Comparing Open-loop With Markov Equilibria in a Class of Differential Games

We consider a class of differential games with transition equations that are homogeneous of degree one. For any game G with a discount rate r , consider a Markov-perfect equilibrium (MPE) with strategies that are linear in the state variables. We show that the time paths of the control variables of this equilibrium constitute an open-loop equilibrium of a corresponding game G , which differs from G only in that its rate of discount r is equal to r plus a suitably chosen constant. In the context of a resource depletion game, this implies that the open-loop solution is more conservationist.
JEL Classification Nos.: C72, C73, Q30.     

The impact of innovation on export behavior： An empirical analysis of Lao garment firms

Research on the role of innovation as important factor for creating and maintaining competitiveness of nations and firms has long been popularized among scholars and policy makers. The impact of innovation on exporting has been investigated in many countries. However, this issue has paucity of research in the Lao PDR. This study empirically investigates whether or not innovation performed by Lao garment firms determines their exporting behaviors. Utilizing the Probit and Tobit regression to analyze the data from the recent survey of industrial cluster development of Lao garment industry in 2007, the empirical results show that innovation as measured directly by “new product” and “new production process” have positive impact not only on export probability but also export intensity in the case of Lao garment firms. This implies that Lao garment finns who become the innovators have high probability to be exporters. Moreover, among exporters who are innovators outperform non-innovators in terms of export intensity. In addition, this study also finds that Lao garment exporters enjoy more competitive advantage due to lower labor cost. The findings from this study have important policy implications regarding how the government can support Lao garment firms to be innovators in order to sustain export performance.     

Dynamic Fund Protection

Abstract

Dynamic fund protection provides an investor with a floor level of protection during the investment period. This feature generalizes the concept of a put option, which provides only a floor value at a particular time. The dynamic protection feature ensures that the fund value is upgraded if it ever falls below a certain threshold level. Gerber and Pafumi (2000) have recently derived a closed-form expression for the price of this protection when the basic portfolio follows geometric Brownian motion. In this paper we examine the pricing of this feature under the constant elasticity of variance process. Two approaches are used to obtain numerical results. First, we show how to extend the basic Monte Carlo approach to handle the particular features of dynamic protection. When a discrete-time simulation approach is used to value a derivative that is subject to continuous monitoring, there is a bias. We show how to remove this bias. Second, a partial differential equation approach is used to price dynamic protection. We demonstrate that the price of the dynamic protection is sensitive to the investment assumptions. We also discuss a discrete time modification of the dynamic protection feature that is suitable for practical implementation. The paper deals just with pricing and does not consider the important question of reserving for these contracts.     

Evaluation of sludge properties in a pilot-scale UASB reactor for sewage treatment in a temperate region

In this study, continuous operation of a pilot-scale upflow anaerobic sludge blanket (UASB) reactor for sewage treatment was conducted for 630 days to investigate the physical and microbial characteristics of the retained sludge. The UASB reactor with a working volume of 20.2 m(3) was operated at ambient temperature (16-29 °C) and seeded with digested sludge. After 180 days of operation, when the sewage temperature had dropped to 20 °C or lower, the removal efficiency of both total suspended solids (TSS) and total biochemical oxygen demand (BOD) deteriorated due to washout of retained sludge. At low temperature, the cellulose concentration of the UASB sludge increased owing to the rate limitation of the hydrolytic reaction of suspended solids in the sewage. However, after an improvement in sludge retention (settleability and concentration) in the UASB reactor, the process performance stabilized and gave sufficient results (68% of TSS removal, 75% of total BOD removal) at an hydraulic retention time (HRT) of 9.7 h. The methanogenic activity of the retained sludge significantly increased after day 246 due to the accumulation of Methanosaeta and Methanobacterium following the improvement in sludge retention in the UASB reactor. Acid-forming bacteria from phylum Bacteroidetes were detected at high frequency; thus, these bacteria may have an important role in suspended solids degradation.     

