|
on Utility Models and Prospect Theory |
|
Issue of 2018‒11‒12
twenty-two papers chosen by |
| By: | Sona Kilianova; Daniel Sevcovic |
| Abstract: | In this paper we investigate the expected terminal utility maximization approach for a dynamic stochastic portfolio optimization problem. We solve it numerically by solving an evolutionary Hamilton-Jacobi-Bellman equation which is transformed by means of the Riccati transformation. We examine the dependence of the results on the shape of a chosen utility function in regard to the associated risk aversion level. We define the Conditional value-at-risk deviation ($CVaRD$) based Sharpe ratio for measuring risk-adjusted performance of a dynamic portfolio. We compute optimal strategies for a portfolio investment problem motivated by the German DAX 30 Index and we evaluate and analyze the dependence of the $CVaRD$-based Sharpe ratio on the utility function and the associated risk aversion level. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.11619&r=upt |
| By: | A\"ileen Lotz (IF); Pierre Gosselin (IF); Marc Wambst (IRMA) |
| Abstract: | This paper presents an analytical treatment of economic systems with an arbitrary number of agents that keeps track of the systems' interactions and agents' complexity. This formalism does not seek to aggregate agents. It rather replaces the standard optimization approach by a probabilistic description of both the entire system and agents'behaviors. This is done in two distinct steps. A first step considers an interacting system involving an arbitrary number of agents, where each agent's utility function is subject to unpredictable shocks. In such a setting, individual optimization problems need not be resolved. Each agent is described by a time-dependent probability distribution centered around his utility optimum. The entire system of agents is thus defined by a composite probability depending on time, agents' interactions and forward-looking behaviors. This dynamic system is described by a path integral formalism in an abstract space-the space of the agents' actions-and is very similar to a statistical physics or quantum mechanics system. We show that this description, applied to the space of agents'actions, reduces to the usual optimization results in simple cases. Compared to a standard optimization, such a description markedly eases the treatment of systems with small number of agents. It becomes however useless for a large number of agents. In a second step therefore, we show that for a large number of agents, the previous description is equivalent to a more compact description in terms of field theory. This yields an analytical though approximate treatment of the system. This field theory does not model the aggregation of a microeconomic system in the usual sense. It rather describes an environment of a large number of interacting agents. From this description, various phases or equilibria may be retrieved, along with individual agents' behaviors and their interactions with the environment. For illustrative purposes, this paper studies a Business Cycle model with a large number of agents. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.07178&r=upt |
| By: | J\"org Stoye |
| Abstract: | McFadden and Richter (1991) and later McFadden (2005) show that the Axiom of Revealed Stochastic Preference characterizes rationalizability of choice probabilities through random utility models on finite universal choice spaces. This note proves the result in one short, elementary paragraph and extends it to set valued choice. The latter requires a different axiom than is reported in McFadden (2005). |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.10604&r=upt |
| By: | Douadia, Bougherara; Laurent, Piet |
| Abstract: | A growing number of studies in finance and economics seek to explain insurance choices us- ing the assumptions advanced by behavioral economics. One recent example in agricultural economics is the use of cumulative prospect theory (CPT) to explain farmer choices regarding crop insurance coverage levels (Babcock, 2015). We build upon this framework by deriving willingness to pay (WTP) for insurance programs under alternative assumptions, thus extend- ing the model to incorporate farmer decisions regarding whether or not to purchase insurance. Our contribution is twofold. First, we study the sensitivity of farmer WTP for crop insurance to the inclusion of CPT parameters. We find that loss aversion and probability distortion in- crease WTP for insurance while risk aversion decreases it. Probability distortion in losses plays a particularly important role. Second, we study the impact of yield distribution skewness on farmer WTP assuming CPT preferences. We find that WTP decreases when the distribution of yields moves from negatively- to positively-skewed and that the combined effect of proba- bility weighting in losses and skewness has a large negative impact on farmer WTP for crop insurance. |
| Keywords: | crop insurance, cumulative prospect theory, premium subsidy, Skewnes |
| JEL: | D81 Q10 Q12 Q18 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:rae:wpaper:201808&r=upt |
| By: | Han (H.) Bleichrodt (Erasmus School of Economics, Australian National University); Paul van Bruggen (Erasmus School of Economics) |
