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State‐Dependent Utility

Edi Karni

in The Handbook of Rational and Social Choice

This chapter reviews the foundational issues raised when the evaluation of consequences is state‐dependent and discusses the various approaches to addressing them. In addition, exposes the theory of ... More

This chapter reviews the foundational issues raised when the evaluation of consequences is state‐dependent and discusses the various approaches to addressing them. In addition, exposes the theory of risk aversion in the presence of state‐dependent preferences and applies it to the analysis of optimal choice of disability insurance.Less

Stated‐Preference Methods for Valuing Environmental Amenities

Wiktor L. Adamowicz, Peter C. Boxall, Jordan J. Louviere, Joffre Swait, and Michael Williams

in Valuing Environmental Preferences: Theory and Practice of the Contingent Valuation Method in the US, EU , and developing Countries

The stated preference (SP) approach allows the individual features or attributes that make up a good to be valued. Experimental design to array attributes and attribute levels into choice sets is ... More

The stated preference (SP) approach allows the individual features or attributes that make up a good to be valued. Experimental design to array attributes and attribute levels into choice sets is fundamental to SP. Respondents typically select one of two choice sets, along with the status quo alternative. SP has a number of advantages over other environmental valuation methods, such as orthogonality in attributes, which avoids colinearity problems of revealed preference methods. An application of SP to mouse hunting in Canada is presented.Less

Should health gains by children be given the same value as health gains by adults in an economic evaluation framework?

Stavros Petrou

in Economic Evaluation in Child Health

Evidence suggesting that a unit of health gain by a child is not of equal value to a unit of health gain by an adult would suggest that age should be considered as an important criterion in health ... More

Evidence suggesting that a unit of health gain by a child is not of equal value to a unit of health gain by an adult would suggest that age should be considered as an important criterion in health care resource allocation decisions. This chapter focuses on whether units of health gain, and specifically quality-adjusted life year (QALY) gains, should be given the same value for children as for adults. It begins by presenting empirical evidence from the revealed preference and stated preference literature on the economic value of health outcomes for children and adults. This is followed by a discussion of methodological issues that require consideration when valuing health gains by children using preference-based techniques. Finally, a future research agenda in this area is outlined.Less

The valuation of ecosystem services

Edward B. Barbier, Stefan Baumgärtner, Kanchan Chopra, Christopher Costello, Anantha Duraiappah, Rashid Hassan, Ann P. Kinzig, Markus Lehman, Unai Pascual, Stephen Polasky, and Charles Perrings

in Biodiversity, Ecosystem Functioning, and Human Wellbeing: An Ecological and Economic Perspective

By harnessing recent results on the relationship between biodiversity and ecosystem functioning to an assessment of the valued services that people obtain from the natural environment, the Millennium ... More

By harnessing recent results on the relationship between biodiversity and ecosystem functioning to an assessment of the valued services that people obtain from the natural environment, the Millennium Ecosystem Assessment (MA) has brought the analysis of ecosystems into the domain of economics. Ecosystem services are defined by the MA as the benefits that people obtain from ecosystems. Since the value of any asset is simply the discounted stream of benefits that are obtained from that asset, the benefit streams associated with ecosystem services may be used to estimate the value of the underlying ecological assets. Those assets are not the traditional stocks of resource economics – minerals, water, timber and so on – but the systems that yield flows of such things. This chapter discusses the value of ecosystems and ecosystem services. It identifies the main methods for valuing different types of ecosystem service, and the role of valuation in developing sustainability indicators. The sustainability of economic development requires that the value of the assets or capital stocks supporting development be maintained over time, and since capital includes produced, human and natural capital, it is important to understand how the value of ecosystems may be changing relative to the value of other capital stocks.Less

MULTI-PERIOD ASSET PRICING

Ser-Huang Poon and Richard Stapleton

in Asset Pricing in Discrete Time: A Complete Markets Approach

‘Multi-period Asset Pricing’ expands the analysis of asset prices to a multi-period economy, where an investor has to make consumption decisions in each period which may lead to consumption and ... More

