SelectedWorks of PHILIP E GRAVES

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PHILIP E GRAVES

University of Colorado

• Professor of Economics
• University of Colorado, Boulder
• Curriculum Vitae [PDF]

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I have worked in a number of areas, including monetary economics, urban/regional
economics, environmental economics, and miscellaneous areas: 

1) MONETARY ECONOMICS. The idea underlying my articles in this area is quite simple.
Kenneth Arrow (who has won the Nobel Prize) believes in something called "the
increasing relative risk aversion" (IRRA) hypothesis. The notion is that
"safety," freedom from risk, is a superior good in the economic sense. In
portfolio terms, this hypothesis suggests that richer people would be expected to hold
lower risk portfolios other things equal, portfolios with a higher share of safe assets. 

Yet another way of thinking about this is that, under the IRRA hypothesis, you would be
less willing to take a bet if both it and your wealth were doubled. Both implications
seemed counter-intuitive to me (stocks are quite risky, yet held predominantly by rich
people, while doubling a $5 bet and, say, $50,000 wealth to $10 and $100,000 would, I
suspect, cause most people to be more prone to take the bet). Arrow supported his
position with the time series money demand work of Milton Friedman (who also won the
Nobel Prize). In that work, Friedman found that, as U.S. incomes (a proxy for wealth in
Arrow's context) grew over a hundred year period, money holdings as a percentage of
income increased. 

I felt that many other things (urbanization, changes in family size, etc.) were changing
over such a long time period and that income was mistakenly getting credit for the
influences of these other (omitted) variables. 

2)URBAN/REGIONAL ECONOMICS. Much of my professional output has been in the area of
urban/regional economics, with main analytical thread being again quite simple. 

Prior to my work, urban and regional growth and decline were largely seen as being
determined by demand-side forces. I felt that growth and decline were much more closely
related (particularly if one's interest is in long-run influences) to climate and
other amenities that affect our well-being and are spatially varying. With generally
rising incomes in the U.S. households will have increased demands for normal or superior
goods and decreased demands for inferior goods. But, some of the goods that we demand
more of as we get richer (e.g. pleasant temperatures, low humidity, scenic vistas and the
like) can only be "bought" by moving. This, in a nutshell, is the motivation
for the important on-going effect of amenities on human migration. 

3) ENVIRONMENTAL ECONOMICS. I have done a number of things in the environmental area, but
am particularly interested in public good valuation. Samuelson (1954) first characterized
formally how to value public goods, but recognized that it would be difficult to acquire
the information to do so. Non-excludability makes the private sector unable to supply
such goods and renders it difficult for government to know what and how much to supply,
because of the well-known "free riding" behavior in output markets (incentives
to under-reveal true demands since public goods, if they exist, can be used without
paying and any individual's demands are too small to have any impact on the
likelihood of provision). 

There is, however, an additional problem that went unrecognized. Those who desire large
quantities of ordinary goods will realize they must obtain the income with which to buy
them. But, suppose the goods that some people (everyone to some extent) really care for
are public goods--they will know that how much income they individually obtain will have
no bearing on how much of the public good is actually produced. They are too small to
matter in that collective decision, and know that. Hence, they will fail to generate
income (get an education with a big monetary payoff, work long hours on your job, etc.)
to purchase such goods. They will just "buy" more leisure (or even "drop
out" in the parlance of the '60s). Hence, overall aggregate income is too
small, and all of that income would, under "independence," have gone to
expenditure on public goods, like environmental quality. Individuals will generate the
income to buy private good substitutes for the public good, leading to
over-suburbanization in the case of location-varying public goods. 

Other miscellaneous topics of research have less in the way of "common themes,"
and I am only uploading a few of the papers on my C.V. in the areas discussed
above--please feel free to contact me for copies of anything of interest. 

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