parvin tashakori saleh; mahdi khoda parast mashhadi; mahdi feizi
Abstract
Introduction
Estimating time preferences is of great importance to economists, and policy makers who seek to understand the process of consumers’ decision-making about savings, education, life insurance and so on. The standard model of intertemporal choice in economics is time-separable utility with ...
Read More
Introduction
Estimating time preferences is of great importance to economists, and policy makers who seek to understand the process of consumers’ decision-making about savings, education, life insurance and so on. The standard model of intertemporal choice in economics is time-separable utility with exponential discounting. However, people often seem to deviate systematically from these implications of the exponential discounting model. Empirical and experimental studies show that time preferences for long runs are smaller than for short runs. In other words, people are present bias. Hence, the saving level becomes less than its optimal level. Because people procrastinate and postpone saving to the future period. Cognitive science investigates evolution of cognitive systems. These systems have the capacity of adaptation and coevolution. We elicit individual time preferences with incentivized choice experiments, and match resulting time preference measures to individual’s experiences.
Theoretical Framework
A convenient functional form for representing such time preferences that value declines rapidly over the short run but at a slower rate over the long run is the quasi hyperbolic discount function (Laibson, 1997) according to which the present value of a stream of consumptions (c1, c2, …) is as follows:
Where u is the utility function, and discount parameters β and δ are bounded between 0 and 1. Hyperbolic discounting is a particular mathematical model devised as an improvement over exponential discounting in the sense that it better fits the experimental data about actual behavior. But note the time inconsistency of this behavior has some quite perverse consequences. Hyperbolic discounting has been observed in humans and animals.
In hyperbolic discounting, valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods. This contrasts with exponential discounting, in which evaluation falls by a constant factor per unit delay, regardless of the total length of the delay. The standard experiment used to reveal a test subject's hyperbolic discounting curve is to compare short-term preferences with long-term preferences. For instance: "Would you prefer a dollar today or three dollars tomorrow?" or "Would you prefer a dollar in one year or three dollars in one year and one day?" For certain range of offerings, a significant fraction of subjects will take the lesser amount today, but will gladly wait one extra day in a year in order to receive the higher amount instead. Individuals with such preferences are described as "present-biased".
Individuals using hyperbolic discounting reveal a strong tendency to make choices that are inconsistent over time. This dynamic inconsistency happens because the value of future rewards is much lower under hyperbolic discounting than under exponential discounting. The degree of discounting is vitally important in describing hyperbolic discounting, especially in the discounting of specific rewards such as money. The discounting of monetary rewards varies across age groups due to the varying discount rate. The rate depends on a variety of factors including the species being observed, age, experience, and the amount of time needed to consume the reward.
Methodology
Time preferences are fundamental to theoretical and applied studies of decision-making, and are a critical element of much of economic analysis. At both aggregate and individual levels, accurate measures of discounting parameters can provide helpful guidance on the potential impacts of policy and provide useful diagnostics for effective policy targeting. Though efforts have been made to identify time preferences from naturally occurring field data, the majority of research has relied on laboratory samples using variation in monetary payments. Most of estimating time preferences studies have favored in laboratory environments while some have used aggregate consumption data. Among the many laboratory techniques, recent studies have employed multiple price lists (MPL) with monetary payments. With MPLs, in the two different time frames, individuals are asked to choose between sooner-smaller payments (SS) and later-larger (LL) for multiple times. The interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval information about their time preferences. Assuming time-separable stationary preferences and linear utility, individual discount rates can be bounded and potentially calculated from MPL switching points. Using information from both price lists allows us to measure discount factors and to identify present and future bias.
Experimental Design
In this paper we have examined this hypothesis that leaning process could affect time preferences. In our experiment, 129 students participated and they answered the "MPL" tests and completed our experience questionnaire. Our experiment was conducted at Ferdowsi University of Mashhad, in May 2016. In a paper-pencil experiment, subjects faced 24 convex budget decisions. These 24 budgets involved four combinations of starting times, t, and delay lengths, k, with annual interest rates that varied from zero to over 1000 percent per year.
A (2*2) design was implemented with two sooner payments date, t= (0, 35) days from the experiment date, crossed with two delay lengths, k= (35,63) days. Thus, there are 4 (t, k) cells and within each cell are six MPL questions.