‘Multi-period Asset Pricing’ expands the analysis of asset prices to a multi-period economy, where an investor has to make consumption decisions in each period which may lead to consumption and wealth being different in the interim periods. The authors consider two distinct approaches to multi-period valuation; the time-state preference approach, where consumptions at different times and in different states were treated as separate assets, and the rational expectations approach that derives a period-by-period equilibrium in which investors form expectations of the price of securities. Here, they value assets relative to the value of bonds. While risk-free interest rate is given exogenously, the prices of these bonds at future points in time can be stochastic.Less

Preferences, Risk, and Stochastic Dominance

James Bergin

in Microeconomic Theory: A Concise Course

Focuses on preferences, attitude to risk and the ranking of risky returns. The state space model is discussed and related to risk aversion. First, second, and higher order stochastic dominance ... More

Focuses on preferences, attitude to risk and the ranking of risky returns. The state space model is discussed and related to risk aversion. First, second, and higher order stochastic dominance criteria are examined and related to the hazard function and the monotone likelihood ratio. Semi-deviation measures of risk are described.Less

The Political Economy of International Cooperation

Lisa L. Martin

in Global Public Goods: International Cooperation in the 21st Century

Over the past 15 years, the field of international relations has produced a great deal of work on international cooperation and international institutions. This work has immediate relevance for ... More

Over the past 15 years, the field of international relations has produced a great deal of work on international cooperation and international institutions. This work has immediate relevance for conceptualizing a new era and a new approach to international development cooperation. Once we understand development cooperation as a problem of providing global public goods, our attention is immediately drawn to the problems of strategic interaction and opportunistic behavior that confront states as they attempt to cooperate in the pursuit of mutually beneficial goals. Drawing on public goods models and related concerns, the literature on international cooperation identifies strategic problems that states must overcome if they are to cooperate effectively – and how international organizations can facilitate state efforts to cooperate, primarily through the provision of information. This chapter summarizes the central claims of political science about the conditions for international cooperation and the roles of international organizations and nonstate actors in helping states achieve the benefits of cooperation. It concludes that the most useful functions of international organizations involve the provision of information about state preferences and behavior – particularly about standards and causal knowledge.Less

Preferences

Claus Munk

in Financial Asset Pricing Theory

Asset prices are ultimately determined by the asset supply and demand of individuals and to study that we need to model the preferences of individuals. This chapter presents alternative ... More

Asset prices are ultimately determined by the asset supply and demand of individuals and to study that we need to model the preferences of individuals. This chapter presents alternative representations of preferences, from abstract preference relations over utility indices to the more tractable expected utility criterion. The axioms supporting the use of utility indices or even expected utility are discussed. The important concept of risk aversion and the most frequently used utility functions are introduced together with a discussion of their properties and empirical evidence on preferences. Finally, the chapter explains how preferences can be formalized in multi-period settings. In addition to the standard assumption of time-additive expected utility, extensions to habit formation, state-dependent preferences, and recursive utility are presented. Later chapters show that these extensions are important in asset pricing models.Less

Individual Optimality

Claus Munk

in Financial Asset Pricing Theory

This chapter solves the optimal consumption and investment decisions of a rational individual in various settings. First, the simple one-period framework is considered, where straightforward ... More

This chapter solves the optimal consumption and investment decisions of a rational individual in various settings. First, the simple one-period framework is considered, where straightforward utility-maximization under the appropriate budget constraint implies that the marginal rate of substitution of the individual - the ratio of marginal utility of future consumption to marginal utility of current consumption - is a valid state-price deflator. The analysis is extended to both discrete-time and continuous-time settings, where the dynamic programming approach is introduced to solve the optimization problem. This also leads to a link between marginal utility of consumption and marginal utility of wealth, the so-called envelope condition. Both time-additive expected utility (with one or two consumption goods), habit formation, state-dependent preferences, and recursive utility are considered. In any case, the appropriately defined marginal rate of substitution of the individual works as a state-price deflator.Less

Variation II: Biotic and Abiotic Environment

Gil G. Rosenthal

in Mate Choice: The Evolution of Sexual Decision Making from Microbes to Humans

This chapter focuses on the physical environment and on the biotic community in which choosers live: the resources choosers acquire and the challenges toward which they must allocate those resources. ... More

