Fiber investment and access under uncertainty: long-term contracts,risk premia,and access options

Journal of Regulatory Economics - Regulated access schemes shape incentives for both investment and entry in next-generation networks. We study in a general duopoly setting whether and how risk...     

Financial architecture, systemic risk, and universal banking

Consolidation has been a fact of life in the wholesale financial services sector, resulting in fundamental change in the financial architecture and public exposure to systemic risk. The underlying drivers include advances in transactions and information technologies, regulatory changes, geographic shifts in growth opportunities, and the rapid evolution of client requirements, which in combination have obliged financial firms to rethink their roles as intermediaries. Moreover, financial sector reconfiguration has accelerated as a result of the global market turbulence that began in 2007, with governments either forcing or encouraging combinations of stronger and weaker financial firms in an effort to stem the crisis and improve systemic robustness. In the process, financial firms that are “systemic” in nature and had a major role in creating the crisis have come out of it with even larger market shares and greater systemic importance. Given the episodic socialization of risk in the form of widespread use of public guarantees to firms judged too big or too interconnected to be allowed to fail, the role of systemically important financial institutions (SIFIs) is central to the financial architecture and the public interest going forward. This survey paper considers the sources of systemic gains, losses and risks associated with SIFIs in historical context, in the theoretical and empirical literature, and in public policy discussions—i.e., what is gained and what is lost as a result of the available policy options to deal the dominant role of SIFIs in the financial architecture?     

Geographic diversification and firm value in the financial services industry

This paper investigates whether geographic diversification is value-enhancing or value-destroying in the financial services sector, broadly defined. Our dataset comprises approximately 3579 observations over the period from 1985 to 2004 and covers the entire range of U.S. financial intermediaries — commercial banks, investment banks, insurance companies, asset managers, and financial infrastructure services firms. We use two alternative measures of geographic diversification: (1) a dummy variable whether the firm reports more than one geographic segment and (2) the percentage of sales from non-domestic operations. Our results indicate that geographic diversification is not associated with a significant valuation discount in financial intermediaries. However, when accounting for the firms' main activity-areas, we find evidence of a significant discount associated with geographic diversification in securities firms and a premium in credit intermediaries and insurance companies. All these results are robust after taking into account functional diversification of the firms, a potential endogeneity of both functional and geographic diversification, and a potential value transfer from equity to debt holders by using estimates of the market value of debt.     

Fall Siemens: Darf ein profitabler Weltkonzern ostdeutsche Standorte schließen?

Wirtschaftsdienst - Die Ankündigung des Siemens-Konzerns, trotz insgesamt guter Gewinnlage, Arbeitsplätze in strukturschwachen Regionen Ostdeutschlands abzubauen, wurde quer durch das...     

Multifunctional peri-urban agriculture—A review of societal demands and the provision of goods and services by farming

Peri-urban areas around urban agglomerations in Europe and elsewhere have been subject to agricultural and land use research for the past three decades. The manner in which farming responds to urban pressures, socio-economic changes and development opportunities has been the main focus of examination, with urban demand for rural goods and services representing a driving factor to adapt farming activities in a multifunctional way. Working within the peri-urban framework, this review pays particular attention to the relevance of multifunctional agriculture. Academic discourses and empirical insights related to farm structure and practices beyond conventional agriculture are analysed. Diversification, recreational and environmental farming, landscape management and specialisation, as well as direct marketing are all taken into consideration and discussed within the context of landscape functions. The provision of rural goods and services is contrasted with societal demands on peri-urban agriculture. This review finds that multifunctional agriculture has been commonly recognised in peri-urban areas – a phenomenon that includes a large variety of activities and diversification approaches within the context of environmental, social and economic functions of agriculture. In response to the post-productive, consumption-oriented requirements of the urban society, peri-urban farmers have intensified their uptake of multifunctional activities. Nevertheless, not all multifunctional opportunities are being fully developed when one considers the large and growing urban demand for goods and services provided by agriculture carried out near the city. This paper discusses policy and planning approaches to support multifunctional agriculture in peri-urban areas.     

The need for a new approach to regulating fixed networks

The increasing danger of excess capacity in the regulated fixed networks calls into question the established long-standing pricing standards for wholesale services based on forward-looking long-run incremental costs (FL-LRAIC). Within the EU “Regulatory Framework for Electronic Communications and Services”, the FL-LRAIC standard has worked quite well in expanding markets, although even there price-squeeze problems have appeared. In contracting markets the price-squeeze issue, however, becomes paramount and lower prices both at the wholesale and retail levels would be efficient. Because both expansion and contraction could be relevant in the future, this paper suggests an optional approach based on the wholesale price formula p=min{FL-LRAIC, Retail-Minus} with an optional replacement of per-minute charges by capacity-based access charges (CBC). This will generally protect alternative competitors against price-squeeze while at the same time allowing the fixed-network incumbent full downward price flexibility. It also protects alternative competitors and end users against excessively high prices.     

Social responsibility and the future of multinationals: Guidance without rules

While voluntary behavior and social responsibility have so far played a peripheral role in multinational corporations’ global strategies, the author argues that the non-market social responsibility dimension will have to be incorporated systematically in management’s forward planning as a growing factor if the multinationals want to secure their future.     

The Global Asset Management Industry: Competitive Structure and Performance

The asset management industry represents one of the most dynamic parts of the global financial services sector. Funds under institutional management are massive and growing rapidly, particularly as part of the resolution of pension pressures in various parts of the world. The industry is not, however, well understood from the perspective of industrial organization and international competition, which is the focus of this paper. It begins with a schematic of asset management in a national and global flow-of-funds context, identifying the types of asset‐management functions that are performed and how they are linked into the financial system. It then assesses in some detail the three principal sectors of the asset management industry—mutual funds, pension funds, and private-client assets, as well as foundations, endowments, central bank reserves and other large financial pools requiring institutional asset management services. Relevant comparisons are drawn between the United States, Europe, Japan and selected emerging-market countries. This is followed by a discussion of the competitive structure, conduct and performance of the asset management industry, and its impact on global capital markets.     

Price Regulation for Independent Transmission Companies

This paper considers methods of price structure regulation of electricity transmission in the context of an independent transmission company (TRANSCO). The focus is on two-part tariffs where the variable part would reflect congestion charges (and ancillary services) while the fixed part would reflect capacity costs. The two-part tariffs form a price-cap index, and the firm could rebalance prices, as long as the index satisfies the price-cap constraint. The firm would then have incentives to trade off congestion against capacity expansion in such a way that it becomes profitable to expand, whenever the costs of congestion on average exceed the costs of expansion. However, with chained Laspeyres weights in the price-cap index expansion may be suboptimal. We therefore discuss ways to improve the expansion factor. Implementing the regulatory schemes considered suggests a hybrid approach combining a TRANSCO with an independent system operator (ISO).