International Propagation of the Credit Crisis: Lessons for Bank Regulation*

The authors use a large sample of non‐U.S. banks to examine the origins and spread of the 2007–2009 crisis. Using both stock market and structural variables, they test whether the effects of the crisis on individual banks are better explained by crisis models or by the VaR‐type analysis of the Basel system. The latter emphasizes risk weightings for individual assets while ignoring linkages that could leave banks exposed to systemic shocks. Consistent with crisis models, the authors find that a small set of pre‐crisis measures of a bank's international linkages, leverage, and the fragility of its liability structure does a good job of discriminating between banks that suffered a large impact and those that did not. (Indeed, these measures explain almost 50% of the differences among banks' stock returns during the crisis period, and almost 40% of the changes in the variability of those returns.) The authors also provide evidence of both a direct linkage among banks' stock returns and an indirect linkage that could reflect either linkages in the real economy or common demands by investors for liquidity. The authors run a “horse race” that demonstrates that simple measures of book leverage were better predictors of bank performance than the Basel capital ratios. They find that banks with lower Basel risk weightings prior to the crisis proved, on average, to be more exposed to the crisis. The authors' explanation is that banks with lower Basel risk measures tended to operate with higher leverage and more aggressive funding strategies, which in turn exposed them to greater crisis risk (even as they conformed to the letter of the Basel system in terms of asset risk measures). Finally, the authors find no evidence that substandard governance was a separate contributing factor to crisis exposure. Banks with substantial international business that were exposed to systemic shocks had high governance scores.     

Disability Risk Management and Postinjury Employment of Workers With Back Pain

We analyze the outcomes of occupational back pain among four large employers that use one or more of the following disability management practices: aggressive return to work, claims management, medical management, or time‐limited job accommodations. Outcomes measured at 6 and 12 months postonset include: duration of initial work absence and the probability of returning to stable employment. Employment outcomes are better in firms with more proactive return‐to‐work policies than in firms with more restrictive policies. We devise a statistical test for attrition bias and conclude that sample attrition does not significantly alter our results.     

How Does the FOMC Learn About Economic Revolutions? Evidence from the New Economy Era, 1994–2001

Forecasting is a daunting challenge for business economists and policymakers, often made more difficult by pervasive uncertainty. One such uncertainty is the reaction of policymakers to major shifts in the economy. We explore the process by which the Federal Reserve Open Market Committee (FOMC) came to recognize and react to the productivity acceleration of the 1990s. Initial impressions were formed importantly by anecdotal evidence. Then, FOMC members—and chiefly Federal Reserve Board Chairman Alan Greenspan—came to mistrust the data and the forecasts. Eventually, revisions to published data confirmed initial impressions. Our main conclusion is that the productivity-driven positive supply side shocks of the 1990s were initially viewed favorably. However, over time they came to be viewed as posing a threat to the economy, chiefly through unsustainable increases in aggregate demand growth that threatened to increase inflation pressures. Perhaps nothing so complicates business planning and forecasting as policymakers who initially embrace an unanticipated shift and later come to abhor the same shift.     

The search for asterisks: Compromised statistical tests and flawed theories

This paper discusses repeated tests and the resultant reporting of statistical significance when it is actually not present. These errors interact with professional norms such as biases against both replication studies and ‘non‐results’ to undermine the efficacy of our base of empirically tested theory. This raises serious issues for the future of strategic management research. Suggestions are made for dealing with these issues substantively and in terms of professional norms. Copyright © 2011 John Wiley & Sons, Ltd.     

Price floors and technical inefficiency in India's sugar processing industry

In India, cane is processed into sugar by cooperatives, public enterprises, and private (for‐profit) firms. The Indian government sets a unique floor price for each processor that is increasing in the firm's effectiveness in converting cane into sugar. The floor price binds for public and private firms but not for cooperatives, which rebate profits to members. We argue that this price floor policy creates a disincentive for private and public firms to be technically efficient in converting cane to sugar. In support of this hypothesis an analysis of 593 Indian sugar factories from 1992 to 2007 reveals statistically significant differences in technical efficiency, with cooperatives being the most efficient and public firms least efficient. We estimate welfare losses due to the technical inefficiency attributable to the price‐floor policy and argue that it can be eliminated by enacting policy to base price floors upon quality of the cane input received by a factory.     