In a "MPL", subjects are given the choice of ($X, $0), ($0, $Y) that Pxt + x t+k = Y , where P represents the gross interest rate. Subjects faced four intertemporal MPLs. For the intertemporal decisions, variables are the start dates, t, delay lengths, k, and gross interest rates, P. The experimental budget was always $120 such that the intertemporal budget constraint in each decision was Pxt + xt+k = 120.
We have randomly selected one of the decisions as the decision that counts. We have used the decision-that-counts to determine their actual earnings. All payments they receive were sent to their credit card. That includes payments that they receive today as well as payments they may receive at later dates.
Results and Discussion
The findings showed time inconsistent behavior in average. Because distribution of data is not normal, nonparametric regression was used. The results of this study show that the present bias parameter was different for individuals with different experiences. But the parameter of long run time preference has not been affected by experiences. Our observation of an association of intertemporal decision making with choices between an immediate and delayed reward and an association of subjects experiences are consistent with existing theory regarding the cognitive science and functions of brain neural systems.
Conclusions and Suggestions
This, in turn, provides a framework within which quantitative predictions about the dynamics of the neural mechanisms underlying intertemporal choice can be generated. Such studies that join economic theory with hypotheses about and measurements of mechanism from neuroscience remain a priority for future works.
nahid rajabzadeh moghani; mohamad ali falahi; mehdi khodaparast mashhadi
Abstract
One of the effective factors on economic growth and development is financial development. Indeed, today the level of economic development is determined by the level of financial development in the countries. Hence, many studies try to identify effective factors in financial development. Natural resource ...
Read More
One of the effective factors on economic growth and development is financial development. Indeed, today the level of economic development is determined by the level of financial development in the countries. Hence, many studies try to identify effective factors in financial development. Natural resource abundance is one of the factors that has effect on financial development of countries. From the 1980s, most studies have only investigated the relationship between natural resource abundance and economic growth. They only try to explain the reason of the resource curse. In these studies the effect of resource abundance on financial development is neglected. But it is claimed that one of the reasons of slow economic growth in resource abundant countries is the low level of financial development.
There are five mechanisms through which resource abundance can impact financial development. The first mechanism is the Dutch disease. The exploitation of natural resources tends to shift factors of production away from the manufacturing sector. Thus, resource abundance tends to shrink the traded sector. But trade is found to play an important role in financial development. Therefore, resource abundance which weakens the traded sector may have a negative impact on financial development. Second, governments’ access to huge amounts of oil rents reduces the governments' need for financing through taxes. In these circumstances a government has no obligation against people and the people have also less demand for accountability in order to define and guarantee property rights and economic security. Weak property rights leads to poor business environment. As a result, investment incentives are reduced. Secure property rights increase the incentives of innovations and creativity. Since entrepreneurs are the main demanders of credit in financial markets, undermining property rights leads to weaken financial markets. Third, economic rent of resource abundance increase opportunities for rent-seeking and corruption. Rent seeking can cause corruption in government, business of people and distortion in allocation of recourse. Corruption may induce a lack of confidence in the government and hence undermine its policy credibility. Because of low policy credibility, it will be difficult for the government to implement some financial reforms. In addition, rent seeking leads to reduced incentives of creativity and innovations. In these conditions, economic creators prefer to gain high rent by abusing weak institutions. Since entrepreneurs are potential promoters of financial development, if the number of entrepreneurs is reduced by resource booms, financial development may also slow down because the demand for it is weakened. Forth, resource abundance tends to weaken private and public incentives to accumulate human capital. Empirical studies show that there is a negative link between human capital and natural resource abundance. Since human and physical capital complement each other in firms, weakening human capital reduce physical capital and investment. In addition, resource abundance reduces social capital. Since social capital determines the level of trust in society and trust is the basis of the financial contracts, resource abundance reduces the level of financial development. Fifth, establishment of democracy is not easily possible in resource abundant countries and power is only in the hands of particular groups and rent seekers. There are lots of scholars like Clague, Keefer, Knack and Olson (1996) and Olsson (1993) that examined the relationship between democracy and financial development. They show that democratic regimes provide better field of protection of property rights, contract enforcement and encourage more investment than authoritarian regimes. Thus, democracy promotes financial developments.
