nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2023‒01‒16
23 papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Utility Maximization Analysis of an Organization: A Mathematical Economic Procedure By Mohajan, Devajit; Mohajan, Haradhan
  2. Single-Crossing Differences in Convex Environments By Navin Kartik; SangMok Lee; Daniel Rappoport
  3. Empirical properties of an extended CES utility function in representing distributional preferences By Keigo Inukai; Yuta Shimodaira; Kohei Shiozawa
  4. Bayesian Contextual Choices under Imperfect Perception of Attributes By Junnan He
  5. On multiple discount rates and present bias By Bach Dong Xuan; Philippe Bich; Bertrand Wigniolle
  6. On the long-run fluctuations of inheritance in two-sector OLG models By Florian Pelgrin; Alain Venditti
  7. A Better Test of Choice Overload By Mark Dean; Dilip Ravindran; J\"org Stoye
  8. Utility-Based Communication Requirements for Stable Matching in Large Markets By Naveen Durvasula
  9. Konsumsi dan Perilaku Konsumen By Satria, Muhammad Hassel Yasa; Azwarini, Fallia Maylafaiza; Nabila, Aisha
  10. Consistent Subsets: Computing the Houtman-Maks Index in Stata By Hjertstrand, Per; Demetry, Marcos
  11. Optimal investment under partial observations and robust VaR-type constraint By Nicole B\"auerle; An Chen
  12. Policy learning for many outcomes of interest: Combining optimal policy trees with multi-objective Bayesian optimisation By Patrick Rehill
  13. Dynamic spending and portfolio decisions with a soft social norm By Knut Anton Mork; Fabian Andsem Harang; Haakon Andreas Tr{\o}nnes; Vegard Skonseng Bjerketvedt
  14. On the Origin and Persistence of Identity-Driven Choice Behavior By Liqui Lung, C. W.
  15. The endowment effect in the general population By Fehr, Dietmar; Kübler, Dorothea
  16. Rank versus Inequality—Does Gender Composition Matter? By Duk Gyoo Kim; Max Riegel
  17. The Relative Benefits and Risks of Stablecoins as a Means of Payment: A Case Study Perspective By Annetta Ho; Sriram Darbha; Yuliya Gorelkina; Alejandro García
  18. Integrating Experimental Economics and Living Labs In Water Resource Management By Ebun Akinsete; Alina Velias; Phoebe Koundouri
  19. Income, Employment and Health Risks of Older Workers By Siqi Wei
  20. Rational Inattention and the Business Cycle Effects of Productivity and News Shocks By Bartosz Maćkowiak; Mirko Wiederholt
  21. A Field Study of Donor Behaviour in the Iranian Kidney Market By Kelishomi, Ali Moghaddasi; Sgroi, Daniel
  22. Physical and transition risk premiums in euro area corporate bond markets By Joost Bats; Giovanna Bua; Daniel Kapp
  23. Price & Choose By Federico Echenique; Mat\'ias N\'u\~nez

  1. By: Mohajan, Devajit; Mohajan, Haradhan
    Abstract: In the society utility is the vital concept, especially in mathematical economics. It is considered as the tendency of an object or action that increases or decreases overall happiness. In social sciences, the property of a commodity that enables to satisfy human wants is called utility. This paper has tried to operate utility maximization policy of an organization by considering two constraints: budget constraint and coupon constraint. To develop the maximization policy of utility function, the techniques of multivariate calculus are used. In this study four commodity variables are used to operate the mathematical analysis efficiently. In this article Lagrange multiplier technique is applied to achieve optimal result throughout the study.
    Keywords: Commodities, Lagrange multipliers, utility maximization, budget and coupon constraints
    JEL: C3 C51 C52 C53 C61 C67 I31 O1
    Date: 2022–10–10
  2. By: Navin Kartik; SangMok Lee; Daniel Rappoport
    Abstract: An agent's preferences depend on an ordered parameter or type. We characterize the set of utility functions with single crossing differences (SCD) in convex environments. These include preferences over lotteries, both in expected utility and rank-dependent utility frameworks, and preferences over bundles of goods and over consumption streams. Our notion of SCD does not presume an order on the choice space. This unordered SCD is necessary and sufficient for ``interval choice'' comparative statics. We present applications to cheap talk, observational learning, and collective choice, showing how convex environments arise in these problems and how SCD/interval choice are useful. Methodologically, our main characterization stems from a result on linear aggregations of single-crossing functions.
