Marginal Rate Of Substitution Research Articles

A novel cross-entropy and entropy measures of IFSs and their applications

In this paper we discussed novel cross-entropy and entropy models on intuitionism and fuzziness of intuitionistic fuzzy sets (IFSs). In order to measure the discrimination uncertain information, cross-entropy and symmetric cross-entropy are defined based on intuitionistic factor and fuzzy factor. In particular, the constructive principle of entropy is refined; relationship between cross-entropy and entropy is investigated, so we establish a novel intuitionistic fuzzy entropy formula that simultaneously takes into account intuitionistic entropy and fuzzy entropy. We also propose concepts of marginal rate of substitution (MRS) and elasticity of substitution (ES) to describe substitution effect between intuitionism and fuzziness. Moreover, we extend the cross-entropy and entropy models to general version, which could be adjusted by different parameters, and comparative analysis with other existed cross-entropy and entropy measures are presented. Finally, we give applications of pattern recognition and decision making to demonstrate the efficiency of the cross-entropy and entropy models.

Effect of travel distance on household demand for typhoid vaccines: implications for planning

Typhoid fever causes millions of illnesses and hundreds of thousands of deaths yearly. Vaccinations would mitigate this problem, but the users would probably have to pay some or most of the cost. Several willingness-to-pay studies have assessed the effect of price on private demand to provide a basis for financial planning of campaigns, but the effect of travel distance, which is a potentially important determinant of demand, has not been studied. This paper thus has two objectives: (i) conduct a willingness-to-pay survey to assess the effects of distance, price and other variables on the private demand for typhoid vaccinations in a rural township of China where a campaign is under consideration; and (ii) embed the demand function in a mathematical model to address three planning questions; should each village have its own clinic, would one clinic be best or should the number of clinics be something in-between? Private vaccine demand was found to depend on and be inelastic with respect to both price and travel distance. A 1-km increase in distance caused the number of vaccinations demanded to decrease the same as a $0.5 increase in price. Thus, the marginal rate of substitution was $0.5 per km. A single clinic would be best for the township only if diseconomies of scale in supplying vaccinations exceeded the marginal rate of substitution. Otherwise, multiple clinics close to users would be optimal. Thus, deciding the number, location and capacities of clinics for vaccination planning is as important as deciding what price(s) to charge.

Corporate Finance Multidimensional Signaling Games: Theory and Evidence

The research question of this dissertation concerns the interaction between multiple corporate finance signaling devices and multidimensional private information. First, while traditional corporate finance theories and empirical works are concerned with the question of whether an activity serves as a signaling device, I provide an analytical tool for answering a more subtle question: To what extent does an activity serve as such a device? In order to answer this question, this study introduces a novel concept: the contribution of a signaling device to the informativeness of equilibrium - where informativeness is the degree to which the market can differentiate between firms. Second, this study examines an additional channel of indirect signaling, where one device conveys information regarding the marginal rate of substitution of a second device. This framework leads to new theoretical insights, for example, the notion that an activity may serve as a signaling device, even if its costs are positively correlated with firm quality. I provide novel empirical evidence, regarding the signaling interaction of two long-debated practices - open market stock repurchases and insider trading. Consistent with my empirical predictions, I find evidence that (a) the market reaction to share repurchases depends on the amount of information conveyed by changes in mangers’ holdings, (b) future operating performance is quasi-concave in managers’ net purchases and firms’ actual repurchases, (c) non-monotonicity of share repurchases in future operating performance (d) share repurchases are followed by increase in firm risk and (e) when accompanied with share repurchases, managers’ holdings increase with future firm risk.

Subjective Well-Being and Air Quality in Germany

This paper analyses the relation between air quality and subjective well-being in Germany. Life Satisfaction (LS) data from the German Socio-Economic Panel Study (SOEP) is connected with daily county pollution in terms of carbon monoxide (CO), nitrogen dioxide (NO2) and ozone (O3) from 1998 to 2008. The assumed microeconometric happiness function is estimated considering individual time invariant effects. It is observed that O3 has a significant negative impact on life satisfaction. The estimated influence of current CO as well as NO2 is not significant. Moreover, I found that LS of people with environmental worries is more affected by ozone pollution. This was not the case for people with a bad health status. Using the marginal rate of substitution between income and air pollution, it is calculated that an increase of one µg/m3 in daily average county O3 has to be compensated by an increase of €11.33 in monthly net household income to hold an average individual's LS constant.

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ON THE SUSTAINABLE GROWTH IN AN ECONOMY WITH PERFECTLY SUBSTITUTABLE EXHAUSTIBLE RESOURCES

Abstract A model of sustainable economic growth in an economy with two types of exhaustible resources is analyzed. The resources are assumed to be perfect substitutes with marginal rate of substitution varying over time. The optimal control framework is used to characterize the optimal paths under the maximin criterion. It is shown that the resource with increasing productivity is not used before the constant productivity resource is depleted. Afterwards the resource with an increasing productivity is asymptotically depleted as well. The results are based on an assumption that transversality conditions hold. A new sufficient condition for the transversality conditions is derived. Finally, an analogue of Hartwick’s rule for this non‐autonomous case is established.

