Moral Hazard with Counterfeit Signals

In many moral hazard problems, the principal evaluates the agent's performance based on signals which the agent may suppress and replace with counterfeits. This form of fraud may affect the design of optimal contracts drastically, leading to complete market failure in extreme cases. I show that in optimal contracts, the principal deters all fraud, and does so by two complementary mechanisms. First, the principal punishes signals that are suspicious, i.e. appear counterfeit. Second, the principal is lenient on bad signals that the agent could suppress, but does not

Envelope Theorems for Non-Smooth and Non-Concave Optimization

We study general dynamic programming problems with continuous and discrete choices and general constraints. The value functions may have kinks arising (1) at indifference points between discrete choices and (2) at constraint boundaries. Nevertheless, we establish a general envelope theorem: first-order conditions are necessary at interior optimal choices. We only assume differentiability of the utility function with respect to the continuous choices. The continuous choice may be from any Banach space and the discrete choice from any non-empty set

A general and intuitive envelope theorem

We present an envelope theorem for establishing first-order conditions in decision problems involving continuous and discrete choices. Our theorem accommodates general dynamic programming problems, even with unbounded marginal utilities. And, unlike classical envelope theorems that focus only on differentiating value functions, we accommodate other endogenous functions such as default probabilities and interest rates. Our main technical ingredient is how we establish the differentiability of a function at a point: we sandwich the function between two differentiable functions from above and below. Our theory is widely applicable. In unsecured credit models, neither interest rates nor continuation values are globally differentiable. Nevertheless, we establish an Euler equation involving marginal prices and values. In adjustment cost models, we show that first-order conditions apply universally, even if optimal policies are not (S,s). Finally, we incorporate indivisible choices into a classic dynamic insurance analysis

Money cycles

Classical models of money are typically based on a competitive market without capital or credit. They then impose exogenous timing structures, market participation constraints, or cash-in-advance constraints to make money essential. We present a simple model without credit where money arises from a fixed cost of production. This leads to a rich equilibrium structure. Agents avoid the fixed cost by taking vacations and the trade between workers and vacationers is supported by money. We show that agents acquire and spend money in cycles of finite length. Throughout such a “money cycle,” agents decrease their consumption which we interpret as the hot potato effect of inflation. We give an example where money holdings do not decrease monotonically throughout the money cycle. Optimal monetary policy is given by the Friedman rule, which supports efficient equilibria. Thus, monetary policy provides an alternative to lotteries for smoothing out non-convexities.

Money Cycles

Classical models of money are typically based on a competitive market without capital or credit. They then impose exogenous timing structures, market participation constraints, or cash-in-advance constraints to make money essential. We present a simple model without credit where money arises from a fixed cost of production. This leads to a rich equilibrium structure. Agents avoid the fixed cost by taking vacations and the trade between workers and vacationers is supported by money. We show that agents acquire and spend money in cycles of finite length. Throughout such a "money cycle," agents decrease their consumption which we interpret as the hot potato effect of inflation. We give an example where money holdings do not decrease monotonically throughout the money cycle. Optimal monetary policy is given by the Friedman rule, which supports efficient equilibria. Thus, monetary policy provides an alternative to lotteries for smoothing out non-convexities.

Speed and learning in the opportunity development process

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Methane from UV-irradiated carbonaceous chondrites under simulated Martian conditions

A UV photolytic process was studied for the production of methane from carbonaceous chondrites under simulated Martian conditions. Methane evolution rates from carbonaceous chondrites were found to be positively correlated to temperature (−80 to 20°C) and the concentration of carbon in the chondrites (0.2 to 1.69 wt%); and decreased over time with Murchison samples exposed to Martian conditions. The amount of evolved methane (EM) per unit of UV energy was 7.9 × 10−13 mol J−1 for UV irradiation of Murchison (1.69 wt%) samples tested under Martian conditions (6.9 mbar and 20°C). Using a previously described Mars UV model (Moores et al., 2007), and the EM given above, an annual interplanetary dust particle (IDP) accreted mass of 2.4 × 105 kg carbon per year yields methane abundances between 2.2 to 11 ppbv for model scenarios in which 20 to 100% of the accreted carbon is converted to methane, respectively. The UV/CH4 model for accreted IDPs can explain a portion of the globally averaged methane abundance on Mars, but cannot easily explain seasonal, temporal, diurnal, or plume fluctuations of methane. Several impact processes were modeled to determine if periodic emplacement of organics from carbonaceous bolides could be invoked to explain the occurrence of methane plumes produced by the UV/CH4process. Modeling of surface impacts of high-density bolides, single airbursts of low-density bolides, and multiple airbursts of a cascading breakup of a low-density rubble-pile comet were all unable to reproduce a methane plume of 45 ppbv, as reported by Mumma et al

Considering issues of power, vulnerability, validity and reliability of research when involving children and young people as research participants

Research with children is viewed often as, potentially, different from research with adults, mainly, because of adult perceptions of children and children's position in adult society, or because children are viewed to be different. Those that argue adapted research techniques with children, also emphasize the competence of children. There however lies also a potential controversy and a question on why, if children are indeed competent social actors, there is a need to use 'child-friendly' methods to communicate with them. This paper presents current debates on the topic, and a key argument that research with children is influenced by the way in which researchers perceive the status of children; this then influences the choice of methods. Views on whether or not children are indistinguishable from adults, or whether or not adults can be full participants of children' worlds, will be presented and discussed alongside ethics and power differentials. The impact of such views as well as other issues on methodological choices will be also discussed. These other issues may include assumptions about childhood; extent to which research with children is valid and reliable, use of language and researcher's interpretation; vulnerability; selection of research settings. Advantages and disadvantages of using a variety of adapted methods (e.g. visual methods) to involve children in research are also discussed. In relation to power and equality in the research process, this paper discusses sources of power and to what extent these are direct (i.e. between individuals) or indirect- (result of socially constructed power).sch_occpub3782pu