A model of person‐pay interaction: how executives vary in their responses to compensation arrangements

A wealth of research indicates that both executive characteristics and incentive compensation affect organizational outcomes, but the literatures within these two domains have followed distinct, separate paths. Our paper provides a framework for integrating these two perspectives. We introduce a new model that specifies how executive characteristics and incentives operate in tandem to influence strategic decisions and firm performance. We then illustrate our model by portraying how executive characteristics interact with a specific type of pay instrument—stock options—to affect executive behaviors and organizational outcomes. Focusing on three individual‐level attributes (executive motives and drives, cognitive frame, and self‐confidence), we develop propositions detailing how executives will vary in their risk‐taking behaviors in response to stock options. We further argue that stock options will amplify the implications of executive ability, such that option‐heavy incentive schemes will increase the performance of talented executives but worsen the performance of low‐ability executives. Our framework and propositions are meant to provide a starting point for future theorizing and empirical testing of the interactive effects of executive characteristics and incentive compensation on strategic decisions and organizational performance. Copyright © 2010 John Wiley & Sons, Ltd.     

World market integration for export and food crops in developing countries: a case study for Mali and Nicaragua

Using a generalized error correction model, this article measures and compares market integration for export cash crops versus imported food crops for Mali and Nicaragua, and computes transmission elasticities between changes in the goods’ border and domestic prices. Both Mali and Nicaragua obtain the bulk of their export revenue from a particular agricultural commodity—cotton for Mali and coffee for Nicaragua—and both import the same key staple food of rice. To reap the economic gains from this trade specialization, the two countries’ agriculture must be well‐integrated into world markets. The two countries present an important policy contrast that affects their degree of world market integration and price transmission. In Mali, a parastatal enterprise controls its cotton industry, while Nicaragua has less state direction over agriculture. Reflecting this difference, the results show that for both its main export and import commodity, Nicaragua is more integrated into world markets and has higher price transmission than Mali. The results for Nicaragua also show much higher integration and price transmission for its main agricultural export (coffee) than its major import (rice).     

Controlling the Urban Fabric: The Complex Game of Distance and Proximity in European Upper‐Middle‐Class Residential Strategies

This article presents an open discussion of the processes of urban secession and gentrification in contemporary European cities, arguing that intergroup social dynamics in urban spaces are generally more complex than either extreme mutual avoidance or the colonization of neighbourhoods by the wealthiest groups. We analyse the residential strategies of urban upper‐middle class managers in various European metropolitan areas through in‐depth semi‐structured interviews to argue that these groups develop complex strategies of proximity and distance in relation to other social groups. The development of these ‘partial exit’ strategies takes place through specific combinations of practices that allow groups to select the dimensions they are willing to share with other social groups, and those in which they prefer a more segregated social environment for themselves and their families. The responses of our interviewees were consistently more nuanced and complex than suggested by a simplistic theory about their drive to withdraw from society, forcing us to develop more sophisticated conceptual frameworks to account for the growing prevalence of multi‐layered identities and spheres of reference and solidarity, specific combinations of elective segregation and local involvement, and more active patterns of mobility combined with local embeddedness.     

Time Series Analysis of Repeated Surveys: The State–space Approach

Cross sectional estimates from repeated surveys form a time series { y_t }. These estimates can be viewed as the sum y _t = Y _t + e _t of two processes, { Y _t }, the population process and { e _t }, the survey error process. Serial correlations in the latter series are usually present, mainly due to sample overlap. Other sources of data such as censuses, administrative records and demographic population counts are also available. The state–space modelling approach to the analysis of repeated surveys allows combining information from different sources, incorporating benchmarking constraints in a natural way. Results from these methods seem to compare favourably with those from X-11-ARIMA in filtering out survey errors.     

