A-1A Supplemental Security Income Program, September 2007

A-1A - SUPPLEMENTAL SECURITY INCOME PROGRAM - 09-07

On the impact of leverage constraints on asset prices and trading volume

Researchers have used stylized facts on asset prices and trading volumein stock markets (in particular, the mean reversion of asset returnsand the correlations between trading volume, price changes and pricelevels) to support theories where agents are not rational expected utilitymaximizers. This paper shows that this empirical evidence is in factconsistent with a standard infite horizon perfect information expectedutility economy where some agents face leverage constraints similar tothose found in todays financial markets. In addition, and in sharpcontrast to the theories above, we explain some qualitative differencesthat are observed in the price-volume relation on stock and on futuresmarkets. We consider a continuous-time economy where agents maximize theintegral of their discounted utility from consumption under both budgetand leverage con-straints. Building on the work by Vila and Zariphopoulou(1997), we find a closed form solution, up to a negative constant, for theequilibrium prices and demands in the region of the state space where theconstraint is non-binding. We show that, at the equilibrium, stock holdingsvolatility as well as its ratio to stock price volatility are increasingfunctions of the stock price and interpret this finding in terms of theprice-volume relation.

Altruism, uncertain lifetime and the distribution of wealth

This paper studies the dynamics of the distribution of wealth in ageneral equilibrium framework. It considers an overlapping generationsmodel with production and altruistic preferences in which individualsface an uncertain lifetime and annuity markets do not exist. Thispaper focuses on the role that accidental bequests, voluntary bequests,and non--negativity constraints on bequests play in the dynamics of thedistribution of wealth. It is proved that the equilibrium interestrate is lower than the one that satisfies the modified goldenrule. In this economy, a social security system not only plays aninsurance role, but also prevents capital overaccumulation. In fact,this paper shows that a pay--as--you--go social security systemdecentralizes the social planner solution as a competitive equilibrium.

Market versus limit orders in an imperfectly competitive security

This paper analyzes the choice between limit and market orders in animperfectly competitive noisy rational expectations economy. There is a uniqueinsider, who takes into account the effect their trading has on prices. If theinsider behaves as a price taker, she will choose market orders if her privateinformation is very precise and she will choose limit orders otherwise. On thecontrary, if the insider recognizes and exploits her ability to affect themarket price, her optimal choice is to place limit orders whatever the precisionof her private information.

A-1A Supplemental Security Income Program, June 2005

A-1A - Supplemental Security Income Program

A-1A Supplemental Security Income Program, December 2005

A-1A - Supplemental Security Income Program

A-1A Supplemental Security Income Program, May 2003

A-1A - Supplemental Security Income Program

A-1A Supplemental Security Income Program, October 2007

A-1A Supplemental Security Income Program, October 2007

Credit constraints in general equilibrium: Experimental results

Our work attempts to investigate the influence of credit tightness orexpansion on activity and relative prices in a multimarket set-up. We report on somedouble- auction, two-market experiments where subjects had to satisfy an inequalityinvolving the use of credit. The experiments display two regimes, characterizedby high and low credit availability. The critical value of credit at the commonboundary of the two regimes has a compelling interpretation as the maximal credituse at the Arrow-Debreu equilibrium of the abstract economy naturally associatedto our experimental environment. Our main results are that changes in theavailability of credit: (a): have minor and unsystematic effects on quantitiesand relative prices in the high-credit regime, (b): have substantial effects, bothon quantities and relative prices, in the low-credit regime.

The In Vitro Mass-Produced Model Mycorrhizal Fungus, Rhizophagus irregularis, Significantly Increases Yields of the Globally Important Food Security Crop Cassava.

The arbuscular mycorrhizal symbiosis is formed between arbuscular mycorrhizal fungi (AMF) and plant roots. The fungi provide the plant with inorganic phosphate (P). The symbiosis can result in increased plant growth. Although most global food crops naturally form this symbiosis, very few studies have shown that their practical application can lead to large-scale increases in food production. Application of AMF to crops in the tropics is potentially effective for improving yields. However, a main problem of using AMF on a large-scale is producing cheap inoculum in a clean sterile carrier and sufficiently concentrated to cheaply transport. Recently, mass-produced in vitro inoculum of the model mycorrhizal fungus Rhizophagus irregularis became available, potentially making its use viable in tropical agriculture. One of the most globally important food plants in the tropics is cassava. We evaluated the effect of in vitro mass-produced R. irregularis inoculum on the yield of cassava crops at two locations in Colombia. A significant effect of R. irregularis inoculation on yield occurred at both sites. At one site, yield increases were observed irrespective of P fertilization. At the other site, inoculation with AMF and 50% of the normally applied P gave the highest yield. Despite that AMF inoculation resulted in greater food production, economic analyses revealed that AMF inoculation did not give greater return on investment than with conventional cultivation. However, the amount of AMF inoculum used was double the recommended dose and was calculated with European, not Colombian, inoculum prices. R. irregularis can also be manipulated genetically in vitro, leading to improved plant growth. We conclude that application of in vitro R. irregularis is currently a way of increasing cassava yields, that there is a strong potential for it to be economically profitable and that there is enormous potential to improve this efficiency further in the future.

Portfolio delegation under short-selling constraints

In this paper we study delegated portfolio management when themanager's ability to short-sell is restricted. Contrary to previousresults, we show that under moral hazard, linear performance-adjustedcontracts do provide portfolio managers with incentives to gatherinformation. The risk-averse manager's optimal effort is an increasingfunction of her share in the portfolio's return. This result affectsthe risk-averse investor's optimal contract decision. The first best,purely risk-sharing contract is proved to be suboptimal. Usingnumerical methods we show that the manager's share in the portfolioreturn is higher than the rst best share. Additionally, this deviationis shown to be: (i) increasing in the manager's risk aversion and (ii)larger for tighter short-selling restrictions. When the constraint isrelaxed the optimal contract converges towards the first best risksharing contract.