Farmers’ Willingness to Pay for a Tuberculosis Cattle Vaccine

We use contingent valuation (CV) and choice experiment (CE) methods to assess cattle farmers’ attitudes to and willingness to pay (WTP) for a bovine tuberculosis (bTB) cattle vaccine, to help inform vaccine development and policy. A survey questionnaire was administered by means of telephone interviews to a stratified sample of 300 cattle farmers in annually bTB‐tested areas in England and Wales. Farmers felt that bTB was a major risk for the cattle industry and that there was a high risk of their cattle getting the disease. The CE estimate produced a mean WTP of £35 per animal per single dose for a vaccine that is 90% effective at reducing the risk of a bTB breakdown and an estimated £55 for such a vaccine backed by 100% insurance of loss if a breakdown should occur. The CV estimate produced a mean WTP of nearly £17 per dose/per animal/per year for a vaccine (including 100% insurance) which, given the average lifespan of cattle, is comparable to the CE estimate. These WTP estimates are substantially higher than the expected cost of a vaccine which suggests that farmers in high risk bTB ‘hotspot’ areas perceive a substantial net benefit from buying the vaccine.     

The ‘Neighbourhood Effect’: A multidisciplinary assessment of the case for farmer co-ordination in agri-environmental programmes

In this paper we present a multi-disciplinary analysis of the potential impacts of undertaking similar environmental actions on multiple farms in a small geographic area, using organic farming as a proxy for a co-ordinated approach. Recent papers have called for more co-ordinated efforts between farmers in terms of their environmental actions, but there has been limited applied research demonstrating the environmental benefits or the economic and social implications to farmers of this approach. Comparative analysis of biodiversity, soil and water, and farm profitability were undertaken in England on 32 matched farms in areas of low and high organic farming concentration; qualitative interviews were also conducted with 48 farmers living in two of the eight areas. Findings demonstrate higher overall levels of biodiversity on organic farms (particularly in “hotspot” areas) but this was not universal across the species groups investigated. Higher water infiltration rates were found in organic grasslands, which could prove to be a useful measure to combat flooding. In terms of the technical efficiency of producing these environmental gains, conventional and organic farms in hotspot areas demonstrated equivalent efficiency from a financial perspective. Socio-cultural research identified the different amounts of trust farmers have in their neighbours, based in part on their performance as ‘good farmers’. We discuss the neighbourhood effect with a multi-disciplinary approach and conclude that encouraging local farmer co-ordination can have clear environmental benefits without high economic cost, but must be undertaken with caution - specifically regarding the trade-offs between benefits, local geophysical and social characteristics, and assumptions made about inter-farmer trust.     

Alcohol as a risk factor for unintentional rail injury fatalities during daylight hours

Railway fatalities account for approximately 10% of transport fatalities in Cape Town. The objective of this study was to examine alcohol intoxication as a risk factor during daylight hours by conducting a case - control study to compare rail passenger and pedestrian fatalities (cases) with motor vehicle passenger and pedestrian fatalities (controls). Rail passenger and rail pedestrian fatalities were defined as cases with motor vehicle passenger and pedestrian fatalities as the respective controls. Data were collected from post-mortem reports at two mortuaries from 1994 to 1996. Blood alcohol concentration was the dependent variable. The independent variables were age, gender, date of death, day of week, time of injury and external cause of death. The late afternoon and early evening period from 1600 hours to 1900 hours had the highest frequency of fatalities for all case and control groups. Of the 56 predominately male (89%) railway passenger cases with an average age of 34.5 (SD 12.5) years, Friday (27%) was the most frequent day of death. Railway pedestrian cases (89% male, average age 36.8 years (SD 13.3)) were more likely to be killed on a Monday (11% of cases). Among the controls, motor vehicle passengers (63% male, average age 39.9 (SD 15.5)) were more likely to die on a Sunday (25%) and pedestrians (82% male, average age 41 (SD 14.7)) on a Saturday (21%). The study showed that alcohol consumption is an important risk factor for rail fatalities during daylight hours, with rail passenger fatalities being 4.71 (1.72 - 12.88) and rail pedestrian fatalities 1.62 (0.98 - 2.69) times more likely to be intoxicated than the respective controls. The results provide more evidence for public health campaigners to tackle endemic alcohol abuse and to develop diverse interventions that do not exclusively target motor vehicle drivers.     

Building Complementarities in Africa between Different Development Cooperation Modalities of Traditional Development Partners and China

Abstract: China's relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral trade in 2008 and US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino‐African relations also has an impact on the role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which has already led some traditional development partners to reduce their aid budgets and subsequently their Official Development Assistance (ODA) flows to Africa. The objective of this paper is to analyse different development cooperation modalities in Africa of traditional development partners and China. This requires identifying trends in aid, debt relief, general budget support, trade, preferential trade access, and investment flows of both traditional development partners and China. The paper advocates that complementarities can be built between these development modalities on a national, regional and global level. This would enhance development effectiveness, increase efficiency and create win‐win situations which would be beneficial to African countries, China and traditional development partners.