ELECTRICITY CONSERVATION: CONSUMER RATIONALITY VERSUS PROSPECT THEORY

Research supports the efficacy of prospect theory over utility maximization for consumer investment in electricity saving equipment. The findings have implications for designing electric utility programs to promote electricity conservation. Prospect theory describes, explains and organizes consumer behavior that is contrary to consumers maximizing a stable utility function. The results are similar across three ethnic groups.     

The Changing International Transmission of Financial Shocks: Evidence from a Classical Time‐Varying FAVAR

We study the changing international transmission of financial shocks over the period 1971–2012. Global financial shocks are measured as unexpected changes of a U.S. financial conditions index (FCI), developed by Hatzius et al. (2010). We model the FCI jointly with a large international data set through a time‐varying parameter factor‐augmented VAR and find that financial shocks have a considerable impact on growth in the nine countries considered. Moreover, financial shocks during the global financial crisis are found to be large by historical standards. They explain approximately 20% of GDP growth variation on average over 2008–9, compared to an average of 5% prior to the crisis.     

Make Trade Not War?

This paper analyses theoretically and empirically the relationship between military conflicts and trade. We show that the conventional wisdom that trade promotes peace is only partially true even in a model where trade is economically beneficial, military conflicts reduce trade, and leaders are rational. When war can occur because of the presence of asymmetric information, the probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict. We test our predictions on a large data set of military conflicts on the 1950–2000 period. Using different strategies to solve the endogeneity issues, including instrumental variables, we find robust evidence for the contrasting effects of bilateral and multilateral trade openness. For proximate countries, we find that trade has had a surprisingly large effect on their probability of military conflict.     

On the Frequency of Interior Cournot–Nash Equilibria in a Public Good Economy

In a public good economy the distribution of initial income is an important determinant of how many individuals contribute to the public good in Cournot–Nash equilibrium. In this paper, first a simple formula is derived that provides a measure for the size of the set of income distributions leading to an interior Cournot–Nash equilibrium in which all individuals contribute to the public good. Furthermore, we give an estimate for the frequency that all members of a certain subgroup of the population are contributors.     

U.S. DEPOSIT INSURANCE REFORM

Congress, late in 1991, enacted a banking reform measure that (i) authorizes $70 billion of additional FDIC funding, (ii) enhances bank regulation and supervision, and (Hi) adopts a "trip wire" system for increasingly severe regulation based on a bank's capital. Congress rejected a number of key elements of the Treasury proposal submitted early in 1991, such as interstate banking and expanded bank powers. The Congressional action does not end the debate over banking reform. In due time, other attempts likely will be made to restructure the banking system along the lines of the Treasury proposal.
The Treasury proposal's positive points failed to offset its fundamental problems. The Congressional action, though not subject to the Treasury proposal's problems, falls short of complete deposit insurance reform. Both proposals fail to recognize that regulatory oversight is a poor substitute for market discipline in the current financial environment.
This paper reviews problems with the financial reform process and failure of the Treasury proposal to recognize these problems. It also reviews alternative approaches to deposit insurance reform.     

REPLACING THE FOMC BY A PC

Recent behavior of velocity suggests that a stable monetary growth rate rule could have dangerous consequences. Hence this paper suggests a compromise–adjusting the money growth rate only in accordance with past changes in velocity. This preserves most of the benefits of a stable monetary growth rate rule.     

Acquisition of Consumption Stereotypes by Children

While the consumer socialization of children includes securing an understanding of economic rationality, it also includes learning the symbolic meanings attached by society to consumer goods. Using photographs of cars and houses, this research examined the developing recognition of consumption stereotypes by children varying in age, gender and social class. Both the strength and content of consumption stereotypes were considered. Highly consistent age differences were found, but the data revealed few gender and social class differences.     

Mandating Behavioral or Technological Change: The Case of Auto Safety

Implementing social regulation can entail the choice between changing technology and changing the behavior of individual consumers and workers. A current example of this choice is whether to mandate passive restraint devices in new cars or to require motorists by law to use seat belts. This paper develops and tests a model for predicting individual choice between those two automobile safety policies. The study's implications for auto safety and other types of social regulation are discussed.