Penn Economics Research Paper

A safe asset’s real value is insulated from shocks, including declines in GDP from rare macroeconomic disasters. However, in a Lucas-tree world, the aggregate risk is given by the process for GDP and cannot be altered by the creation of safe assets. Therefore, in the equilibrium of a representative-agent version of this economy, the quantity of safe assets will be nil. With heterogeneity in coefficients of relative risk aversion, safe assets can take the form of private bond issues from low-risk-aversion to high-risk-aversion agents. The model assumes Epstein-Zin/Weil preferences with common values of the intertemporal elasticity of substitution and the rate of time preference. The model achieves stationarity by allowing for random shifts in coefficients of relative risk aversion. We derive the equilibrium values of the ratio of safe to total assets, the shares of each agent in equity ownership and wealth, and the rates of return on safe and risky assets. In a baseline case, the steady-state risk-free rate is 1.0% per year, the unlevered equity premium is 4.2%, and the quantity of safe assets ranges up to 15% of economy-wide assets (comprising the capitalized value of GDP). A disaster shock leads to an extended period in which the share of wealth held by the low-risk-averse agent and the risk-free rate are low but rising, and the ratio of safe to total assets is high but falling. In the baseline model, Ricardian Equivalence holds in that added government bonds have no effect on rates of return and the net quantity of safe assets. Surprisingly, the crowding-out coefficient for private bonds with respect to public bonds is not 0 or -1 but around -0.5, a value found in some existing empirical studies. Download Paper

To earn Honors in Economics, students must have an Economics GPA of at least 3.5 and satisfactorily pass (see below) ECON 300. This is a single course that meets for two-semesters and counts as two course units. ECON 300 counts as only one course toward the major, and may count toward one of the four 200-level course requirements. Consequently, honors majors have eleven economics course units. (The Economics GPA is based on economics courses.)

Enrollment in ECON 300 is only possible with the permission of the instructor. As a guideline for admission, students should have taken ECON 101, 102, 103, 104 (ECON 104 may be taken concurrently in the Fall), and two 200-level economics courses with an Economics GPA of at least 3.5.

Enrollment in the Honors Seminar is during the Fall semester only. Credit is awarded only upon completion of both semesters of ECON 300. Students who do not enroll in and complete the second semester of the Honors Seminar do not receive credit for the first semester.

Assignments for ECON Honors 300 include the completion of a research paper to be supervised by faculty. Grades of B- or higher must be earned on the research paper and in the Honors Seminar itself for the student to graduate with Honors.

Forms necessary for admission to Honors 300 are available from the Undergraduate Coordinator in the Economics Department.

Examples of Honors Theses in Economics:

Hess, Peter (2015): "The Dynamics of Art Demand: The Interaction Between Monetary and Non-Pecuniary Drivers in the Art Auction Market"

Berez, Julie (2014): "The Diffusion of Abandonment Decisions: An application to pulmonary artery catheters"

Pollack, Seth (2013): "The Role of Retail Investors in Book Built IPOs: Evidence from India"

Qian, Kathy (2012): "Quality Disclosure, Limited Attention and the Availability Heuristic: The Influence of College Rankings on Student Demand"

Lazarus, Eben (2011): "It's the Economy Stupid: How Economic Growth Predicts Social Tolerance"




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