nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2018‒08‒27
two papers chosen by
Matthew Baker
City University of New York

  1. Inequality, Social Distance, and Giving By Nicolas J. Duquette; Enda Hargaden
  2. Margin Requirements and Evolutionary Asset Pricing By Anastasiia Sokko; Klaus Reiner Schenk-Hoppé

  1. By: Nicolas J. Duquette (Sol Price School of Public Policy, University of Southern California); Enda Hargaden (Department of Economics, University of Tennessee)
    Abstract: This paper demonstrates that economic inequality has a negative, causal effect on prosocial behavior, specifcally, charitable giving. Standard theories predict that greater inequality increases giving, though income tax return data suggest the opposite may be true. We develop a new theory which, incorporating insights from behavioral economics and social psychology, predicts when greater inequality will lower charitable giving. We test the theory in an experiment on donations to a real-world charity. By randomizing the income distribution, we identify the effect of inequality on giving behavior. Consistent with our model, heightened inequality causes total giving to fall. Policy agendas that rely on charitable giving and other voluntary, prosocial behaviors to mitigate income and wealth inequality are likely to fail.
    Keywords: Inequality; charitable giving; social distance; lab experiments
    JEL: C91 D31 D64 H23 N32
    Date: 2018–07
  2. By: Anastasiia Sokko (University of Zurich and Swiss Finance Institute); Klaus Reiner Schenk-Hoppé (University of Manchester and Norwegian School of Economics (NHH))
    Abstract: We introduce an evolutionary equilibrium asset pricing model with heterogeneous agents who can either act as brokers or hedge funds. Hedge funds can trade on margin, taking short or (leveraged) long positions in the assets. Brokers provide asset loans and credit to margin traders. In any evolutionary equilibrium, where growth rates of wealth under management are identical, assets are priced according to expected relative dividends (the Kelly rule) and margin traders either leverage long or short the Kelly portfolio. Margin requirements affect the equilibrium interest rates but not the level of asset prices. We also apply the model to study the impact of margin requirements on the speed of price adjustment in the presence of noise traders.
    Keywords: Margin Trading; Short Selling; Brokers; Evolutionary Finance
    JEL: G11 G12
    Date: 2017–06

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