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1 – 10 of over 7000Laurens Cherchye, Ian Crawford, Bram De Rock and Frederic Vermeulen
The standard approach in measuring demand responses and consumer preferences assumes particular parametric models for the consumer preferences and demand functions, and…
Abstract
The standard approach in measuring demand responses and consumer preferences assumes particular parametric models for the consumer preferences and demand functions, and subsequently fits these models to observed data. In principle, the estimated demand models can then be used (i) to test consistency of the data with the theory of consumer behavior, (ii) to infer consumer preferences, and (iii) to predict the consumer's response to, say, new prices following a policy reform. This chapter focuses on an alternative, nonparametric approach. More specifically, we review methods that tackle the earlier issues by merely starting from a minimal set of so-called revealed preference axioms. In contrast to the standard approach, this revealed preference approach avoids the use of parametric models for preferences or demand. The structure of the chapter is as follows. First, we introduce the basic concepts of the revealed preference approach to model consumer demand. Next, we consider issues like goodness-of-fit, power, and measurement error, which are important in the context of empirical applications. Finally, we review a number of interesting extensions of the revealed preference approach, which deal with characteristics models, habit-formation, and the collective model.
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Wolfgang J. Luhan, Michael W. M. Roos and Johann Scharler
We design an experiment to investigate the influence of announced future variations in interest rates and prices on consumption decisions. In an experimental implementation of the…
Abstract
We design an experiment to investigate the influence of announced future variations in interest rates and prices on consumption decisions. In an experimental implementation of the discounted utility model, the subjects learn the entire paths of inflation and interest rates prior to deciding on a consumption path. We decompose the total change in consumption that results from changes in either interest rates or inflation rates into anticipation and impact effects. While impact effects are of similar orders of magnitude as in the model, future changes in inflation or interest rates exert substantially smaller effects on current consumption than predicted by the model.
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W. David Bradford and James F. Burgess
One of the fundamental tasks in optimal insurance design is mitigating the moral hazard effects inherent in insurance mechanisms. Empirically, relatively little is known about how…
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One of the fundamental tasks in optimal insurance design is mitigating the moral hazard effects inherent in insurance mechanisms. Empirically, relatively little is known about how individual-level time preferences affect selection of insurance options. We use several waves of the Health and Retirement Survey to explore the relationship between revealed time preferences at the individual level and the selection of insurance options for both the under-age-65 population and the Medicare-eligible population. Our results suggest that time preferences are not likely to be fixed across the life cycle, and that they appear to be important predictors of health insurance decisions.
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Martin Philipp Steinhorst and Enno Bahrs
The purpose of this paper is to quantify the differences between the classical normative investment theory and alternative investment models of agricultural stakeholders’ choices…
Abstract
Purpose
The purpose of this paper is to quantify the differences between the classical normative investment theory and alternative investment models of agricultural stakeholders’ choices.
Design/methodology/approach
Farmers (n=1,024) and agricultural commodity traders (n=509) were asked to rank investment alternatives. Non-linear regressions were integrated into a Monotonic Analysis of Variance algorithm to analyze the investment rankings. The results reveal coefficients for classical constant discounting, hyperbolic discounting and a preference for a sequence model. Two information criteria indicate the models’ goodness of fit and allow a comparison of the investment rankings of different age groups.
Findings
Agribusiness stakeholders have preferences for sequences and could be willing to accept lower internal rates of return for monotone-distributed rewards.
Practical implications
The results are useful for state-aided agricultural investment policies and contractual relations within agribusiness.
Originality/value
To the author's knowledge, this paper is the first paper to analyze agricultural stakeholders’ preferences for sequences.
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The aim of this paper is to evaluate the impact of social discount rates on the economic significance of CO2 mitigation in the benefit‐cost analysis of recent amendments of…
Abstract
Purpose
The aim of this paper is to evaluate the impact of social discount rates on the economic significance of CO2 mitigation in the benefit‐cost analysis of recent amendments of Building Regulations Part L.
Design/methodology/approach
The benefit of mitigating CO2 emission by raising the standard of building in amended building regulations is estimated by an integrated‐assessment economic model called DICE at different social discount rates proposed by economists and government.
Findings
The benefit of CO2 mitigation is highly sensitive to the choice of social discount rate that the value of social discount rate is a crucial factor to decide the economic viability of recent and future amendments of Building Regulations Part L. The more positive the social discount rate used in the benefit‐cost analysis, the less sustainability appears to be because higher discount rate tips the balance in favour of current benefits against future costs.
Research limitations/implications
This paper focuses on the impact of social discount rates on the shadow price of CO2 emission. Further researches are needed to estimate the private benefits and costs to construct and operate buildings complying with amended Building Regulations Part L so as to produce a solid benefit‐cost analysis on the amendment of the building regulations.
Practical implications
If sustainable development, similar to other traditional investment, is subject to feasibility judgement in a common metric, more attentions are needed to be given by sustainability literature on the issue of discounting.
Originality/value
This paper for the first time evaluates the environmental benefits of amending the Building Regulations and the sensitivity of the benefits to the choice of social discount rates.