| Abstract: | Higher order risk preferences are important determinants of economic behaviour. We apply behavioural insights to this topic: we measure higher order risk preferences for pure gains and pure losses by controlling the reference point. We find a reflection effect not only for second order risk preferences, as in Kahneman and Tversky 1979, but also for higher order risk preferences: we find risk aversion, prudence and intemperance for gains, but risk loving preferences, imprudence and temperance for losses. The risk aversion and intemperance for gains and the imprudence for losses is evidence against a preference for combining good with bad or good with good, which previous theoretical and empirical results suggest may underlie higher order risk preferences. |
| Keywords: | Risk Apportionment; Higher Order Risk Preferences; Risk Aversion; Prudence; Temperance; Reference Dependence |
| JEL: | C91 D81 D91 |
| Date: | 2018–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180079&r=upt |
| By: | Wiktor Budziński (University of Warsaw, Faculty of Economic Sciences); Mikołaj Czajkowski (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | We investigate the problem of endogeneity in the context of hybrid choice (integrated choice and latent variable) models. We first provide a thorough analysis of potential causes of endogeneity and propose a working taxonomy. We demonstrate that although it is widely believed that the hybrid choice framework is devoid of the endogeneity problem, there is no theoretical reason to expect that this is the case. We then demonstrate empirically that the problem exists in the hybrid choice framework too. By conducting a Monte Carlo experiment, we display the extent of the bias resulting from measurement and endogeneity biases. Finally, we propose two novel solutions to address the problem: by explicitly accounting for correlation between structural and discrete choice component error terms (or with random parameters in a utility function), or by introducing additional latent variables. Using simulated data, we demonstrate that these approaches work as expected, that is, they result in unbiased estimates of all model parameters. |
| Keywords: | hybrid choice models, endogeneity, measurement bias, attitudinal variables, indicators |
| JEL: | C35 C51 Q51 R41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2018-21&r=upt |
| By: | Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Abstract: | We consider a pure exchange economy, where agents, typically asymmetrically informed, exchange securities, on financial markets, and commodities, on spot markets. Consumers have private characteristics, anticipations and beliefs, and no model to forecast prices. Rational expectation and bounded rationality assumptions are dropped. We show that agents face an incompressible uncertainty, represented by a so-calles "minimum uncertainty set". This uncertainty typically adds to the exogenous one, on the state of nature, an ‘endogenous uncertainty' over future spot prices. At equilibrium, all agents expect the ‘true' price on every spot market as a possible outcome, and elect optimal strategies, ex ante, which clear on all markets ex post. We show this sequential equilibrium exists whenever agents' prior anticipations embed the minimum uncertainty set. This outcome differs from the standard generic existence results of Hart (1975), Radner (1979), or Duffie-Shaffer (1985), among others based on the rational expectations of prices. |
| Abstract: | L'on considère une économie d'échange pur, où des agents, asymétriquement informés, échangent des biens de consommation, sur des marchés spots, et des actifs financiers, sur des marchés incomplets. Leurs caractéristiques, croyances et anticipations sont privées. L'hypothèse d'anticipations rationnelles, même limitées, est abandonnée. Nous montrons que les agents sont alors confrontés à une incertitude incompressible sur les prix futurs sur chaque marché spot, représentée par un ensemble dit "d'incertitude minimale". Celle-ci réunit l'incertitude « exogène » sur l'état aléatoire de la nature et l'incertitude « endogène » sur les prix spots, qui dépendent des anticipations privées. A l'équilibre, le vrai prix dans chaque état réalisable est anticipé comme possible par chaque agent, lequel optimise sa consommation, et l'équilibre est assuré sur tous les marchés ex post. Notre principal théorème montre que cet équilibre existe si l'ensemble d'anticipation de chaque agent inclut l'ensemble minimal d'incertitude. Ce résultat diffère de ceux des modèles classiques de Radner (1979), Hart (1975) ou Duffie-Schaffer (1985), fondés sur l'anticipation rationnelle des prix, où l'existence n'est que générique. |
| Keywords: | sequential equilibrium,temporary equilibrium,perfect foresight,rational expectations,financial markets,asymmetric information,marchés financiers,anticipations rationnelles,équilibre séquentiel,équilibre temporaire,anticipations parfaites,existence,asymétrie d'information,arbitrage |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01903510&r=upt |
| By: | Lucas M. Besters (Rabobank); Jan (J.C.) van Ours (Erasmus School of Economics); Martin A. van Tuijl (Tilburg University) |
