Durable‐Goods Monopoly with Privately Known Impatience: A Theoretical and Experimental Study

We analyze a durable‐goods monopoly selling a single unit of a good to a buyer whose value of the good is private information. The discount factors of the buyer and the seller may differ and are also privately known. We derive the closed‐form solution of a two‐period game and compare it to the behavior observed in experiments. The data are to a large extent consistent with the predictions.     

Industrial investment and financial requirements

The present period of slack investment is likely to give way to a fresh investment cycle in the next 5–10 years. Internationally the savings necessary for the provision of capital will be more abundant than ever. However, the structure of savings is changing in favour of risk-averting forms. This is true of savings of private house-holds which benefitting from rising incomes, are increasing in significance. The same applies to the provision of savings, if any, through official insurance schemes, which at least in Europe are found to invest virtually exclusively in fixed-interest securities. The agglomeration of capital in the oil-rich nations, which is also invested with a view to risk aversion, operate in the same direction. By contrast, the capability of firms to generate savings and hence risk-bearing funds is declining. This lack of risk capital threatens to create serious financial obstacles to growth. For risk-bearing corporate capital funds form the yardstick by which the banks, as intermediaries between savers and investors, assess their possibilities to assist enterprises through loans or bond issues. This situation gives rise to political and social problems which must be considered seriously in all long-term policy planning and forecasts.     

Environment and innovation: Introducing cleaner production

The paper reviews some innovative pilot projects for promoting environmental management among small‐ and medium‐size companies. These projects leave much room for optimism insofar as they suggest that ‘cleaner production’ is both ecologically and economically efficient. Significantly they also show that much can be gained through organizational changes.     

Public information and social choice

We examine the value of public information when a society uses a social choice rule to decide among a set of outcomes. We require that a social choice function satisfies unrestricted domain, non-decisiveness and the Pareto principle. We show that there exist payoff structures for every social choice function, such that an arbitrary subset of voters is worse off by public information. We apply the proposition to collective information acquisition and to irreversible investments. Received: 2 June 1997/Accepted: 30 September 1998     

Sequential Estimation of Expectations in the Presence of Trend2

A sequence of independent random variables {Z_n:n≥ 1} with unknown probability distributions is considered and the problem of estimating their expectations {M_n+1: n≥ 1} is examined. The estimation of M_n+1 is based on a finite set {z_k:1≤k≤n}, each z_k being an observed value of Z_k, 1 ≤k≤n, and also based on the assumption that {M_n:n≥ 1} follows an unknown trend of a specified form.     

On Loss Aversion in Bimatrix Games

In this article three different types of loss aversion equilibria in bimatrix games are studied. Loss aversion equilibria are Nash equilibria of games where players are loss averse and where the reference points—points below which they consider payoffs to be losses—are endogenous to the equilibrium calculation. The first type is the fixed point loss aversion equilibrium, introduced in Shalev (2000; Int. J. Game Theory 29(2):269) under the name of ‘myopic loss aversion equilibrium.’ There, the players’ reference points depend on the beliefs about their opponents’ strategies. The second type, the maximin loss aversion equilibrium, differs from the fixed point loss aversion equilibrium in that the reference points are only based on the carriers of the strategies, not on the exact probabilities. In the third type, the safety level loss aversion equilibrium, the reference points depend on the values of the own payoff matrices. Finally, a comparative statics analysis is carried out of all three equilibrium concepts in 2 × 2 bimatrix games. It is established when a player benefits from his opponent falsely believing that he is loss averse.     

A maxmin linear test of normal means and its application to lachin’s data

For stochastic ordering tests for normal distributions there exist two well known types of tests. One of them is based on the maximum likelihood ratio principle, the other is the most stringent somewhere most powerful test of Schaafsma and Smid(for a comprehensive treatment see Robertson, Wright and Dykstra(1988), for the latter test also Shi and Kudo(1987)). All these tests are in general numerically tedious. Wei, Lachin(1984)and particularly Lachin(1992)formulate a simple and easily computable test. However, it is not known so far for which sort of ordered alternatives his test is optimal

In this paper it is shown that his procedure is a maxmin test for reasonable subalternatives, provided the covariance matrix has nonnegative row sums. If this property is violated then his procedure can be altered in such a manner that the resul ting test again is a maxmin test. An example is glven where the modified procedure even in the least favourable case leads to a nontrifling increase in power. The fact that Lachins test resp. the modified version are maxmin tests on appropriate subalternatives amounts to the property that they are maxmin tests on subhypotheses which are relevant in practical applications.     

Low‐Probability Flood Risk Modeling for New York City

The devastating impact by Hurricane Sandy (2012) again showed New York City (NYC) is one of the most vulnerable cities to coastal flooding around the globe. The low‐lying areas in NYC can be flooded by nor'easter storms and North Atlantic hurricanes. The few studies that have estimated potential flood damage for NYC base their damage estimates on only a single, or a few, possible flood events. The objective of this study is to assess the full distribution of hurricane flood risk in NYC. This is done by calculating potential flood damage with a flood damage model that uses many possible storms and surge heights as input. These storms are representative for the low‐probability/high‐impact flood hazard faced by the city. Exceedance probability‐loss curves are constructed under different assumptions about the severity of flood damage. The estimated flood damage to buildings for NYC is between US$59 and 129 millions/year. The damage caused by a 1/100‐year storm surge is within a range of US$2 bn–5 bn, while this is between US$5 bn and 11 bn for a 1/500‐year storm surge. An analysis of flood risk in each of the five boroughs of NYC finds that Brooklyn and Queens are the most vulnerable to flooding. This study examines several uncertainties in the various steps of the risk analysis, which resulted in variations in flood damage estimations. These uncertainties include: the interpolation of flood depths; the use of different flood damage curves; and the influence of the spectra of characteristics of the simulated hurricanes.     

Estimating herd-specific force of infection by using random-effects models for clustered binary data and monotone fractional polynomials

Summary.  In veterinary epidemiology, we are often confronted with hierarchical or clustered data. Typically animals are grouped within herds, and consequently we cannot ignore the possibility of animals within herds being more alike than between herds. Based on a serological survey of bovine herpes virus type 1 in cattle, we describe a method for the estimation of herd-specific rates at which susceptible animals acquire the infection at different ages. In contrast with the population-averaged force of infection, this method allows us to model the herd-specific force of infection, allowing investigation of the variability between herds. A random-effects approach is used to account for the correlation in the data, allowing us to study both population-averaged and herd-specific force of infection. In contrast, generalized estimating equations can be used when interest is only in the population-averaged force of infection. Further, a flexible predictor model is needed to describe the dependence of covariates appropriately. Fractional polynomials as proposed by Royston and Altman offer such flexibility. However, the flexibility of this model should be restricted, since only positive forces of infection have a meaningful interpretation.