Fatigue in Dynamic Tournaments

Employee overwork and fatigue are a concern of managers in many organizations, as they may increase health and safety risks and decrease productivity. The problem is especially severe in competitive environments, where compensation and promotions are awarded, explicitly or implicitly, on the basis of relative performance. We propose a theory for, and study experimentally, the phenomenon of fatigue in a dynamic competitive environment. We find that subjects react strongly to changes in the environment related to fatigue and follow the comparative statics of equilibrium predictions. At the same time, within a given environment, subjects behave as if they are unaware of the deteriorating effect of fatigue on their competitiveness.     

Attitudes and Preferences of Kosovar Consumer Segments Toward Quality Attributes of Milk and Dairy Products

ABSTRACT

The dairy market is one of the fastest growing agri-food sectors in Kosovo, yet the farm structure is fragmented. The level of productivity is lower compared with European Union levels and shows potential for improvements. The consumption of dairy products is expected to rise due to income growth and segmentation of consumers that would reflect different preferences for low-fat or zero-fat products, products with natural additives, and so on. On the market level, a significant share of the consumed milk and dairy products is imported. This study aims to better understand attitudes and preferences of Kosovar consumer segments toward milk and dairy products. A quantitative survey with 300 consumers was conducted in major Kosovo cities. Applying a reduced version of the Food Related Lifestyle instrument identified three distinct consumer segments: the conservative consumer segment, the socially oriented foodie, and the information-seeking eco-consumer. The latter two segments are especially open to trying new food products and actively search information about food. All three consumer segments show strong consumer patriotism by believing that domestic milk and cheese are safer than imported products and are of higher quality. This indicates the strong market potential for dairy farmers and companies in the Kosovo, which should develop new food products having these segments in mind. The authors explore the strategies that farmers and companies should use to better target these consumer groups and gain greater access to desirable segments.     

Estimating Consumption Responses to Income Shocks of Different Persistence Using Self‐Reported Income Measures

Models of intertemporal consumption choice posit that consumption reacts more strongly to income shocks with persistent effects than to shocks with temporary effects. This prediction is tested using data from the Estonian Household Budget Surveys for 2002–07. Questions in the survey make it possible to distinguish between two income components of different persistence, using the individual households’ subjective income classification. Estimations confirm that households distinguish income components of different persistence and react to these differently; the consumption response to income shocks with persistent effects is significantly higher than the response to shocks with only temporary effects. Further analysis reveals, however, that consumption also reacts to lagged shocks to temporary income even when the households are not liquidity constrained, suggesting that their behavior is not fully consistent with the standard forward‐looking unconstrained consumption models.     

Difference in interim performance and risk taking with short-sale constraints

Absent much theory, empirical works often rely on the following informal reasoning when looking for evidence of a mutual fund tournament: If there is a tournament, interim winners have incentives to decrease their portfolio volatility as they attempt to protect their lead, while interim losers are expected to increase their volatility so as to catch up with winners. We consider a rational model of a mutual fund tournament in the presence of short-sale constraints and find the opposite: Interim winners choose more volatile portfolios in equilibrium than interim losers. Several empirical works present evidence consistent with our model. However, based on the above informal argument, they appear to conclude against the tournament behavior. We argue that this conclusion is unwarranted. We also demonstrate that tournament incentives lead to differences in interim performance for otherwise identical managers and that mid-year trading volume is inversely related to mid-year stock return.     

Debt, bargaining, and credibility in firm–supplier relationships

We examine optimal leverage for a downstream firm relying on implicit (self-enforcing) contracts with a supplier. Performing a leveraged recapitalization prior to bargaining increases the firm's share of total surplus. However, the resulting debt overhang limits the range of credible bonuses, resulting in low input quality. Optimal financial structure trades off bargaining benefits of debt with inefficiency resulting from overhang. Consistent with empirical evidence, the model predicts that leverage increases with supplier bargaining power (e.g., unionization rates) and decreases with utilization of non-verifiable inputs (e.g., human capital).     