| Abstract: | We investigate stadium attendance in the highest level of Dutch professional football for the seasons 2000/01 – 2015/16 focusing on outcome uncertainty, loss aversion and team quality. We find that for individual football matches, attendance is related to reference-dependent preferences with loss aversion dominating the preference for uncertain outcomes. Furthermore, team quality is an important determinant of stadium attendance. Towards the end of the season, outcome uncertainty regarding the final ranking becomes important. For this seasonal uncertainty, we find a positive and stable, but rather small impact of the introduction of a unique and large end-of-season play-off scheme for the qualification for European football. |
| Keywords: | Stadium attendance; Professional football; Outcome uncertainty; Loss aversion; Play-offs |
| JEL: | L83 D12 |
| Date: | 2018–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180082&r=upt |
| By: | Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Brian Jabarian (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | How should we evaluate options when we are uncertain about the correct standard of evaluation, for instance due to conflicting normative intuitions? Such ‘normative' uncertainty differs from ordinary ‘empirical' uncertainty about an unknown state, and raises new challenges for decision theory and ethics. The most widely discussed proposal is to form the expected value of options, relative to correctness probabilities of competing valuations. We show that the expected-value theory is just one of four natural expectation-based theories. These theories differ in the attitudes to normative risk and to empirical risk. The ordinary expected-value theory imposes neutrality to normative risk, whereas its attitude to empirical risk is impartial, i.e., determined by the risk attitudes of the competing valuations deemed possible. The three other theories are, respectively, neutral to both types of risk; impartial to both types of risk; or neutral to empirical but impartial to normative risk. We conditionally defend the theory which is impartial to all risk - the impartial value theory - on the grounds that it respects risk-attitudinal beliefs rather than imposing an ad-hoc-risk attitude. Meanwhile, our analysis shows how one can address empirical and normative uncertainty within a unified formal framework, and rigorously define risk attitudes of theories. |
| Abstract: | Comment devons-nous évaluer des options de choix lorsque nous ne savons pas quelle méthode d'évaluation est correcte, par exemple à cause d'intuitions normatives concurrentes ? Ce type d'incertitude, nommée « incertitude normative », diffère de l'incertitude standard portant sur les états empiriques du monde, nommée « incertitude empirique ». L'incertitude normative constitue un nouveau challenge pour les sciences économiques et l'éthique contemporaine. La proposition la plus discutée dans le débat est de former la valeur normative espérée des options relativement aux croyances normatives de l'agent. Nous montrons que la théorie de la valeur normative espérée n'est qu'une des quatre formes de théories basées sur l'espérance. Ces théories diffèrent dans leurs attitudes aux risques normatifs et empiriques. La théorie de la valeur normative espérée impose une attitude neutre face au risque normatif, tandis que son attitude face au risque empirique est impartiale, c'est-à-dire seulement déterminée par les attitudes au risque des différentes méthodes d'évaluation jugées possibles par l'agent. Les trois autres théories sont respectivement : neutre face aux deux types de risque ; impartiale face aux deux types de risque ; neutre face au risque empirique mais impartiale face au risque normatif. Nous défendons la théorie qui est impartiale face aux deux types de risque, la théorie impartiale de la valeur, sur la base que cette théorie respecte entièrement les croyances normatives de l'agent concernant la « bonne » attitude face au risque plutôt que d'imposer de manière ad hoc une attitude particulière face au risque. Notre article montre comment nous pouvons traiter à travers un seul cadre formel unifié l'incertitude empirique et l'incertitude normative et définir de manière rigoureuse les attitudes face au risque de théories évaluatives. |
| Keywords: | empirical uncertainty,normative uncertainty,risk attitude,expected value,impartial value,incertitude empirique,incertitude normative,attitude face au risque,valeur normative espérée,valeur impartiale |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01903642&r=upt |
| By: | Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Antonios Staras (UEA - University of East Anglia [Norwich]); Robert Sugden (UEA - University of East Anglia [Norwich]) |
| Abstract: | John Broome has developed an account of rationality and reasoning which gives philosophical foundations for choice theory and the psychology of rational agents. We formalize his account into a model that differs from ordinary choice-theoretic models through focusing on psychology and the reasoning process. Within that model, we ask Broome's central question of whether reasoning can make us more rational: whether it allows us to acquire transitive preferences, consistent beliefs, non-akratic intentions, and so on. We identify three structural types of rationality requirements: consistency requirements, completeness requirements, and closedness requirements. Many standard rationality requirements fall under this typology. Based on three theorems, we argue that reasoning is successful in achieving closedness requirements, but not in achieving consistency or completeness requirements. We assess how far our negative results reveal gaps in Broone's theory, or deficiencies in choice theory and behavioural economics. |
