John P. Gould

The Economics of Legal Conflicts

IN neoclassical economic theory, utility functions and indifference curves provide a mechanism for the analysis of how consumers and other decision makers make choices among alternative goods or courses of action. The neoclassical model is a theory of behavior under certainty, however, and does not provide much help in the analysis of choices involving uncertain outcomes. Fortunately, the gap was filled by the introduction of the expected utility hypothesis (or theorem) by von Neumann and Morgenstern in their pathbreaking work, Theory of Games and Economic Behavior.2 The expected utility hypothesis can be described simply as follows. Suppose an individual with wealth W derives utility from that wealth according to a function U(W). U(W) is the amount of utility derived from wealth W and is assumed to increase as W increases. Now suppose that the individual is faced with the following choices: (A) a certain wealth of

Transactions costs and the relationship between put and call prices

9,000; (B) a wealth of

The Information Content of Specialist Pricing

10,000 with probability p and of

The Use of Endogenous Variables in Dynamic Models of Investment

8,000 with probability 1 p. According to the expected utility hypothesis the individual will prefer alternative A if

Privacy and the Economics of Information

Abstract The relationship between prices of puts and calls on securities that is suggested by the theory of efficient markets is developed and empirically tested in this paper. We find that the basic model is not supported unless rather large transactions costs are included. Moreover, the transactions costs that must be assumed to make the model consistent with the data are so large as to raise troublesome questions as to whether there were unexploited profit opportunities in the options market at least during the 1967–1969 period. We also find that similar deviations from the efficient market hypothesis have shown up in related work by other researchers but that their explanations of these results appear to be incorrect on theoretical grounds or too sanguine.

Discussion of the Use of Mathematical Models in Financial Accounting

This paper examines a process by which information-revealing prices are determined by considering the private incentives of a price-setting agent (whom we refer to as a specialist). The specialist has private information that may be (partially) revealed through his choice of a pricing rule. We define an equilibrium as a pricing rule and a response to that rule by a representative trader that maximizes the expected utilities of the specialist and the trader, conditional on each having rational expectations. By analyzing the existence and nature of this equilibrium, we attempt to develop further insights into the behavior of markets with incomplete information.

Discussion of The Municipal Accounting Maze: An Analysis of Political Incentives

I. Introduction, 580. — II. The determination of desired capital stock, 581. — III. Jorgensons 1963 investment model, 585. — IV. The adjustment mechanism, 588. — V. The predictive powers of the model, 592. — VI. Estimation and prediction, 597. — VII. Conclusions, 599.

Risk, stochastic preference, and the value of information☆

IT is clear from the papers in this volume that the law and economics of privacy ranges over a large number of issues. These include the matter of property rights in trade secrets, the question of protection against public exposure of personal and domestic information, and the extent to which parties to a commercial transaction can inhibit (or force) disclosure of information that they deem harmful (or helpful) to their interests. There are common elements running through all-these issues, two of which appear to me especially important. First, all of these issues have to do with the production and dissemination of information and, second, all involve the problems of externalities that are inherent in any analysis of the economics of information. In this paper, I will be concerned with the relationship of externalities and the production of information. Many papers dealing with the economics of privacy either argue or treat as axiomatic the proposition that information is a good, and hence a public policy that aims to increase the amount of information with little or no increase in the cost of producing that information is desirable. Somewhat less explicitly, the following propositions, or versions of them, are sometimes taken to be always and everywhere true. (1) If the cost of producing good X is increased, less of good X will be produced. (2) If the cost of producing good X is decreased, there will be a Paretian welfare gain. (2a) If the cost of producing good X is increased, there will be a welfare loss to the producer who experienced the cost increase.

The Stochastic Structure of the Velocity of Money

Writing a survey of the use of mathematical models in financial accounting is a very challenging task. I would not have guessed that it could be done so well and in such an interesting fashion before I read Verrecchias paper. This is not to say that I do not have some reservations and quibbles about parts of the survey, but they are largely inconsequential compared to the things I admire in this paper. Beginning with section 3 of this discussion, my remarks are organized along the lines of the paper itself.

The Expected Utility Hypothesis and the Selection of Optimal Deductibles for a Given Insurance Policy

Discussing a paper is somewhat like taking a multiple choice examination. The discussant is usually expected to take issue with a paper .by showing that the authors results are either (a) trivial, (b) well known, (c) incorrect, or (d) all of the above. If, in addition, the discussant can do this with an appropriate degree of savagery, he gets extra points for showmanship. There are thus two things that can take the fun out of being a discussant: one is a paper so weak that it would be in poor taste to attack it with vigor, and the other is a paper which the discussant finds interesting and important. In this sense, my job as a discussant of Professor Zimmermans paper is not much fun because it contains many things that I think are interesting and important. Before turning to the details, let me explain why I feel this way. Zimmermans paper is one of a new genre that makes an effort to construct a positive theory of accounting. Though relatively new, I have already heard this approach referred to as the Rochester School of Accounting, presumably because much of the initial impetus came from people at the Graduate School of Management at the University of Rochester within the past couple of years. I am not sufficiently familiar with the history of thought in accounting to assert with confidence that this line of research is only two years old, but it is certainly my impression that the positive theory of accounting has not been a major part of the accounting literature. To explain why I think efforts to build a positive theory of accounting are both interesting and important, I would like to point out some