The measurement of conjectural variations in an oligopoly industry

Using independently derived estimates for the market demand elasticity and firm marginal cost, this paper measures the conjectural variations (cv's) of the eight largest U.S. steel firms for the years 1920 to 1972. Comparisons are then made between the measured cv's and those predicted by certain industry conduct hypotheses. Specifically the hypotheses are those for competitive behavior, Cournot behavior, imperfect collusion, and industry profit maximization (perfect collusion). One of the two extreme theories of firm behavior, industry profit maximization, is rejected, but the acceptance or rejection of the other theories depends on the assumptions made about the cost structure of the sample firms.     

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.     

Complete Models with Stochastic Volatility

The paper proposes an original class of models for the continuous-time price process of a financial security with nonconstant volatility. The idea is to define instantaneous volatility in terms of exponentially weighted moments of historic log-price. The instantaneous volatility is therefore driven by the same stochastic factors as the price process, so that, unlike many other models of nonconstant volatility, it is not necessary to introduce additional sources of randomness. Thus the market is complete and there are unique, preference-independent options prices.
We find a partial differential equation for the price of a European call option. Smiles and skews are found in the resulting plots of implied volatility.     

Learning about the future: From the learner's perspective

The path for a hopeful future depends on learning, a process that is a complex symphony of human experience. It is a process that demands deep questioning and critique of our world-views. It is a process that requires that we open ourselves to and effectively cope with a myriad of emotions. It is a process that compels us to engage in soul-searching as we explore our human responsibilities and commitments, connect with the meaning and purpose of our very existence and choose paths of action based on those reflections. Learning to care for future generations and the world they will inherit is a unique and holistic process. Our ability to support this form of learning begins with an understanding of the human experience of learning, from the perspective of learners.     

Arbitrage with Fractional Brownian Motion

Fractional Brownian motion has been suggested as a model for the movement of log share prices which would allow long–range dependence between returns on different days. While this is true, it also allows arbitrage opportunities, which we demonstrate both indirectly and by constructing such an arbitrage. Nonetheless, it is possible by looking at a process similar to the fractional Brownian motion to model long–range dependence of returns while avoiding arbitrage.     

Monte Carlo valuation of American options

This paper introduces a dual way to price American options, based on simulating the paths of the option payoff, and of a judiciously chosen Lagrangian martingale. Taking the pathwise maximum of the payoff less the martingale provides an upper bound for the price of the option, and this bound is sharp for the optimal choice of Lagrangian martingale. As a first exploration of this method, four examples are investigated numerically; the accuracy achieved with even very simple choices of Lagrangian martingale is surprising. The method also leads naturally to candidate hedging policies for the option, and estimates of the risk involved in using them.     

The effects of tariff increases on supply base complexity: A conceptual framework

Recent protectionist trends around the world have raised interest in newly enforced or increased tariffs and their effects on global supply chains. For firms sourcing globally, tariff introductions or increases significantly affect importing costs, which ultimately affect product costs. Such tariff changes may incentivize firms to adjust their supply base to mitigate these cost increases, thus altering the structure and complexity of firms' supply bases. In this paper, we first characterize the U.S. tariff landscape from 1997 to 2017. We then develop a conceptual model to explain how the severity and timing uncertainty of expected tariff increases influence a firm's speed of adapting to the changing tariff environment. Specifically, we explore firms' propensity to form or delete ties to suppliers, which influences supply base complexity. Moreover, we consider factors that moderate the relationship between severity, timing uncertainty, and supply base complexity, including a tariff's geographical scope, a firm's relative purchase spend, and supply risk. Our conceptual model offers both research and managerial implications.     

Assessing Total Factor Productivity Growth in Sub‐Saharan African Agriculture

The importance of the agricultural sector in the economic development process is well known. Improvements in agricultural productivity are often found to spill into other areas of a developing economy, potentially improving the standards of living of urban and rural workers alike. Given the importance of this sector, accurate measures of total factor productivity (TFP) across countries can be helpful in identifying conditions, institutions or policies that promote agricultural development. In this article, we estimate TFP growth in agriculture for a panel of 39 sub‐Saharan African countries from 1961 to 2007. We also develop a set of development outcome measures theoretically consistent with strong agricultural performance to serve as external validation of our results. We find that three estimation methods (stochastic frontier, generalised maximum entropy, and Bayesian efficiency) generate relative rankings that are consistent with the development outcome measures, providing external validation of the methods. However, the data envelopment analysis approach performs poorly in this regard.     

Food Stamps and Food Spending: An Engel Function Approach

Estimation of Food Stamp Program (FSP) effects has been complicated by self-selection and by a contradiction between observed spending patterns and the economic theory of consumer choice. We developed a modified version of the traditional theory, in which participant households may be partly extramarginal even if they have some cash spending on at-home food. Using Current Population Survey (CPS) data for 2001–2005, we estimated Engel functions for at-home and away-from-home food spending for FSP participants and nonparticipants. Compared to nonparticipants with the same level of total income, participants had higher at-home food spending and lower away-from-home food spending.