The valuation of inflation‐indexed and FX convertible bonds

This paper derives a valuation model of inflation‐indexed convertible bonds that incorporates the firm's stock price, inflation indexing and the firm's credit risk. The pricing of inflation‐indexed convertible bonds traded on the Tel‐Aviv Stock Exchange (TASE) was empirically tested by using a comprehensive database. The study is the first to empirically test the pricing of convertibles in emerging markets. It was found that the theoretical values for the bonds are, on average, 1.94% higher than the observed market prices. Unlike previous studies, it was found that the underpricing increases with the moneyness of the convertible. It was found that as the maturity lengthens, the underpricing increases. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:634–655, 2008     

Alternative Solutions to Underinvestment, Under Equity and Credit Rationing

We compare alternative solutions to underinvestment (UI) problems in firms subject to limited access to equity markets, interest ceilings, and constraints on the volume of debt. Collaterals (assets or compensating balances) and credit insurance ('regular' or 'outcome' insurance whereby the premium is paid at the end of the insurance period) are compared on the basis to their costs and their effective use of financial sources. It is shown that when there is no moral hazard problem, credit insurance is the most effective instrument. Otherwise, 'outcome' insurance program is the most effective one.     

A theory of permissible illegal immigration

In many countries laws are not enforced against visibly present illegal immigrants. The visibly present illegal immigrants also tend to be concentrated in particular sectors. We explain such permissible illegal immigration in an endogenous-policy model where selective sector-specific illegality transforms illegal immigrants from non-sectorally specialized to sector-specific factors of production. Under initial conditions where no immigrants are present, the median voter opposes immigration. When, however, a population of illegal immigrants has accumulated, ongoing illegal immigration becomes an endogenous equilibrium policy, at the same time that a majority of voters opposes legal immigration and opposes amnesty that would legalize the immigrants' presence. We also establish a basis for domestic voters preferring that illegal immigrants be employed in service rather than traded-goods sectors.     

The taste for variety: A hedonic analysis

This paper derives a hedonic price function for a household's consumption bundle. In a panel-data analysis for households' expenditures on 182 different soft drinks we find that consumers have a preference for variety in food consumption, ceteris paribus.