Monetary integration between the Israeli,Jordanian and Palestinian economies

Monetary Integration between the Israeli, Jordanian and Palestinian Economies. —The peace process between Israel and the Palestinians raises some interesting economic questions concerning integration between the West Bank, Gaza and Israel. Past and current arrangements between Israel, the occupied territories and Jordan are described, especially the flows of goods and labour. The authors’ findings indicate that Israel, the West Bank and Gaza were closely integrated, whereas economic integration between the occupied territories and Jordan was much weaker. Based on these circumstances of the past, the (imposed) monetary union between Israel and the Palestinian economy was warranted. However, optimal monetary arrangements in the future will depend on the extent of changes in real flows and on a satisfactory settlement of the seigniorage issue.     

Gross substitutability of point-to-set correspondences

In this paper the notion of gross substitutability for the multi-valued case is studied. It is proved that, if in a pure exchange equilibrium model gross substitutability and some auxiliary conditions prevail, then (a) the set of equilibria is a Cartesian product of a convex set of equilibrium resource allocations and a convex cone of equilibrium prices; hence all equilibria are equiadvantageous for every trader; (b) the weak axiom of revealed preference holds in any equilibrium; (c) any equilibrium is stable with respect to reallocations of initial resources. Some situations in which Walras' law does not hold are considered as well.     

Facing a Biased Adviser While Choosing a Retirement Plan: The Impact of Financial Literacy and Fair Disclosure

Buying a retirement saving plan in Israel involves meeting with an agent whose interests may differ from those of his or her customers. The aim of the present study was to explore the effect of the advice given by the agent, along with that of two further factors: a fair disclosure statement regarding the agent's conflict of interest, and the customer's degree of financial literacy. Two experiments conducted among undergraduate students in Israel showed that customers mostly follow the agent's recommendation, even against their best interest, and despite the presence of a fair disclosure statement. Only participants with high financial literacy, who received a disclosure statement, did examine the alternatives closely and rejected the advice when the recommendation was damaging. We also ruled out the existence of a negative psychological reactance response to a disclosure statement that would work to the detriment of financially literate participants.     

Adverse selection and the market for annuities

Adverse selection is often blamed for the malfunctioning of the annuities market. We simulate the impact of adverse selection on the consumption allocation of annuitants under alternative parameter values, and explore the resulting welfare implications. We show that, for most parameter values, the welfare losses associated with equilibriums that are subject to adverse selection correspond to a loss of wealth of around one percent in a first-best equilibrium. These losses are smaller than the corresponding losses associated with equilibriums with no access to an annuity market by an order of magnitude of ten. The existence of substitutes for annuities such as a bequest motive or a social security system intensifies the adverse selection but reduces its welfare impact.

An analysis of risky financial decisions

A problem of financing uncertain cost of a project is investigated. The paper analyses the allocation and the loss due to the cost uncertainty. Different formulations of the problem are suggested and compared: expected profits, chance constraint maximization and a utility approach. It is shown that even a risk-neutral manager is willing to pay a premium to reduce uncertainty. The two approaches to risk, chance constraint versus concave utility, are shown to be non-equivalent.     

First-order risk aversion and non-differentiability

Summary First-order risk aversion happens when the risk premium a decision maker is willing to pay to avoid the lottery , is proportional, for smallt, tot. Equivalently, 0$$ " align="middle" border="0"> . We show that first-order risk aversion is equivalent to a certain non-differentiability of some of the local utility functions (Machina [7]).We are grateful to the Social Sciences and Humanities Research Council of Canada for financial support and to Kim Border, Larry Epstein, Mark Machina and Joe Ostroy for helpful discussions and suggestions.