Trade or investment? location decisions under regional integration

This paper studies the production and trade patterns that may arise between two different countries if plant location is introduced as a first step in the producers' decision making. A three-stage game is used: the first deals with location and the next two with capacity and final sales decisions. Demand and cost structures differ by country, and the latter contain specific elements related to the foreign operation. The structure of possible Nash-equilibria is examined and an analysis of the changes in the solution, if the countries engage in an integration process, is made. As in previous models, though global welfare gains may not be very high, single country ones may be considerable, due to changes in the location of the plants. However, even if full integration takes place, global Marshallian welfare may decrease. Conditions which determine a tendency towards multinationalisation are obtained. Assuming a move toward integration, conditions are also provided to characterize when exporting will be preferred to local production. The fact that producers may retain a certain discriminating power, notwithstanding the elimination of barriers to arbitrage, creates a tendency to locate production in the country where prices are higher. This explains why welfare gains may not be obvious. An empirical illustration, with real data from two MERCOSUL countries (Brazil and Argentina) illustrates the possible outcomes.

Testing the optimality of aggregate consumption decisions: is there rule-of-thumb behavior?

Consumption is an important macroeconomic aggregate, being about 70% of GNP. Finding sub-optimal behavior in consumption decisions casts a serious doubt on whether optimizing behavior is applicable on an economy-wide scale, which, in turn, challenge whether it is applicable at all. This paper has several contributions to the literature on consumption optimality. First, we provide a new result on the basic rule-of-thumb regression, showing that it is observational equivalent to the one obtained in a well known optimizing real-business-cycle model. Second, for rule-of-thumb tests based on the Asset-Pricing Equation, we show that the omission of the higher-order term in the log-linear approximation yields inconsistent estimates when lagged observables are used as instruments. However, these are exactly the instruments that have been traditionally used in this literature. Third, we show that nonlinear estimation of a system of N Asset-Pricing Equations can be done efficiently even if the number of asset returns (N) is high vis-a-vis the number of time-series observations (T). We argue that efficiency can be restored by aggregating returns into a single measure that fully captures intertemporal substitution. Indeed, we show that there is no reason why return aggregation cannot be performed in the nonlinear setting of the Pricing Equation, since the latter is a linear function of individual returns. This forms the basis of a new test of rule-of-thumb behavior, which can be viewed as testing for the importance of rule-of-thumb consumers when the optimizing agent holds an equally-weighted portfolio or a weighted portfolio of traded assets. Using our setup, we find no signs of either rule-of-thumb behavior for U.S. consumers or of habit-formation in consumption decisions in econometric tests. Indeed, we show that the simple representative agent model with a CRRA utility is able to explain the time series data on consumption and aggregate returns. There, the intertemporal discount factor is significant and ranges from 0.956 to 0.969 while the relative risk-aversion coefficient is precisely estimated ranging from 0.829 to 1.126. There is no evidence of rejection in over-identifying-restriction tests.

Decision making naturalized: the interweaving of the unconscious, the emotional and the rational in decisions taken in a contigent world

Dadas as limitações e inadequações presentes, tanto no arquétipo do tomador de decisão como um agente racional, adotado nas teorias econômicas e gerenciais, quanto no estereótipo de um ser transcendental, tão presente na vida prosaica, se faz necessário substituí-los por uma nova perspectiva: onde o tomador de decisão é um animal emocional, frágil diante do acaso, e fruto de um processo evolutivo.

Old-age benefits and retirement decisions of rural elderly in Brazil

I estimate the impact of social security benefits on retirement decisions of rural workers by studying changes in the roles governing social security in Brazil. I focus on a 1991 reform, which brought a reduction in the minimum eligibility age for males and females, a doubling of benefit values and the extension of benefits to non-heads of households. Because beneficiaries are not subject to means or retirement tests, I estimate apure income effect. I find that a reduction in the minimum eligibility age for old-age benefits was an important determinant in the reduction in labor supply of elderly rural workers in Brazil. Finally, I find that benefit take-up rates are larger among the better educated, but least-schooled workers show the largest labor supply responses to the reform.

Making decisions in the absence of clear facts: a historical perspective

Recently, a claim has been made that executive decisions makers, far from being fact collectors, are actually fact users and integrators. As such, the claim continues, executive decision makers need help in understanding how to interpret facts, as well as guidance in making decisions in the absence of clear facts. This report justifies this claim against the backdrop of the modern history of decision making, from 1956 to the present. The historical excursion serves to amplify and clarify the claim, as well as to develop a theoretical framework for making decisions in the absence of clear facts. Two essential issues are identified that impact upon decision making in the absence of clear facts, as well criteria for decision making effectiveness under such circumstances. Methodological requirements and practical objectives round off the theoretical framework. The historical analysis enables the identification of one particular established methodology as claiming to meet the methodological requirements of the theoretical framework. Since the methodology has yet to be tried on information-poor situations, a further project is proposed that will test its validity.

Making decisions in the absence of clear facts

The effectiveness of a decision maker is not demonstrated through access to better or more information. Effectiveness is demonstrated in an ability to use, more resourcefully, whatever limited information is available, and to portray its implications more usefully. This paper demonstrates how decision makers can make systemic decisions in situations characterized by extremely limited information and, furthermore, what form such decisions take.

Terms of trade, macroeconomic dynamics and default decisions

A evidência empírica aponta que Termos de Troca é uma variável relevante tanto para dinâmica macroeconômica como para o risco de default em países emergentes. No entanto, a literatura de dívida soberana baseada nos trabalhos de Eaton e Gerzovitz (1981) e Arellano (2008) ainda não explorou de forma adequada as conecções entre a dinâmica de termos de troca e incentivos ao default. Nós contribuímos nessa área, introduzindo volatilidade de Termos de Troca no modelo proposto por Mendoza e Yue (2012), no qual as decisões de dívida soberana são vinculadas à um modelo de equilíbrio geral para a economia doméstica. Nós encontramos que uma economia exposta à volatilidade dos termos de troca consegue produzir uma variabilidade do consumo que supera significativamente a variabilidade do produto, característica que constitui um fato estilizado chave de business cycles de países emergentes. Nossos exercícios também mostram que decisões de default são geradas por mudanças bruscas nos termos de troca, mas não necessariamente estão vinculados à estados ruins da economia.

Planning digital libraries: definitions and decisions

Trabalho apresentado na conferência Os Desafios das Bibliotecas Digitais realizado na Fundação Getulio Vargas em agosto 2014

Asymmetric preferences in investment decisions in the Brazilian financial market

The main objective of this article is to test the hypothesis that utility preferences that incorporate asymmetric reactions between gains and losses generate better results than the classic Von Neumann-Morgenstern utility functions in the Brazilian market. The asymmetric behavior can be computed through the introduction of a disappointment (or loss) aversion coefficient in the classical expected utility function, which increases the impact of losses against gains. The results generated by both traditional and loss aversion utility functions are compared with real data from the Brazilian market regarding stock market participation in the investment portfolio of pension funds and individual investors.

Welfare cost of inflation considering adoption decisions and interest-bearing deposits

Attanasio et al. (JPE, 2002) have used microeconomic data on households to provide new estimates of the welfare costs of infiation using Bailey's unidimensional welfare measure as a basis for their calculations. Such a measure does not properly take into consideration lhe fact that the majority of households in their sample (58.7 percent) holds not only bank deposits and currency, but also a second type of interest-bearing assct. This work devises alternative formulas which account for the existence of bank deposits and a sccond interest-bearing asset in the economy, as well as for adoption decisions regarding alternative financiai technologies.