This chapter focuses on the physical environment and on the biotic community in which choosers live: the resources choosers acquire and the challenges toward which they must allocate those resources. It considers how the environment shapes preferences. Environmental effects can be divided into those that affect the immediate context of mating decisions and those that change the chooser's phenotype in a way that affects future mating decisions. So-called context-dependent effects fall into two categories. Context-sensitive preferences are shaped by immediate circumstances: the sensory environment, predators, other choosers, and most obviously the courters themselves. When preferences are state-dependent, a chooser's past history shapes current mating decisions: for example, developmental effects of the sensory environment or social history.Less

The Possibility of Rule-Governed Behavior in International Politics

Carmen E. Pavel

in Divided Sovereignty: International Institutions and the Limits of State Authority

The final chapter discusses a persistent statist worry for a system of international institutions raised by realist international relations scholars: Can international institutions have real effects ... More

The final chapter discusses a persistent statist worry for a system of international institutions raised by realist international relations scholars: Can international institutions have real effects on state behavior? Drawing on alternative liberal institutionalism and constructivist theories and case studies, it shows that there is strong and mounting evidence that existing international institutions limit state action and change the nature of the dynamic of international politics. In addition, the chapter challenges some of the rational choice models prevalent in international relations, which rely on questionable normative assumptions about state agency, preferences, and goals. Questioning those assumptions opens the possibility of arguing for an international normative order that makes it desirable and prudent for state behavior and the behavior of all other actors in international politics to be guided by shared principles and norms, and to submit to international organizations’ authority.Less

Origins of Overlap Management in the Biodiversity Regime Complex

Sikina Jinnah

in Post-Treaty Politics: Secretariat Influence in Global Environmental Governance

The first of four empirical case studies, this chapter applies the two-pronged analytical framework introduced in Chapter 3 to the Convention on Biological Diversity (CBD) Secretariat's overlap ... More

The first of four empirical case studies, this chapter applies the two-pronged analytical framework introduced in Chapter 3 to the Convention on Biological Diversity (CBD) Secretariat's overlap management activities within the biodiversity regime complex. It argues that the CBD Secretariat was able to influence overlap management in the mid-1990s through liberally interpreting its open-ended mandate at a time when state preferences were weakly solidified and substitutability of its overlap management functions was low. It influenced the way states understood new issues, shaped core rules and norms, and played a role in defining its own mandate. The impacts reflect a change in institutional power between states because it participated in framing key governance concepts that privilege some states’ interests over others and regulated the flow of information. Chapter concludes with a discussion of how the Secretariat's influence declined over time as state preferences solidified and the Secretariat's substitutability increased.Less

National and Intergenerational Similarities and Differences in Stated Preferences

Michael J. Camasso and Radha Jagannathan

in Caught in the Cultural Preference Net: Three Generations of Employment Choices in Six Capitalist Democracies

In this chapter, the authors provide results from their examination of family member preferences—the linchpin between individual beliefs and attitudes and individual behaviors. They describe their ... More

In this chapter, the authors provide results from their examination of family member preferences—the linchpin between individual beliefs and attitudes and individual behaviors. They describe their stated preference experiment including the defining of choice attributes, the assignment of attribute levels, the creation of choice scenarios and choice sets, and the estimation of individuals’ utility differences on these sets using conditional logistic regression. Focusing on preference for job type, they find significant differences across countries and between generations on job choice. While in Sweden, high value is placed in jobs that require soft skills like teamwork and cooperation, in Italy and India, extrinsic values like salary and security are critical. Generational effects are also evident with millennials expressing significant disutility for jobs requiring math skills or using a second language.Less

The Western Wall: State Preference at Contested Sacred Sites

Yuval Jobani and Nahshon Perez

in Governing the Sacred: Political Toleration in Five Contested Sacred Sites

Chapter 4 examines the state preference model of religion–state relations at contested sacred sites. Section A explores the case of the Women of the Wall as a case in which the state of Israel adopts ... More

