WHY SOCIETY NEEDS "IRRATIONAL EXUBERANCE"—AND WHAT THIS MEANS FOR VALUATIONS AND MONETARY POLICY

Despite all the talk of a New Economy and the revolutionary import of the Internet, this article suggests that there is nothing really new under the sun. When Christopher Columbus was building the ships for his expeditions to the East Indies, only the vaguest estimates could be made of their potential value. At this stage, nobody knew if Columbus would be able to manage the crossing, when the ships would return, and what cargo they would eventually carry. In this sense, Columbus's venture bears a striking resemblance to many of today's Internet stocks. This paper raises and attempts to answer a number of interesting questions. For example, how do risky ventures with very high fixed (startup) costs but very low expected variable costs raise the capital necessary to fund the fixed costs? What role should government (and, in particular, monetary) policy play in encouraging (or discouraging) funding for such ventures? And how does one establish the value of such ventures when there is little or no revenue and, in some cases, no clearly defined product? The answer to the first question is investor enthusiasm–or, in Alan Greenspan's terms, “irrational exuberance.” Irrational exuberance plays a very important economic role in giving entrepreneurs access to the cheap financing necessary to fund ventures with heavy startup costs. Indeed, “irrational exuberance” may be the best solution for financing large fixed costs, not only because it is a private (as opposed to a government‐financed) solution, but because it gives investors direct access to the risks and rewards of promising investment opportunities. Before the recent “democratization” of capital markets, such ventures would have been funded by large corporations if not government agencies. As for the third question, this paper suggests there is only one useful way to estimate the value of ventures without revenues or products. The author provides a back‐of‐the‐envelope, “Fermitype” valuation method that is based on the principle of “human capital arbitrage.” For those Internet startups that lure top executives away from established firms with large grants of stock options but relatively low salaries, there is a “breakeven level” for the future stock price that can be calculated using a fairly modest amount of information about the executive's past and current compensation plans. For outside investors, such movements of human capital provide what is perhaps the most reliable basis for estimating the value of the firm.     

Sterilization, Monetary Policy, and Global Financial Integration

This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries, and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with greater concerns about the potential inflationary impact of reserve inflows. We also find that sterilization depends on the composition of balance of payments inflows.     

Multiple‐criteria approach to ranking medical tourism destinations

The characteristics of the medical tourism industry are described. Multiple criteria are used to evaluate several popular medical tourism destinations. The analytic hierarchy process (AHP) is shown to be the appropriate methodology for evaluating and ranking medical tourism destinations because it can incorporate input from multiple decision makers as well as handle both tangible and intangible criteria. The ranking of medical tourism destinations will enable administrators at companies that specialize in arranging the logistics of obtaining medical care at foreign facilities to better advise patients regarding their choice of medical tourism destinations. This will result in patients who are more satisfied with their choice of a foreign medical facility. © 2011 Wiley Periodicals, Inc.     

An Empirical Analysis of Analysts' Target Prices: Short-term Informativeness and Long-term Dynamics

Using a large database of analysts' target prices issued over the period 1997–1999, we examine short‐term market reactions to target price revisions and long‐term comovement of target and stock prices. We find a significant market reaction to the information contained in analysts' target prices, both unconditionally and conditional on contemporaneously issued stock recommendation and earnings forecast revisions. Using a cointegration approach, we analyze the long‐term behavior of market and target prices. We find that, on average, the one‐year‐ahead target price is 28 percent higher than the current market price.     

Technological Aspects of Project Selection

ABSTRACT Project selection is a process fraught with uncertainties. Technological uncertainty is one of the major contributors to the total risk and its reduction has been a subject of many attempts to provide the decision maker with better decision material.
In the following paper, we summarise three cases representing different technological contents of technology transfer projects. The possible technological changes and the sensitivity of project profitability to them is presented and analysed.
A methodological approach involving convolution of the technological risk into a conventional economical project analysis has been developed and is evaluated in this paper. In particular, the aspect of trimming the analysis procedure into an efficient routine is discussed.     

The hospital: how will it survive?

The federal government is under pressure to implement and enforce a program to provide economic and social relief from the rapidly escalating health care costs which now consume 8.5% of the Gross National Product. Glick predicts that within the next twenty years, the character of health care institutions will be reshaped and only the most adaptable hospitals, health maintenance organizations and health-related governmental organizations will survive. He urges hospitals to develop appropriate strategies to deal with the problems of cost-containment, state-operated cost review and control agencies, and the competition for limited health care resources. The author warns the health care industry that if it does not adjust to these changes, it runs the risk of becoming heavily rgulated. It is suggested that health care institutions be integrated into comprehensive health care systems and the article includes a model for assigning patients to medical care facilities on a regional basis. Glick forecasts that hospitals will enter into a competition for survival, resulting in mergers of some and the closing of others. He believes that as the number of health care institutions decreases, the remaining ones will become more specialized and geographically dispersed.