    Date: 2022–12
  3. By: Keigo Inukai; Yuta Shimodaira; Kohei Shiozawa
    Abstract: In previous work, we proposed a method to address mathematical inconvenience by extending the constant elasticity of substitution (CES) utility function in Inukai, Shimodaira, and Shiozawa (2022, ISER DP No.1195). However, the relationships between the extended CES parameters and the external measurements are yet unrevealed. To explore these empirical properties of the extended CES utility function, in this paper we construct an online experiment of Amazon Mechanical Turk workers using a modified dictator game, a public goods game, and a questionnaire. We then compare the parameters of the utility function according to the modified dictator game to behavior in the public goods game and the responses to the questionnaire. This provides evidence that the distribution parameter of the extended CES utility function measures the preference for equality or selfishness. However, we do not find any positive evidence that the substitution parameter measures the preference for efficiency.
    Date: 2022–12
  4. By: Junnan He (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The classical rational choice theory proposes that preferences are context-independent, e.g. independent of irrelevant alternatives. Empirical choice data, however, display several contextual choice effects that seem inconsistent with rational preferences. We study a choice model with a fixed underlying utility function and explain contextual choices with a novel information friction: the agent's perception of the options is affected by an attribute-specific noise. Under this friction, the agent learns useful information when she sees more options. Therefore, the agent chooses contextually, exhibiting intransitivity, joint-separate evaluation reversal, attraction effect, compromise effect, similarity effect, and phantom decoy effect. Nonetheless, because the noise is attribute-specific and common across alternatives, the agent's choice is perfectly rational whenever an option clearly dominates others.
    Keywords: Compromise effect, Context effect, Imperfect perception, Intransitive choices, Joint-separate evaluation reversal, Phantom decoy effect, Stable preferences.
    Date: 2021
  5. By: Bach Dong Xuan (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Bertrand Wigniolle (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: In this paper, we give axiomatic foundations for a social planner objective function that takes the form of the maxmin of quasi-hyperbolic criteria. The minimum is taken over a set Q of possible pairs of discount rates δ and present bias parameters p0. When there is no present bias, we recover Chambers and Echenique's axiomatization of maxmin exponential preferences, and when Q reduces to a singleton, we get Montiel Olea and Strzalecki's axiomatization of quasi-hyperbolic preferences. To prove our main result, we provide some intertemporal variational representation results of interest for its own sake.
    Keywords: Discounting, Discount rate, Exponential model, Hyperbolic model, Maxmin expected utility discounting, Maxmin expected utility
    Date: 2022–12
  6. By: Florian Pelgrin (EDHEC - EDHEC Business School - UCL - Université catholique de Lille); Alain Venditti (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, EDHEC - EDHEC Business School - UCL - Université catholique de Lille)
    Abstract: This paper provides a long-run cycle perspective to explain the behavior of the annual flow of inheritance. Based on the low- and medium frequency properties of long time bequests series in Sweden, France, UK, and Germany, we explore the extent to which a two-sector Barro-type OLG model is consistent with such empirical regularities. As long as agents are sufficiently impatient and preferences are non-separable, we show that endogenous fluctuations are likely to occur through two mechanisms, which can generate independently or together either period-2 cycles or Hopf bifurcations. The first mechanism relies on the elasticity of intertemporal substitution or equivalently the sign of the cross-derivative of the utility function whereas the second rests on sectoral technologies through the sign of the capital intensity difference across two sectors. Furthermore, building on the quasi-palindromic nature of the degree-4 characteristic equation, we derive some meaningful sufficient conditions associated to the occurrence of complex roots and a Hopf bifurcation in a two-sector OLG model.
