct measurement methods. The direct measurement methods are seen to spawn a so-called theory of preference formation, which explains differences in utility functions of different individuals. The similarities of this theory with related theories in sociology and psychology, and various sorts of empirical evidence, are reviewed. The paper concludes with a discussion of the implications of these findings for economic theories.This is a slightly adapted version of my inaugural address at Tilburg University. I thank Tom Wansbeek for his helpful comments.     

Agency in a market setting

This paper examines a market in which a continuum of principals and agents interact in a game. Principals offer contracts while agents decide on sets of acceptable contracts. A mechanism from a class satisfying efficiency, unbiasedness, and continuity properties then matches principals and agents. With risk neutral agents, when the contribution of principals and agents to the total gains from trade in a pairing are additively separable, the equilibria of the game coincide with the competitive equilibria for the market. In particular, all contracts used in Nash equilibrium induce first-best effort levels. Both principals and agents have exogenous opportunities outside this market. In equilibrium, agents have endogenously determined outside opportunities available from employment by another principal, and this may be the binding participation constraint in a principal-agent pairing. The results are extended to special non-separable cases and to the case of identical risk averse agents.We are grateful to seminar participants at Indiana University, the University of Kentucky, and Vanderbilt University for comments on earlier versions of this work. Referees' comments led us to generalize the model and to more clearly specify the point of the paper.     

The transactions trust demand for money

An exchange economy using gold as a means of payment is considered where it is possible to borrow gold in a money market. A positive money rate of interest is encountered as the shadow price of the capacity constraint in an economy without enough gold. The meaning of enough gold and the role of the default penalty are noted in the determination of the interest rate.Revised from Enough Gold in a Society Without and With Moneylenders, CFDP No. 753. The author gratefully acknowledges the support of the Aequus Institute.     

Alternate approach to unify CAPM and APT

We utilize the joint elliptical distribution to model a multi-factor return generating process and derive an equilibrium multi-beta capital asset pricing model (CAPM) in which the market portfolio and a set of nonelliptical factors are sufficient to price all financial assets. Most important, it is shown that the market portfolio, while generally nonelliptical, can proxy all elliptical factors and hence: including elliptical factors in addition to the market portfolio in the pricing equation contribute nothing to asset pricing. While the representative investor prices the exposure of aggregate wealth to various nonelliptical systematic risk factors, individual securities are priced in accordance to their contributions to different aspects of the risk of aggregate wealth. The present model collapses to the Sharpe-Lintner CAPM when either the market investor is neutral to nonelliptical risk factors or when all risk factors follow a joint spherical distribution. When residuals cancel out of the market portfolio, the present model collapses to Conner (1984) pricing model.     

Developing new business-to-business professional services: What factors impact performance?

Business-to-business professional services has been a high growth area for over a decade. Increasing complexity and high technology characterizes this sector, making new product development both essential and risky for firms. Surprisingly little research has been done to understand the industrial professional services sector and, in particular, to discover what factors lead to new product success or failure, however. This article reports the results of an investigation that examines how professional services firms develop new products and what factors impact the performance of these ventures.