Market clearing and derivative pricing

Summary. We develop a method of assigning unique prices to derivative securities, including options, in the continuous-time finance model developed in Raimondo (2001). In contrast with the martingale method of valuing options, which cannot distinguish among infinitely many possible option pricing processes for a given underlying securities price process when markets are dynamically incomplete, our option prices are uniquely determined in equilibrium in closed form as a function of the underlying economic data.Received: 14 April 2003, Revised: 7 January 2004, JEL Classification Numbers: G13, D52.This paper is dedicated to Birgit Grodal, whose strength and character we greatly admire. We are very grateful to Darrell Duffie, Steve Evans, Botond Koszegi, Roger Purves, Jacob Sagi, Chris Shannon, Bill Zame and an anonymous refereee for very helpful discussions and comments. The work of both authors was supported by Grant SES-9710424, and Andersons work was supported by Grant SES-0214164, from the National Science Foundation.     

Assessing Preference Change on the US Supreme Court

The foundation upon which accounts of policy-motivated behaviorof Supreme Court justices are built consists of assumptionsabout the policy preferences of the justices. To date, mostscholars have assumed that the policy positions of Supreme Courtjustices remain consistent throughout the course of their careersand most measures of judicial ideology—such as Segal andCover scores—are time invariant. On its face, this assumptionis reasonable; Supreme Court justices serve with life tenureand are typically appointed after serving in other politicalor judicial roles. However, it is also possible that the worldviews,and thus the policy positions, of justices evolve through thecourse of their careers. In this article we use a Bayesian dynamicideal point model to investigate preference change on the USSupreme Court. The model allows for justices' ideal points tochange over time in a smooth fashion. We focus our attentionon the 16 justices who served for 10 or more terms and completedtheir service between the 1937 and 2003 terms. The results arestriking—14 of these 16 justices exhibit significant preferencechange. This has profound implications for the use of time-invariantpreference measures in applied work.     

Children's crusade

There's at least $16 billion available to help more children get health care. But on Capitol Hill, there's a bitter dispute over how the money should be spent. Give the states the money, some say, and let them bolster novel health care programs such as Florida's Healthy Kids. Others want to expand Medicaid.     

The importance of measuring patient satisfaction

Managed care has demonstrated its ability to contain costs. Its emergence as a dominant factor in the health care marketplace has raised concerns about measuring health care quality. As the field of quality assurance is evolving, it is becoming clearer that patient satisfaction surveys should be an integral component of assessing care.     

Public choice interpretations of distributional preference

This essay examines, from the perspective of both economics and ethics, the logical foundations of income transfers in a democratic society that allocates resources, in the large, through free markets. Such transfers, enacted through the public choice process, modify the market-determined distribution of income, as a reflection of the distributional preferences of the members of a society. Both constitutional and post-constitutional explanations of redistributions are considered. A discussion of recent experimental evidence of distributional preferences leads into a critique of simple equality, built on Michael Walzer's distinction between monopoly and dominance, as a criterion of distributive justice.     

The maintenance, funding and modification of retiree medical benefits

Retiree medical benefits are an ever-growing concern as costs escalate and the date for implementation of Statement of Financial Accounting Standards No. 106 approaches. These authors summarize case law relevant to employers' right to modify or terminate benefits and discuss methods of funding theses liabilities.     

Strategic Firm Behavior Under Average-Revenue-Lagged Regulation

Price caps have been shown to have incentive properties superior to traditional rate of return regulation. Average-revenue-lagged regulation (ARL) is attractive in that steady-state prices are known to be efficient. We show that the ARL scheme can be manipulated by the firm so as to yield the unregulated global profit maximum. While tests exist that can provide the regulator with evidence of this strategic behavior, we also demonstrate that the unregulated global profit maximum will not be attainable if Laspeyres (L) regulation is employed.Jel classification: L43, L51I would like to thank Michael Crew and an anonymous referee for their extremely helpful suggestions.