Jargon alert : Opportunity cost

Economics

Theories of anterior cingulate cortex function : opportunity cost

The target article highlights the role of the anterior cingulate cortex (ACC) in conflict monitoring, but ACC function may be better understood in terms of the hierarchical organization of behavior. This proposal suggests that the ACC selects extended goal-directed actions according to their learned costs and benefits and executes those behaviors subject to depleting resources

Measuring the effect of opportunity cost of time on participation in sports and exercise

This article has been made available through the Brunel Open Access Publishing Fund.Background: There is limited research on the association between opportunity cost of time and sports and exercise due to lack of data on opportunity cost of time. Using a sample of 14142 adults from Health Survey for England (2006), we develop and test a composite index of op-portunity cost of time (to address the current issues with data constraint on opportunity cost of time) in order to explore the relationship between opportunity cost of time and sports participation. Methods: Probit regression models are fitted adjusting for a range of covariates. Opportunity cost of time is measured with two proxy measures: a) composite index (consisting of various indicators of wage earnings) con-structed using principal component analysis; and b) education and employment, approach in the literature. We estimate the relative impact of the composite index compared with current proxy measures, on prediction of sports participation. Findings: Findings suggest that higher opportunity cost of time is associated with increased likelihood of sports participation, regardless of the time intensity of activity or the measure of opportunity cost of time used. The relative impacts of the two proxy measures are comparable. Sports and exercise was found to be positively correlated with income. Another important positive correlate of sports and exercise is participation in voluntary activity. The research and policy implications of our findings are discussed

Implementation of national and international REDD mechanism under alternative payments for environemtal services: theory and illustration from Sumatra

This paper develops an analytical model of a REDD+ mechanism with an international payment tier and a national payment tier, and calibrate land users' opportunity cost curves based on data from Sumatra. We compare the avoided deforestation and cost-eciency of government purchases across the two types of contracts fixed price and opportunity cost, and across two government types "benevolent" and "budget maximizing". Our paper shows that a fixed-price scheme is likely to be more efficient than an opportunity-cost compensation scheme at low international carbon prices, when the government is "benevolent" or when variation in opportunity cost within land users is high relative to variation in opportunity cost across land users. Thus, a PES program which pays local communities or land users based on the value of the service provided by avoided deforestation may not only distribute REDD revenue more equitably than an opportunity cost-based payment system, but may be more cost-efficient as well.

Teaching Opportunity Cost in an Emissions Permit Experiment

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.opportunity cost, emissions permits, allowance allocation, classroom experiments

The opportunity cost of capital of US buyouts

This paper addresses the problem of accurately determining buyout opportunity cost of capital for performance analyses. It draws on a unique and proprietary set of data on 133 United States buyouts between 1984 and 2004. For each buyout, we determine a public market equivalent that matches the buyout in timing and systematic risk. We show that under realistic mimicking conditions, the average opportunity cost of capital is below the commonly used benchmark S&P 500. The surprising result has a simple explanation: ex post, many of the transactions mimicking the buyouts would have defaulted in the public market. Only under relaxed assumptions, is the average opportunity cost of capital close to the average index return. Our sensitivity analyses highlight the need for a comprehensive risk adjustment that considers both operating risk and leverage risk for an accurate assessment of buyout performance. This finding is particularly important as existing literature on this topic tends to rely on benchmarks without a proper risk adjustment.Private Equity; Risk-Adjusted Performance; Buyout; Benchmarking Alternative Assets;

Overemployment, Underemployment and the opportunity cost of time

Focusing on individual labor market positions, this article proposes a new approach to elicit and measure constraints faced by rural households. Under market imperfections, individuals fail to equalize their hourly income to their shadow wage and become over- or underemployed. We estimate and explain this gap in a stochastic frontier framework for rural Vietnam. Both employees and farmers are found to fail in equalizing their hourly income to their shadow wage. Constraints faced by farmers are found to be stronger than that of employees: farmers' marginal revenue of labor is 3 times higher than their shadow wage while market wages earned by employees are 1.5 times higher than their shadow wages. Price risk is found to be the most important constraint faced by Vietnamese rural farmers while employees would benefit from the development of the road network.Market imperfections ; Shadow wages ; Allocative efficiency ; Vietnam

Teaching Opportunity Cost in an Emissions Permit Experiment

This paper describes an individual choice experiment that can be used to teach students how to correctly account for opportunity costs in production decisions. Students play the role of producers who require a fuel input and an emissions permit for production. Given fixed market prices, they make production quantity decisions on the basis of their costs. Permits have a constant price throughout the experiment. In one treatment, students have to purchase both a fuel input and an emissions permit for each production unit. In a second treatment, they receive permits for free, and any unused permits are sold on their behalf at the permit price. If students correctly incorporate opportunity costs, they will have the same supply function in both treatments. This experiment motivates classroom discussion of opportunity costs and emissions permit allocation under cap-and-trade schemes. The European Union Emissions Trading Scheme provides a relevant example for classroom discussion, as industry earned significant windfall profits from free allocation of emissions allowances in the early phases of the program.opportunity cost; emissions permits; allowance allocation; classroom experiments

The opportunity cost of negative screening in socially responsible investing

This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firms’ conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (embryonic) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening.Publisher PDFPeer reviewe