Designing social security - a portfolio choice approach

Public social security systems may provide diversification of risks to individuals’ life-time income. Capturing that a pay-as-you-go system (paygo) may be considered as a “quasi-asset”, we study the optimal size of the paygo system as well as the optimal split between funded and unfunded pension saving by means of a theoretical portfolio choice framework. A low-yielding paygo system can benefit individuals if it contributes to hedge other risks to their lifetime resources. Numerical calculations indicate that optimal social security systems should be at least partly paygo financed in many economies. The optimal magnitude of the paygo system depends on the specified risk concept as well as the stochastic properties of stock market returns and implicit paygo-returns.     

Anomalies in green national accounting

We “extend” standard arguments for greening the product side of the national accounts to the income side of the accounts and turn up an anomaly. For an economy with oil use, no entry for oil income, a supposed primary factor, appears in the income side of the national accounts when the depletion of natural capital is accounted for on the product side of the accounts. We resolve this issue by applying an income definition developed in the theory of national accounting. This, however, leads to another anomaly on the income side of the national accounts.     

Procurement auctions with entry of bidders

In procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction. An optimal mechanism, therefore, entails distortions of effort (Laffont and Tirole, 1987). If potential suppliers must sink an entry investment before they can participate in the auction, then decreasing the firms' rent may imply reduced entry. We show that if potential bidders are uninformed before entry, commitment to a plain, nondistortive auction is optimal. In contrast, if potential bidders learn all their private information before entry, the optimal mechanism entails the same distortions as in Laffont and Tirole's static model.     

Characterizing the sustainability problem in an exhaustible resource model

We provide a general condition under which consumption can be sustained indefinitely bounded away from zero in the continuous time Dasgupta–Heal–Solow–Stiglitz model, by letting augmentable capital substitute for a non-renewable resource. The assumptions made on the production function are mild, thus generalizing previous work. By showing that Hartwick?s rule minimizes the required resource input per unit of capital accumulation, and integrating the required resource input with respect to capital, we obtain a complete technological characterization without reference to the time path. We also use the characterization result to establish general existence of a maximin path.     

Admissibility and common belief

The concept of ‘fully permissible sets’ is defined by an algorithm that eliminates strategy subsets. It is characterized as choice sets when there is common certain belief of the event that each player prefer one strategy to another if and only if the former weakly dominates the latter on the set of all opponent strategies or on the union of the choice sets that are deemed possible for the opponent. The concept refines the Dekel–Fudenberg procedure and captures aspects of forward induction.     

Do new factories embodypotential best practice technology?

Empirical Economics -     

Justifying social discounting: The rank-discounted utilitarian approach

The discounted utilitarian criterion for infinite horizon social choice has been criticized for treating generations unequally. We propose an extended rank-discounted utilitarian (ERDU) criterion instead. The criterion amounts to discounted utilitarianism on non-decreasing streams, but it treats all generations impartially: discounting becomes the mere expression of intergenerational inequality aversion. We show that more inequality averse ERDU societies have higher social discount rates when future generations are better off. We apply the ERDU approach in two benchmark economic growth models and prove that it promotes sustainable policies that maximize discounted utilitarian welfare.     

Effects of consumer cohorts and age on meat expenditures in the United States

Meat demand is likely influenced by the birth cohort and age of the individual. In this study, we examine the demand for beef, pork, poultry, and other meat in the United States using the 1984–2012 Consumer Expenditure Survey and the almost ideal demand system with the incorporation of age, period, and cohort (APC) effects. We find that the model with APC effects performs better than the models without APC effects. The results indicate that cohorts born in earlier time periods are expected to purchase significantly less poultry compared to cohorts born in later time periods, when they are measured at the same age. Over the life cycle, purchase of poultry is expected to increase with age while the opposite is true for red meat. We also find that the own-price elasticity for beef is highest among the products examined, while the own-price elasticity for other meat is lowest and the inclusion of APC effects increases the absolute value of the own-price elasticities for beef, pork, and poultry, but reduces the own-price elasticity for other meat. Our forecasts indicate that the aggregate poultry purchase will continue to increase until 2022, while the aggregate purchase of red meat will slightly increase until 2017, but will either decrease or stay at same level from year 2017 to 2022.