Endogenous technology adoption under production risk: theory and application to irrigation technology

The use of modern irrigation technologies has been proposed as one of several possible solutions to the problem of water resource scarcity and environmental degradation in many agricultural areas around the world. The main objective of this paper is to present a theoretical framework that conceptualizes adoption as a decision process involving information acquisition by farmers who face yield uncertainty and vary in their risk preferences. This is done by integrating the microeconomic foundations used to analyze production uncertainty at the farm level with the traditional technological adoption models. First we follow the approach of Antle (1987) based on higher-order moments of profit, which enables flexible estimation of the stochastic technology without ad hoc specification of risk preferences. Then individual risk preferences are derived, which are then used to explain farmer’s decision to adopt modern water saving technologies. The proposed model is applied to a randomly selected sample of 265 farms located in Crete, Greece. Results show that risk preferences affect the probability of adoption and provide evidence that farmers invest in new technologies as a means to hedge against input related production risk

Life, Death and World Inequality

Life expectancy around the world has increased substantially since 1970. In contrast, consump-tion per capita has fallen in some countries, remained stagnant, or sharply increased in others.What are the welfare gains of the systematic increase in life expectancy around the world? Howdoes a "full measure" of per capita income, one that adjusts for life expectancy, compare tostandard measures of world inequality that only consider income? This paper documents howstandard models used to answer these questions give rise to a number of predictions that areinconsistent with well-documented evidence, particularly on the value of statistical life. It thenproposes a generalized model with non-separable preferences that exhibits a low elasticity ofintertemporal substitution and a low degree of mortality aversion. The non-separable modelreverts the counterfactual predictions of the standard model, and it also provides plausiblemeasures of changes in welfare and inequality around the world.Welfare; life expectancy; value of statistical life; mortality risk aversion; Epstein-Zin-Weil pref- erences; AIDS.

On the Role of Risk Aversion and Market Design in Capacity Expansion Planning

Investment decisions in competitive power markets are based upon thorough profitability assessments. Thereby, investors typically show a high degree of risk aversion, which is the main argument for capacity mechanisms being implemented around the world. In order to investigate the interdependencies between investors\u27 risk aversion and market design, we extend the agent-based electricity market model PowerACE to account for long-term uncertainties. This allows us to model capacity expansion planning from an agent perspective and with different risk preferences. The enhanced model is then applied in a multi-country case study of the European electricity market. Our results show that assuming risk-averse rather than risk-neutral investors leads to slightly reduced investments in dispatchable capacity, higher wholesale electricity prices, and reduced levels of resource adequacy. These effects are more pronounced in an energy-only market than under a capacity mechanism. Moreover, uncoordinated changes in market design may also lead to negative crossborder effects

The ECB's Independence under Siege - Political Audience Cost Theory and Unconventional Monetary Policy

Since the beginning of the global financial crisis in the fall of 2008, the European Central Bank (ECB) and other central banks around the world have reached far beyond classical monetary policy in order to prevent the collapse of the financial system. Today, several years after any immediate risk of financial collapse has passed and despite the questionable track record of unconventional monetary policy, monetary policy has still not normalized, leaving us wondering why the ECB continues to engage in unconventional monetary policy. Applying the Audience Cost Theory, this dissertation shows that the ECB is indeed susceptible to external audience groups’ monetary policy preferences. The analysis shows that these preferences are a good indicator of actual ECB policy-making between 2007 and 2014, as for the majority of the time period covered, the ECB’s refinancing rate moved in line with the average Eurozone monetary policy preference

The macroeconomics of pandemics around the world: Lives versus livelihoods revisited

The COVID-19 pandemic led governments around the world to impose unprecedented restrictions on economic activity. Were these restrictions equally justified in poorer countries with fewer demographic risk factors and less ability to weather economic shocks? We develop and estimate a fully specified model of the macroeconomy with epidemiological dynamics, incorporating subsistence constraints in consumption and allowing preferences over "lives versus livelihoods" to vary with income. Poorer countries' demography pushes them unambiguously toward laxer policies. But because both infected and susceptible agents near the subsistence constraint will remain economically active in the face of infection risk and even to some extent under government containment policies, optimal policy in poorer countries pushes in the opposite direction. Moreover, for reasonable income-elasticities of the value of a statistical life, the model can fully rationalize equally strict or stricter policies in poorer countries

Patients’ preferences for fracture risk communication : the Risk Communication in Osteoporosis (RICO) study

Summary The RICO study indicated that most patients would like to receive information regarding their fracture risk but that only a small majority have actually received it. Patients globally preferred a visual presentation of fracture risk and were interested in an online tool showing the risk. Purpose The aim of the Risk Communication in Osteoporosis (RICO) study was to assess patients’ preferences regarding fracture risk communication. Methods To assess patients’ preferences for fracture risk communication, structured interviews with women with osteoporosis or who were at risk for fracture were conducted in 11 sites around the world, namely in Argentina, Belgium, Canada at Hamilton and with participants from the Osteoporosis Canada Canadian Osteoporosis Patient Network (COPN), Japan, Mexico, Spain, the Netherlands, the UK, and the USA in California and Washington state. The interviews used to collect data were designed on the basis of a systematic review and a qualitative pilot study involving 26 participants at risk of fracture. Results A total of 332 women (mean age 67.5 ± 8.0 years, 48% with a history of fracture) were included in the study. Although the participants considered it important to receive information about their fracture risk (mean importance of 6.2 ± 1.4 on a 7-point Likert scale), only 56% (i.e. 185/332) had already received such information. Globally, participants preferred a visual presentation with a traffic-light type of coloured graph of their FRAX® fracture risk probability, compared to a verbal or written presentation. Almost all participants considered it important to discuss their fracture risk and the consequences of fractures with their healthcare professionals in addition to receiving information in a printed format or access to an online website showing their fracture risk. Conclusions There is a significant communication gap between healthcare professionals and patients when discussing osteoporosis fracture risk. The RICO study provides insight into preferred approaches to rectify this communication gap

Longevity assets and pre-retirement consumption/portfolio decisions

We derive a closed form solution for the optimal consumption/investment problem of an agent whose force of mortality is stochastic and whose financial horizon coincides with a fixed retirement date. The investment set includes a longevity asset, as a derivative on the force of mortality. We explore the optimal choices of a representative agent having Hyperbolic Absolute Risk Aversion preferences on both consumption and final wealth. Our numerical analysis shows that individuals optimally invest a large fraction of their wealth in the longevity asset. In our base scenario, calibrated on real world data, a 60-year old male retiring after 5 years should invest around 88% of his wealth in the longevity asset. Such a percentage decreases as time to retirement decreases. We explore sensitivity of our results to market and individual characteristics

Risk preference discrepancy : a prospect relativity account of the discrepancy between risk preferences in laboratory gambles and real world investments

In this article, we presented evidence that people are more risk averse when investing in financial products in the real world than when they make risky choices between gambles in laboratory experiments. In order to provide an account for this discrepancy, we conducted experiments, which showed that the range of offered investment funds that vary in their riskreward characteristics had a significant effect on the distribution of hypothetical funds to those products. We also showed that people are able to use the context provided by the choice set in order the make relative riskiness judgments for investment products. This context dependent relativistic nature of risk preferences is proposed as a plausible explanation of the risk preference discrepancy between laboratory experiments and real-world investments. We also discuss other possible theoretical interpretations of the discrepancy