    Keywords: Two-sector overlapping generations model,Altruism,Bequest,Endogenous fluctuations,Quasi-palindromic polynomial,Periodic and quasi-periodic cycles
    Date: 2022–08
  7. By: Mark Dean; Dilip Ravindran; J\"org Stoye
    Abstract: Choice overload - by which larger choice sets are detrimental to a chooser's wellbeing - is potentially of great importance to the design of economic policy. Yet the current evidence on its prevalence is inconclusive. We argue that existing tests are likely to be underpowered and hence that choice overload may occur more often than the literature suggests. We propose more powerful tests based on richer data and characterization theorems for the Random Utility Model. These new approaches come with significant econometric challenges, which we show how to address. We apply our tests to new experimental data and find strong evidence of choice overload that would likely be missed using current approaches.
    Date: 2022–12
  8. By: Naveen Durvasula
    Abstract: Results from the communication complexity literature have demonstrated that stable matching requires communication: one cannot find or verify a stable match without having access to essentially all of the ordinal preference information held privately by the agents in the market. Stated differently, these results show that stable matching mechanisms are not robust to even a small number of labeled inaccuracies in the input preferences. In practice, these results indicate that agents must go through the time-intensive process of accurately ranking each and every potential match candidate if they wish for the resulting match to be guaranteedly stable. Thus, in large markets, communication requirements for stable matching may be impractically high. A natural question to ask, given this result, is whether some higher-order structure in the market can indicate which large markets have steeper communication requirements. In this paper, we perform such an analysis in a regime where agents have a utility-based notion of preference. We consider a dynamic model where agents only have access to an approximation of their utility that satisfies a universal multiplicative error bound. We apply guarantees from the theoretical computer science literature on low-distortion embeddings of finite metric spaces to understand the communication requirements of stable matching in large markets in terms of their structural properties. Our results show that for a broad family of markets, the error bound may not grow faster than $n^2\log(n)$ while maintaining a deterministic guarantee on the behavior of stable matching mechanisms in the limit. We also show that a stronger probabilistic guarantee may be made so long as the bound grows at most logarithmically in the underlying topological complexity of the market.
    Date: 2022–12
  9. By: Satria, Muhammad Hassel Yasa; Azwarini, Fallia Maylafaiza; Nabila, Aisha
    Abstract: Konsumsi merupakan suatu bentuk perilaku ekonomi yang asasi dalam kehidupan manusia. Dalam ilmu ekonomi secara umum, konsumsi adalah perilaku seseorang untuk menggunakan dan memanfaatkan barang dan jasa untuk memenuhi kebutuhan hidup. Dalam teori ekonomi konvensional hal terpenting dalam konsumsi adalah bagaimana konsumen mengalokasikan pendapatan untuk membelanjakan atas produk atau jasa dan menjelaskan keputusan alokasi tersebut dalam menentukan permintaan yang diinginkan. Konsumen akan menggunakan parameter kepuasan melalui konsep kepuasan (utility) yang tergambar dalam kurva indifferent (tingkat kepuasan yang sama). Setiap individu berusaha memenuhi kebutuhan hidupnya melalui aktifitas konsumsi pada tingkat kepuasan yang maksimal menggunakan tingkat pendapatannya (income) sebagai keterbatasan penghasilan (budget constraint). Perkembangan zaman menuntut perindustrian untuk memenuhi keinginan dan kebutuhan konsumen yang terus meningkat. Pemenuhan akan kebutuhan dan keinginan konsumen membuat pemasar memahami terlebih dahulu perilaku konsumen sekitar.
    Date: 2022–03–11
  10. By: Hjertstrand, Per (Research Institute of Industrial Economics (IFN)); Demetry, Marcos (Research Institute of Industrial Economics (IFN))
    Abstract: The Houtman-Maks index is a measure of the size of a violation of utility maximizing (i.e., rational) behavior. This note introduces the Stata command hmindex, which calculates the Houtman-Maks index for a data set of prices and observed choices of a consumer. The command is illustrated with an empirical application.
