This thesis is a collection of three individual works on dynamic economic decision problems which go beyond expected utility maximisation in complete markets. The first chapter introduces an asset liquidation model under prospect theory preferences. We demonstrate that the probability weighting component of the model can predict liquidation strategies which better fit the empirical patterns of investors’ stock trading behaviours, when compared to models which do not incorporate probability weighting. The second chapter explores the role of randomised strategies in an exit-timing problem faced by a prospect theory agent. Several new insights are offered: in a discrete model, access to randomisation can strictly improve the economic value to the agent; in a continuous time counterpart, allowing randomisation will significantly alter the prediction of an agent’s behaviours and more realistic exit-strategies would be observed in contrast to the results from the existing literature. The final chapter studies an extension to the Merton’s optimal investment and consumption problem under transaction costs, where the agent can also dynamically invest in a liquid hedging asset without a trading fee. We provide a complete solution. Important properties of the problem such as well-posedness conditions and comparative static results are derived.

The aim of this thesis is to assess the role of the state in economic development in the GCC countries. Three aspects of this subject are investigated. An Indirect role of the state is analyzed through the effect of financial development on the economic growth. And direct roles of the state are examined through the impact of defence spending and that of public infrastructure on the development process. First the role of financial development is analyzed by using three alterative causality tests. The results suggest that the existence of long-run relationship between economic development and the state of financial development in most GCC countries. The results further suggest that financial sector can be a leading sector for some of the GCC countries. Second, the impact of defence spending on economic development is examined by employing VAR/ECM models. The emerging results suggest that defence expenditure appears to retard economic development for countries with relatively heavy defence expenditure (Saudi Arabia and UAE), whilst positive effect is suggested for GCC member with relatively low defence spending (Bahrain and Oman). Third, for one member of GCC (Saudi Arabia) the role of public infrastructure in economic development is analyzed also using VAR/ECM. The results indicate that the high public capital expenditure in Saudi Arabia has insignificant effect in the economic development in the long – run.

This thesis examines the impact of bank mergers and acquisitions (M&As) on lending behaviour by commercial banks. We use the data set of large European commercial banks from 1997 to 2005. Empirical models are formulated to explain the effects of mergers on bank loan pricing behaviour, interest margin setting, credit availability and lending objectives. The analysis provides evidence that mergers have statistically significant influence on reduced lending rates, interest margins and loan supply. In addition, lending objectives for merged and non-merging banks are different, in that merge-involved banks tend to emphasise maximising their utility, while non-merging banks focus on remaining safe. These results suggest that merged banks can obtain efficiency gains through mergers and can pass these benefits to their customers in the form of lower lending rates and interest margins. In addition, diversification gains could arise from consolidations. This is because merged banks focus more on other business activities than traditional intermediary activities. As non-interest income increases in relation to interest income, banks can diversify their business activities and can reduce their non-interest costs. As a result, they can be exposed to lower risk and therefore be less risk averse than non-merging banks.

Our objective is to try to understand the rationale for and the effectiveness of different economic policies in a transition. We provide consistent, comprehensive analysis covering the interlinked questions of: i) how to achieve sustained, balanced/diversified economic growth; the main constraints are: government failure, human capital limitation, and corruption; ii) "what break-ups do to countries"; breakup countries experience deeper and shorter economic crisis, growing afterwards faster; iii) is there a prospect for economic convergence in the "club" of the 28 former centrally planned economies; we explore for a first time the issue-they are expected to reach half the distance to their non-growth steady state in around 50 years; iv) what is the quality of governance relationship with the resource "curse" or "blessing"; negative effect would obtain only in countries with poor institutional structures; v) what insights to the Dutch disease transmission mechanism can be provided by the Salter-Swan model; vi) is the Balassa-Samuelson hypothesis valid; we confirm its validity; and, vii) what are the most important sovereign yield spreads determinants, and propose the impact from financial market volatility; and, our empirical approach takes account of recent advances in econometric analysis of time series-fractional cointegration.

This thesis examines topics on the Economics of crime, with a specific focus on the application of Econometrics in studying issues around crime, community safety and policy in England and Wales. Chapters two and three highlight the gender gap in crime rates and sentencing outcomes and endeavours to identify possible causes. Utilising an ordered logistic regression model and a decomposition method, we find that differing risk preferences between men and women go some way to explaining the difference in offending rates. The analysis in chapter three uses a rich, individual-level dataset for sentencing in England and Wales and, controlling for confounding factors, we find that women are less likely than men to receive a custodial sentence when committing the same crime and receive a significantly shorter sentence when they do. Chapters four and five analyse key risk factors for “Killed or Seriously Injured” (KSI) road traffic accidents in Norfolk and Suffolk. While chapter four employs an ordered logistic regression model to identify specific risk factors, such as not wearing a seatbelt and poor visibility, chapter five adopts a more novel approach by estimating a Classification and Regression Tree (CART) model to identify groups of significant characteristics.

