We endogenize preferences using the “indirect evolutionary approach”. Individuals are randomly matched to play a two-person game. Individual (subjective) preferences determine their behaviour and may differ from the actual (objective) pay-offs that determine fitness. Matched individuals may observe the opponents' preferences perfectly, not at all, or with some in-between probability. When preferences are observable, a stable outcome must be efficient. When they are not observable, a stable outcome must be a Nash equilibrium and all strict equilibria are stable. We show that, for pure-strategy outcomes, these conclusions are robust to allowing almost perfect, and almost no, observability, with the notable exception that inefficient strict equilibria may fail to be stable with any arbitrarily small degree of observability (despite being stable with no observability).

Journal Article Portfolio Choice and Saving in an Optimal Consumption-Leisure Plan Get access J. C. Cox J. C. Cox University of Massachusetts Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 42, Issue 1, January 1975, Pages 105–116, https://doi.org/10.2307/2296824 Published: 01 January 1975

Is there too much or too little research and development (R&D)? In this paper we bridge the gap between the recent growth literature and the empirical productivity literature. We derive in a growth model the relationship between the social rate of return to R&D and the coefficient estimates of the empirical literature and show that these estimates represent a lower bound. Furthermore, our analytic framework provides a direct mapping from the rate of return to the degree of underinvestment in research. Conservative estimates suggest that optimal R&D investment is at least two to four times actual investment.

We examine changes in the pricing and financial structure of large management buyouts in the 1980s. Over time, (1) buyout price to cash flow ratios rose in absolute terms (particularly in deals financed using public junk bonds); (2) required bank principal repayments accelerated, leading to sharply lower ratios of cash flow to total debt obligations; (3) private subordinated and bank debt were replaced by public junk debt; and (4) management teams and dealmakers took more money out of transactions up front. These patterns are consistent with an “overheating” phenomenon in the buyout market. Preliminary post-buyout evidence lends some support to this interpretation.

We examine the connection between exchange rates and foreign direct investment that arises when globally integrated capital markets are subject to informational imperfections. These imperfections cause external financing to be more expensive than internal financing, so that changes in wealth translate into changes in the demand for direct investment. By systematically lowering the relative wealth of domestic agents, a depreciation of the domestic currency can lead to foreign acquisitions of certain domestic assets. We develop a simple model of this phenomenon and test for its relevance in determining international capital flows.

The empirical literature on credit risk has relied mostly on the corporate bond market to estimate losses in the event of default. The reason for this is that, as bank loans are private instruments, few data on loan losses are publicly available. The contribution of this paper is to apply mortality analysis to a unique set of micro-data on defaulted bank loans of a European bank. The empirical results relate to the timing of recoveries on bad and doubtful bank loans, the distribution of cumulative recovery rates, their economic determinants and the direct costs incurred by that bank on recoveries on bad and doubtful loans.

The exact distribution of the regression t statistic for testing the value of the AR parameter in a Gaussian first ord er autoregressive model is investigated by Monte Carlo methods. The S tudent's t distribution is not a satisfactory approximation for sampl es typical in economic applications. The main problem is the location of the distribution of the t statistic rather than the shape. Once t he t statistic is adjusted so that it has the same mean and standard deviation as Student's t, the distribution of the adjusted t statisti c is accurately approximated by Student's t. Techniques are presented for mak-ing these adjustments in practice. Copyright 1988 by The Econometric Society.