Hospital use behaviors and associated costs in a health insurance organization, Japan

Physicians are known to play an important role in the rise of health care costs. But patients--the other side of the chain of health care systems--have been given little attention. The present study utilized the outpatient claims (in the belief that the outpatient hospital visits are mainly decided by the patients) from a health insurance organization in Japan (the Fukuoka Prefecture public service mutual aid association for government employees who serve in small cities, towns, and villages) to analyze the employee behaviors in the use of hospital care and the costs associated with these behaviors. Number of diseases diagnosed for an employee, number of claims an employee submitted for one disease, number of hospitals an employee visited, number of claims an employee had from one hospital, and the total number of claims an employee submitted were used to describe the hospital use behaviors. Results showed that some employees exhibited unusual behaviors, characterized by having an extremely large number of diseases diagnosed, visiting a large number of different hospitals, having a large number of claims, etc. Higher medical expenditures were associated with such behaviors. The findings of this study suggest that the patients' role in the rise of health care costs cannot be ignored, and cost-containment strategies targeting modification of patient behaviors in the use of hospital care may prove to be very useful.     

Evaluation of the impact of the tourism nation promotion project on inbound tourists in Japan: a difference-in-differences approach

This study quantitatively evaluates the impact of the Tourism Nation Promotion Project on tourism demand. Data were obtained from Japan Tourism Agency’s quarterly survey from 2010Q2 to 2015Q4. Cox and zero-truncated negative binomial models and difference-in-differences approach were applied to analyze tourism demand and the project’s impact on inbound tourists’ length of stay and expenditure in Japan. Empirical results showed a positive and significant average treatment effect on length of stay and expenditure for tourists from Australia, China, Russia, and Thailand. These findings indicate that the Japanese government should use differentiated strategies considering different nationalities’ characteristics to attract foreign tourists.     

A Factor Allocation Approach to Optimal Bond Portfolio

This paper proposes a new method to a bond portfolio problem in a multi-period setting. In particular, we apply a factor allocation approach to constructing the optimal bond portfolio in a class of multi-factor Gaussian yield curve models. In other words, we consider a bond portfolio problem in terms of a factors’ allocation problem. Thus, we can obtain clear interpretation about the relation between the change in the shape of a yield curve and dynamic optimal strategy, which is usually hard to be obtained due to high correlations among individual bonds. We first present a closed form solution of the optimal bond portfolio in a class of the multi-factor Gaussian term structure model. Then, we investigate the effects of various changes in the term structure on the optimal portfolio strategy through series of comparative statics.     

Agriculture and climate change in global scenarios: why don't the models agree

Agriculture is unique among economic sectors in the nature of impacts from climate change. The production activity that transforms inputs into agricultural outputs involves direct use of weather inputs (temperature, solar radiation available to the plant, and precipitation). Previous studies of the impacts of climate change on agriculture have reported substantial differences in outcomes such as prices, production, and trade arising from differences in model inputs and model specification. This article presents climate change results and underlying determinants from a model comparison exercise with 10 of the leading global economic models that include significant representation of agriculture. By harmonizing key drivers that include climate change effects, differences in model outcomes were reduced. The particular choice of climate change drivers for this comparison activity results in large and negative productivity effects. All models respond with higher prices. Producer behavior differs by model with some emphasizing area response and others yield response. Demand response is least important. The differences reflect both differences in model specification and perspectives on the future. The results from this study highlight the need to more fully compare the deep model parameters, to generate a call for a combination of econometric and validation studies to narrow the degree of uncertainty and variability in these parameters and to move to Monte Carlo type simulations to better map the contours of economic uncertainty.     

On the relationship between robustness to incomplete information and noise-independent selection in global games

This note demonstrates that a symmetric 3×3 supermodular game may fail to have any equilibrium robust to incomplete information. Since the global game solution in symmetric 3×3 supermodular games is known to be independent of the noise structure, this result implies that a noise-independent selection in global games may not be a robust equilibrium. Our proof reveals that the assumption in global games that the noise errors are independent of the state imposes a non-trivial restriction on incomplete information perturbations.