Weak and Strong Altruism in Trait Groups: Reproductive Suicide, Personal Fitness, and Expected Value

A simple variant of trait group selection, employing predators as the mechanism underlying group selection, supports contingent reproductive suicide as altruism (i.e., behavior lowering personal fitness while augmenting that of another) without kin assortment. The contingent suicidal type may either saturate the population or be polymorphic with a type avoiding suicide, depending on parameters. In addition to contingent suicide, this randomly assorting morph may also exhibit continuously expressed strong altruism (sensu Wilson 1979) usually thought restricted to kin selection. The model will not, however, support a sterile worker caste as such, where sterility occurs before life history events associated with effective altruism; reproductive suicide must remain fundamentally contingent (facultative sensu West Eberhard 1987; Myles 1988) under random assortment. The continuously expressed strong altruism supported by the model may be reinterpreted as probability of arbitrarily committing reproductive suicide, without benefit for another; such arbitrary suicide (a "load" on "adaptive" suicide) is viable only under a more restricted parameter space relative to the necessarily concomitant adaptive contingent suicide.

The value of useless information

There are many situations in which individuals have a choice of whether or notto observe eventual outcomes. In these instances, individuals often prefer to remainignorant. These contexts are outside the scope of analysis of the standard vonNeumann-Morgenstern (vNM) expected utility model, which does not distinguishbetween lotteries for which the agent sees the final outcome and those for which hedoes not. I develop a simple model that admits preferences for making an observationor for remaining in doubt. I then use this model to analyze the connectionbetween preferences of this nature and risk-attitude. This framework accommodatesa wide array of behavioral patterns that violate the vNM model, and thatmay not seem related, prima facie. For instance, it admits self-handicapping, inwhich an agent chooses to impair his own performance. It also accommodatesa status quo bias without having recourse to framing effects, or to an explicitdefinition of reference points. In a political economy context, voters have strictincentives to shield themselves from information. In settings with other-regardingpreferences, this model predicts observed behavior that seems inconsistent witheither altruism or self-interested behavior.

Two-sided learning in New Keynesian models: Dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank(two-sided learning) in a New Keynesian framework in which both sides of the economyhave asymmetric and imperfect knowledge about the true data generating process. Weassume that all agents employ the data that they observe (which may be distinct fordifferent sets of agents) to form beliefs about unknown aspects of the true model ofthe economy, use their beliefs to decide on actions, and revise these beliefs througha statistical learning algorithm as new information becomes available. We study theshort-run dynamics of our model and derive its policy recommendations, particularlywith respect to central bank communications. We demonstrate that two-sided learningcan generate substantial increases in volatility and persistence, and alter the behaviorof the variables in the model in a significant way. Our simulations do not convergeto a symmetric rational expectations equilibrium and we highlight one source thatinvalidates the convergence results of Marcet and Sargent (1989). Finally, we identifya novel aspect of central bank communication in models of learning: communicationcan be harmful if the central bank's model is substantially mis-specified.

Book vs. fair value accounting in banking and intertemporal smoothing

The aim of this paper is to examine the pros and cons of book and fair value accounting from the perspective of the theory of banking. We consider the implications of the two accounting methods in an overlapping generations environment. As observed by Allen and Gale(1997), in an overlapping generation model, banks have a role as intergenerational connectors as they allow for intertemporal smoothing. Our main result is that when dividends depend on profits, book value ex ante dominates fair value, as it provides better intertemporal smoothing. This is in contrast with the standard view that states that, fair value yields a better allocation as it reflects the real opportunity cost of assets. Banking regulation play an important role by providing the right incentives for banks to smooth intertemporal consumption whereas market discipline improves intratemporal efficiency.

Value and depreciation of mineral resources over the very long run: An empirical contrast of different methods

The paper contrasts empirically the results of alternative methods for estimating thevalue and the depreciation of mineral resources. The historical data of Mexico andVenezuela, covering the period 1920s-1980s, is used to contrast the results of severalmethods. These are the present value, the net price method, the user cost method andthe imputed income method. The paper establishes that the net price and the user costare not competing methods as such, but alternative adjustments to different scenariosof closed and open economies. The results prove that the biases of the methods, ascommonly described in the theoretical literature, only hold under the most restrictedscenario of constant rents over time. It is argued that the difference between what isexpected to happen and what actually did happen is for the most part due to a missingvariable, namely technological change. This is an important caveat to therecommendations made based on these models.