A Method based on Marginal Rate of Substitution for Modeling Traveler Behavior of Choice among Different Transportation Services

This paper has two goals. One is to offer a new way to analyze traveler behaviors of choice of different transportation services based on the conception of marginal rate of substitution (MRS) and the other is to propose a method to calculate MRS with travel demand functions instead of marginal utility which is difficult to obtain. The MRS can be used to describe how much a traveler is willing to substitute one transportation service for one unit of another service while maintaining his/her originally achieved utility. This methodology applies to all substitution relationships among different trip modes, time periods, etc. An example is given to illustrate the calculation of the MRS between transit and private car services and the impacts of each variable or parameter on MRS are analyzed. The proposed methodology can help analyze travel behaviors of choice of transportation services and evaluate policies for travel demand management.

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Can Marginal Rates of Substitution Be Inferred from Happiness Data? Evidence from Residency Choices

We survey 561 students from U.S. medical schools shortly after they submit choice rankings over residencies to the National Resident Matching Program. We elicit (a) these choice rankings, (b) anticipated subjective well-being (SWB) rankings, and (c) expected features of the residencies (such as prestige). We find substantial differences between choice and anticipated-SWB rankings in the implied tradeoffs between residency features. In our data, evaluative SWB measures (life satisfaction and Cantril’s ladder) imply tradeoffs closer to choice than does affective happiness (even time-integrated), and as close as do multi-measure SWB indices. We discuss implications for using SWB data in applied work.

Consumer Preferences for Health and Nonhealth Outcomes of Health Promotion: Results from a Discrete Choice Experiment

ObjectiveHealth promotion (HP) interventions have outcomes that go beyond health. Such broader nonhealth outcomes are usually neglected in economic evaluation studies. To allow for their consideration, insights are needed into the types of nonhealth outcomes that HP interventions produce and their relative importance compared with health outcomes. This study explored consumer preferences for health and nonhealth outcomes of HP in the context of lifestyle behavior change. MethodsA discrete choice experiment was conducted among participants in a lifestyle intervention (n = 132) and controls (n = 141). Respondents made 16 binary choices between situations that can be experienced after lifestyle behavior change. The situations were described by 10 attributes: future health state value, start point of future health state, life expectancy, clothing size above ideal, days with sufficient relaxation, endurance, experienced control over lifestyle choices, lifestyle improvement of partner and/or children, monetary cost per month, and time cost per week. ResultsWith the exception of “time cost per week” and “start point of future health state,” all attributes significantly determined consumer choices. Thus, both health and nonhealth outcomes affected consumer choice. Marginal rates of substitution between the price attribute and the other attributes revealed that the attributes “endurance,” “days with sufficient relaxation,” and “future health state value” had the greatest impact on consumer choices. The “life expectancy” attribute had a relatively low impact and for increases of less than 3 years, respondents were not willing to trade. ConclusionsHealth outcomes and nonhealth outcomes of lifestyle behavior change were both important to consumers in this study. Decision makers should respond to consumer preferences and consider nonhealth outcomes when deciding about HP interventions.

On Homogeneous Production Functions with Proportional Marginal Rate of Substitution

We completely classify homogeneous production functions with proportional marginal rate of substitution and with constant elasticity of labor and capital, respectively. These classifications generalize some recent results of C. A. Ioan and G. Ioan (2011) concerning the sum production function.

Optimal Wealth Taxes with Risky Human Capital

We study the structure of optimal wealth and labor income taxes in a Mirrlees economy in which the productivity of labor (i.e., skill) is private, stochastic, and endogenous. Individual agents' skills are determined by their level of human capital. Human capital is not publicly observable and the returns to human capital investment are subject to idiosyncratic shocks. Preferences are not assumed to be additively separable in consumption and human capital investment and, thus, the intertemporal marginal rates of substitution of consumption are private information. We characterize the optimal allocation and a tax system that implements this allocation in equilibrium. The optimal allocation does not satisfy the reciprocal Euler equation of Rogerson (Econometrica, 1985), which holds in Mirrlees economies with exogenous skills. The tax system we use in our decentralization of the optimum consists of a wealth tax that is linear in wealth and a labor income tax that depends solely on labor income. The result of Kocherlakota (Econometrica, 2005), establishing the optimality of zero expected marginal wealth tax rate, holds in our model. We show that endogenous skill determination affects the volatility of marginal wealth taxes rather than their expectation. Relative to economies with exogenous skills, the optimal marginal wealth tax rate is more volatile in our endogenous skill economy. Also, we demonstrate the optimality of a wedge in the returns on the two assets present in our economy: At the optimum, the marginal return on human capital investment is strictly larger than the marginal return on physical capital investment.

Central bank transparency: Does it matter?

We study transparency of monetary policy in a dynamic stochastic general equilibrium model. The economy consists of many industries and experiences both supply and demand shocks. The central bank has private information regarding these shocks and releases its forecasts of shocks under the transparent regime. For a certain class of preferences social welfare does not depend on the degree of transparency and the policy that keeps the wedge between the marginal rate of substitution and the marginal product of labor constant across the states is shown to be optimal. However, in general the opaque regime welfare dominates the transparent regime.

Consumption-Based Asset Pricing Models

A major research initiative in finance focuses on the determinants of the cross-sectional and time series properties of asset returns. With that objective in mind, asset pricing models have been developed, starting with the capital asset pricing models of Sharpe (1964), Lintner (1965), and Mossin (1966). Consumption-based asset pricing models use marginal rates of substitution to determine the relative prices of the date, event-contingent, composite consumption good. This model class is characterized by a stochastic discount factor process that puts restrictions on the joint process of asset returns and per capita consumption. This review takes a critical look at this class of models and their inability to rationalize the statistics that have characterized US financial markets over the past century. The intuition behind the discrepancy between model prediction and empirical data is explained. Finally, the research efforts to enhance the model's ability to replicate the empirical data are summarized.

Tempering effects of (dependent) background risks: A mean-variance analysis of portfolio selection

In a mean variance framework, we analyse risk taking in the presence of a (possibly) dependent background risk, exemplified in a linear portfolio selection problem. We first characterise the comparative statics of changes in the distribution and dependence structure of the background risk. For unfair, undesirable and loss-aggravating increases in background risks (both dependent and independent), we then present necessary and sufficient restrictions on preferences such that greater background uncertainty leads to reduced risk taking. With mean-variance preferences, these restrictions boil down to simple conditions on the marginal rate of substitution between risk and return. They can be easily related to familiar notions such as risk vulnerability, properness or standardness.

Fatter Attraction: Anthropometric and Socioeconomic Matching on the Marriage Market

We construct a marriage market model of matching along multiple dimensions, some of which are unobservable, in which individual preferences can be summarized by a one-dimensional index combining the various characteristics. We show that, under testable assumptions, these indices are ordinally identified and that the male and female trade-offs between their partners’ characteristics are overidentified. Using PSID data on married couples, we recover the marginal rates of substitution between body mass index (BMI) and wages or education: men may compensate 1.3 additional units of BMI with a 1 percent increase in wages, whereas women may compensate two BMI units with 1 year of education.

Nonmyopia and incentives in the piecewise linearized MDP procedures with variable step-sizes

The paper formulates a piecewise linearized version of the procedure developed by Sato (1983) and analyzes its properties. In so doing, Fujigaki’s (1981) private goods economy is extended to involve a public good; and the intertemporal game of Champsaur and Laroque is piecewise localized by dividing the time interval in their game and by using variable step-sizes to formalize the piecewise linearized procedure, called λMDP Procedure, that can possess similar desirable properties shared by continuous-time procedures. Under Nonmyopia assumption, each player’s best reply strategy at any discrete date is to reveal his/her anticipated marginal rate of substitution for a public good at the end of a current time interval of the λ MDP Procedure.JEL Classification:H41.

Valuing public goods using happiness data: The case of air quality

This paper describes and implements a method for valuing a time-varying local public good: air quality. It models survey respondents' self-reported happiness as a function of their demographic characteristics, incomes, and the air pollution and weather on the date and in the place they were surveyed. People with higher incomes report higher levels of happiness, and people interviewed on days with worse local air pollution report lower levels of happiness. Combining these two concepts, I derive the average marginal rate of substitution between income and current air quality — a compensating differential for short-term changes in air pollution.

A DEA Approach to Measure the Quality-of-Life in the Municipalities of the Canary Islands

The notion of the quality of life has always intrigued economists, sociologists and other researchers in the area of social science. Since the genesis of the definition of Gross Domestic Product (GDP) as a truthful measure of well-being and economic development, other sophisticated methodologies have been proposed in the literature to measure the quality-of-life (QOL) that extend in a multidimensional way this complex concept. Measuring QOL in municipalities consists in finding a set of comparable attributes that can be weighted by some metric in order to construct a synthetic index. Thus, the narrow vision obtained by a single measure as the GDP, in which differences in the QOL cannot be fully analyzed, is overcome. Based upon a refinement of data envelopment analysis (DEA)—the cross-efficiency method, the current paper develops a synthetic QOL index that is based in 19 partial indicators which present the tradeoffs of different dimension for the 87 municipalities of the Canary Islands in Spain. Marginal rates of substitution are calculated to evaluate the tradeoffs on QOL dimensions. A method is also proposed to determine the scores chart of each municipality which can be used as a tool to policy makers in order to establish a program of improving the ranking position of the municipality identifying the critical QOL factors.

Golden rule optimality in stochastic OLG economies

This study examines conditional golden rule optimality (CGRO) in stochastic overlapping generations models to complement the existing results on conditional Pareto optimality (CPO). Although an example in which CPO implies CGRO is presented, it is shown that such a situation is avoidable under strictly convex preferences. Under such preferences, both CPO and CGRO are characterized by the conditions on the dominant root for the agents’ common matrix of marginal rates of substitution. We demonstrate that CGRO requires the dominant root being exactly equal to one, whereas CPO allows it to be less than one. By adopting CGRO rather than CPO, we provide welfare theorems in the financial economy.