3,268 research outputs found
Robust Portfolios and Weak Incentives in Long-Run Investments
When the planning horizon is long, and the safe asset grows indefinitely,
isoelastic portfolios are nearly optimal for investors who are close to
isoelastic for high wealth, and not too risk averse for low wealth. We prove
this result in a general arbitrage-free, frictionless, semimartingale model. As
a consequence, optimal portfolios are robust to the perturbations in
preferences induced by common option compensation schemes, and such incentives
are weaker when their horizon is longer. Robust option incentives are possible,
but require several, arbitrarily large exercise prices, and are not always
convex
On the transition dynamics in endogenous recombinant growth models.
This paper constitutes a first attempt at studying the transition dynamics of the Tsur and Zemel (2007) continuous time endogenous growth framework in which knowledge evolves according to the Weitzman (1998) recombinant process. For a specific choice of the probability function characterizing the Weitzman recombinant process, we find a suitable transformation for the state and control variables in the dynamical system diverging to asymptotic constant growth, so that an equivalent 'detrended' system converging to a steady state in the long run can be tackled. Since the dynamical system obtained so far turns out to be analytically intractable, we rely on numerical simulation in order to fully describe the transition dynamics for a set of values of the parameters.Knowledge Production, Recombinant Expansion Process, Endogenous Balanced Growth, Turnpike, Transition Dynamics
Turnpike Property and Convergence Rate for an Investment Model with General Utility Functions
In this paper we aim to address two questions faced by a long-term investor
with a power-type utility at high levels of wealth: one is whether the turnpike
property still holds for a general utility that is not necessarily
differentiable or strictly concave, the other is whether the error and the
convergence rate of the turnpike property can be estimated. We give positive
answers to both questions. To achieve these results, we first show that there
is a classical solution to the HJB equation and give a representation of the
solution in terms of the dual function of the solution to the dual HJB
equation. We demonstrate the usefulness of that representation with some
nontrivial examples that would be difficult to solve with the trial and error
method. We then combine the dual method and the partial differential equation
method to give a direct proof to the turnpike property and to estimate the
error and the convergence rate of the optimal policy when the utility function
is continuously differentiable and strictly concave. We finally relax the
conditions of the utility function and provide some sufficient conditions that
guarantee the turnpike property and the convergence rate in terms of both
primal and dual utility functions.Comment: 29 page
The numeraire property and long-term growth optimality for drawdown-constrained investments
We consider the portfolio choice problem for a long-run investor in a general
continuous semimartingale model. We suggest to use path-wise growth optimality
as the decision criterion and encode preferences through restrictions on the
class of admissible wealth processes. Specifically, the investor is only
interested in strategies which satisfy a given linear drawdown constraint. The
paper introduces the numeraire property through the notion of expected relative
return and shows that drawdown-constrained strategies with the numeraire
property exist and are unique, but may depend on the financial planning
horizon. However, when sampled at the times of its maximum and asymptotically
as the time-horizon becomes distant, the drawdown-constrained numeraire
portfolio is given explicitly through a model-independent transformation of the
unconstrained numeraire portfolio. Further, it is established that the
asymptotically growth-optimal strategy is obtained as limit of numeraire
strategies on finite horizons.Comment: 32 pages - second, somewhat revised, versio
KNOWLEDGE SPILLOVER, LEARNING INCENTIVES AND ECONOMIC GROWTH
Knowledge spillover implies that the social value of knowledge is higher than its private value and leads to insufficient private investment in human capital. This paper examines implications for economic growth and offers a remedy. An incentive mechanism that implements the socially optimal outcome is offered based on learning subsidy and flat income or consumption taxes (each levied at a different phase of the growth process). The scheme is self-financed in that the tax proceeds cover exactly the subsidy payments at each point of time.endogenous growth, human capital, knowledge spillover, learning incentives, linear taxes, International Development, C61, H21, O33, O38, O41,
Urban Transportation Policy: A Guide and Road Map
The main transportation issues facing cities today fall into familiar categories--congestion and public transit. For congestion, there is now a far richer menu of options that are understood, technically feasible, and perhaps politically feasible. One can now contemplate offering roads of different qualities and prices. Many selected road segments are now operated by the private sector. Road pricing is routinely considered in planning exercises, and field experiments have made it more familiar to urban voters. Concerns about environmental effects of urban trucking have resulted in serious interest in tolled truck-only express highways. As for public transit, there is a need for political mechanisms to allow each type of transit to specialize where it is strongest. The spread of ĂąâŹĆbus rapid transitù⏠has opened new possibilities for providing the advantages of rail transit at lower cost. The prospect of pricing and privatizing highway facilities could reduce the amount of subsidy needed to maintain a healthy transit system. Privately operated public transit is making a comeback in other parts of the world. The single most positive step toward better urban transportation would be to encourage the spread of road pricing. A second step, more speculative because it has not been researched, would be to use more environmentally-friendly road designs that provide needed capacity but at modest speeds, and that would not necessarily serve all vehicles.Transportation policy; Road pricing; Privatization; Product differentiation
Out of the Shadows: Massachusetts Quasi-Public Agencies and the Need for Budget Transparency
Examines the budget and operational information that utility, transportation, and other quasi-public agencies disclose, including online. Calls for higher transparency standards to increase efficiency and prevent corruption. Highlights best practices
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