Itzhak Zilcha

The effects of compulsory schooling on growth, income distribution and welfare

Abstract In this paper we consider an OLG model with productive capital and human capital affecting the quality of labor. In each generation parents invest in their childrens education but disregard its external effect on the aggregate production function. Government intervention in providing compulsory schooling increases economic growth (along the equilibrium path), while the intragenerational income distribution becomes more equal. Also, in the long run, the majority of individuals in each generation are better off due to compulsory schooling.

Education, Social Security and Growth

The desirability of Government intervention in the functioning of a competitive economy arises in cases where the attained competitive equilibria are inefficient or fail to achieve certain important social goals. In the twentieth century, we witnessed a worldwide phenomena of intervention by governments in the provision of education and social security. In most countries it is not only that a certain level of education is mandatory and is provided by the government but also the higher education is heavily subsidized.

Optimal hedging in the futures market under price uncertainty

Abstract We show that there exists a simple optimal hedging rule in the futures markets, for all risk averse decision makers, given that (a) futures price today is an unbiased predictor of the futures price next period, (b) basis is independent of the spot price.

The role of money in supporting the pareto optimality of competitive equilibrium in consumption-loan type models

Perhaps the single most enduring theme in economics is that of the social desirability of the competitive mechanism. In its modern form, this theme occurs as the two basic theorems of welfare economics (see, in particular, Arrow). Our central concern in this paper is with the validity of the first of these two theorems—that every competitive equilibrium yields a Pareto optimal allocation—in idealized yet plausible models of intertemporal allocation in a market economy.

Optimal international hedging in commodity and currency forward markets

Abstract This paper derives optimal hedging and production rules for an exporting firm which faces both commodity-price and foreign- exchange-rate uncertainty. The size of the commodity hedge is independent of the properties of the foreign-exchange market. However, the optimal foreign-exchange hedge depends on the commodity hedge and the properties of the commodity forward market. The firms production decision is independent of its objective function if both forward markets exist, but depends on the consumption beta of the unhedgeable risks in the absence of one or both of the markets.

Private Investment in Higher Education: Comparing Alternative Funding Schemes

This paper uses an overlapping generations framework to analyse the implications of different financing regimes in the education sector for human capital formation and economic welfare. Agents privately invest in education after they have received a noisy information signal about their abilities. The incentives of individuals to invest in education are determined by the financing regime under which the economy operates. We analyse and compare three financing regimes. Under each regime, the payback obligation of an educational loan is contingent, to some extent, on an individuals future income.

Exchange rate uncertainty, futures markets and the multinational firm

We consider a monopolistic, risk-averse multinational firm which sells and produces at home and abroad under exchange rate uncertainty. First we show that the stochastic exchange rate implies higher production and lower sales in the foreign country. Then we analyze the impact of currency futures markets. A separation result is obtained for a multinational firm, i.e., production and the allocation of sales are independent of the distribution of the random exchange rate and of the firms attitude towards risk. We also examine the effect of currency futures on a multinational firms foreign direct investments. In the absence of futures markets we obtain some comparative statics results when risk aversion increases.

Indirect hedging of exchange rate risk

Abstract The purpose of this study is to investigate the impact of exchange rate risk upon export production when the firm cannot engage in a direct forward hedge in the exchange rate. However, there exists a forward market for a domestic financial asset correlated with the exchange rate in question. Exporting firms using such an indirect hedging device to reduce foreign exchange risk do not necessarily increase their output when such unbiased hedging market becomes available. This contrasts with the well-known result in the case of direct hedging.

The Behavior of Competitive Exporting Firms under Multiple Uncertainty

The authors examine the behavior of a competitive risk-averse exporting firm subject to exchange rate and commodity price uncertainty, and to background uncertainty arising from cost and production. The aim of their study is fourfold--namely to look at: (1) the robustness of the results in traditional theory regarding the introduction of price uncertainty; (2) the role of forward-futures markets in the presence of background uncertainty; (3) the implications of this framework to the separation and the double-hedging theorems; and (4) the behavior of this firm when missing markets are gradually introduced. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Multiple Currencies and Hedging

This paper presents a model of a competitive exporting firm confronting multiple currency risks. Future markets do not exist for the firms own currency, but do exist between currencies of two countries to which the firm exports its entire output. We provide analytical insight into optimal cross-hedging and its implications on production and on trade flows. We show that the unbiasedness of the cross-currency futures market does not imply non-random profits. Furthermore, the availability of cross-hedging opportunities has no effects on production but does have effects on exports. Copyright 1999 by The London School of Economics and Political Science