| Abstract: | John Broome a développé une théorie de la rationalité et du raisonnement qui donne des fondements philosophiques au choix rationnel et à la psychologie d'acteurs rationnels. Nous formalisons cette théorie en définissant un cadre qui diffère de modèles classiques du choix rationnel, en mettant au centre la psychologie et le raisonnement. A travers notre modèle, nous reposons la question centrale de Broome si le raisonnement nous permet d'augmenter notre rationalité : si le raisonnement nous fait acquérir des préférences transitives, des croyances cohérentes, des intentions conformes à nos buts (" non akratiques ") etc. Nous identifions trois types de conditions de rationalité : des conditions de cohérence, des conditions de complétude et des conditions de clôture. Un grand nombre de conditions de rationalité classiques tombent sous cette taxonomie. En nous appuyant sur trois théorèmes, nous montrons que le raisonnement est utile pour arriver à satisfaire des conditions de clôture, mais pas des conditions de cohérence ou de complétude. Nous évaluons enfin dans quelle mesure nos résultats négatifs révèlent des problèmes dans la théorie Broomeienne ou posent des problèmes à la théorie du choix rationnel et l'économie comportementale. |
| Keywords: | rationality,reasoning,beliefs,consistency,completeness,deductive closure,rationalité,raisonnement,intentions,croyances,préférences,cohérence,complétude,clôture déductive |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01904091&r=upt |
| By: | Rafael Serrano; Camilo Castillo |
| Abstract: | We study a continuous-time asset-allocation problem for a firm in the insurance industry that backs up the liabilities raised by the insurance contracts with the underwriting profits and the income resulting from investing in the financial market. Using the martingale approach and convex duality techniques we characterize strategies that maximize expected utility from consumption and final wealth under CRRA preferences. We present numerical results for some distributions of claims/liabilities with policy limits. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.08466&r=upt |
| By: | Annarita Colasante (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Matteo M. Marini (LEE & Economics Department, Universitat Jaume I, Castellón-Spain; Università degli Studi dell’Insubria, Italy); Alberto Russo (Dept. de Teoría e Historia Económica, University of Granada, Spain) |
| Abstract: | In this paper we conduct a laboratory experiment in order to investigate the effect of incidental sadness and happiness on risky decision making. An emotion induction procedure is the treatment variable of a between-subjects design where two sessions aim at eliciting either sadness or happiness, respectively. Two further groups are characterized by neutral conditions and serve as baseline. After a manipulation check verifies the validity of the induction procedure, we use a multiple price list à la Holt and Laury (2002) to elicit individual risk preferences in the context of a lottery-choice task. The analysis reveals that both sadness and happiness promote greater risk aversion with respect to neutral conditions, a result which might be moderated by the risk elicitation task. Therefore, as compelling explanation we propose the theory of ego depletion, whereby regulating emotions so as to subsequently process information consumers a limited self-control resource, which is needed to take risks as well. |
| Keywords: | laboratory experiment, emotions, preference elicitation, risk aversion, ego depletion |
| JEL: | C91 D81 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2018/13&r=upt |
| By: | Stelios Arvanitis; Olivier Scaillet; Nikolas Topaloglou |
| Abstract: | We derive properties of the cdf of random variables defined as saddle-type points of real valued continuous stochastic processes. This facilitates the derivation of the first-order asymptotic properties of tests for stochastic spanning given some stochastic dominance relation. We define the concept of Markowitz stochastic dominance spanning, and develop an analytical representation of the spanning property. We construct a non-parametric test for spanning based on subsampling, and derive its asymptotic exactness and consistency. The spanning methodology determines whether introducing new securities or relaxing investment constraints improves the investment opportunity set of investors driven by Markowitz stochastic dominance. In an application to standard data sets of historical stock market returns, we reject market portfolio Markowitz efficiency as well as two-fund separation. Hence, we find evidence that equity management through base assets can outperform the market, for investors with Markowitz type preferences. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1810.10800&r=upt |
| By: | Ricardo Sabbadini |
| Abstract: | A decline in international risk-free interest rates decreases emerging markets (EM) sovereign spreads. I show that a quantitative model of sovereign debt and default exhibits this pattern if foreign lenders are loss-averse and have reference dependence. This happens because investors search for yield in risky EM bonds when the risk-free rate is lower than their return of reference |
| Keywords: | sovereign spread; search for yield; loss aversion; low interest rate |
| JEL: | E43 F34 F41 |
| Date: | 2018–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2018wpecon16&r=upt |
