Knowledge that Transforms

Allan H. Meltzer, Is There an Optimal Money Supply?: Discussion, The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 450-453

Massachusetts Institute of Technology. Dept. of Economics. Thesis. 1968. Ph.D.

IN A RECENT ARTICLE in this Journal, Brief and Owen [2] indicated how the coeffident of variation might formally enter into the evaluation of risky projects by considering the rate of return as a random variable. They use the coefficient of variation of the distribution of future cash flows as a measure of earnings risk and find a formal mechanism for relating the coefficient to risk in the world of uncertainty. However, if the distribution of future cash flows is asymmetrical, higher moments may have significant values. Thus, in the case of capital budgeting, skewness in the direction of undesirable returns, i.e., less than average, is particularly important in the evaluation of projects. Since Arditti [1] concluded"that the second and third moments of the probability distribution are reasonable risk measures," Brief and Owen's model can be extended to include the third moment. Defining C as the cost of capital, X as the net cash flows before deducting C, r as the rate of return on cost, and s as the rate of return on net cash flows, we have

Massachusetts Institute of Technology. Dept. of Economics. Thesis. 1969. Ph.D.

Based on the earlier paper, Portfolio selection, in the Journal of finance.

1. Introduction and Doctrinal Background Enter and Latitude for deterioration, and slack in economic thought Exit and voice as impersonations of economics and politics 2. Exit How the exit option works Competition as collusive behavior 3. Voice Voice as a residual of exit Voice as an alternative to exit 4. A Special Difficulty in Combining Exit and Voice 5. How Monopoly Can be Comforted by Competition 6. On Spatial Duopoly and the Dynamics of Two-Party Systems 7. A Theory of Loyalty The activation of voice as a function of loyalty Loyalist behavior as modified by severe initiation and high penalties for exit Loyalty and the difficult exit from public goods (and evils) 8. Exit and Voice in American Ideology and Practice 9. The Elusive Optimal Mix of Exit and Voice Appendixes A. A simple diagrammatic representation of voice and exit B. The choice between voice and exit C. The reversal phenomenon D. Consumer reactions to price rise and quality decline in the case of several connoisseur goods F. The effects of severity of initiation on activism: design for an experiment (in collaboration with Philip G. Zimbardo and Mark Snyder) Index

Massachusetts Institute of Technology. Dept. of Economics. Thesis. 1968. Ph.D.