This paper analyzes the effects of fiscal policy in an open economy. We extend the savers-spenders theory of Mankiw (2000) to a small open economy with endogenous labor supply. We first show how the Dornbusch (1983) consumption-based real interest rate for open economies is modified when labor...

Public social security systems may provide diversification of risks to individuals’ life-time income. Capturing that a pay-as-you-go program (paygo) may be considered as a “quasiasset”, we study the optimal size of the social security program as well as the optimal split between a funded...

This paper investigates the allocation decision of an investor with two projects. Separate managers control the mean return from each project, and the investor may or may not observe the managers’ actions. We show that the investor’s risk-return trade-off may be radically different from a...

In this paper we analyze how an individual should optimally invest in her own human capital when she also has financial wealth. We treat the individual’s option to take more education as expansion options and apply real option analysis. We characterize the individual’s optimal consumption...

This paper investigates the allocation decision of an investor who owns two projects, a domestic and a foreign one. A manager governs the expected return from each project, and the investor has less information on the actions of the foreign manager. The investor’s portfolio will be tilted...

We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability...

This paper examines data from the Norwegian television game show Joker, where contestants make well-specified choices under risk. The game involves very large stakes, randomly drawn contestants, and ample opportunities for learning. Expected utility (EU) theory gives a simple prediction of...

The cross-country correlations between annual per capita consumption growth in the Nordic countries (Denmark, Finland, Norway and Sweden) during the period 1973-1996 are much lower than predicted by the basic theory of international financial integration. Capturing that the consumption behavior...

We introduce habit formation in a model that studies the link between international trade in financial assets, economic growth, and welfare. As with time separable preferences asset trade increases the mean growth rate, but it also increases growth-volatility. We demonstrate that the welfare...

We provide an empirical analysis of regional risk sharing in Norway over the period 1977-90. The approach of Asdrubali, Sørensen and Yosha (1996) is extended to take account of public employment as a possible shock absorber. The other channels of risk sharing are capital markets & commuting,...