This paper develops and empirically tests a two‐factor model for pricing financial and real assets contingent on the price of oil. The factors are the spot price of oil and the instantaneous convenience yield. The parameters of the model are estimated using weekly oil futures contract prices from January 1984 to November 1988, and the model's performance is assessed out of sample by valuing futures contracts over the period November 1988 to May 1989. Finally, the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time.

We conduct an experiment assessing the extent to which people trade off the economic costs of truthfulness against the intrinsic costs of lying. The results allow us to reject a type-based model. People's preferences for truthfulness do not identify them as only either "economic types" (who care only about consequences) or "ethical types" (who care only about process). Instead, we find that preferences for truthfulness are heterogeneous among individuals. Moreover, when examining possible sources of intrinsic costs of lying and their interplay with economic costs of truthfulness, we find that preferences for truthfulness are also heterogeneous within individuals

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We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firm's target leverage ratio. We show that for most credit ratings our model may explain actual yield spreads better than other well-known structural credit risk models. Also, our model shows that the past performance of the stock index returns and the firm's assets beta have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit rating groups and why spreads are lower during economic expansions and higher during recessions.

Standard economic models of self-interested utility maximization, which emphasize the role of consequences in determining agents' actions, predict a grim inexorability to all economic systems. These models are based on an assessment of humans as self-interested agents who behave dishonestly for cogent reasons. These hypothetical persons prioritize the outcomes of their actions and forgo materially beneficial lying only if strategic or reputational considerations arise. Some researchers, such as Bhide and Stevenson (1990), assert that these reputational forces are often weak, implying that honesty simply does not seem to pay. Examples of disastrous dishonesty based on such self-interest abound in the corporate world. Deliberate deception has augmented the economic effects of regulatory failure, of a deteriorating macro-economy, and of inadequate models, in, for example, the subprime crisis. Yet, truthfulness also appears to prosper in society. Whistleblowers often jeopardize their careers and friendships when they truthfully reveal the wrongdoing of their companies. Some CEOs are regarded as particularly virtuous (Treviño and Brown 2004). Numerous journalists risk their lives to report the truth about political repression, economic crimes, and human rights violations. To explain otherwise puzzling behavior both in the field and in experiments, several authors have proposed the idea that some people experience intrinsic costs when they lie. For example, in a cheap-talk sender-receiver game, Gneezy (2005) found that many subjects told the truth. 1 Of various possible explanations for this result, he 1 Similar results on truth telling have been obtained in other studies (Evans, et al. 2001; Sánchez-Pagés; and Vorsatz 2007). Only a few researchers, such as Baiman and Lewis (1989), have found that people will lie for even just a tiny monetary payoff. See the edited volume by Zak (2008) for numerous additional examples.

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