A Turnpike Theorem in the Closed Dynamic Leontief Model with a Singular Matrix of Capital Coefficients

The paper refers to the well-known Tsukui turnpike theorem on convergence of optimal growth trajectories in the closed dynamic Leontief model to the maximum balanced growth trajectory, called turnpike. In the original proof of this theorem, the assumption that the matrix B of capital coefficients is non-singular plays an essential role. For many reasons this assumption, very convenient for theoretical analysis, is not always satisfied in input-output systems built for empirical purposes. This paper fills the gap between theory and empirical studies, presenting a proof that convergence of optimal trajectories towards the turnpike is also a characteristic feature of the closed Leontief model in the case when matrix B is singular. The general idea of the proof is based on the approximation of a singular matrix B by an infinite sequence of non-singular matrices.     

Utilities bounded below

It is common to work with utilities which are not bounded below, but it seems hard to reconcile this with common sense; is the plight of a man who receives only one crumb of bread a day to eat really very much worse than the plight of a man who receives two? In this paper we study utilities which are bounded below, which necessitates novel modelling elements to prevent the question becoming trivial. What we propose is that an agent is subjected to random reviews of his finances. If he is reviewed and found to be bankrupt, then he is thrown into jail, and receives some large but finite negative value. In such a framework, we find optimal investment and consumption behaviour very different from the standard story. As the agent’s wealth goes negative, he gradually abandons hope of ever becoming honest again, and plunders as much as he can before being caught. Agents with very high wealth act like standard Merton investors.     

Alignment of Divergent Organizational Cultures in IT Public-Private Partnerships

The cooperation of public and private sector organizations is a viable option for decision makers in the public sector for improving information technology (IT) infrastructures, acquiring innovation, and increasing management know-how. Effective partnering in public-private partnerships (PPP) is difficult though, because the involved stakeholder groups have divergent interests and organizational cultures. Using institutional logics as meta-theoretical lens, this exploratory, interpretive case study analyzes an IT PPP in Germany. The results reveal public- and private-side organizational culture differences and how the partners aligned their cultural differences by the development and legitimization of a partnership norm as well as the necessary partnership practices. The case analysis also illustrates how public sector and private sector organizations succeeded with the transition of public sector and private sector employees into a partnership organization and the management of different organizational cultures.     

Risk aversion under preference uncertainty

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this result for optimal asset allocation: poor agents that are uncertain about their risk aversion parameter invest less in risky assets than wealthy investors with identical risk aversion uncertainty.     

Doing good deeds in times of need: a strategic perspective on corporate disaster donations

Major corporations often respond charitably in times of disaster. However, disasters can also impose nontrivial costs on firms themselves, and under adverse conditions, firms typically donate less, not more. This paper takes a strategic perspective on corporate magnanimity in times of crisis by looking at the relationship between firm value, reputation, and donations by U.S. Fortune 500 firms in the case of Hurricane Katrina. In general, we find that Katrina's landfall was associated with significant negative abnormal stock returns. In particular, we find that a reputation for social irresponsibility was associated with both the greatest drop in stock prices and the greatest likelihood of making a subsequent charitable donation in response to the disaster. Copyright © 2011 John Wiley & Sons, Ltd.     

Central Bank Communication and Financial Market Comovements in the Euro Area

Open Economies Review - We examine whether unscheduled communication of members of the European Central Bank’s (ECB) Governing Council affects financial market comovements. To assess...     

Loss leading with salient thinkers

In various countries, competition laws restrict retailers' freedom to sell their products below cost. A common rationale, shared by policymakers, consumer interest groups and brand manufacturers alike, is that such “loss leading” of products would ultimately lead to a race-to-the-bottom in product quality. Building on Varian's (1980) model of sales, we provide a foundation for this critique, though only when consumers are salient thinkers, putting too much weight on certain product attributes. But we also show how a prohibition of loss leading can backfire, as it may make it even less attractive for retailers to stock high-quality products, decreasing both aggregate welfare and consumer surplus.