Donald J. Meyer

Measuring Risk Aversion

The purpose of the survey is to summarize, discuss, and interpret published research concerning the risk aversion of decision makers who maximize expected utility. In doing this, two points are emphasized. First, any measure of risk aversion is specific to the particular outcome variable over which the measure is defined or estimated, and second when outcome variables are related, then their risk aversion measures are also related. These two points are used to show that a substantial portion of the reported variation in magnitudes and slopes of risk aversion measures from the research of the past forty years results from differences in the outcome variables, and when these differences are adjusted for, those findings are a quite consistent body of evidence.

US Oil Consumption, Oil Prices, and the Macroeconomy

Since the oil price shock of 1973–74, researchers have waged an intense debate regarding the connection between the U.S. energy sector and national income. Studies examining the relationship between oil prices, oil consumption, and real output have produced remarkably mixed results. In particular, the two most widely cited investigations by Darby and Hamilton come to dramatically different conclusions concerning the effect of oil shocks on economic activity. To date, however, studies of this issue have been either correlation based and thus void of causality inferences, have used overly restrictive bivariate causality techniques, or covered periods that exclude major oil price disruptions. This paper analyzes a quarterly multivariate VAR model to investigate the existence and direction of causality between oil prices, oil consumption, real output, and several other key macroeconomic policy variables. Among the key findings is that oil price shocks are not a major cause of U.S. business cycles. Moreover, our findings also suggest that both oil prices and real output cause significant changes in oil consumption without feedback. These results support the contention that a systematic U.S. conservation policy would not significantly impair real economic activity.

Changes in Background Risk and the Demand for Insurance

The demand for insurance against loss from a particular risky asset is likely to depend on other risks the decision-maker faces. For independently distributed other risks, referred to as background risk, Eeckhoudt and Kimball [1992] determine the effect on insurance demand of introducing background risk. Recently, Eeckhoudt, Gollier, and Schlesinger [1996] determine conditions on preferences such that first- and second-degree stochastic deteriorations in background risk lead to a decrease in the decision-makers willingness to accept other risks. These results, although formulated in a general decision model, also apply to insurance demand. This article continues analysis of this question by determining the effect on insurance demand of several other general changes in background risk.

First price auctions with entry: An experimental investigation

Abstract For an auction market that is costly to participate in, the equilibrium, market size is endogenously determined by the auctions expected profitability. A few recent papers have addressed bidder endogeneity and note important result differences this recognition can cause. The purpose of this paper is to present an initial empirical investigation of a first-price private-values auction in which bidder participation requires payment of an entry fee. The results indicate that market site is inversely related to the size of the entry fee and agents enter the auction until the average profitability equals or is less than the entry fee.

The comparative statics of deductible insurance and insurable assets

This article examines the interaction between the demand for deductible insurance and the demand for the asset that can be insured. A model where the decision-maker can choose both the insurance level and the amount of the risky asset to hold in the portfolio is used. Allowing simultaneous determination of the demand for an asset and the level of the deductible alters the comparative statics of demand for both the deductible level and for the asset. This is illustrated by determining the impact of shifts in nonrandom initial wealth, the price of the risky asset, and the price of insurance.

A more reasonable model of insurance demand

The analysis of the demand for insurance has been significantly affected by the failure to recognize the composite commodity theorem. This fact is demonstrated when the composite commodity theorem is used to modify the existing model so that insurance demand is more appropriately calculated. Comparative static properties of the modified model are derived and more reasonable comparative static results are obtained. Most importantly, in the modified model increases in wealth need not lead to a reduction in the quantity of insurance demanded even for decreasing absolute risk averse decision makers.

Capital Mobility, Monetization, and Money Demand in Developing Economies

money demand in developed countries, this paper focuses instead on money demand in developing countries.2 In specifying money demand models for developing countries, two aspects require particular attention. First, most developing countries have a significant non monetized sector, a sector in which money is not used in market transactions. When approximat ing the budget constraint, care must then be taken to use the appropriate income measure; that is, income for the monetized sector only. Second, while the recent trend for all countries is towards a more open economy, it is especially important to consider the external influences of the world economy on developing countries. Many of these countries are relatively small in size and are closely tied to the larger, more developed countries. The purpose of this paper is to empirically estimate money demand functions for seven developing countries in Africa, incorporating both of the above considerations. The money demand equation uses an appropriate budget constraint approximated by monetized real income. To capture the potential effects of capital mobility, the model includes exchange and foreign interest rates.3 Rational expectations are assumed in estimating the model. For each country, the appropriate adjustment mechanism is determined by Fairs (1987) recent procedure. A battery of other diagnostic tests are performed to check the appropriateness of the model specification. The remainder of the paper is organized as follows. Section II outlines the money demand model. Section III reports and analyzes the empirical results. Section IV concludes the paper.

Social Health Insurance and the Use of Formal and Informal Care in Developing Countries: Evidence from Ghana’s National Health Insurance Scheme

Abstract This paper studies the relationship between the use of formal and informal health care in a developing country setting by examining the introduction of a social health insurance scheme in Ghana. We estimate the effects of gaining coverage on changes in care seeking behaviour and show how these effects differ by age and wealth status. District-level differences in the implementation of the insurance scheme provide exogenous variation in access to insurance and allow us to address issues with selection into coverage. Results indicate that insurance access strongly increased use of formal care and reduced out-of-pocket expenditures on health services.