In-transit perishable product inspection

We determine the value of monitoring perishable freight in-transit for a single vehicle traveling from an origin to a destination. We develop a computationally practical approach for determining the optimal expected cost function and an optimal policy, based on an infinite horizon partially observed Markov decision process model. Structural properties of the optimal expected cost function and optimal policy are determined. These results can lend insight when deciding whether to acquire the capacity to monitor freight status in transit and what actions to take, based on the data from the in-transit monitoring, that optimally increase expected supply chain productivity.     

Reliable evacuation planning via demand inflation and supply deflation

This paper presents an evacuation route planning model that both accounts for demand uncertainty (i.e. the number of evacuees) as well as capacity uncertainty (i.e. the road capacities). To ensure reliability, the model plans for more evacuees (i.e. demand inflation) and less road capacity (i.e. supply deflation). A major contribution is that we provide a framework to determine the amount of demand inflation/supply deflation necessary to ensure a user-specified reliability level. The model is shown to be a natural generalization of previously proposed evacuation models. A small numerical case study reveals the key characteristics of the model.     

Are Unrealistic Assumptions/Simplifications Acceptable? Some Methodological Issues in Economics

Are unrealistic assumptions acceptable? If results are not changed in a misleading way, they are acceptable. The same assumption may be acceptable in one context and not in another. Assuming identical pairs of individuals in the parity and limit theorems in general equilibrium theory is acceptable as results are not changed substantially. The alleged equivalence of the first‐price and second‐price auctions is based on misleading assumptions; Coase's case against taxing pollution is based on a misleading all‐or‐nothing comparison. The contrasting results (neutrality versus non‐neutrality of money) of perfect versus imperfect competition in macroeconomics with important real‐world policy relevance are also used to illustrate the point.     

Can Trade Agreements Curtail Trade Creation and Prevent Trade Diversion?

This paper investigates how pre‐existing preferential trade agreements (PTAs) dilute the trade creation effect and shield the trade diversion effect of new PTAs. Countries having pre‐existing PTAs enjoy smaller gains in intra‐bloc trade because of the dilution effect and experience smaller losses or even gains in extra‐bloc trade because of the shielding effect. The findings support the proposition that PTAs could be used to fend off future trade diversion.     

What Caused the Korean Currency Crisis in 1997?*: Weak Fundamentals or Self‐fulfilling Expectations*

The present paper investigates which factor is primarily responsible for the sharp depreciation of the Korean won against the US dollar in 1997, using a bivariate vector autoregressive model of real and nominal exchange rates. In the present study, we directly identify the relative importance of fundamental and non‐fundamental factors from the raw data series on exchange rates. This approach is different from most previous studies on the Korean currency crisis, which use proxy variables to represent the two factors. The empirical results show that the collapse of the Korean currency in 1997 appears to be mostly a result of the weakened macroeconomic fundamentals of the economy with, to a limited extent, some non‐fundamental factors.     

Dynamic specification of demand functions: A cointegration approach

The single-equation approach has been commonly used in the studies of energy demand. However, as most of the data used in the energy demand model are unlikely to be stationary, this factor has to be taken into account when estimating the demand behavior. To overcome this problem, the authors have applied the cointegration and error-correction models to model Chinese coal consumption data. In order to contrast their performance with such traditional models as Hendry's general-to-specific approach, a forecast error comparison exercise has been conducted. In terms ofex post forecast errors, the Engle-Granger error correction model outperforms other chosen models. By using the Engle-Granger approach, it is possible to obtain important information about the behavior of coal demand in China.     

Welfare effects of insurance contract non-performance

Non-performance lies at the heart of much of the regulation that insurance companies face. Consumers’ concerns about non-performance of the insurance provider have also been cited as a possible explanation for low demand of microinsurance. We provide a behavioral evaluation of the welfare effects of non-performance risk. We test the hypothesis that the presence of non-performance risk negatively impacts not just take-up of insurance but more importantly the welfare of the insured. We also test if violations of the reduction of compound lotteries axiom could drive this decrease in take-up and welfare. The results show that the compound risk characteristic of non-performance risk does not significantly decrease the welfare of insurance choices made by individuals. This counter-intuitive result is sensitive to the structural modeling of risk preferences. If one assumes the reduction of compound lotteries axiom does characterize behavior towards risk, one finds evidence that non-performance risk reduces welfare for the insured. But if one correctly allows for violations in that axiom in the representation of risk preferences, which is appropriate if one is going to test for the effect of compound risk from non-performance, then the counter-intuitive result is obtained. Take-up is not a reliable proxy for welfare, and the behavioral drivers of take-up are again not the same drivers of welfare. These results provide structural behavioral insight to inform normative policy design with respect to insurance regulation.     

The value of stock analysts' recommendations: Evidence from emerging markets

This is the first study to empirically examine post-recommendation buy and hold abnormal returns in emerging markets. By analyzing a sample of 13 emerging countries over the decade from 1996 to 2005, we find that stock prices react strongly to stock analyst recommendations and revisions. We also find that there is a stronger positive bias in analyst recommendations and revisions in emerging markets compared with that in developed markets. In our cross-sectional analysis, we find that the Market-to-Book ratio is the primary indicator for Buy and Strong Buy recommendation regressions. This indicates that stock analysts in emerging markets prefer high growth stocks with attractive characteristics.