The purpose of this paper is to indicate that the opportunity to obtain information regarding the probability distribution of the return on a risky asset, such as a portfolio or a mutual fund, may cause a risk-averse decision maker to accept a single-period actuarially unfair gamble. This behavior is the same as that implied by utility functions that have convex segments, as originally considered by Friedman and Savage [2] and by Markowitz [12], but the utility function derived is not convex on any interval, since it is the envelope of a finite set of strictly increasing, strictly concave functions. Similar utility functions have been obtained, by Fleming [1] because of transactions costs, by Hakansson [4] by imposing a borrowing restriction on an investment-consumption model, and by Masson [14] in the context of an imperfect capital market. In this paper acceptance of single-period actuarially unfair gambles by an individual risk averse with respect to future wealth levels results from the opportunity to acquire information. The acquisition of information creates a set of conditional decisions each of which the individual may treat in an optimal manner, and that set of conditional decisions may induce risk-taking behavior.

Most studies of the demand for cars are designed to explain new purchases and assume that purchases are divided into net investment and replacement. Replacement is invariably identified with stock depletion, defined either as scrapping (determined by the length of life of a car) or as depreciation (determined by the decline in the price of a used car with age). Implicit in these theories is the assumption that the elasticity of substitution between the new and used car markets is rather high. This assumption is necessary to ensure that the price mechanism will induce consumers to buy new cars to make good the stock depleted by the scrapping or depreciation of used cars. Most empirical evidence indicates that this assumption is not justified and that new and used cars are poor substitutes, e.g. [1], [8] and [6]. Since the low degree of substitution between the two markets insulates new car purchases from the factors that influence the stock of used cars, stock depletion cannot explain replacement purchases of new cars. In this note an alternative approach will be suggested and its use illustrated by the case of new car sales in the US. The advantages of this approach are: (1) replacement is directly observable; (2) the assumption of perfect substitution between new and used car services is not necessary; and (3) it may help account for a series of implausible estimates of the depreciation rate that have been obtained from more orthodox models. It is generally accepted in the US automobile industry that new and used cars are bought by distinct groups. For instance, White in a recent study of the industry [6] says: New cars are not bought by a random selection of car owners but, instead, tend to be bought by a small group who buy new cars comparatively frequently and sell their used cars to the general public to hold. As an approximation, therefore, we can split buyers into two groups, those who buy their car new and those who buy it used, treating these groups as distinct. The demand of the new car buying group is primarily for replacement, since between 80 and 90 per cent of them trade-in or sell an old car when buying a new one; the average time from purchase to resale is between two and three years. This leads us to a definition of replacement as the process by which a consumer disposes of a car bought i years ago and purchases a new one. The existence of a well-developed second-hand market confirms that the replacement interval, i, is considerably shorter than the lifetime of a car, so that replacement does not equal scrapping. This replacement interval will vary between household and we shall observe a distribution of intervals, say c(i), which will determine the lag distribution generating replacement, U, from past purchases, Q; i.e.

This article comments on the article "Cost of Information and Security Prices: Market Association Tests for Accounting Policy Decisions," by Robert G. May and Gary L. Sundem, published in the January 1973 issue of the journal "The Accounting Review." May and Sundem presented an analysis of the information set underlying a set of market-clearing security prices. The authors conclude that choosing between accounting alternatives on the basis of benefits and costs to society is a complicated procedure and that alternative accounting procedures may lead to alternative sets of market-clearing prices, so that the market association of an unreported accounting alternative may not reflect its actual information content. It is found that the conditions under which market association measures are valid are not as restricted as those found by May and Sundem. It was found that the conditions under which market association measures are valid are not as restricted as those found by May and Sundem. In cases where an unreported accounting alternative provides more timely information than the currently reported alternative, market associations are valid if they are measured over an appropriate time period.

Reviews the book "Self-Instructional Guide to Federal Income Taxation," by Albert J. Schneider.

This paper considers Amtrak from an economic viewpoint. It analyzes Amtrak's markets and determines that there are two: corridors and long distance routes. It suggests criteria for evaluating Amtrak performance. It finds no case for subsidizing the long distance trains, but does cite circumstances under which corridor operations would be deserving of subsidies.

Vincent P. Apilado, Don C. Warner, Joel J. Dauten, Evaluative Techniques in Consumer Finance--Experimental Results and Policy Implications for Financial Institutions, The Journal of Financial and Quantitative Analysis, Vol. 9, No. 2 (Mar., 1974), pp. 275-283