Optimal Privatization Design and Financial Markets

This paper provides a simple general equilibrium analysis of privatization, exploring its real effects. They derive from the expansion of risk‐sharing opportunities (within an incomplete markets setting) that are created by the addition of a market in the public project property rights. The principal conclusion is that an optimal combination of voucher and share issue privatization can implement the first‐best.     

From Accounting to “Forecounting”*

Using Ross Skinner's 1995 CA Magazine article, “Judgment in Jeopardy", as a stepping stone, we revisit the meaning of professional judgment in accounting in light of developments in standard setting, financial markets, and business operations that have taken place over the past two decades. We argue that it is time to change the view that accountants' professional judgment is the application of accounting‐based knowledge and experience in the selection of an appropriate accounting method. Accountants now face a standard‐setting context that emphasizes the estimation of future cash flows as well as new business and financial realities. This context implies that, in exercising their professional judgment to choose between forecast alternatives, accountants must rely on knowledge and experience from other disciplines (even though this is not well integrated into accounting). Hence, accounting must evolve from its traditional stewardship role to the new role of “forecount‐ing” (the estimation of future cash flows). The implications as well as the challenges of that evolution are discussed.     

Volatility Clustering, Asymmetry and Hysteresis in Stock Returns: International Evidence

Encompassing a very broad family of ARCH-GARCH models, we show that the AT-GARCH (1,1) model, where volatility rises more in response to bad newsthan to good news, and where news are considered bad only below a certain level, is a remarkably robust representation of worldwide stock market returns. The residual structure is then captured by extending ATGARCH (1,1) to an hysteresis model, HGARCH, where we modelstructured memory effects from past innovations. Obviously, this feature relates to the psychology of the markets and the way traders process information. For the French stock market we show that votalitity is affected differently, depending on the recent past being characterized by returns all above or below a certain level. In the same way a longer term trend may also influence volatility. It is found that bad news are discounted very quickly in volatility, this effect being reinforced when it comes after a negative trend in the stock index. On the opposite, good news have a very small impact on volatility except when they are clustered over a few days, which in this case reduces volatility.     

Comparable Axiomatizations of Two Allocation Rules for Cooperative Games with Transferable Utility and Their Subclass of Data Games

The axiom of balanced collective contributions is introduced as a collective variant of the axiom of balanced contributions proposed by Myerson. It requires the identical average impact of the withdrawal of any agent from a game on the remaining population. It turns out that the axiom of balanced collective contributions and the classical axiom of efficiency characterize the equal allocation of nonseparable costs, an allocation rule that is extensively used in cost allocation problems and in accounting. In particular, the equal allocation of nonseparable costs coincides with the nucleolus on the class of data games within the European REACH legislation. While our result does not hold on data games, extra axioms enable provision of comparable characterizations of the equal allocation of nonseparable costs and the Shapley value on this class of games.     

Precautionary Saving and Consumption Smoothing across Time and Possibilities

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the precautionary saving motive in a two-period model with Selden/Kreps–Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive that generalizes the concept of "prudence" introduced by Kimball (1990b) . For large risks, we show that decreasing absolute risk aversion guarantees that the precautionary saving motive is stronger than risk aversion, regardless of the elasticity of intertemporal substitution. Holding risk preferences fixed, the extent to which the precautionary saving motive is stronger than risk aversion increases with the elasticity of intertemporal substitution. We derive sufficient conditions for a change in risk preferences alone to increase the strength of the precautionary saving motive and for the strength of the precautionary saving motive to decline with wealth. Within the class of constant elasticity of intertemporal substitution, constant-relative risk aversion utility functions, these conditions are also necessary.