Management of a Capital Stock by Strotz's Naive Planner

A generalized version of the capital management problem posed in a classic paper by R. H. Strotz is analyzed for the case of the "naive" planner who fails to anticipate any impending change in his own preferences. By imposing progressively stronger restrictions on the primitives of the problem --- namely, the planner's discounting function, his utility index function, and the investment technology --- the path of the capital stock is characterized first implicitly as the solution to a differential equation and then explicitly via formulae that may or may not be expressible in closed form. Inasmuch as this procedure turns out to leave the discounting function essentially unrestricted, the theory can accommodate, in particular, decision makers who discount time according to the type of hyperbolic curve said to be suggested by psychological studies. Strategies for numerical computation of capital paths are discussed and are demonstrated in sample planning problems.consumption, computation, hyperbolic discounting, time preference.

Cognitive Constraints, Contraction Consistency, and the Satisficing Criterion

A theory of decision making is proposed that offers an axiomatic basis for the notion of "satisficing" postulated by Herbert Simon. The theory relaxes the standard assumption that the decision maker always fully perceives his preferences among the available alternatives, requiring instead that his ability to perceive any given preference be decreasing with respect to the complexity of the choice problem at hand. When complexity is aligned with set inclusion, this exercise is shown to be equivalent to abandoning the contraction consistency axiom of classical choice theory.Choice function, Perception, Revealed preference, Threshold

Management of a Capital Stock by Strotz's Naive Planner

The capital management problem posed by R. H. Strotz is analyzed for the case of the "naive" planner who fails to anticipate changes in his own preferences. By imposing progressively stronger restrictions on the primitives of the problem - namely, the discounting function, the utility index function, and the investment technology - the planner's behavior is characterized first as the solution to an ordinary differential equation and then via explicit formulae. Inasmuch as these characterizations leave the discounting function essentially unrestricted, the theory can accommodate, in particular, decision makers who discount time according to the hyperbolic and "quasi-hyperbolic" curves used in applied work and said to be supported by psychological studies. Comparative statics of the model are discussed, as are extensions of the analysis to allow for credit constraints, limited foresight, and partial commitment.Consumption, Commitment, Hyperbolic discounting, Time preference

Municipal Identity as Property

Detroit is bankrupt, and very little of the theorizing and editorializing about this watershed event has contemplated municipal boundary law as a contributing factor. To the extent that it has, the analysis fails to grasp how essential municipal boundaries are to the creation of economic and social value in the modem metropolis. It has been almost 20 years since Richard Briffault, Gerald Frug, and Richard Ford released their path-breaking scholarship on the municipal boundary problem, yet metropolitan regions continue to fragment in much the same way Detroit did throughout the twentieth century. The persistent fragmentation evident in many metropolitan areas raises familiar questions about the meaning and function of municipal boundaries and how local government law should respond. At the center of the contemporary metropolitan boundary problem are the localist ambitions of the cityhood and annexation movements. Their appeal underscores the extent to which the politics around metropolitan area location, autonomy, and identity (specifically in relation to the suburbs) are understood, expressed and defended by laymen and courts alike in the rhetoric and logic of property rights. The relationship between private property rights and the perceived right to autonomous local government has taken on popular meanings that, while not always grounded in actual law, do have a real impact on politics. That perceived entitlement forms the ideological basis for what is essentially a socially constructed property right in municipal identity. Municipal identity as property is largely a reflection of the high-stakes nature of contemporary suburban identity. Suburban residents feel particularly threatened by the prospect of being swallowed up by their metropolitan area central city, or, even worse, ending up in an unincorporated, undervalued location. The extent to which residing in a particular municipality is understood as highly consequential for wealth building, quality of life, family security, and status is a key feature of the contemporary suburban identity and experience. Battles over municipal boundaries reveal the ways in which suburban residents express what amounts to a deeply felt entitlement to separate government. While notions of municipal identity as property reflect the cumulative weight of twentieth-century social and economic developments, the courts have played a role as well. Legal rhetoric and legal reasoning are essential components of the property rights expectations that municipal identity fosters. This Article explores how municipal boundary law, social developments, and jurisprudence have bolstered a perceived property right in municipal identity and its role in shaping the modem metropolis

Annexation and the Mid-Size Metropolis: New Insights in the Age of Mobile Capital

Metropolitan regions are led by their central cities. They want and need to grow, but the suburban sprawl and municipal fragmentation that growth produces stand in the way. Fragmentation handicaps the central city’s ability to effectively coordinate responses to regional issues. Mid-size regions are especially vulnerable to the effects of fragmentation, as they face unique economic development and sociological challenges. First, mid-size regions lack many of the assets necessary to compete globally for mobile capital. Second, social inequality plays out differently in mid-size regions, which are spatially constrained and have pervasive low-density land use patterns. Municipal boundaries reflect these divisions and determine who gets to participate in the redistribution of the community’s resources. Of the many urban policy options available for addressing these challenges, annexation is both the most potent and the most controversial. This article explores how the growth ambitions of mid-size central cities are affected by their respective state annexation regimes. The article examines annexation battles in Mississippi, Tennessee, and North Carolina to observe how different annexation regimes help or hinder midsize central cities. Ultimately the article finds that mid-size central cities need annexation regimes that help them to address social inequality while maximizing their economic competitiveness

Exploring the Boundaries of Municipal Bankruptcy

Municipal fiscal insolvency has become the central challenge facing American cities. Municipal fiscal insolvency is the result of many factors, including risk taking, fiscal mismanagement, corruption, and the absence of political will to make hard choices. There are also structural factors at play-specifically, local government organization and the fiscal constraints states place on their subdivisions play a significant role in the ability of municipalities to achieve sustainability and growth. These factors are rarely included in the discussion on municipal fiscal insolvency, and understandably so. It is hard to determine the role that local government organization plays in undermining the fiscal health of a municipality relative to issues such as the pension crisis or corruption. While most municipalities address events of fiscal crisis through negotiation and the intervention of states, a small but increasing number have turned to Chapter 9 bankruptcy. While bankruptcy is controversial, it holds many advantages for cities and their creditors. However, there is more that Chapter 9 could do if bankruptcy courts were allowed to require municipalities and states to address the structural drivers that might accrue to local government organization. This would require a significant reworking of Chapter 9, however, and would implicate serious constitutional issues. Without the exploration of these changes, bankruptcy courts cannot ensure that the structural determinants that might have contributed to the default in the first place don\u27t happen again