It is shown i) that the under-investment problem is caused by the debt-equity mix of the financing rather than the investment itself and that a transfer of value (from shareholders to debt-holders) can be reversed by a post-investment adjustment in capital structure that restores the pre-investment gearing ratio. This simple, low-cost solution is preferable to reducing debt maturity (as in Myers (1977)) or gearing; ii) that transfers in value from debt-holders to shareholders to promote over-investment are not sustainable since investors will seek to avoid being disadvantaged by demanding higher returns, greater restrictions on the company or both; and that information asymmetry that restricts the issue of new shares can be managed by using several alternatives such as bridge financing in ways that remove the rationale for the pecking order theory; and iii) that managers have incentives to engage in empire building which is facilitated by a capital structure that reflects the degree of concentration among the other companies in the sector: faced with a low (high) degree of concentration, companies have lower (higher) gearing. The implications of these outcomes are empirically investigated using an extensive sample and robust estimating procedures providing strong support for the hypotheses tested.

Analysing the instability in the multivariate correlation structure, the present thesis starts from assessing in-sample and out-of-sample performances of multivariate GARCH models with or without a structural break. The result emphasizes the importance of correlation change point detection for model fittings. We then propose semi–parametric CUSUM tests to detect a change point in the covariance structures of non–linear multivariate models with dynamically evolving volatilities and correlations. The asymptotic distributions of the proposed statistics are derived under mild conditions. Our simulations show that, even though the nearly unit root property distorts the size and power of tests, the standardization of the data with conditional standard deviations in multivariate volatility models can correct such distortions. Lastly, concerning classical trimmed issue in change point test, we extend the semi-parametric CUSUM to weighted CUSUM tests, which enhances the power across either ends of a sample. A Monte Carlo simulation study suggests that weighted CUSUM tests exhibit better performances than unweighted ones in finite samples. Regarding empirical applications, we show the absorption ratio is a leading indicator of the financial fragility, and we study global financial contagion effect, also we investigate unexpected events in the U.S. equity market.

Prioritizing public investments is arguably one of the most important and complex tasks Governments face. In this thesis, I contribute to such a task by examining the Elasticity of the Marginal Utility (EMU). This parameter is central to the determination of the Social Discount Rate, which is the discount rate used for Cost-Benefit Analysis in the public sector. I estimate the EMU using an unprecedentedly large dataset and test variants of the estimation technique which include National Insurance Contributions and Supernumerary Income. I also test the robustness of the estimates obtained. I further investigate the validity of the estimates by testing for the first time the key assumption underlying the estimation technique that the degree of progressivity of the income tax schedule represents society's inequality aversion. Next, I examine causality between tax progressivity and income inequality, which is a theme that emerges from testing the assumption mentioned. Finally, I estimate the EMU in different contexts, relating the estimated values and their context-sensitivity to psychological traits. Overall, the results suggest an EMU of 1.5 and that the estimation methodology implemented is acceptable. They also show bidirectional causality between progressivity and inequality, and that the EMU values vary significantly with psychological traits.

This thesis develops the implementation of the capability approach within health economic evaluations. Until now, the focus of applying the capability approach within health economics has centred on its theoretical merits, as well as the development of capability questionnaires. The aim of this research is to establish methods for applying the capability approach in an evaluation framework. Specifically, this is done by (i.) investigating how a measure of capability well-being, the ICECAP-O, can be incorporated into a health economic model and (ii.) establishing the objective of capability evaluations to aid the decision-making process in allocating scarce resources for health. The relationship between capability and condition-specific health status for osteoarthritis patients is studied through statistical mapping. Methods from the capability literature are drawn upon to construct a methodology for generating capability outcomes that can be used to aid decision-making. This methodology is then tested on an existing economic model, the Birmingham Rheumatoid Arthritis Model (BRAM). Key findings from this thesis are that (i.) it is feasible to predict capability from a condition-specific health instrument and (ii.) establishing “sufficient capability” as the objective for capability evaluations. Further research is required to see what difference a capability based evaluation would make in practice.

In this thesis, by employing VAR/VECM approach and Bayesian Dynamic Stochastic General Equilibrium (DSGE) Model we have studied and tested the transmission mechanisms of China’s monetary policy and measured the effects of the monetary policy shocks and other exogenous macro shocks on the real macro economy to uncover the attributes of China’s business cycle. On the basis of the specified VAR/VEC Models, a bank lending channel, an interest rate channel and an asset price channel have been identified by using the time series (monthly) data of banks balance sheet variables (deposits, loans, securitises) across bank categories (aggregate banks, state banks, non-state banks) and the macroeconomic variables (output, CPI inflation, exports, imports, foreign exchange reserves) from 1996 to 2006. We’ve estimated a benchmark Bayesian DSGE Model with Taylor’s Rule and a modified Smets-Wouters Model with money growth rule by using China’s quarterly data from 1996 to 2006 to simulate the business cycle. The estimated values of the parameters demonstrate many unique features of China’s economy and policies operations. We find that investment and preference shocks drive the forecasted GDP variance in the long run in Taylor’s rule model, but in the money growth rule model, the main contributions to the variations of the output are government expenditure, preference and productive shocks.