Representative consumer's risk aversion and efficient risk-sharing rules

We study the representative consumer's risk attitude and efficient risk-sharing rules in a single-period, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual consumer's individual risk sharing rule and his absolute cautiousness, the first derivative of absolute risk-tolerance. Furthermore, we discuss some consequences of these results and refinements of these results for the class of HARA utility functions.     

A new family-community social structure

The purpose of this paper is to examine whether a new family-community social structure of accumulation (FSSA) has emerged in the Unites States to contribute to long-wave growth and development through the early decades of the 21st century. Institutions that promote system-functions or public goods are required for sustainable growth and development. Three dimensions of the potential FSSA institutions are examined in this paper, within the context of the systemic circuit of social capital: (a) stability within families, (b) trust and association in the community, and (c) the degree of relative equality. Overall, the findings are that a new FSSA does not currently operate in the US because the emerging family type is not promoting sufficient stability, trust has diminished to low levels, and structural inequality has continued to rise. These factors have negatively impacted long-term economic performance through several transmission mechanisms, which are analyzed in the paper.     

Promotion Tournaments and Individual Performance Pay

We analyze the optimal combination of promotion tournaments and linear individual performance pay in an employment relationship. An agent's effort is nonobservable and he has private information about his suitability for promotion. Thus, the two incentive schemes need to be combined to serve both incentive and selection purposes. If harder working agents respond less to intensified effort incentives, we find that the principal puts less emphasis on individual performance pay when selection becomes more important. Thus, we provide a possible explanation as to why, in practice, individual performance pay is less prevalent than promotion‐based incentives.     

Carbon efficiency of US colleges and universities: a nonparametric assessment

Under the American College and University Presidents’ Climate Commitment (ACUPCC), institutes of higher education have pledged to pursue a goal of carbon neutrality. We utilize emissions reported under the ACUPCC agreement and a nonparametric data envelopment analysis approach in order to evaluate the relative performance of signatories to the agreement in terms of producing teaching and research with the least greenhouse gas emissions. We find that while many signatory institutions are now producing their desirable outputs relatively efficiently in terms of carbon emissions, there still exists considerable variation in efficiency and potential for improvement. Results of a second stage efficiency change analysis shows evidence of both movement towards the efficiency frontier since signing, and some movement of the frontier itself, though this evidence comes primarily from teaching-focused institutions.     

Complete monotonicity of the representative consumer’s discount factor

A univariate real-valued function is said to be completely monotone if it takes positive values and alternate the signs of its higher order derivatives, starting from everywhere negative first derivatives. We prove that the representative consumer’s discount factor of a continuous-time economy under uncertainty is a power function of some completely monotone function of time satisfying certain boundary conditions if and only if it may be derived from a group of consumers having constant and equal relative risk aversion, and constant and yet possibly unequal discount rates.     

Effects of background risks on cautiousness with an application to a portfolio choice problem

We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.     

Empirical identification of perceived congestion

This paper investigates the empirical identification of perceived congestion and mitigating behavior using observational data. Congestion effects are identified using a procedure based upon a nonlinear function of the choice attributes combined with an equilibrium condition on the sorting behavior of participants. Results suggest that congestion effects can be identified, under certain assumptions, using only revealed preference data, and that ignoring these effects underestimates the strength of preferences for other attributes. The model is applied to data on rock climbers, and the resulting estimates used to simulate the reopening of a currently closed section of a popular NY rock-climbing area and the re-sorting of climbers that would result.     

Liquidity and valuation in an uncertain world

During the 2007–2009 financial crisis there was little or no trading in a variety of financial assets, even though bid and ask prices existed for many of these assets. We develop a model in which this illiquidity arises from uncertainty, and we argue that this new form of illiquidity makes bid and ask prices unsuitable as metrics for establishing “fair value” for these assets. We show how the extreme uncertainty that traders face can be characterized by incomplete preferences over portfolios, and we use Bewley's (2002) model of decision making under uncertainty to derive equilibrium quotes and the nonexistence of trading at these quotes. We then suggest alternatives for valuing assets in illiquid markets.