Beside above mechanisms it should be emphasized that environmental factors can have impact on the relationship between natural resource abundance and financial development. It is expected that resource abundance reduce financial development in the countries with weak institutional quality. In contrast, mentioned mechanisms do not work in the countries with high level of institutional quality. In other words, resource abundance cannot have a negative impact on financial development in the countries with good institutional quality. World Bank introduces governance indicators to show institutional quality of countries. Three researchers named Kufmann, Kraay and Lobaton (1999) create these indicators. They combined the results of various international institutions such as EIU, ICRG, Heritage Foundation and Freedom House about economic, political and social situations and then introduced new indicators as governance indicators. These indicators include voice and accountability, political stability, control of corruption, regulatory quality, government effectiveness and rule of law.
In this paper, countries with respect to good governance indicators are categorized into three groups. They include countries with high, medium, and low institutional quality. In this study, using the panel data method for 22 selected oil exporting countries over 1996-2009, the effect of resource abundance on two financial development index (i.e., private credit by deposit money banks and other financial institutions/ GDP and M2/GDP) is examined. Among 22 countries, 5 of them have weak institutional quality, 8 of them have medium institutional quality, and 9 of them have high institutional quality.
The results indicate that the relationship between resource abundance and two financial development indices is positive and significant in countries with high governance, but negative in countries with low and weak governance. The results also indicate that there is no significant relationship between resource abundance and financial development in countries with the average level of governance. Therefore improving institutional quality seems necessary to enhance financial development in oil economies.
Mahdi Khodaparast Mashhadi; Mohammad Ali Falahi; nahid rajabzadeh moghani
Abstract
One of the effective factors in economic growth and development is financial development. Indeed, today, the level of economic development is determined by the level of financial development in the countries. Economists emphasize on the importance of financial market and its key role in economic development ...
Read More
One of the effective factors in economic growth and development is financial development. Indeed, today, the level of economic development is determined by the level of financial development in the countries. Economists emphasize on the importance of financial market and its key role in economic development (e.g., Schumpeter, 1912; Hicks, 1969; McKinnon, 1973; King, 1993; Beck & Levine, 2003). Therefore, identifying the determinant factors of financial development is really crucial. Many studies have been done to identify effective factors in financial development. However, most of them focus on the role of economic factors in financial development. Among all effective factors in financial development in countries, less attention has been given to the role of institutional quality. Hence, the aim of this paper is to study the effect of institutional quality on financial development with emphasis on banking sector in selected countries of Organization of Islamic Cooperation (OIC).
There are two popular theories that explain the role of institutions in financial development. According to Law and Finance Theory introduced by Laporta, Lopez-de-silabes, Shleifer, and Vishny (1997; 1998), differences in the legal protections of investor and creditors and the quality of contract enforcement can explain the different level of financial development between countries. Endowment Theory introduced by Acemoglu, Johnson, and Robinson (2001) explains the relationship between different formation of colonization and institutions during 17-19 centuries. Acemoglu et al. (2001) found that the origin of colonization has a permanent effect on formation of institutions. Beck & Levine (2003) apply both theories for explanting financial development and found that legal origin matters for financial development because legal traditions differ in their ability to adapt efficiently to evolving economic conditions. In addition, some other studies have been done on political economics of financial development (e.g., Pagano & Volpin, 2000; Rajan & Zingales, 2003; Girma & shortland, 2008; Singh, Kpodar & Chura, 2009; Anayitos & Toroyan, 2009; Hung, 2010). All studies in this area have found that quality of institutions play a key role in financial development.