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This chapter provides an alternative interpretation of the emergence of the “Ramsey-Cass-Koopmans” growth model, a framework which, alongside the overlapping generation model, is…
Abstract
This chapter provides an alternative interpretation of the emergence of the “Ramsey-Cass-Koopmans” growth model, a framework which, alongside the overlapping generation model, is the dominant approach in today’s macroeconomics. By focusing on the role Paul Samuelson played through the works he developed in the turnpike literature, the author’s goal is to provide a more accurate history of growth theory of the 1940–1960s, one which started before Solow (1956) but never had him as a central reference. Inspired by John von Neumann’s famous 1945 article, Samuelson wrote his first turnpike paper by trying to conjecture an alternative optimal growth path (Samuelson, 1949 [1966]). In the 1960s, after reformulating the intertemporal utility model presented in Ramsey (1928), Samuelson began to propound it as a representative agent model. Through Samuelson’s interactions with colleagues and PhD students at the Massachusetts Institute of Technology (MIT), and given his standing in the profession, he encouraged a broader use of that device in macroeconomics, particularly, in growth theory. With the publication of Samuelson (1965), Tjalling Koopmans and Lionel McKenzie rewrote their own articles in order to account for the new approach. This work complements a recently written account on growth theory by Assaf and Duarte (2018).
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Isabel María Parra Oller, Salvador Cruz Rambaud and María del Carmen Valls Martínez
The main purpose of this paper is to determine the discount function which better fits the individuals' preferences through the empirical analysis of the different functions used…
Abstract
Purpose
The main purpose of this paper is to determine the discount function which better fits the individuals' preferences through the empirical analysis of the different functions used in the field of intertemporal choice.
Design/methodology/approach
After an in-depth revision of the existing literature and unlike most studies which only focus on exponential and hyperbolic discounting, this manuscript compares the adjustment of data to six different discount functions. To do this, the analysis is based on the usual statistical methods, and the non-linear least squares regression, through the algorithm of Gauss-Newton, in order to estimate the models' parameters; finally, the AICc method is used to compare the significance of the six proposed models.
Findings
This paper shows that the so-called q-exponential function deformed by the amount is the model which better explains the individuals' preferences on both delayed gains and losses. To the extent of the authors' knowledge, this is the first time that a function different from the general hyperbola fits better to the individuals' preferences.
Originality/value
This paper contributes to the search of an alternative model able to explain the individual behavior in a more realistic way.
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Shaoze Jin, Xiangping Jia and Harvey S. James
This paper aims to explore the relationship between prudence in risk attitudes and patience of time preference of Chinese apple growers regarding off-farm cold storage of…
Abstract
Purpose
This paper aims to explore the relationship between prudence in risk attitudes and patience of time preference of Chinese apple growers regarding off-farm cold storage of production and marketing in non-harvest seasons. The authors also consider the effect of farmer participation in cooperative-like organizations known as Farm Bases (FBs).
Design/methodology/approach
The authors use multiple list methods and elicitation strategies to measure Chinese apple farmers' risk attitudes and time preferences. Because these farmers can either sell their apples immediately to supermarkets or intermediaries or place them in storage, the authors assess correlations between their storage decisions and their preferences regarding risk and time. The authors also differentiate risks involving gains and losses and empirically examine individual risk attitudes in different scenarios.
Findings
Marketing decisions are moderately associated with risk attitudes but not time preference. Farmers with memberships in local farmer cooperatives are likely to speculate more in cold storage. Thus, risk aversion behavioral and psychological motives affect farmers' decision-making of cold storage and intertemporal marketing activities. However, membership in cooperatives does not always result in improved income and welfare for farmers.
Research limitations/implications
The research confirms that behavioral factors may strongly drive vulnerable smallholder farmers to speculate into storage even under seasonal and uncertain marketing volatility. There is the need to think deeper about the rationale of promoting cooperatives and other agricultural forms, because imposing these without careful consideration can have negative impacts.
Originality/value
Do risk and time preferences affect the decision of farmers to utilize storage facilities? This question is important because it is not clear if and how risk preferences affect the tradeoff between consuming today and saving for tomorrow, especially for farmers in developing countries.
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Isabel González Fernández and Salvador Cruz Rambaud
The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more…
Abstract
Purpose
The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more specifically, the measures by Prelec, Takahashi and Rohde). In effect, Thaler (1981), awarded the Nobel Prize in Economics 2017, argued that when a preference must be expressed between two reward options, some people may reverse their original preference when a significant delay is introduced before the reward is to be received. This anomaly is known as inconsistency in intertemporal choice.
Design/methodology/approach
After a revision of the existing literature and by using the methods from mathematical calculus, the authors have derived the logical relationships between the measures presented in this paper.
Findings
The main contribution of this paper is the proposal of a novel parameter, the so-defined ratio of two instantaneous discount rates, which the authors call the instantaneous variation rate, which allows relating some other measures of inconsistency, namely the measures described by Prelec and Rohde. A limitation of this paper is the unavailability of empirical information about the inconsistency measures needed to substantiate the theoretical findings. Indeed, this paper has social implications because recent behavioral and neuroeconomic studies have shown the existence of preference reversal or time inconsistency in other areas. The authors’ models can be implemented in these fields in order to better analyze the situations of inconsistency.
Originality/value
The originality of this paper lies in the authors’ aim to bring some order to the proposed measures of inconsistency which have arisen as a result of the different approaches adopted.
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The purpose of this paper is to identify common inclusive concepts that might help define the boundaries of a general theory of behavioral finance.
Abstract
Purpose
The purpose of this paper is to identify common inclusive concepts that might help define the boundaries of a general theory of behavioral finance.
Design/methodology/approach
A cross disciplinary review of relevant natural and social sciences is conducted to identify common foundational concepts.
Findings
The overall findings are that a general theory must include assumptions of subjective perception, indeterminacy, and a financial decision process that is both logical and affective.
Practical implications
Optimal financial decisions are not possible and significant market unpredictability will continue because of the dynamic complexity associated with disequilibrium.
Social implications
The current financial paradigm is based upon radically incorrect assumptions and a general theory of behavioral finance cannot arise from minor corrections to the current financial paradigm.
Originality/value
This paper is the first to attempt identifying foundational attributes of a behavioral financial paradigm.
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