Partial Knowledge Restrictions on theTwo-Stage Threshold Model of Choice

In the context of the two-stage threshold model of decision making, with the agent’s choices determined by the interaction Of three “structural variables,” we study the restrictions on behavior that arise when one or more variables are xogenously known. Our results supply necessary and sufficient conditions for consistency with the model for all possible states of partial Knowledge, and for both single- and multivalued choice functions.

Optimal contracting with private information on cost expectation and variability

We study the screening problem that arises in a framework where, initially, the agent is privately informed about both the expected production cost and the cost variability and, at a later stage, he learns privately the cost realization. The speci c set of relevant incentive constraints, and so the characteristics of the optimal mechanism, depend nely upon the curvature of the principal s marginal surplus function as well as the relative importance of the two initial information problems. Pooling of production levels is optimally induced with respect to the cost variability when the principal's knowledge imperfection about the latter is sufficiently less important than that about the expected cost.

Price Transmission and Effects of Exchange Rates on Domestic Commodity Prices via Offshore and Currency Hedging

The framework presents how trading in the foreign commodity futures market and the forward exchange market can affect the optimal spot positions of domestic commodity producers and traders. It generalizes the models of Kawai and Zilcha (1986) and Kofman and Viaene (1991) to allow both intermediate and final commodities to be traded in the international and futures markets, and the exporters/importers to face production shock, domestic factor costs and a random price. Applying mean-variance expected utility, we find that a rise in the expected exchange rate can raise both supply and demand for commodities and reduce domestic prices if the exchange rate elasticity of supply is greater than that of demand. Whether higher volatilities of exchange rate and foreign futures price can reduce the optimal spot position of domestic traders depends on the correlation between the exchange rate and the foreign futures price. Even though the forward exchange market is unbiased, and there is no correlation between commodity prices and exchange rates, the exchange rate can still affect domestic trading and prices through offshore hedging and international trade if the traders are interested in their profit in domestic currency. It illustrates how the world prices and foreign futures prices of commodities and their volatility can be transmitted to the domestic market as well as the dynamic relationship between intermediate and final goods prices. The equilibrium prices depends on trader behaviour i.e. who trades or does not trade in the foreign commodity futures and domestic forward currency markets. The empirical result applying a two-stage-least-squares approach to Thai rice and rubber prices supports the theoretical result.

Choosing on Influence

Interaction, the act of mutual influence between two or more individuals, is an essential part of daily life and economic decisions. Yet, micro-foundations of interaction are unexplored. This paper presents a first attempt to this purpose. We study a decision procedure for interacting agents. According to our model, interaction occurs since individuals seek influence for those issues that they cannot solve on their own. Following a choice-theoretic approach, we provide simple properties that aid to detect interacting individuals. In this case, revealed preference analysis not only grants the underlying preferences but also the influence acquired. Our baseline model is based on two interacting individuals, though we extend the analysis to multi-individual environments.