According to our analysis, pre-invasion views about the likely course of the Iraq intervention imply present value costs for the United States in the range of $100 to $870 billion. Our estimated present value cost for the containment policy is nearly $300 billion and ranges upward to $700...

Markets that involve customers waiting for services or goods in queues whose length they cannot observe are studied. In these markets suppliers truncate queues that become so long that they jeopardize the supplier's future relations with the customer. The length of the queue and the probability...

Generators applying to connect to the U.S. power grid go through an interconnection queue. Most wind and solar generators that begin the process do not complete it. Using new data, we find that a long queue increases the average waiting time, and high interconnection costs are a key factor in a...

This paper surveys the field of asset pricing. The emphasis is on the interplay between theory and empirical work, and on the tradeoff between risk and return. Modern research seeks to understand the behavior of the stochastic discount factor (SDF) that prices all assets in the economy. The...

It is well known that high-frequency asset returns are fat-tailed relative to the Gaussian distribution tails are typically reduced but not eliminated when returns are standardized by volatilities estimated from popular models such as GARCH. We consider two major dollar exchange rates, and we...

This paper analyzes optimal portfolio choice and consumption with stochastic volatility in incomplete markets. Using the Duffie-Epstein (1992) formulation of recursive utility in continuous time, it shows that the optimal portfolio demand for stocks under stochastic volatility varies strongly...

The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage-setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade....

We study a model of collective search by teams. Discoveries beget discoveries and correlated search results are governed by a Brownian path. Search results' variation at any point---the search scope---is jointly controlled. Agents individually choose when to cease search and implement their best...

We address the long-standing challenge of adding optimal exploration to the classic Hotelling model of a non-renewable resource. We completely solve such a model, using impulse control. The model, extending Arrow and Chang (1982), has two state variables: "proven" reserves and a finite...

This paper presents closed-form solutions for the investment and valuation of a competitive firm with a Cobb-Douglas production function and a constant elasticity adjustment cost function in the presence of stochastic prices for output and inputs. The value of the firm is a linear function of...