    Keywords: hmindex; Houtman-Maks index; revealed preference; WGARP; WARP
    JEL: C87 D12
    Date: 2022–12–01
  11. By: Nicole B\"auerle; An Chen
    Abstract: The present paper extends the literature on utility maximization by combining the framework of partial information and (robust) regulatory constraints. Partial information is characterized by the fact that the stock price itself is observable to the optimizing financial institution, but the outcome of the market price of risk $\theta$ is unknown to the institution. The regulator builds the same or a different belief about the market price of risk as the financial institution. The solution to our optimization problem takes the same form as in the full information case: the optimal wealth can be expressed as a decreasing function of the state price density, and the regulatory threshold is ensured in the intermediate economic states. The main difference lies in the terminal state price density depending on the entire evolution of the estimated market price of risk $\hat{\theta}(s)$. The subjective evaluation of the regulatory constraint influences the width of the ensured region.
    Date: 2022–12
  12. By: Patrick Rehill
    Abstract: Methods for learning optimal policies use causal machine learning models to create human-interpretable rules for making choices around the allocation of different policy interventions. However, in realistic policy-making contexts, decision-makers often care about trade-offs between outcomes, not just singlemindedly maximising utility for one outcome. This paper proposes an approach termed Multi-Objective Policy Learning (MOPoL) which combines optimal decision trees for policy learning with a multi-objective Bayesian optimisation approach to explore the trade-off between multiple outcomes. It does this by building a Pareto frontier of non-dominated models for different hyperparameter settings. The key here is that a low-cost surrogate function can be an accurate proxy for the very computationally costly optimal tree in terms of expected regret. This surrogate can be fit many times with different hyperparameter values to proxy the performance of the optimal model. The method is applied to a real-world case-study of conditional cash transfers in Morocco where hybrid (partially optimal, partially greedy) policy trees provide good performance as a surrogate for optimal trees while being computationally cheap enough to feasibly fit a Pareto frontier.
    Date: 2022–12
  13. By: Knut Anton Mork; Fabian Andsem Harang; Haakon Andreas Tr{\o}nnes; Vegard Skonseng Bjerketvedt
    Abstract: We explore the implications of a preference ordering for an investor-consumer with a strong preference for keeping consumption above an exogenous social norm, but who is willing to tolerate occasional dips below it. We do this by splicing two CRRA preference orderings, one with high curvature below the norm and the other with low curvature at or above it. We find this formulation appealing for many endowment funds and sovereign wealth funds, including the Norwegian Government Pension Fund Global, which inspired our research. We solve this model analytically as well as numerically and find that annual spending should not only be significantly lower than the expected financial return, but mostly also procyclical. In particular, financial losses should, as a rule, be followed by larger than proportional spending cuts, except when some smoothing is needed to keep spending from falling too far below the social norm. Yet, at very low wealth levels, spending should be kept particularly low in order to build sufficient wealth to raise consumption above the social norm. Financial risk taking should also be modest and procyclical, so that the investor sometimes may want to "buy at the top" and "sell at the bottom". Many of these features are shared by habitformation models and other models with some lower bound for consumption. However, our specification is more flexible and thus more easily adaptable to actual fund management. The nonlinearity of the policy functions may present challenges regarding delegation to professional managers. However, simpler rules of thumb with constant or slowly moving equity share and consumption-wealth ratio can reach almost the same expected discounted utility. However, the constant levels will then look very different from the implications of expected CRRA utility or Epstein-Zin preferences in that consumption is much lower.
    Date: 2022–12
  14. By: Liqui Lung, C. W.
    Abstract: A recent literature shows how a priori identical individuals belonging to different social groups make different choices. This paper proposes a novel explanation for this identity-driven choice behavior. Agents choose whether to undertake a task with a probability of success driven by an ability. They have a noisy perception of this ability and observe social cues that stem from the prevalence of their subgroup among the successful individuals. Although the noise in their perception is unbiased, it has an asymmetric effect on expected utility. This makes it optimal for certain agents to bias their noisy perception with social cues, even when these cues are irrelevant in a Bayesian sense. I show the existence of a stable population equilibrium in which both task allocation and the use of social cues differ between a priori identical subgroups.