Property enforcement as organized consent

This article develops and tests a theory of the institutions that makeproperty rights viable, ensuring their enforcement, mobilizing thecollateral value of assets and promoting growth. In contrast tocontractual rights, property rights are enforced in rem, being affectedonly with the consent of the right holder. This ensures enforcement butis costly when multiple, potentially colliding rights are held in thesame asset. Different institutions reduce the cost of gathering consentsto overcome this trade-off of enforcement benefits for consent costs:recording of deeds with title insurance, registration of rights and evena regimen of purely private transactions. All three provide functionallysimilar services, but their relative performance varies with the numberof transactions, the risk of political opportunism and regulatoryconsistency. The analysis also shows the rationality of allowingcompetition in the preparation and support of private contractswhile requiring territorial monopoly in recording and registrationactivities, this to ensure independence and protect third parties.

Solving higher-dimensional continuous time stochastic control problems by value function regression

The paper develops a method to solve higher-dimensional stochasticcontrol problems in continuous time. A finite difference typeapproximation scheme is used on a coarse grid of low discrepancypoints, while the value function at intermediate points is obtainedby regression. The stability properties of the method are discussed,and applications are given to test problems of up to 10 dimensions.Accurate solutions to these problems can be obtained on a personalcomputer.

Stabilization versus insurance: Welfare effects of procyclical taxation under incomplete markets

We construct and calibrate a general equilibrium business cycle model with unemployment and precautionary saving. We compute the cost of business cycles and locate the optimum in a set of simple cyclical fiscal policies. Our economy exhibits productivity shocks, giving firms an incentive to hire more when productivity is high. However, business cycles make workers' income riskier, both by increasing the unconditional probability of unusuallylong unemployment spells, and by making wages more variable, and therefore they decrease social welfare by around one-fourth or one-third of 1% of consumption. Optimal fiscal policy offsets the cycle, holding unemployment benefits constant but varying the tax rate procyclically to smooth hiring. By running a deficit of 4% to 5% of output in recessions, the government eliminates half the variation in the unemployment rate, most of the variation in workers'aggregate consumption, and most of the welfare cost of business cycles.

The informational value of incumbency

This paper proposes an argument that explains incumbency advantage without recurring to the collective irresponsibility of legislatures. For that purpose, we exploit the informational value of incumbency: incumbency confers voters information about governing politicians not available from challengers. Because there are many reasons for high reelection rates different from incumbency status, we propose a measure of incumbency advantage that improves the use of pure reelection success. We also study the relationship between incumbency advantage and ideological and selection biases. An important implication of our analysis is that the literature linking incumbency and legislature irresponsibility most likely provides an overestimation of the latter.

Optimal taxation without state-contingent debt

To recover a version of Barro's (1979) `random walk'tax smoothing outcome, we modify Lucas and Stokey's (1983) economyto permit only risk--free debt. This imparts near unit root like behaviorto government debt, independently of the government expenditureprocess, a realistic outcome in the spirit of Barro's. We showhow the risk--free--debt--only economy confronts the Ramsey plannerwith additional constraints on equilibrium allocations thattake the form of a sequence of measurability conditions.We solve the Ramsey problem by formulating it in terms of a Lagrangian,and applying a Parameterized Expectations Algorithm tothe associated first--order conditions. The first--order conditions andnumerical impulse response functions partially affirmBarro's random walk outcome. Though the behaviors oftax rates, government surpluses, and government debts differ, allocationsare very close for computed Ramsey policies across incomplete and completemarkets economies.

On information and competition in private value auctions

How much information does an auctioneer want bidders to have in a private value environment?We address this question using a novel approach to ordering information structures based on the property that in private value settings more information leads to a more disperse distribution of buyers updated expected valuations. We define the class of precision criteria following this approach and different notions of dispersion, and relate them to existing criteria of informativeness. Using supermodular precision, we obtain three results: (1) a more precise information structure yields a more efficient allocation; (2) the auctioneer provides less than the efficient level of information since more information increases bidder informational rents; (3) there is a strategic complementarity between information and competition, so that both the socially efficient and the auctioneer s optimal choice of precision increase with the number of bidders, and both converge as the number of bidders goes to infinity.

Betting on Hitler: The value of political connections in Nazi Germany

This paper examines the value of connections between German industry andthe Nazi movement in early 1933. Drawing on previously unused contemporarysources about management and supervisory board composition and stock returns,we find that one out of seven firms, and a large proportion of the biggest companies,had substantive links with the National Socialist German Workers Party. Firmssupporting the Nazi movement experienced unusually high returns, outperformingunconnected ones by 5% to 8% between January and March 1933. These resultsare not driven by sectoral composition and are robust to alternative estimatorsand definitions of affiliation.