Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joi... more Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joice Valentim% and Jose Mauricio Prado& March 26, 2008 Abstract A social time preference methodology derived from Feldstein ...
ABSTRACT This paper examines the links between warfare, democracy, and government size over the l... more ABSTRACT This paper examines the links between warfare, democracy, and government size over the long run, from the early nineteenth century to the present. We assemble new time series for government size for eight European countries. We then examine individual data trends using a combination of narrative and statistical techniques. Our key methodological contribution is to employ structural breaks tests, which assume no a priori knowledge of major turning points in the time series, but let the data ``speak" for themselves. Our results indicate that warfare, and not franchise extension, is the key driver of long-run increases in government size.
ABSTRACT We examine the potential importance of consumer ambiguity aversion for asset prices and ... more ABSTRACT We examine the potential importance of consumer ambiguity aversion for asset prices and how consumption fluctuations influence consumer welfare. First, considering a simple Mehra-Prescott-style endowment economy with a representative agent facing consumption fluctuations calibrated to match U.S. data, we study to what extent ambiguity aversion can deliver asset prices that are consistent with data: a high return on equity and a low return on riskfree bonds. For some configurations of preference parameters - a discount factor, a degree of relative risk aversion, and a measure of ambiguity aversion - we find that it can. Then, we use these parameter configurations to investigate how much consumers would be willing to pay to reduce endowment fluctuations to zero, thus delivering a Lucas-style welfare cost of fluctuations. These costs turn out to be very large: consumers are willing to pay over 10% of consumption in permanent terms.
fluctuations, since consumers can benefit from investing more when productivity is high. The welf... more fluctuations, since consumers can benefit from investing more when productivity is high. The welfare consequences, in each economy, can be large. We also discuss how the results are affected if different consumers have different degrees of ambiguity aversion.
We examine the potential importance of heterogeneity in consumers’ ambiguity aversion for asset p... more We examine the potential importance of heterogeneity in consumers’ ambiguity aversion for asset pricing, portfolio allocation, and the wealth distribution. A main focus is to explore a situation in which ambiguity aversion is \above normal", such as when there has been a sudden inow of market-relevant, but hard-to-interpret information: a situation like that during the onset of the recent crisis in nancial markets. During this episode, market participants appeared unsure of the values of a variety of assets, trading all but stopped. Ambiguity aversion, it appears to us, oers a tractable way of analyzing such occurrences theoretically, especially when one allows the possibility that dierent consumers/traders have dierent amounts of ambiguity aversion. By considering a model with heterogeneity on ambiguity, we explain dierences in portfolio allocation, which lead to non-participation|a drastic form of trading less|in the ambiguity-ridden market by certain agents (here we have in mind those with higher levels of ambiguity). This endogenous limited participation on the market also has implications for the relative wealth of agents in an economy. The dynamics of the wealth distribution coming out of the model is one (of several) implications we explore. We show that the equilibrium \belief" of the ambiguity-averse consumer will evolve endogenously and nontrivially over time as a result of the equilibrium interaction. Moreover, we show that the \standard agents" will dominate in the pricing of the assets in the long run (but much less so in the short run).
ABSTRACT This paper examines the links between warfare, democracy, and government size over the l... more ABSTRACT This paper examines the links between warfare, democracy, and government size over the long run, from the early nineteenth century to the present. We assemble new time series for government size for eight European countries. We then examine individual data trends using a combination of narrative and statistical techniques. Our key methodological contribution is to employ structural breaks tests, which assume no a priori knowledge of major turning points in the time series, but let the data ``speak" for themselves. Our results indicate that warfare, and not franchise extension, is the key driver of long-run increases in government size.
Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joi... more Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joice Valentim% and Jose Mauricio Prado& March 26, 2008 Abstract A social time preference methodology derived from Feldstein ...
Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joi... more Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joice Valentim% and Jose Mauricio Prado& March 26, 2008 Abstract A social time preference methodology derived from Feldstein ...
ABSTRACT This paper examines the links between warfare, democracy, and government size over the l... more ABSTRACT This paper examines the links between warfare, democracy, and government size over the long run, from the early nineteenth century to the present. We assemble new time series for government size for eight European countries. We then examine individual data trends using a combination of narrative and statistical techniques. Our key methodological contribution is to employ structural breaks tests, which assume no a priori knowledge of major turning points in the time series, but let the data ``speak" for themselves. Our results indicate that warfare, and not franchise extension, is the key driver of long-run increases in government size.
ABSTRACT We examine the potential importance of consumer ambiguity aversion for asset prices and ... more ABSTRACT We examine the potential importance of consumer ambiguity aversion for asset prices and how consumption fluctuations influence consumer welfare. First, considering a simple Mehra-Prescott-style endowment economy with a representative agent facing consumption fluctuations calibrated to match U.S. data, we study to what extent ambiguity aversion can deliver asset prices that are consistent with data: a high return on equity and a low return on riskfree bonds. For some configurations of preference parameters - a discount factor, a degree of relative risk aversion, and a measure of ambiguity aversion - we find that it can. Then, we use these parameter configurations to investigate how much consumers would be willing to pay to reduce endowment fluctuations to zero, thus delivering a Lucas-style welfare cost of fluctuations. These costs turn out to be very large: consumers are willing to pay over 10% of consumption in permanent terms.
fluctuations, since consumers can benefit from investing more when productivity is high. The welf... more fluctuations, since consumers can benefit from investing more when productivity is high. The welfare consequences, in each economy, can be large. We also discuss how the results are affected if different consumers have different degrees of ambiguity aversion.
We examine the potential importance of heterogeneity in consumers’ ambiguity aversion for asset p... more We examine the potential importance of heterogeneity in consumers’ ambiguity aversion for asset pricing, portfolio allocation, and the wealth distribution. A main focus is to explore a situation in which ambiguity aversion is \above normal", such as when there has been a sudden inow of market-relevant, but hard-to-interpret information: a situation like that during the onset of the recent crisis in nancial markets. During this episode, market participants appeared unsure of the values of a variety of assets, trading all but stopped. Ambiguity aversion, it appears to us, oers a tractable way of analyzing such occurrences theoretically, especially when one allows the possibility that dierent consumers/traders have dierent amounts of ambiguity aversion. By considering a model with heterogeneity on ambiguity, we explain dierences in portfolio allocation, which lead to non-participation|a drastic form of trading less|in the ambiguity-ridden market by certain agents (here we have in mind those with higher levels of ambiguity). This endogenous limited participation on the market also has implications for the relative wealth of agents in an economy. The dynamics of the wealth distribution coming out of the model is one (of several) implications we explore. We show that the equilibrium \belief" of the ambiguity-averse consumer will evolve endogenously and nontrivially over time as a result of the equilibrium interaction. Moreover, we show that the \standard agents" will dominate in the pricing of the assets in the long run (but much less so in the short run).
ABSTRACT This paper examines the links between warfare, democracy, and government size over the l... more ABSTRACT This paper examines the links between warfare, democracy, and government size over the long run, from the early nineteenth century to the present. We assemble new time series for government size for eight European countries. We then examine individual data trends using a combination of narrative and statistical techniques. Our key methodological contribution is to employ structural breaks tests, which assume no a priori knowledge of major turning points in the time series, but let the data ``speak" for themselves. Our results indicate that warfare, and not franchise extension, is the key driver of long-run increases in government size.
Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joi... more Page 1. Electronic copy available at: http://ssrn.com/abstract=1113323 Social Discount Rates! Joice Valentim% and Jose Mauricio Prado& March 26, 2008 Abstract A social time preference methodology derived from Feldstein ...
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