| By: | Hestermann, Nina (Toulouse School of Economics); Le Yaouanq, Yves (LMU Munich) |
| Abstract: | We study the inference and experimentation problem of an agent in a situation where the outcomes depend on the individual\'s intrinsic ability and on an external variable. We analyze the mistakes made by decision-makers who hold inaccurate prior beliefs about their ability. Overconfident individuals take too much credit for their successes and excessively blame external factors if they fail. They are too easily dissatisfied with their environment, which leads them to experiment in variable environments and revise their self-confidence over time. In contrast, underconfident decision-makers might be trapped in low-quality environments and incur perpetual utility losses. |
| Keywords: | overconfidence; attribution bias; experimentation; learning.; |
| JEL: | D83 |
| Date: | 2018–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:124&r=upt |
| By: | Mikhail Freer (ECARES, Universit’e Libre de Bruxelles); Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University) |
| Abstract: | We develop a systematic, functional approach to revealed preference tests based on completing preferences. Our approach is based on the notion of sequential closure, which generalizes the notion of transitive closure. We show that revealed preference tests developed for various decision theories can be seen as special cases of our approach. We also illustrate the approach constructing revealed preference tests for theories of decision under uncertainty whose revealed preference implications had not been studied before. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:gms:wpaper:1070&r=upt |
| By: | Constantino Hevia; Martin Sola |
| Abstract: | Researchers who estimate affine term structure models often impose overidentifying restrictions (restrictions on parameters beyond those necessary for identification) for a variety of reasons. While some of those restrictions seem to have minor effects on the extracted factors and some measures of risk premia, such as the forward risk premium, they may have a large impact on other measures of risk premia that is often ignored. In this paper we analyze how apparently innocuous overidentifying restrictions imposed on affine term structure models can lead to large differences in several measures of risk premiums. |
| Keywords: | Bond risk premia, affine term structure models, risk prices |
| JEL: | E43 G12 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpecon:2018_03&r=upt |
| By: | Agustin Gutierrez; Constantino Hevia; Martin Sola |
| Abstract: | The return forecasting factor is a linear combination of forward rates that seems to predict one-year excess bond returns of bond of all maturities better than traditional measures obtained from the yield curve. If this single factor actually captures all the relevant fluctuations in bond risk premia, then it should also summarize all the economically relevant variations in excess returns considering different holding periods. We find that it does not. We conclude that including the return forecasting factor as the main driver of risk premia in a term structure model, as has been suggested, is not supported by the data. |
| Keywords: | : Excess returns, bond risk premia, return forecasting factor, affine term structure models. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpecon:2018_04&r=upt |
| By: | Magdalena Brzozowicz (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | In the laboratory experiment, I examine two behavioral effects: hypothetical bias and the framing effect. I elicited willingness to pay (WTP) for a cosmetic product, and manipulated framing conditions (positive vs. negative attribute framing) and incentives to reveal the actual valuation (hypothetical vs. real). In this case, I demonstrated that hypothetical bias has a significant impact on WTP values; however, the framing effect has no effect on valuation of the product. Similarly, I found no interaction between the two effects. This observation contributes to claims that hypothetical research methods lead to equally reliable data as those based on consequential choices. |
| Keywords: | framing effect; hypothetical bias; laboratory experiment |
| JEL: | D91 M31 C91 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2018-23&r=upt |
| By: | Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Abstract: | The paper demonstrates the existence of sequential equilibria in a pure exchange economy, where asymmetrically informed agents exchange consumption goods and securities of all kinds, on incomplete markets. Standard models rely on Radner's (1972, 1979) rational expectation assumptions, along which agents know the maps between the information signals, the states of nature and the equilibrium prices. As shown by Hart (1975), equilibrium may then fail to exist, even when agents have symmetric information and smooth preferences. In that setting, Duffie-Shafer (1985) shows, from differential topology arguments, that interior equilibria exist generically. The current paper proceeds differently. It drops rational expectations to allow for an infinitesimal uncertainty over future spot prices. This device permits to circumvent Hart's 1975 problem, without using differential topology. Then, the paper shows that a generic condition on payoffs and forecasts guarantees the existence of equilibria. It is consistent with non-transitive preferences, non-interior consumptions, asymmetric information and normalized spot prices at equilibrium. It also serves to prove existence in a more general model, which drops Radner's rational expectations. |
