Target-driven investing: Optimal investment strategies in defined contribution pension plans under loss aversion

Assuming loss aversion, stochastic investment and labour income processes, and a path-dependent target fund, we show that the optimal investment strategy for defined contribution pension plan members is a target-driven 'threshold' strategy. With this strategy, the equity allocation is increased if the accumulating fund is below target and decreased if it is above. However, if the fund is sufficiently above target, the optimal investment strategy switches discretely to 'portfolio insurance'. We show that under loss aversion, the risk of failing to attain the target replacement ratio is significantly reduced compared with target-driven strategies derived from maximising expected utility.Defined Contribution Pension Plan; Investment Strategy; Loss Aversion; Target Replacement Ratio; Threshold Strategy, Portfolio Insurance, Dynamic Programming

Willingness to pay for the conservation and management of wild geese in Scotland

In past times wild geese were an important resource, providing a source of meat, grease for lubrication and waterproofing, and feathers for bedding and arrow flights. Today, with the sale of goose meat no longer allowed in law, the only current market for geese is commercial shooting of non-endangered species such as the pink-footed goose. However, there are other benefits associated with geese which are not priced in the marketplace, but are valued. For example, some people positively value the opportunity to observe geese in the wild (a use-value), while others may take pleasure from simply knowing that they exist (a non-use value). These benefits cannot be provided by conventional markets because it would be prohibitively expensive to exclude people from watching geese and impossible to exclude them from caring about geese. In recent years a number of techniques such as Contingent Valuation (CV) and Choice Experiments (CE) have been established to establish the monetary values of non-market benefits. These techniques aim to measure the willingness to pay (WTP) of beneficiaries through the establishment of hypothetical markets