Economic Risk and Water Quality Protection in Agriculture

Producers' and consumers' risk perceptions and preferences can affect perceived costs and benefits of agricultural water quality protection. Many studies find that integrated pest management actually reduces economic risks to farmers. Results from crop rotation and conservation tillage studies are mixed, while nutrient management studies indicate a potential for higher risk compared with conventional practices. Uncertainty about pollution damages to water resources is likely also to increase the perceived benefits of a given quantity of water quality protection practices. Public policies to reduce uncertainty about the costs and benefits of water quality protection practices may produce net social benefits.     

The Gains from Takeover Deregulation: Evidence from the End of Interstate Banking Restrictions

This paper uses interstate banking deregulation to explore the benefits of takeover deregulation and how these benefits are distributed across different firms. We find large and significant abnormal returns around the Interstate Banking and Branching Efficiency Act of 1994 which imply it created $85 billion of value in the banking industry. Consistent with an active market for corporate control allowing beneficial consolidation and providing needed discipline, there is a strong negative relationship between banks' abnormal returns and their prior performance. Consistent with managerial entrenchment limiting takeover discipline, banks with higher insider ownership, lower outside block ownership, and/or less independent boards have lower abnormal returns.     

Across-the-Curve Credit Spread Indices

We design a novel across-the-curve credit spread index, AXI, a measure of the recent cost of wholesale unsecured debt funding for publicly listed US bank holding companies and commercial banks. AXI, a benchmark for bank lending and risk management, is the weighted average of credit spreads for unsecured debt instruments with maturities ranging from overnight to five years, with weights that reflect both transaction and issuance volumes. We provide illustrative output of the bond-based component of AXI. By widening coverage to include all corporate debt issuers, we also build a financial conditions index (FXI).     

Better technology forecasting using systematic innovation methods

An evolved version of the Soviet-originated Theory of Inventive Problem Solving, TRIZ, contains a series of generically predictable technology and business evolution trends uncovered from the systematic analysis of over 2 million patents, academic journals and business texts. The current state of the art—recorded for the first time together in this paper—now bring the total number of generic technical trends to over 30, and the number of business trends to over 20. The paper describes some of the newly discovered trends, and their incorporation into a design method that allows individuals and businesses to first establish the relative maturity of their current systems, and then, more importantly, to identify areas where ‘evolutionary potential’ exists. The paper introduces this concept of evolutionary potential—defined as the difference between the relative maturity of the current system, and the point where it has reached the limits of each of the evolution trends—through a number of case study examples focused on the design and evolution of complex systems.     

PDE solutions of stochastic differential utility

This paper presents conditions for the existence and properties of stochastic differential utility as a solution of a partial differential equation. Stochastic differential utility is an extension of the classical additively-separable utility model that is designed as a platform for new financial asset pricing results. The extension is important, for example, when investors display preference for early or late resolution of uncertainty. The existence conditions admit Kreps-Porteus stochastic differential utility.     

Asset pricing with stochastic differential utility

Asset pricing theory is presented with representative-agentutility given by a stochastic differential formulation of recursiveutility. Asset returns are characterized from general first-orderconditions of the Hamilton-Bellman-Jacobi equation for optimalcontrol. Homothetic representative agent recursive utility functionsare shown to imply that excess expected rates of return on securitiesare given by a linear combination of the continuous-time market-portfolio-basedcapital asset pricing model (CAPM) and the consumption-basedCAPM. The Cox, Ingersoll and Ross characterization of the termstructure is examined with a recursive generalization, showingthe response of the term structure to variations in risk aversion.Also, a new multicommodity factor-return model, as well as anextension of the 'usual' discounted expected value formula forasset prices, is introduced.     

Large portfolio losses

This paper provide a large-deviations approximation of the tail distribution of total financial losses on a portfolio consisting of many positions. Applications include the total default losses on a bank portfolio, or the total claims against an insurer. The results may be useful in allocating exposure limits, and in allocating risk capital across different lines of business. Assuming that, for a given total loss, the distress caused by the loss is larger if the loss occurs within a smaller time period, we provide a large-deviations estimate of the likelihood that there will exist a sub-period of the future planning period during which a total loss of the critical severity occurs. Under conditions, this calculation is reduced to the calculation of the likelihood of the same sized loss over an initial time interval whose length is a property of the portfolio and the critical loss level.Received: March 2003Mathematics Subject Classification: 60F10, 91B28, 91B28JEL Classification: G21, G22, G33Amir Dembo is with the Department of Statistics, Stanford University. His research was partially supported by NSF grant #DMS-0072331. Jean-Dominique Deuschel is with the Department of Mathematics, Technische Universität, Berlin. His research was partially supported by DFG grant #663/2-3 and DFG FZT 86. Darrell Duffie is with the Graduate School of Business, Stanford University. We are extremely grateful for research assistance by Nicolae Gârleanu and Gustavo Manso, for conversations with Michael Gordy, and for comments from Michael Stutzer, Peter Carr, David Heath, and David Siegmund.     

Governance,media and the quality of environmental disclosure

Given the rising emphasis on environmental disclosures and the expressed importance of ‘good’ governance in determining the extent of information disclosure in general, we examine the relation between specific aspects of governance and media coverage and the quality of voluntary environmental disclosure (VED). Using a sample of 127 firms over a 6-year period (2000–2005), we empirically test characteristics of governance and media in relation to VED. Our results suggest that VED quality is positively associated with environmental media coverage, negative environmental media and board attributes of independence, diversity, and expertise. Results from supplemental analysis suggest that institutional investors exert influence over managerial decisions on environmental reporting only in the face of negative environmental media. Additionally, results from longitudinal analyses indicate that the quality of environmental disclosures increases over time. Our conclusion discusses the implications of these findings.