Inspiration vs. perspiration in economic development of the Former Soviet Union and China (ca. 1920–2010)

Here, we discuss the role of both perspiration factors (physical and human capital) and inspiration factors (Total Factor Productivity) in the economic development of the Former Soviet Union area (FSU) and China, ca. 1920–2010. Using a newly created dataset, we find that during the Socialist central‐planning period, economic growth in both countries was largely driven by physical capital accumulation. This finding follows logically from the development policies in place at that time. During their transition periods, (i.e., starting from the late 1970s in China and the late 1980s in the FSU), China managed to keep technical inefficiency of production factors in check, largely by massively increasing its human capital, thereby lowering the physical‐to‐human capital ratio. In contrast, the FSU accomplished a similar outcome largely through reducing its stock of physical capital. As a result, although there was little difference in technical efficiency between these two economies, China's emphasis on human capital formation made it easier for this country to improve its general productivity and to increase per capita growth. This changed in the late 1990s and early 2000s, when the FSU began to recover economically, regaining its 1990 levels of output and productivity.     

Geographically explicit global modeling of land-use change, carbon sequestration, and biomass supply

This study aims to determine whether carbon sequestration policies could present a significant contribution to the global portfolio of climate change mitigation options. The objective is to model the effects of policies designed to induce landowners to change land use and management patterns with a view to sequester carbon or to reduce deforestation. The approach uses the spatially explicit Dynamic Integrated Model of Forestry and Alternative Land Use (DIMA) to quantify the economic potential of global forests. The model chooses which of the land-use processes (afforestation, reforestation, deforestation, or conservation and management options) would be applied in a specific location, based on land prices, cost of forest production and harvesting, site productivity, population density, and estimates of economic growth. The approach is relevant in that it (1) couples a revised and updated version of the Special Report on Emissions Scenarios with the dynamic development of climate policy implications through integration with the Model for Energy Supply Strategy Alternatives and their General Environmental Impact (MESSAGE); (2) is spatially explicit on a 0.5° grid; and (3) is constrained by guaranteeing food security and land for urban development. As outputs, DIMA produces 100-year forecasts of land-use change, carbon sequestration, impacts of carbon incentives (e.g., avoided deforestation), biomass for bioenergy, and climate policy impacts. The modeling results indicate that carbon sequestration policies could contribute to a significant part of the global portfolio of efficient climate mitigation policies, dependent upon carbon prices.     

Forecasting stock market returns over multiple time horizons

In this paper, we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic, agent-based market model developed in Gusev et al. [Algo. Finance, 2015, 4, 5–51]. This heterogeneous framework enables us to capture dynamics at multiple timescales, expanding the model’s applications and improving precision. We study the heterogeneous model theoretically and empirically to highlight essential mechanisms underlying certain market behaviours, such as transitions between bull and bear markets and the self-similar behaviour of price changes. Most importantly, we apply this model to show that the stock market is nearly efficient on intraday timescales, adjusting quickly to incoming news, but becomes inefficient on longer timescales, where news may have a long-lasting nonlinear impact on dynamics, attributable to a feedback mechanism acting over these horizons. Then, using the model, we design algorithmic strategies that utilize news flow, quantified and measured, as the only input to trade on market return forecasts over multiple horizons, from days to months. The backtested results suggest that the return is predictable to the extent that successful trading strategies can be constructed to harness this predictability.     

Numerical solution of dynamic oligopoly games with capital investment

Summary. This paper discusses how numerical techniques may be used to solve the simultaneous functional equations that arise in general dynamic stochastic games. Unlike the conventional linear-quadratic approach, our methods may be used to address general model specifications that may include non-quadratic objective functions, non-linear equations of motion, and constraints on decision variables. As an illustration, we apply our methods to a dynamic duopoly game in which competing firms play short-run quantity game subject to production cost that can be lowered through investment in capital stock in the long run. Received: June 1, 2000; revised version: December 27, 2000     

Smooth monotone covariance for elliptical distributions and applications in finance

Sample covariance is known to be a poor estimate when the data are scarce compared with the dimension. To reduce the estimation error, various structures are usually imposed on the covariance such as low-rank plus diagonal (factor models), banded models and sparse inverse covariances. We investigate a different non-parametric regularization method which assumes that the covariance is monotone and smooth. We study the smooth monotone covariance by analysing its performance in reducing various statistical distances and improving optimal portfolio selection. We also extend its use in non-Gaussian cases by incorporating various robust covariance estimates for elliptical distributions. Finally, we provide two empirical examples using Eurodollar futures and corporate bonds where the smooth monotone covariance improves the out-of-sample covariance prediction and portfolio optimization.