Firms with private information about the outcomes of production under uncertainty may face capital (liquidity) constraints that prevent them from attaining efficient levels of investment in a world with costly and/or imperfect monitoring. As an alternative, we examine the efficiency of a simple pooling scheme designed to provide a public (cooperative) supply of liquidity that results in the fir...

Article history: Received 20 June 2014 Received in revised form 25 September 2014 Accepted 26 September 2014 Available online 5 October 2014 This paper investigates the time-varying impact of oil price uncertainty on stock prices in China using weekly data on ten sectoral indices over the period January 1997–February 2014. The estimation of a bivariate VAR-GARCH-in-mean model suggests that oil ...

This paper examines the relationship between fertility and human capital investment and its implications for economic growth, focusing on the effects of declining mortality. Unlike the existing literature, this paper stresses the role of uncertainty about the number of surviving children. If the marginal utility of a surviving child is convex, then there will be a precautionary demand for child...

The Learning Cost of Interest Rate Reversals* In this Paper, we suggest a new motivation for why central banks appear averse to reversing recent changes in their interest rate. We show, in a standard monetary model with forward-looking expectations, data uncertainty and parameter uncertainty, that there is a learning cost associated with interest rate reversals. A policy that frequently reverse...

Strong sustainability, according to the common definition, requires that different natural and economic capital stocks have to be maintained as physical quantities separately. Yet, in a world of uncertainty this cannot be guaranteed. To therefore define strong sustainability under uncertainty in an operational manner, we propose to use the concept of viability. Viability means that the differen...

This paper analyzes the effects of time-consistent capital taxation on the level of capital and welfare. We find that a commitment to a zero capital tax shifts the time inconsistency problem towards labor taxes and the provision of public consumption. By comparing the worst timeconsistent policies with and without a commitment to zero capital taxes, we find that the mere existence of a capital ...

Recent developments in econometrics and economic theory attest the growing evidence of strong uncertainty. The paper argues that these developments both question seriously the methodological foundations of the mainstream macroeconomics and support Keynes’s powerful concepts and theory. It emphasizes how replacing ‘risk’ with strong uncertainty suffices to transform the standard four-macro-marke...

This paper proposes a simple model that formalizes a variant of Ohanian's (2001) conjecture explaining the productivity declines observed in the Great Depression. If a large payment shock like an asset-price collapse renders many firms insolvent, other economic agents become exposed to a higher risk of not being paid (payment uncertainty). The payment uncertainty causes endogenous disruptions o...

The theory of real options is used to incorporate the influence of uncertainty on demographic decision-making. The decision to have children is formulated as an investment using portfolio theory. The timing of the decision to have a child is modelled as a real options decision, with uncertainty affecting a woman’s ability to exercise the doption to waitT in order to delay or space births. An in...

Asymmetric awareness of the contracting parties regarding the uncertainty surrounding them is proposed as a reason for incompleteness in contractual forms. An insurance problem is studied between a risk neutral insurer, who has superior awareness regarding the nature of the uncertainty, and a risk averse insuree, who cannot foresee all the relevant contingencies. The insurer can mention in a co...