Risk adjusted discount rates and the present value of risky costs

In capital budgeting the correct risk adjusted discount rate for future cash flows is independent of whether the flow is a cost or a revenue. Contrary to a widely disseminated view in some popular textbooks and elsewhere, costs are not especially safe (nor risky), and accordingly costs should not be discounted at especially low risk adjusted discount rates. This paper analyzes capital budgeting within a portfolio model in which revenues and costs appear as “long’ and “short’ portfolio positions, respectively, and proves that costs are neither more nor less intrinsically risky than revenues.     

Climate Change, Agriculture, and Developing Countries: Does Adaptation Matter?

Because most developing countries depend heavily on agriculture,the effects of global warming on productive croplands are likelyto threaten both the welfare of the population and the economicdevelopment of the countries. Tropical regions in the developingworld are particularly vulnerable to potential damage from environmentalchanges because the poor soils that cover large areas of theseregions already have made much of the land unusable for agriculture. Although agronomic simulation models predict that higher temperatureswill reduce grain yields as the cool wheat-growing areas getwarmer, they have not examined the possibility that farmerswill adapt by making production decisions that are in theirown best interests. A recent set of models examines cross-sectionalevidence from India and Brazil and finds that even though theagricultural sector is sensitive to climate, individual farmersdo take local climates into account, and their ability to doso will help mitigate the impacts of global warming.      

Private irrigation investment in Colombia: effects of violence,macroeconomic policy,and environmental conditions

This paper identifies and estimates the effects of several determinant, on private investment in irrigation in Colombia. It attempts to quantify macroeconomic policy, environment, and violence variables that have been identified in previous studies as significantly affecting investment, in agriculture in genera., and in irrigation in particular. Variables such as violence, climate, and governmental price credit policies are used to explain changes in private investment in irrigation across regions and over time. Violence negatively affects private investment. Climate affects the investment such that in regions with favorable climate condition, investment in irrigation is less attractive, and appropriate government crop-price and credit policies promote investment in irrigation.     

Performance evaluation,public management improvement and democratic accountability

The results-oriented management reforms fostered by the New Public Management movement are often argued to emphasize the search for efficiency, quality and other typical market values at the expense of democratic accountability. On the other hand, challenging this view, some authors claim that results-based management reforms have the potential to enhance political accountability and representative democracy. There is however, limited empirical evidence of this relationship. This article uses some of the findings from a comparative study of public management evaluation systems in four Latin American countries to illuminate this relationship in practice. We discuss the fact that, in two of the four countries surveyed, the design features of the new systems were based on the explicit search for increased political accountability and the deepening of democracy. We also discuss the possible causes for the finding that the outcome and performance information generated is not being applied for decision-making purposes yet, as expected.     

EU data protection reform: Opportunities and concerns

Last year, the European Commission proposed a comprehensive reform of the EU’s data protection rules. The proposed regulation has been surrounded by fi erce controversy and has been the subject of frenzied lobbying by global corporations, industry groups, research centres and privacy campaigners on both sides of the Atlantic. This Forum applies cool economic reasoning to this heated issue. What are the potential economic benefi ts of EU harmonisation? Will the proposed regulation negatively impact the competitiveness and innovation of European fi rms in the global marketplace? Or could it jeopardise attempts to protect privacy as a fundamental right in civil societies?     

Overreaction of country ETFs to US market returns: Intraday vs. daily horizons and the role of synchronized trading

In this paper we study the intraday price formation process of country Exchange Traded Funds (ETFs). We identify specific parts of the US trading day during which Net Asset Values (NAVs), currency rates, premiums and discounts, and the S&P 500 index have special effects on ETF prices, and characterize a special intraday and overnight updating structure between these variables and country ETF prices. Our findings suggest a structural difference between synchronized and non-synchronized trading hours. While during synchronized trading hours ETF prices are mostly driven by their NAV returns, during non-synchronized trading hours the S&P 500 index has a dominant effect. This effect also exceeds the one that the S&P 500 index has on the underlying foreign indices and suggests an overreaction to US market returns when foreign markets are closed.     

Analysis of wage flexibility across the Euro Area: evidence from the process of convergence of the labour income share ratio

This article analyses wage flexibility as a factor in the unemployment rate across 12 Euro Area countries. We use extensive evidence pertaining to the countercyclical behaviour of the labour income share ratio to estimate its equilibrium value in the long run. This measure is calculated using a hybrid New Keynesian Phillips curve. Additionally, by using spatial econometrics, we can incorporate into the study the interdependence in the inflation among the countries. As a result, we identify countries that might see an improvement in their employment rates by improving their wage flexibility. We also identify countries with high unemployment that is not a consequence of a lack of wage flexibility.     

Repeated insurance contracts and moral hazard

An attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims. We argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard.