We identify the relative importance of changes in the conditional variance of fundamentals (which we call uncertainty) and changes in risk aversion in the determination of the term structure, equity prices and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in price-dividend ratios and the equity risk premium is primarily driven by risk aversion, uncertainty plays a large role in the term structure and is the driver of counter-cyclical volatility of asset returns.

This article introduces a model of rationality that combines proce-dural utility over actions with consequential utility over payo¤s. It ap-plies the model to the Prisoners ’ Dilemma and shows that empirically observed cooperative behaviors can be rationally explained by a proce-dural utility for cooperation. The model characterizes the situations in which cooperation emerges as a Nash equilibrium. When ratio-nal individuals are not solely concerned by the consequences of their behavior but also care for the process by which these consequences are obtained, there is no one single rational solution to a Prisoners’ Dilemma. Rational behavior depends on the payo¤s at stake and on the procedural utility of individuals. In this manner, this model of procedural utility re‡ects how ethical considerations, social norms or emotions can transform a game of consequences. Keywords:

International immigration and mobility across sectors: an exploration of alternative scenarios for Spain

Analysis and visualization of synchronicity in

A positive and normative evaluation of alternative monetary policy regimes is addressed in a two-country general equilibrium model. The behavior of the exchange rate, as well as of the other macro-economic variables, depends crucially on the monetary regime chosen, though not necessarily on monetary shocks. The centralized welfare criterion presents a trade-o ¤ between sta-bilizing the economy around the ‡exible-price allocation and reducing the volatility of nominal interest rates. In this framework some form of control of the exchange rate is welfare-improving.

Abstract Three experiments examined the eect of costs associated with investments on the judgments of the causal eectiveness of those investments, and on the type of information utilised when making those judgements. Using operant conditioning technology, in an experimental analogue of making economic investments, it was found that greater costs associated with an investment reduced the judgement about the eectiveness of the response (Experiment 1). Greater investment costs tended to bias the subject toward using information integrated over a longer period of time; whereas low costs tended to produce judgements made on the basis of the conditions prevailing immediately prior to the return being acquired (Experiments 1±3). The eect of cost was modulated by the subjects' own ®nancial background. The same absolute cost being treated as``greater'' by those from less wealthy backgrounds compared to those from more auent backgrounds (Experiments 2 and 3). These results suggest that as well as the nature of the schedule relating investment to return, the perceived cost of the investment determines the manner in which it is judged with respect to its ecacy. Ó 1999 Elsevier Science B.V. All rights reserved.

This paper o¤ers interpretations and applications of the “fear of ruin ” coe¢cient (Aumann and Kurz, 1977, Econometrica). This coe¢cient is useful for analyzing the behavior of expected utility maximizers when they face binary lotteries with the same worse outcome. Comparative statics results of “more fear of ruin ” are derived. The partial ordering induced by the fear of ruin coe¢cient is shown to be weaker than that induced by the Arrow-Pratt coe¢cient.

JEL classi…cation codes: E31, C22, E52.

Abstract This paper investigates an extended version of JEL classi…cation: C72, D81, D82, D83

Abstract This paper introduces a market size dependent …rm entry cost into the Helpman, JEL Classi…cation: D21, F12, F15