Hedging dairy production losses using weather-based index insurance

This article proposes a temperature–humidity index insurance product and examines whether this product can effectively protect against the risk of reduced milk production caused by heat stress. Results suggest that even when premiums are at higher than actuarially fair levels and the insurance purchaser is faced with both spatial and temporal basis risks, a temperature–humidity index insurance product would provide risk management benefits to a representative south‐central Georgia dairy producer.     

International entrepreneurship, venture capital networks, and reinvestment decisions

Prior research has established that venture capitalists (VCs) may face significant obstacles in financing ventures from emerging or transition economies. Such hurdles are usually attributed to the weaknesses of host countries’ institutional systems, especially regulatory. These institutional pitfalls may thwart VCs’ ability to exit a portfolio company leading to lower returns than expected. Developing this approach, we argue that exit strategies may also be difficult to execute when VCs expand into advanced economies although for different reasons. Thus, we show that both necessity entrepreneurship prevalent in emerging economies and opportunity entrepreneurship prevalent in advanced economies are positively associated with the number of investment rounds received by portfolio companies. In contrast, we establish that VC firm capital and network density are negatively associated with the number of rounds provided to portfolio companies across distinct institutional environments. This suggests that VCs may improve their performance by choosing an appropriate strategy to navigate unfamiliar institutional environments to minimize their liability of foreignness. Finally, we find that the interaction of VC capital and network density is positively related to the number of VCs’ investment rounds. Apparently, resource-rich VC firms may not fully realize the informational benefits of their dense “knowledge networks” due to insufficient collaboration with partners. At the same time, such VCs may no longer enjoy access to free information flows from prospective allies. Hence, network density and superior resources combined may lead to a greater number of investment rounds.     

Principal components analysis for correlated curves and seasonal commodities: The case of the petroleum market

This article presents a family of term structure models that can be applied to value contingent claims in multicommodity and seasonal markets. We apply the framework to the futures contracts on crude and heating oils trading on NYMEX. We show how to deal with the problem of having to value products depending on the “whole” market, such as spread options on contracts on a single commodity maturing at different times (time‐spreads) or spread options on the added value of the products derived from the raw commodity (crack spreads). Also, we show how to build term structure models for a commodity that experiences seasonality, such as heating oil. © 2002 Wiley Periodicals, Inc. Jrl Fut Mark 22:1019–1035, 2002     

Optimal Diversification: Reconciling Theory and Evidence

In this paper we show that the main empirical findings about firm diversification and performance are consistent with the maximization of shareholder value. In our model, diversification allows a firm to explore better productive opportunities while taking advantage of synergies. By explicitly linking the diversification strategies of the firm to differences in size and productivity, our model provides a natural laboratory to investigate several aspects of the relationship between diversification and performance. Specifically, we show that our model can rationalize the evidence on the diversification discount ( Lang and Stulz (1994) ) and the documented relation between diversification and productivity ( Schoar (2002) ).     

Accounting rules,equity valuation,and growth options

In a model with irreversible capacity investments, we show that financial statements prepared under replacement cost accounting provide investors with sufficient information for equity valuation purposes. Under alternative accounting rules, including historical cost and value in use accounting, investors will generally not be able to value precisely a firm’s growth options and therefore its equity. For these accounting rules, we describe the range of valuations that is consistent with the firm’s financial statements. We further show that replacement cost accounting preserves all value-relevant information if the firm’s investments are reversible. However, the directional relation between the value of the firm’s equity and the replacement cost of its assets is different from that in the setting with irreversible investments.     

Geographically explicit global modeling of land-use change, carbon sequestration, and biomass supply

This study aims to determine whether carbon sequestration policies could present a significant contribution to the global portfolio of climate change mitigation options. The objective is to model the effects of policies designed to induce landowners to change land use and management patterns with a view to sequester carbon or to reduce deforestation. The approach uses the spatially explicit Dynamic Integrated Model of Forestry and Alternative Land Use (DIMA) to quantify the economic potential of global forests. The model chooses which of the land-use processes (afforestation, reforestation, deforestation, or conservation and management options) would be applied in a specific location, based on land prices, cost of forest production and harvesting, site productivity, population density, and estimates of economic growth. The approach is relevant in that it (1) couples a revised and updated version of the Special Report on Emissions Scenarios with the dynamic development of climate policy implications through integration with the Model for Energy Supply Strategy Alternatives and their General Environmental Impact (MESSAGE); (2) is spatially explicit on a 0.5° grid; and (3) is constrained by guaranteeing food security and land for urban development. As outputs, DIMA produces 100-year forecasts of land-use change, carbon sequestration, impacts of carbon incentives (e.g., avoided deforestation), biomass for bioenergy, and climate policy impacts. The modeling results indicate that carbon sequestration policies could contribute to a significant part of the global portfolio of efficient climate mitigation policies, dependent upon carbon prices.     

Numerical solution of dynamic oligopoly games with capital investment

Summary. This paper discusses how numerical techniques may be used to solve the simultaneous functional equations that arise in general dynamic stochastic games. Unlike the conventional linear-quadratic approach, our methods may be used to address general model specifications that may include non-quadratic objective functions, non-linear equations of motion, and constraints on decision variables. As an illustration, we apply our methods to a dynamic duopoly game in which competing firms play short-run quantity game subject to production cost that can be lowered through investment in capital stock in the long run. Received: June 1, 2000; revised version: December 27, 2000     

Sanctions and the Exchange Rate

Intereconomics - Stabilising the exchange rate allows the Russian government to anchor inflation expectations and support consumption but comes at the cost of the financial repression of domestic...     

Heterogeneity of Players and Aggregate Effort in Contests

We explore the systematic effects of variation in players' heterogeneity on aggregate effort in contests. We show that if costs of effort are convex, a mean‐preserving increase in the variation of players' abilities can lead to an increase or decrease in aggregate effort, both in contests of complete and incomplete information, depending on the curvature of the effort cost function. Specifically, if effort costs are not too steep, aggregate effort increases in ability variation, whereas if effort costs are sufficiently steep, aggregate effort decreases in ability variation.     

The Role of Non-monetary Trade in Russian Transition

The appearance of significant non-monetary trade in the Russian transition of 1992-98 has been differently interpreted by analysts and observers. Some have seen barter as a symbol of passive resistance to reforms while others have blamed reformist policies for its development. We argue that non-monetary trade is best understood as a natural response of companies to market imperfections remaining from Soviet times. We provide an overview of market institutions that existed at the onset of the transition and conclude that market infrastructure was under-developed (especially trade and finance-related institutions). This fact became obvious after the liberalisation of trade in 1992. When the Central Bank of Russia stopped issuing direct credit to enterprises, newly established commercial banks were unable to fill the gap. Firms had to develop alternative means of financing trade and non-monetary trade was one of them. In our opinion barter, while an inefficient mode of trade, also played a positive role in the transition. Its high transaction costs offered ample opportunities to earn profits from trade and financial intermediation. The latter mushroomed as a result and at the time of the 1998 default the Russian economy had sufficiently developed trade, financial and legal systems to afford a switch from barter to money trade.