    JEL: D81 D91 I24 Z13
    Date: 2022–12–15
  15. By: Fehr, Dietmar; Kübler, Dorothea
    Abstract: We study the endowment effect and expectation-based reference points in the field leveraging the setup of the Socio-Economic Panel. Households receive a small item for taking part in the panel, and we randomly assign respondents either a towel or a notebook, which they can exchange at the end of the interview. We observe a trading rate of 32 percent, consistent with an endowment effect, but no relationship with loss aversion. Manipulating expectations of the exchange opportunity, we find no support for expectation-based reference points. However, trading predicts residential mobility and is related to stock-market participation, i.e., economic decisions that entail parting with existing resources.
    Keywords: exchange asymmetry, reference-dependent preferences, loss aversion, fieldexperiment, SOEP
    JEL: C93 D84 D91
    Date: 2022
  16. By: Duk Gyoo Kim; Max Riegel
    Abstract: This study investigates the influence of gender composition on allocation decisions involving a rank–inequality tradeoff. In a laboratory experiment, participants chose to either alleviate inequality by relinquishing their current relative rank or exacerbate inequality by maintaining their current rank. Two essential features of the experiment are: 1) participants’ relative rank is the outcome of their real-effort performance and luck; 2) participants’ genders are naturally revealed by gender-specific nicknames. We found that female participants are more reluctant to relinquish their current relative rank when the persons ranked below and above them are of the opposite gender. This tendency was less pronounced in the male participants.
    Keywords: gender composition, positional concerns, preferences for redistribution, last-place aversion, perception of luck
    JEL: C91 D63
    Date: 2022
  17. By: Annetta Ho; Sriram Darbha; Yuliya Gorelkina; Alejandro García
    Abstract: Our paper contributes to the discussion about the utility of stablecoins for retail payments through an objective, evidence-based approach that compares stablecoins with traditional retail payment methods. The paper also provides insights that could be useful in the design of central bank digital currencies. We identify the potential benefits, risks and costs of stablecoin arrangements used for retail payments relative to traditional retail payment methods. We select three real-world examples for comparison: (i) a Mastercard credit card payment through a traditional bank; (ii) a Unified Payments Interface fast payment through Paytm (a technology-enabled payments company regulated as a limited-purpose bank); and (iii) a stablecoin retail transaction using USD Coin and a BitPay wallet. We find that certain stablecoin arrangements offer end users greater control of their privacy, facilitate more rapid innovation and have the potential to increase transaction speeds, particularly for cross-border payments. At the same time, stablecoins may provide less consumer protection for fraud, present higher risks to the payment system and to efforts to combat financial crime (partly because of the more nascent regulatory framework), and be costlier relative to traditional payment arrangements. Our findings suggest that stablecoin arrangements do not currently serve as substitutes for the suite of traditional payment arrangements but instead address niche use cases or user segments that value their benefits and can accept their risks or costs.
    Keywords: Digital currencies and fintech; Payment clearing and settlement systems
    JEL: D78 O38
    Date: 2022–12
  18. By: Ebun Akinsete (ICRE8); Alina Velias; Phoebe Koundouri
    Abstract: The ultimate goal of water resource management is the efficient allocation of increasingly scarce water resources. One of the most crucial and often obscure aspects of water resource management pertains to the behavioural particularities of the societal relationship with water; how people value the resource, how utility companies price the resource, and how policy makers derive financial instruments to address social dilemmas associated with common pool resources and public goods. This chapter explores the use of two complimentary approaches to derive both quantitative and qualitative data within an iterative process to provide evidence-based decision support in the sustainable management of water resources. Within this integrated approach, participatory Living Labs use small focus group settings to collect qualitative data about key phenomena. This qualitative evidence provides foundation for theoretical models that produce testable suggestions for economic experiments. The economic and behavioural experiments focus on gathering quantitative data to test a prediction, subsequently raising further questions - such as heterogeneity of behaviour, causal relationships between factors - that can be explored deeper by living labs qualitative angle. The Living Labs and Experimental Economics approaches have an iterative relationship, examples of which will be highlighted in this article.