| Abstract: | Cet article démontre l'existence d'équilibres séquentiels dans une économie d'échange pur, où des agents asymétriquement informés échangent des biens de consommation et des actifs financiers de toutes sortes sur des marchés incomplets. Les modèles standards se fondent sur les hypothèses d'anticipations rationnelles de Radner (1972, 1979), selon lesquelles les agents connaissent la fonction associant les signaux d'information privés des agents, les états de la nature et les prix d'équilibre sur chaque marché spot. Comme le montre Hart (1975), l'équilibre peut ne pas exister sous ces hypothèses, même lorsque tous les agents ont des préférences ordonnées et lisses et la même information. Dans ce cadre, Duffie-Safer (1985) démontre, à partir de la topologie différentielle, l'existence générique d'équilibres intérieurs. Le présent papier procède différemment. Il abandonne les anticipations rationnelles pour permettre une incertitude infinitésimale sur les prix spots de demain. Cela permet de contourner le problème d'existence de Hart (1975), sans recourir à la topologie différentielle. Le papier démontre, ensuite, qu'une condition sur les rendements des actifs et les anticipations des agents, réalisée génériquement, restaure l'existence de l'équilibre sur tous les marchés. Ce résultat est compatible avec des préférences non transitives, des consommations au bord, une information asymétrique et des prix spots normalisés à l'équilibre. Il est utilisé, dans un autre papier, pour prouver l'existence d'équilibres séquentiels dans un modèle plus général d'anticipation des prix, affranchi des hypothèses d'anticipations rationnelles de Radner. |
| Keywords: | sequential equilibrium,perfect foresight,existence of equilibrium,rational expectations,financial markets,asymmetric information,marchés financiers,anticipations rationnelles,équilibre séquentiel,anticipations parfaites,existence de l'équilibre,asymétrie d'information,arbitrage |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01903586&r=upt |
| By: | Smith, V.; De Pinto, A.; Robertson, R. |
| Abstract: | This study examines the empirical importance of the effects of the risk environment on the impacts of climate change on farm land allocations and consequent effect on agricultural output in Zambia. We use a discrete-choice model consistent with a mean-variance utility function to model farm-level land allocations among alternative crops. Results indicate that risk-reducing decisions reinforce the trend to shift away from maize production in response to climate change impacts on mean temperatures and precipitation. The opportunity cost of these decisions is explored through a simulation scenario in which yield variability is reduced to zero. Important conclusions can be derived from this analysis. First, when the economic effects of climate change are considered, decision-making under uncertainty and risk should be at the forefront of the problems that issues that need to be addressed. Second, concentrating on farm-level effects of responses to climate change is not sufficient. To understand the economy wide consequences of climate change, the aggregate effects of individual decisions should be assessed. Third, results indicate that increased efforts in risk management and in policies aiming at reducing risk can lead to significant positive outcomes. Acknowledgement : This work was supported by a grant from the Bureau of Food Security at the United States Agency for International Development (USAID). This work was implemented as part of the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS), which is carried out with support from CGIAR Fund Donors and through bilateral funding agreements. For details please visit donors. The authors take sole responsibility for the opinions expressed within this study. |
| Keywords: | Crop Production/Industries |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iaae18:277315&r=upt |
| By: | Stépahne Auray (CREST; ENSAI; ULCO); Nicolas Lepage-Saucier (CREST; ENSAI); Purevdorj Tuvaandor (CREST; ENSAI) |
| Abstract: | This paper develops robust inference methods for moment condition models implemented with a n1=2-consistent auxiliary estimator of the nuisance parameters. When applied to models subject to weak identification and boundary parameter problems; they simultaneously overcome both irregularities and are asymptotically pivotal with minimal assumptions on the parameter space. If these problems are not present in the data; they are asymptotically equivalent to standard statistics for nonlinear models. They also have similar computational requirements. We apply our tests to the differentiated products demand model; which may suffer from both problems: the variance of the random coefecients is often close to zero; causing the boundary parameter problem; and the strength of the available instruments is often put in doubt; which may cause weak identification. We evaluate the performance of the proposed tests by simulations. |
| Keywords: | Boundary parameter, heterogeneity, pivotal statistic, random utility, robust inference, weak identification. |
| Date: | 2018–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2018-13&r=upt |