Dynamic risk taking with bonus schemes

This paper studies dynamic risk taking by a risk-averse manager who receives a bonus; the company may default on its contractual obligations (debt and fixed compensation). We show that risk taking is time independent, and is summarized by the so-called risk aversion of derived utility. We highlight the importance of dynamic aspects and provide a foundation for common qualitative discussions that are based on characteristics of bonus functions. The paper cautions that deferral of fixed compensation may increase risk taking. Finally, we motivate a new bonus scheme that incentivizes the manager to implement the socially optimal risk level.     

Hedging and Portfolio Optimization in Financial Markets with a Large Trader

We introduce a general continuous-time model for an illiquid financial market where the trades of a single large investor can move market prices. The model is specified in terms of parameter-dependent semimartingales, and its mathematical analysis relies on the nonlinear integration theory of such semimartingale families. The Itô–Wentzell formula is used to prove absence of arbitrage for the large investor, and, using approximation results for stochastic integrals, we characterize the set of approximately attainable claims. We furthermore show how to compute superreplication prices and discuss the large investor's utility maximization problem.     

Energiewende für die Modernisierung des Industriestandorts Deutschland nutzen

The German industrial sector is a central component of its economic success. However, its investment activities are weak in comparison internationally. There are concerns that the high costs of the energy transition — one major part of climate change policy — could decrease industrial competitiveness and Germany’s allure as an industrial production location. To prevent this, German policymakers offer substantial exemptions for energy intensive industries in order to keep costs low. This study shows that only a few industrial branches have both high energy costs and a high export intensity, however. They generally feature a comparatively old capital stock. Overall, industry benefits from the demand for climate protection technologies. This calls for a shift in current policy, which should focus on incentives for innovative low carbon technologies. Exemptions should be granted to a limited number of energy intensive industries only for a limited time.     

A Second-Best Theory of Local Government Policy

This paper provides a model where a large number of small jurisdictions compete for mobile firms and households by supplying local public goods and factors. Jurisdictions only have an incomplete set of tax instruments at their disposal to achieve an efficient allocation. We derive second-best behavioral rules for local governments and extend optimal taxation results to the local level. Local governments distort locational decisions of mobile firms and households by taxing them above marginal congestion costs so as to balance relative locational distortions between taxes. The analysis also reveals that there is a systematic difference between the provision of local public goods and factors. While local public goods are provided according to the Samuelson rule in most situations considered, local public factors are undersupplied relative to this rule.     

Menschen statt Werkzeuge — Einzigartige Kundenbeziehungen statt Tools for Fools

Der wichtigste Stellhebel für die zielgerichtete, professionelle Gestaltung einer Vertriebsorganisation sind die Menschen und die Strukturen, in denen sie arbeiten — und nicht die Tools. Die Heidelberger Druckmaschinen Vertrieb Deutschland GmbH (HDD) hat 2002 damit begonnen, ihre Verkaufsorganisation komplett neu aufzustellen. Der Erfolg: Seit vier Jahren ein gleich bleibender hoher Marktanteil als Marktführer in Deutschland und zwei Mal Sieger im unternehmensinternen World Sales Award.     

Some simple economics of GM food

Public opposition to the genetic engineering of food crops (GM food) has not been based solely on concern about biological risks. Economic risks have been widely cited too: the fear that the world's food supply will be concentrated in the hands of a few large firms, the fear that such firms will engage or are already engaging in anti–competitive practices, and the fear of the transfer of ownership rights over genetic resources to the private sector. Are these fears justified? We argue that the GM food industry may be on course for further consolidation, and this could be anti–competitive. In fact, policymakers face a dilemma: a stringent regulatory approval process enhances food safety, but at the cost of increasing market concentration. We argue also that the integration of seed and agri–chemical manufacturers may bias the introduction of GM traits in undesirable directions. Some business practices (such as tie–in contracts between seeds and complementary products such as herbicides) may have an exclusionary motive that warrants scrutiny on anti–competitive grounds, while some other practices (such as the use of terminator genes) appear more benign. Finally, we argue against granting patents on genes or even on gene 'functions'. Doing so may delay the development of socially beneficial applications.     

The world market in coal— Requirements for the year 2000

Shrinking reserves of oil and natural gas at a time of increasing global energy requirements can mean a new future for coal, large reserves of which exist, half of them In the Western sphere of influence. The “renaissance of coal”, however, is not a natural law which operates on its own. The sooner the necessary decisions are taken on a world-wide basis, the more effectively will coal be able to play its new role in the international energy industry and the less will be the frictional losses along the road to a new energy future.     

Möglichkeiten und Grenzen der mathematischen Schadenmodellierung

Mathematical claims modelling is a traditional art of actuarial practice. However, changing expectations concerning the complexity and efficiency of mathematical models have lead to numerous developments in the recent years, particularly in the area of multivariate models. This goes hand in hand with questions about what is ?possible“ and what is ?meaningful“. Due to sophisticated improvements of the classical models, the one-dimensional situation is well-tractable today whenever sufficient data material is available. A more difficult task is the modelling of situations where data are sparse or, alternatively, highly complex. Here sometimes theoretical arguments have to be used for justification, as in the area of large claims or extreme values. A more modern approach to multivariate situations is via copulas which allow for a separation of the problem of marginal distributions and the joint dependence structure. However, so far there is little experience with such tools in the insurance world, which makes further scientific research necessary.     

A continuous mapping theorem for the argmax-functional in the non-unique case

The Argmax-Continuous Mapping Theorem (Argmax-CMT) of K im and P ollard resp. van der Vaart and Wellner has been proved to be a very useful tool in statistics for deriving distributional convergence of M-estimators. However it only works as long as the limit process possesses an almost sure unique maximizing point. In this article we prove an extension of the Argmax-CMT where almost sure uniqueness is no longer needed. Moreover our Argmax-CMT is also valid in the function space D ( R ) equipped with L indvall's version of the Skorokhod-topology. As an example the result is applied to change-point estimators.