In this study, using panel data method for selected countries of the Organization of Islamic Cooperation (OIC) over 1996-2010, the effect of institutional quality on financial development is examined. This paper investigates the effect of seven institutional quality indicators (i.e., voice & accountability, control of corruption, political stability, rule of law, government effectiveness, regulatory quality and weighed average of six institutional quality indicators) on two financial development indicators, namely, private credit by deposit money banks and other financial institutions/GDP. Information of governance indicators has taken from World Governance Indicators. Based on World Bank definitions, voice & accountability reflects perceptions of the extent to which a country's citizens are able to participate in selecting their government as well as freedom of expression, freedom of association, and a free media. Control of corruption reflects perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption as well as capturing of the state by elites and private interests. Political Stability measures perceptions of the likelihood of political instability and politically-motivated violence, including terrorism. Rule of law reflects perceptions of the extent to which agents have confidence in and abide by the rules of society, and, in particular, the quality of contract enforcement, property rights, the police, and the courts as well as the likelihood of crime and violence. Government effectiveness reflects perceptions of the quality of public services, the quality of the civil service, and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies. Regulatory quality reflects perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.
Data of two financial development indicators have been taken from World Bank and International Financial Statistics dataset. In this study, the overall governance indicator (weighed average of six institutional quality indicators) is calculated by principal component analysis approach. The results of poolabilty test and Chaw test indicate that panel approach should be applied in all models. In addition, the results obtained from Breusch-Pagn and Hausman tests show that using fixed effect model is appropriate for all seven models.
Among these seven models whose dependent variables are Private credit by deposit money banks and other financial institutions/GDP, two models are selected based on , namely, Akaike Info Criterion and Schwarz Criterion. The results of estimation suggest that overall governance indicators (weighted average of six indicators of institutional quality) and control of corruption have a significant and positive effect on Private credit by deposit money banks and other financial institutions/GDP. From these seven models whose dependent variable is M2/GDP, one model is selected based on related criteria, as the best model. In this model, government effectiveness indicator has a significant and positive effect on M2/GDP. Hence, improving institutional quality is a necessary and essential factor for enhancing financial development and policymakers should apply appropriate policies to improve governments' position in these countries. Through this way, one of the barriers of economic development would be removed.
Mahdi Khodaparast Mashhadi; Abdolhamid Rezaei-Roknabadi; Jalal Bakhtazma; Haniehi Fanood
Abstract
Pricing and rationing policies for controlling energy consumption are important
factors in resisting economies. For this end we have compared Willingness to Pay
and rationing policies enacted for different gasoline and dual consumption
automobiles, to see statistically,(1)Whether there is any difference ...
Read More
Pricing and rationing policies for controlling energy consumption are important
factors in resisting economies. For this end we have compared Willingness to Pay
and rationing policies enacted for different gasoline and dual consumption
automobiles, to see statistically,(1)Whether there is any difference between their
energy usage and WTP? (2)Whether there is any difference between energy volume
rationed between different kinds of automobiles, and their WTP? Discovering endusers’
willingness to pay a questionnaire is designed, and based on sampling 200
questionares are distributed among gasoline and dual consumption consumers of different automobiles in Mashhad city randomly. In this study, Contingent Valuation
Method (CVM) is used to investigate willingness to pay for gasoline consumption
that is based on energy policies experienced in Mashhad in 2008. Descriptive
Method is used to describe the energy space situation in the public; and nonparametric
statistical tests have been used to provide some explanations for research
questions. Results indicate that, (1)there is statistically significance between energy
consumption (gasoline and gaz), and WTP; so different pricing policies is
desireable; (2) there is not any statistially significance between WTP rationing
volumes provided for different automobiles; and WTP; so pricing policies should be
the same for all kinds of automobiles
Mahdi Khodaparast Mashhadi; Mostafa Salimifar; Meysam Taherian
Abstract
In recent years, outsourcing as a means of promoting and development of productivity has been considered to be in line with the country's 20-years vision document and article 44 of the constitution by administrators of organizations. This process has been implemented in different forms in order to effectively ...
Read More
In recent years, outsourcing as a means of promoting and development of productivity has been considered to be in line with the country's 20-years vision document and article 44 of the constitution by administrators of organizations. This process has been implemented in different forms in order to effectively downsize the government.
IUTUn this study, technical efficiency and scale efficiency of eight power distribution companies of Mashhad, before and after outsourcing or within three years 2006 to2008, is evaluated by data envelopment analysisUTU. UTUThis study developed data envelopment analysis to a dynamic model by utilizing of window analysisUTU in order to UTUevaluate changes in the context of time before and after outsourcing.
UTThe results of this study show that the efficiency of Mashhad Power Distribution Company has been reduced significantly compared with before the transfer.
