TRANSPORTATION INFRASTRUCTURE INVESTMENTS AND TRADE LIBERALIZATION*

This paper examines the gains from cooperative agreements on transportation infrastructure investments when there are terms of trade and technological spillovers between countries. In a two ‐country model, cooperation on investment levels will result in a lower level of transport costs. However, the cooperative equilibrium may have a higher or lower level of infrastructure investment between the partner countries in the case of preferential liberalization. The paper also addresses the desirability of linking trade and infrastructure agreements when investment choices can be used strategically.     

A Re-Examination of Shareholder Wealth Effects of Calls of Convertible Preferred Stock

Common stock price reactions to announcements of 67 calls of in-the-money convertible preferred stocks are examined, and a significant average abnormal return of ?1.6 percent is documented. The finding is robust to the choice of estimation period and the assumed return-generating process. Annual dividend obligations for the called preferred issues in the sample typically are greater than the dividends for the common shares into which they are converted, and announcement-period abnormal returns are negatively correlated with changes in dividends. Moreover, calls that result in dilution of voting rights appear to have greater adverse valuation effects than calls that do not alter voting rights concentration.     

An Analysis of Insiders' Use of Prepaid Variable Forward Transactions

This study examines firm performance surrounding insiders' prepaid variable forward (PVF) transactions to infer insiders' information when they enter these off‐market contracts. PVFs allow insiders to hedge downside risk, share performance gains, and obtain immediate large‐sum cash payments for investment or consumption. On average, PVF transactions cover 30% of a sample insider's firm‐specific wealth ($22 million), which is substantially larger than a typical open‐market sale. PVFs systematically follow strong firm performance and precede degraded stock and earnings performance. PVFs also precede periods of negative abnormal returns relative to potential alternative investments. The documented association between PVFs and performance declines does not appear to result from the market's response to transaction disclosure, participant self‐selection, or general price reversals. Thus, evidence suggests that insiders use PVFs to diversify firm‐specific holdings in anticipation of performance declines.     

COSTS OF CALIFORNIA's CORRELATIVE RIGHTS DOCTRINE AS A SOLUTION TO GROUNDWATER OVERDRAFT

This paper reports the present value of groundwater use under alternative institutional structures for the eastern portion of California's San Joaquin Valley. The Gisser-Sanchez model, with data from the California Department of Water Resources, produced these results. The paper, through the use of an optimal control model, shows that private property rights outperform common property rights as an institutional guide to groundwater use. Furthermore, the paper shows that adjudicating groundwater rights under claim of adverse possession gives rise to a discounted flow of future income which, when compared with that of common property, gives the incentive to adjudicate groundwater rights.     

A Note on Aggregate Investment in Australia*

The purpose of this paper is to explore the relevance of Tobin's ‘q theory’ of investment in explaining aggregate investment in Australia, over the period from December 1966 to December 1986. Using standard capital stock data, the q theory performs poorly. However, the cost of adjustment model implies that the conventional capital stock data need to be revised to allow for these adjustment costs. Once this is done, it is found that the q theory explains a statistically significant (although small) proportion of the movements in aggregate investment The residual behaviour of investment is well explained by an accelerator model     

On the Theory of Rational Insurance Purchasing: A Note

The authors consider the optimal amount of insurance purchased by an individual who behaves according to the Hurwicz criterion of choice under uncertainty. Their results are compared with earlier results obtained in alternative frameworks (expected utility maximization and Savage's regret criterion). It is shown that a positive amount deductible is often suboptimal.