The impact of scale effects on the prevailing internet-based banking model in the US

Internet-based banks use a technology-intensive production process that may benefit from scale effects as they grow larger. This article analyzes whether the predominant Internet-primary bank in the USA generates technology-based economies of scale in the period 2002–2010. There is evidence of both favorable and adverse technology-based scale effects. As the leading Internet-primary bank gets larger, the financial performance gap with traditional banks shrinks while some of its critical competitive advantages wear down. The results suggest that unless the prevailing Internet-primary bank preserves the distinctive advantages of the Internet-based business model as it improves financial performance, it might end up converging with its branching competitors.     

When more is less: Using multiple constraints to reduce tail risk

Financial institutions suffered large trading losses during the 2007–2009 global financial crisis. These losses cast doubt on the effectiveness of regulations and risk management systems based on a single Value-at-Risk (VaR) constraint. While some researchers have recommended using Conditional Value-at-Risk (CVaR) to control tail risk, VaR remains popular among practitioners and regulators. Accordingly, our paper examines the effectiveness of multiple VaR constraints in controlling CVaR. Under certain conditions, we theoretically show that they are more effective than a single VaR constraint. Furthermore, we numerically find that the maximum CVaR permitted by the constraints is notably smaller than with a single constraint. These results suggest that regulations and risk management systems based on multiple VaR constraints are more effective in reducing tail risk than those based on a single VaR constraint.     

Portfolio selection with mental accounts and background risk

Das et al. (2010) develop a model where an investor divides his or her wealth among mental accounts with motives such as retirement and bequest. Nevertheless, the investor ends up selecting portfolios within mental accounts and an aggregate portfolio that lie on the mean–variance frontier. Importantly, they assume that the investor only faces portfolio risk. In practice, however, many individuals also face background risk. Accordingly, our paper expands upon theirs by considering the case where the investor faces background risk. Our contribution is threefold. First, we provide an analytical characterization of the existence and composition of the optimal portfolios within accounts and the aggregate portfolio. Second, we show that these portfolios lie away from the mean–variance frontier under fairly general conditions. Third, we find that the composition and location of such portfolios can differ notably from those of portfolios on the mean–variance frontier.     

Calculating the Efficient Frontier for the Portuguese Stock Market

The paper investigates the efficient frontier and capital market line for the Portuguese stock market before and after the Global Financial Crisis. The efficient frontier and capital market line shift to positions that offer investors better opportunities as we move from 2000‐2008 to 2009–2015.     

Theory of constraints and the combinatorial complexity of the product-mix decision

The theory of constraints (TOC) proposes that, when production is bounded by a single bottleneck, the best product mix heuristic is to select products based on their ratio of throughput per constraint use. This, however, is not true for cases when production is limited to integer quantities of final products. Four facts that go against current thought in the TOC literature are demonstrated in this paper. For example, there are cases in which the optimum product mix includes products with the lowest product margin and the lowest ratio of throughput per constraint time, simultaneously violating the margin heuristic and the TOC-derived heuristic. Such failures are due to the non-polynomial completeness (NP-completeness) of the product-mix decision problem, also demonstrated here.     

Measuring Market Power for Food Retail Activities: French Evidence

In this paper we develop and estimate an empirical model of pricing behaviour for food retail firms in both a quantity‐setting oligopoly engaged in the joint production of demand‐related final goods and a quantity‐setting oligopsony for supply‐unrelated wholesale goods. The procedure consists of estimating an inverse demand system for the final goods, single supply functions for the wholesale goods and the retail industry first‐order profit‐maximisation conditions, from which an estimate of the degree of imperfect competition and of oligopoly‐oligopsony power for the different commodities can be retrieved. The model is applied to the French food retail industry and three commodities are distinguished: dairy products, meat products and other food products. We strongly reject the hypothesis that French food retail firms behave competitively, and more than 20 and 17 per cent of the wholesale‐to‐retail price margins for dairy products and meat products, respectively, can be attributed to oligopoly‐oligopsony distortions.     

The ‘Wild Cards’ of European futures: Planning for discontinuities?

The use of Wild Cards has been extensively developed in the corporate world, particularly by companies dealing with strategic commodities in global markets, i.e., the nexus between warfare, oil, and energy use. One of the purposes of Wild Cards is to test the ability of a system - usually a large organisation - to react to unforeseen but high-impact events. The work presented in this article was undertaken in the context of the project on ‘Spatial Scenarios’ for the European Spatial Planning Observation Network (ESPON) Programme. In this project, four Wild Cards were introduced: “an era of energy scarcity”, “the demise of Europe's social security system”, “the gulf stream stops”, and “the dollar goes down the drain”. These Wild Cards were introduced to investigate how external events may have asymmetric impacts across the European territory, to include some reflections on themes that were not included in the integrated scenarios, and to raise awareness of the fact that today's policy choices have to be evaluated not only in the light of current policy goals but also in the light of possible, sometimes dramatic, future events. In this way the Wild Cards helped to highlight the potential impact of external events on the territorial development of Europe and their particular impact on the internal disparities between the regions.     

Willingness to accept compensation for the environmental risks of oil transport on the Amazon: A choice modeling experiment

This paper looks at the question of whether subsistence level/indigenous people place a value on the preservation of ecosystems independent of direct impacts of environmental change, such as impacts on their production activities. The economics literature generally suggests that non-use values don't exist among the poor and in the informal sector of the economy. We examine this issue through a choice modeling experiment. A survey was conducted of rainforest communities who live on the banks of the Amazon River (Rio Solimões), in the vicinity of proposed oil and gas pipelines. The data were analyzed in the choice modeling framework, revealing relatively high amounts of compensation that were necessary in order to accept the potential ecosystem damages associated with oil transport, even if the people were completely compensated for direct damages such as loss of access to productive resources. These results suggest that environmental quality is important for its own sake, a result that is very different from the implicit assumption among many economists.