Neglected Risk in Financial Innovation: Evidence from Structured Product Counterparty Exposure

We investigate the compensation of counterparty exposure in the prices of structured products. Our analysis reveals that product issuers did not compensate retail investors for counterparty exposure before the Lehman default. Post-Lehman, retail prices have no longer neglected this risk. We also measure retail investor attention towards issuer credit risk. For a given level of issuer credit risk, counterparty exposure is compensated more when attention is higher. Furthermore, issuers tend to construct products with larger counterparty exposure. Overall, our results shed light on the conditions under which financial engineering generates neglected risk.     

MARCH MADNESS: NCAA TOURNAMENT PARTICIPATION AND COLLEGE ALCOHOL USE

While athletic success may improve the visibility of a university to prospective students and thereby benefit the school, it may also increase risky behavior in the current student body. Using the Harvard School of Public Health College Alcohol Study, we find that a school's participation in the NCAA Basketball Tournament is associated with a 47% increase in binge drinking by male students at that school. Additionally, we find evidence that drunk driving increases by 5% among all students during the tournament. (JEL I12, I23, Z28)     

Inclusionary Housing Policies,Stigma Effects and Strategic Production Decisions

Inclusionary housing policies enacted by municipal governments rely on a combination of legal mandates and economic incentives to encourage residential real estate developers to include affordable units in otherwise market-rate projects. These regulations provide a means of stimulating the production of mixed-income housing at a minimal cost to the public sector, but have been hypothesized to slow development and put upward pressure on housing prices. The results of the theoretical models presented in this paper suggest that inclusionary housing policies need not increase housing prices in all situations. However, any observed impact on housing prices may be mitigated by density effects and stigma effects that decrease demand for market-rate units. The results additionally suggest real estate developers are likely to respond to inclusionary housing policies by strategically altering production decisions.     

Improved grade outcomes with an e-mailed “grade nudge”

Information provided at the moment a person makes a decision can influence behavior in predictable ways. The United Kingdom's Behavioural Insights Team have used this idea to help improve the insulation of lofts, collect taxes, and even reduce litter. The authors of this article developed software that appends a personalized message to each assignment in the class regarding the student's current grade. This “grade nudge” explains precisely how the assignment will impact the student's final grade given their current standing in the class. Through a randomized trial, the authors show that the nudge improves student homework performance by about four percentage points.     

An investigation of coworker relationships and psychological collectivism on employee propensity to take charge

This study examines how coworker interactions and psychological collectivism impact an employee's likelihood of engaging in taking charge behavior. Work group contextual factors examined include team–member exchange (TMX), coworker support and psychological collectivism. Results show that TMX and psychological collectivism were significantly related to an individual's propensity to engage in taking charge behavior. This study highlights the importance that one's interactions with coworkers can have on an employee's willingness to engage in taking charge behavior, contributing an important new perspective to the literature on the contextual antecedents that drive an individual's behavioral efforts to bring about innovation and change. Implications for research and practitioners are discussed.     

CULTURE AND GROWTH: SOME EMPIRICAL EVIDENCE

Using Hofstede's cultural data set, this paper examines the impact of cultural characteristics on a nation's economic performance. Using a two‐step estimation procedure, we first estimate a panel growth regression and obtain estimates of each nation's fixed effects, which reflect idiosyncratic differences in growth performance. In the second step, we regress the fixed effects on invariant cultural and institutional variables. Our estimation results suggest that individuality and tolerance for uncertainty are the most important cultural factors in explaining nation‐specific growth performance. Furthermore, our findings suggest that political and property rights play a major role in determining idiosyncratic growth.     

International sourcing of services: the “Homeshoring” alternative

The offshoring and outsourcing of service work from high-wage to low-wage countries has received considerable exposure in the popular press. Here, an alternative to offshoring is presented, called “Homeshoring.” In Homeshoring, a process is decoupled, just as it would be if it were offshored, but the work is sent to low-wage areas within a firm’s own country, rather than to another country. Homeshoring does not represent merely “domestic sourcing,” as it implies a new relationship and a working relationship with governmental economic development agencies. The benefits and disadvantages of this strategic choice are examined.