Chapter 4 examines the state preference model of religion–state relations at contested sacred sites. Section A explores the case of the Women of the Wall as a case in which the state of Israel adopts the preference model—favoring ultra-Orthodox Judaism—in managing the contestation over prayer arrangements at the Western Wall in Jerusalem. Section B explores the general religion-majoritarian approach which serves as the framework for the model of state preference at contested sites. Section C presents the specific techniques and policy tools, as well as the advantages and main weaknesses, of the third model of governing contested sacred sites examined in the current study: the model of “preference.” The last section (D) presents several arguments for the undesirability of state support for religion from the perspective of religious interests, emphasizing the applicability of this undesirability to the category of contested sacred sites.Less

Introduction:: Secretariats as Overlap Managers

Sikina Jinnah

in Post-Treaty Politics: Secretariat Influence in Global Environmental Governance

This chapter introduces the core theoretical arguments of the book: (1) secretariats influence international affairs when they shape power relations between states; and (2) secretariats are most ... More

This chapter introduces the core theoretical arguments of the book: (1) secretariats influence international affairs when they shape power relations between states; and (2) secretariats are most likely to influence politics when they enjoy low substitutability and state preferences are weakly solidified. This chapter also introduces the core analytical concepts (i.e. secretariats, overlap management, influence, and power) and the empirical cases examined (i.e. Convention on Biological Diversity, World Trade Organization, and Convention on International Trade in Endangered Species). The chapter further overviews the relevant literatures and explains the methodology used to assess how and when secretariats influence politics and, centrally, why such influence matters in international affairs.Less

Normative Judgment, Realism, and International Law

Carmen E. Pavel

in Law Beyond the State: Dynamic Coordination, State Consent, and Binding International Law

A strand of thought within international relations realism claims that international law, understood as the dense network of multilateral and bilateral treaties, customary law, and institutions ... More

A strand of thought within international relations realism claims that international law, understood as the dense network of multilateral and bilateral treaties, customary law, and institutions tasked with interpreting and applying them, cannot have meaningfully legal authority. This chapter traces the genealogy of the realist take on international law to a problematic use of the rational choice model for state behavior. Namely, realists derive skeptical positions about the authority and value of international law by using the rational choice model applied to states prescriptively rather than merely descriptively. With parsimonious assumptions about instrumental rationality, preferences, and choice situations, realists have put the model to good use to explain state action in the context of international politics. But they go much further, by taking the rational actor model to articulate an implicit moral ideal for states.Less

The Value of Public Goods

Bruno S. Frey

in Happiness: A Revolution in Economics

Various approaches have been developed to measure the value of public goods, including Stated Preference Methods, such as Contingent Valuation, and Revealed Preference Methods including the Hedonic ... More

Various approaches have been developed to measure the value of public goods, including Stated Preference Methods, such as Contingent Valuation, and Revealed Preference Methods including the Hedonic Method, the Travel Cost Approach, and the Averting Behavior Method. This chapter focuses on the valuation of public goods and proposes the Life Satisfaction Approach (LSA) for measuring the tradeoff ratio between income and the public good. It illustrates the use of the LSA to examine the effects of terrorist activities on citizens’ well-being and life satisfaction. In particular, the LSA is used to estimate the utility losses associated with terrorism, or security defined as absence of terrorism, for France between 1973 and 1998.Less

Conclusion

in Foreign Powers and Intervention in Armed Conflicts

This chapter describes the conditions under which states intervene, militarily or nonmilitarily, in foreign conflicts within or between nations. It specifically suggested that using the liberal ... More

This chapter describes the conditions under which states intervene, militarily or nonmilitarily, in foreign conflicts within or between nations. It specifically suggested that using the liberal paradigm for a complex phenomenon such as intervention, which has been exclusively approached through the lenses of realist, normative, and legal thought, can contribute to a deeper understanding of armed violence and its management in the international system. Leaders facing threats at home can react to a conflict without a genuine interest in the belligerents. The explanatory power of liberalism rested on rendering perceptions into the domestic sources of state preferences and the interplay of domestic demands with international stimuli. It is concluded that understanding intervention in armed conflict needs uncovering so we can see the difficult decision making that influences foreign powers' decisions.Less