Under the assumption of normally distributed returns, we analyze whether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds. However, under the...

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year 2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. Can these two apparently...

We employ laboratory methods to study stability of competitive equilibrium in Scarf's economy (International Economic Review, 1960). Tatonnement theory predicts that prices are globally unstable for this economy, i.e. unless prices start at the competitive equilibrium they oscillate without...

The present paper analyzes the consequences of a consumption tax reform for the export sector. In particular, it offers an explanation why exporters support such a reform although economic theory basically predicts trade neutrality. To this purpose, the basic neoclassical model is replaced with...

The present paper applies a theoretical two-sector three-factor model to analyze a variety of energy tax reforms with the common feature of at least partly exempting the energy-intensive export sector from the tax. As a result, all scenarios with exemptions reduce energy less than the...

This present paper analyzes an energy tax reform that exempts the energy-intensive export sector from paying the energy tax and uses the additional revenue to cut existing taxes in all sectors. To that end, a two sector two factor model of an open economy that is small on the import side but not...

This paper studies a monetary economy with heterogenous agents in which trade takes place in a centralized market. Each agent is a potential producer and consumer of a service (or perishable good) but has stochastic preferences that determines his taste for the good in each period in time. Money...

The N-firm Cournot model with general technologies is reviewed to derive generalized and unified conditions for existence of a pure strategy Nash equilibrium. Tight conditions are formulated alternatively (i) in terms of concavity of two-sided transforms of inverse demand, or (ii) as linear...

We introduce a simple two-stage game of endogenous network formation and information sharing for reasoning about the optimal design of social networks like Facebook or Google+. We distinguish between unilateral and bilateral connections and between targeted and collective information sharing....

Biconcavity is a simple condition on inverse demand that corresponds to the ordinary concept of concavity after simultaneous parameterized transformations of price and quantity. The notion is employed here in the framework of the homogeneous-good Cournot model with potentially heterogeneous...