    Keywords: Water, Living Labs, Experimental Economics, Stakeholder Engagement, Participatory Approaches
    Date: 2023–01–03
  19. By: Siqi Wei (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper begins with the observation that many olderworkers move to "bridge" jobs with lower wages and fewer working hours before exiting the labor force for good. To explain this gradual transition to full retirement, I propose a nonlinear agingrelated shock — mismatch shock, which mismatches workers with their existing job and triggers job leaves. I develop an empirical framework of employment and job transitions jointly with stochastic wage and hour processes to separate health risks, individual-specific productivity risks, firm-specific mismatch risks, quality of outside offers, and job destruction risks faced by older workers. The model is estimated with a sample of male individuals aged 51 to 70 in the US Health and Retirement Study applying a novel parameter-expanded stochastic EM algorithm. The paper finds that mismatch shocks play an important role in explaining the reduction in wages and hours for movers. Furthermore, I calculate the welfare cost of risks and quantify how much individuals value the possibility of a flexible transition to full retirement by constructing a utility-based structural model of consumption, employment and job movements where agents face the same risks as in the empirical model. The model is estimated using a novel simulation-based algorithm that exploits the connection to the empirical model and the estimates from the empirical model. The results show that the median cost of mismatch risks amounts to a reduction in consumption flow by 5?3%-7?1% depending on the education group. Banning job changes and re-entry causes a welfare loss equivalent to a consumption drop of 12% 4%.
    Keywords: Income risks, health risks, mismatch, bridge jobs, latent variables.
    JEL: J26 J24 J22 C51 I14
    Date: 2022–07
  20. By: Bartosz Maćkowiak (CEPR - Center for Economic Policy Research - CEPR); Mirko Wiederholt (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR, LMU - Ludwig Maximilian University [Munich])
    Abstract: We solve a real business cycle model with rational inattention (an RI-RBC model). In the standard model, anticipated fluctuations in productivity fail to cause business cycle comovement. In response to news about higher future productivity, consumption rises but employment and investment fall. Introducing rational inattention helps produce comovement. Agents choose an optimal signal about the state of the economy. The optimal signal turns out to confound current with expected future productivity. Labor and investment demand rise after a news shock, causing an output expansion. Rational inattention also improves the propagation of a standard productivity shock, by inducing persistence.
    Keywords: Information choice, Rational inattention, Real business cycle model, News shocks, Productivity shocks
    Date: 2021–12
  21. By: Kelishomi, Ali Moghaddasi (Loughborough University); Sgroi, Daniel (University of Warwick)
    Abstract: Iran has the world's only government-regulated kidney market. We report the results of the first field study of donor behaviour in this unusual market. Participants have lower risk tolerance and higher patience levels than the Iranian average but display no difference in rationality from population averages and there is evidence of altruism among participants. We provide an examination of decision-making in extreme situations by individuals in this market, typically at the very bottom of the income distribution, and shed light on the sort of people likely to participate if other nations were to operate such markets.
    Keywords: kidney donation, Iranian kidney market, risk, patience, rationality, altruism, generalized axiom of revealed preference, lab in the field
    JEL: I11 I12 I18 C93 D03
    Date: 2022–12
  22. By: Joost Bats; Giovanna Bua; Daniel Kapp
    Abstract: We study climate risk premiums in euro area corporate bond markets. As gauges of climate risk, we distinguish between physical and transition risks using textual analysis. Our findings show that, since the Paris agreement, physical risk is significantly priced in corporate bonds with longer-term maturities. Physical risk is also priced in bonds with shorter-term maturities, but the premium is smaller and less significant. The estimated physical risk premium reflects investors demanding higher future returns on bonds that underperform during adverse physical risk shocks. Our findings also point to a sizable transition risk premium, although the transition risk estimates are insignificant.
    Keywords: Climate risk; physical risk; transition risk; corporate bonds
    JEL: G12 Q51 Q54
    Date: 2023–01
  23. By: Federico Echenique; Mat\'ias N\'u\~nez
    Abstract: We describe a two-stage mechanism that fully implements the set of efficient outcomes in two-agent environments with quasi-linear utilities. The mechanism asks one agent to set prices for each outcome, and the other agent to make a choice, paying the corresponding price: Price \& Choose. We extend our implementation result in three main directions: an arbitrary number of players, non-quasi linear utilities, and robustness to max-min behavior. Finally, we discuss how to reduce the payoff inequality between players while still achieving efficiency.
    Date: 2022–12

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