An alternative definition of individual bioequivalence

Several definitions of individual bioequivalence of two formulations of a medical treatment (drug) have been proposed recently. These definitions attempt to adapt the criterion of average bioequivalence, which would be deficient if substantive treatment heterogeneity were present. In some of the proposed definitions, relatively large differences of means can be compensated by differences in the measurement-error variances. We propose a definition based on a simple latent-variable model which overcomes this anomaly and need not involve the U.S. Food and Drug Administration's 80/125 rule. Our approach is based on a moment-matching estimator of the discrepancy between the outcomes underlying the subjects' responses. The distribution of this estimator is a linear combination of independent χ² variates; asymptotically, it can be approximated by a normal distribution. Evidence of individual bioequivalence corresponds to rejecting the hypothesis that the discrepancy is greater than a specified threshold. The approach is illustrated by reanalysing two bioequivalence trials.     

The Role of Behavioral Survey Methodologists in National Statistical

The expertise of behavioral survey methodologists is needed in national statistical agencies because of the necessity of using theory and research from the social sciences to reduce survey error. In this paper various social science based explanations for measurement error and nonresponse error are described in order to illustrate the conceptual foundations of such error reduction efforts. Three roles for behavioral survey methodologists in national statistical agencies are then discussed. They include: 1) bring an error reduction perspective to bear in an influential way for all aspects of designing and implementing agency surveys; 2) bring theoretical efficiency and effectiveness to experimental tests of alternative questionnaire designs and implementation procedures through the use of theories, concepts and pretests and findings of past behavioral science research; and 3) contribute to the expanding science of survey methodology.     

Modelling the spot prices of various coffee types

We investigate long-run relationships among the spot prices of four coffee types. Two cointegrating vectors emerge: one between the prices of Arabica coffee varieties, and the other one between Unwashed Arabicas and Robusta. A persistence profile analysis shows a more rapid adjustment to equilibrium for the first compared to the second vector due to the fact that the former involves the Arabica coffees, which are more homogeneous. Adjustment is relatively fast, implying that economic forces act rapidly and discrepancies in the equilibrium relationships are short-lived. We also find evidence of non-linear adjustment back to equilibrium; when prices are too high, adjustment takes place at a slower rate than when they are too low.     

Limit order books and trade informativeness

In the microstructure literature, information asymmetry is an important determinant of market liquidity. The classic setting is that uninformed dedicated liquidity suppliers charge price concessions when incoming market orders are likely to be informationally motivated. In limit order book (LOB) markets, however, this relationship is less clear, as market participants can switch roles, and freely choose to immediately demand or patiently supply liquidity by submitting either market or limit orders. We study the importance of information asymmetry in LOBs based on a recent sample of 30 German Deutscher Aktienindex (DAX) stocks. We find that Hasbrouck's (1991) measure of trade informativeness Granger causes book liquidity, in particular that required to fill large market orders. Picking-off risk due to public news-induced volatility is more important for top-of-the book liquidity supply. In our multivariate analysis, we control for volatility, trading volume, trading intensity and order imbalance to isolate the effect of trade informativeness on book liquidity.     

A Framework for Reconsidering the Lake Wobegon Effect

The Lake Wobegon Effect (LWE) describes the potential measurement-error bias introduced into survey-based analyses of education issues. Although this effect potentially applies to any student-report variable, the systematic overreporting of academic achievements such as grade point average is often of preeminent concern. This concern can be easily circumvented if official records data are available; however, many researchers can only access student-reported data. In this article, the authors examine whether using student-survey data in place of official records data meaningfully biases regression estimates. They motivate their contribution by noting a useful statistical feature of overreporting on bounded variables such as grade point average. Specifically, the misreports will be negatively correlated with the true grade point average, yielding a form of nonclassical measurement error that actually counteracts the bias. The authors connect this observation to reliability ratios used in labor economics, which are simple ways to adjust for attenuation bias, when needed. In two applications, we find that it is unnecessary to correct for the LWE bias because it is so small.     

Improved approximations for the aggregate claims distribution of a life insurance portfolio

Abstract

In an earlier paper the author derived a recursion formula which permits the exact computation of the aggregrate claims distribution in the individual life model. This exact procedure requires of course more computing time than approximative methods such as Kornya's algorithm, which seemed to be the best compromise between accuracy and computational effort. In the present paper it is shown that, to save time, the exact formula can be used in an approximative way and that the corresponding error bound is smaller than the one of the Kornya-type approximations.