Values,beliefs, and welfare recipiency: Is there a connection?

Relationships between values/beliefs and welfare recipiency and work attachment are examined using a sample of black and white women. The concept of self-efficacy, i.e. perceived ability to produce and regulate events is used to model paths of influence between values/ beliefs and observable behaviors. No racial differences are found in the determinants of current labor force status and previous work history. Race is also found to have no significant impact on the probability of receiving public assistance. The explanatory power of measures of self-efficacy is found to be minimal with respect to receipt of public assistance or the duration of receipt of assistance.     

Performance hypothesis testing with the Sharpe ratio: The case of hedge funds

As recent research highlights that the Sharpe ratio has a decision theoretic foundation even in the case of asymmetric or fat-tailed excess returns and thus is adequate even for the evaluation of hedge funds, this note provides the first Sharpe ratio based performance analysis of the hedge fund market. Furthermore, it addresses the important practical question whether the choice of hypothesis test used to statistically compare Sharpe ratios can influence an investor’s hedge fund selection process. Our key findings are as follows: (i) Only a small fraction of hedge funds in our large dataset can significantly outperform passive investments in corresponding hedge fund indices. (ii) Especially in the presence of autocorrelated or skewed excess returns, the traditional test of Jobson and Korkie, 1981, Memmel, 2003 tends to overstate the number of significant outperformers and thus provides potentially misleading information for investors. Decision makers are advised to use the bootstrap test of Ledoit and Wolf (2008) allowing robust and more reliable inference.     

PETROZUATA: A CASE STUDY OF THE EFFECTIVE USE OF PROJECT FINANCE

Companies are increasingly using project finance to fund large-scale capital expenditures. In fact, private companies invested $96 billion in project finance deals in 1998, down from $119 billion in 1997 largely due to the Asian crisis, but up more than threefold since 1994. The decision to use project finance involves an explicit choice of organizational form as well as financial structure. With project finance, sponsoring firms create legally distinct entities to develop, manage, and finance the project. These entities borrow on a limited or non-recourse basis, which means that loan repayment depends on the project's cash flows rather than on the assets or general credit of the sponsoring organizations. Despite the non-recourse nature of project borrowing, projects are highly leveraged entities, with debt to total capitalization ratios averaging 60–70%. Petrozuata, a $2.4 billion oil field development project in Venezuela, is a recent example of the effective use of project finance for several reasons. First, the analysis shows a typical setting where project finance is likely to create value, that of a large-scale investment in Greenfield assets (in this case, wells, pipelines, and upgrader) that can function as a stand-alone economic entity and support a high leverage ratio. Given the nature of this investment, one can think of project finance as venture capital for fixed assets, except that the investments are 100 to 1000 times larger and financed primarily with debt rather than equity. Besides highlighting the types of assets appropriate for project finance, this article illustrates the sizeable transactions costs associated with structuring a deal as well as the full range of benefits accruing to project sponsors. The structure allows sponsors to capture tax benefits not otherwise available, reduces information costs for creditors and other investors, and lowers the overall cost of financial distress. The combination of high leverage, concentrated equity ownership, and direct control in project finance also addresses a wide range of incentive problems that destroy value in diversified companies. Analysis of the explicit contractual terms of the deal reveals a careful allocation of project risks in an attempt to elicit optimal behavior by each of the participants. As illustrated in the Petrozuata case, limiting completion and operating risks are important undertakings. But project finance is most valuable as an instrument for managing sovereign risks. Indeed, the ability of project finance to limit sovereign risk is the one feature that cannot be replicated under conventional corporate financing schemes.     

Dark trends: Psychology,science fiction,and the ominous consensus

Many science fiction authors predict that the world will continue moving towards an environment characterised by a combination of high population density and advanced technology. Psychologists and writers of fiction both appear to be in general agreement that such an environment will result in an information overload, intolerable time pressures, overwork for a minority with a lack of meaningful work for the majority, and the loss of privacy and autonomy. Futurists should note the agreement between artistic vision and scientific research—that human civilisation appears to be moving towards conditions that are unpleasant and deleterious.     

An assessment of the economic and environmental potential of biomass production in an agricultural region

The establishment of deep-rooted perennial species and their processing for biomass-based products such as renewable energy can have benefits for both local and global scale environmental objectives. In this study, we assess the potential economic viability of biomass production in the South Australian River Murray Corridor and quantify the resultant benefits for local and global scale environmental objectives. We model the spatial distribution of economically viable biomass production in a Geographic Information System and quantify the model sensitivity and uncertainty using Monte Carlo analysis. The total potentially viable area for biomass production under the Most Likely Scenario is 360,728 ha (57.7% of the dryland agricultural area), producing over 3 million tonnes of green biomass per annum, with a total Net Present Value over 100 years of A$ 88 million. The salinity in the River Murray could be reduced by 2.65 EC (μS/cm) over a 100-year timeframe, and over 96,000 ha of land with high wind erosion potential could be stabilised over a much shorter period. With sufficient generating capacity, our Most Likely Scenario suggests that economically viable biomass production could reduce carbon emissions by over 1.7 million tonnes per annum through the production of renewable energy and a reduced reliance on coal-based electricity generation. Our analyses suggest that biomass production is a potentially viable alternative agricultural system that can have substantial local scale environmental benefits with complimentary global scale benefits for climate change mitigation.     

Beyond the purchasing power parity: testing for cointegration and causality between exchange rates, prices, and interest rates

This paper reexamines the causality between the dollar and the yen in a multivariate framework with the aid of cointegration and error-correcting modeling for the 1951–94 period. The Phillips-Perron tests and Johansen's tests are performed. While causality from interest rates to exchange rates is found in the short run, no causality between prices and exchange rates is found in the short run. However, causality is found running from relative prices to exchange rates along with interest rates between the U.S. and Japan in the long run, which supports the long-run PPP hypothesis.     

A protectionist foodgrain price policy : The case of rice in Panama

Panama has pursued a protectionist price policy for rice, with domestic prices well above the world market level. The government marketing authority purchases sufficient rice to support the established price level and stores or exports the surplus. Although producers benefit, this policy imposes significant costs on consumers, government expenditures and economic efficiency. One policy recommendation is to bring domestic prices in line with the international level. Although free trade is one possibility, a market stabilization programme could be retained. At a minimum Panama's rice price should reflect domestic demand and not production costs. The unfavourable rice-fertilizer price ratio also deserves attention.