POLICY PAPER: The Technical Process of Bank Privatization in Mexico

This paper describes the process of Mexican bank privatization that took place in 1991. We show that the Mexican government was very careful to ensure due process and transparency through the entire bank privatization process. However, the lack of a legal and regulatory framework and lax oversight shadowed the success of the technical process. Hence, the financial system in Mexico had to deal with a banking crisis shortly after their privatization, in 1994.     

Pricing Reinsurance Contracts on FDIC Losses

This paper proposes a pricing model for the FDIC's reinsurance risk. We derive a closed‐form Weibull call option pricing model to price a call‐spread a reinsurer might sell to the FDIC. To obtain the risk‐neutral loss‐density necessary to price this call spread we risk‐neutralize a Weibull distributed FDIC annual losses by a tilting coefficient estimated from the traded call options on the BKX index. An application of the proposed approach yield reasonable reinsurance prices.     

Foods produced using biotechnology: how does the law protect consumers?

This paper addresses the following subjects: biotechnology and consumers, concern about risks, consumer acceptance, labelling of foods produced using biotechnology, the legal approach to consumer protection, and consumer protection policies relating to biotechnology products in the European Union, the United States, Turkey and global institutions such as the Convention for Biological Diversity (CBD) and the World Trade Organisation (WTO). It is likely that biotechnology will gain ground much more rapidly in the twenty‐first century than in the past. Despite rapid, detailed and precise advances in gene technology, its applications have not been the received with a great deal of consumer enthusiasm. Consumers have approached genetically modified foods with considerable apprehension and opposition. Consumer concerns about bioengineered food products focus on the questions of human health, environmental and social risks and benefits. The most important stages in the process of marketing new foods produced using biotechnology are to demonstrate user need and consumer acceptance. Generally, the technical complexity of biotechnology makes it difficult for consumers to understand details of the product and the specific attributes of biotechnology applications. Scientific uncertainty, the nature of consumer concerns and general reluctance to accept biotechnology products, increase the importance of consumer protection. Legal protection is a very important factor in the solution of new social problems related to technological advances. More specifically, consumer and environmental law support consumer protection related to foods produced with biotechnology. The basic principles of consumer law can be re‐formulated as consumer rights. Environmental law is a new phenomenon, but precautionary principles and public participation in decision‐making for environmental law are relevant to consumer protection relating to bioengineered food products.     

Pricing the risks of default

This paper decomposes default risk into timing and recovery risks. The two default components are explicitly priced as if they were traded in the futures market. We develop estimation strategies evaluating recovery risks and then construct implicit prices of contingent securities reflecting purely the timing risk. The models are estimated on monthly data for rates on certificates of deposit offered by institutions in the Savings and Loan Industry, during the 1987–1991 period. Empirical results support market expectations of lower likelihoods of default after 1989.     

Role of absorptive capabilities in outsourcing the headquarters selling task in the United States

Manufacturers often outsource headquarters selling task to sales and marketing agencies. Headquarters selling task is one of the most outsourced sales and marketing functions and it entails all the activities that a manufacturer conducts in order to sell its product line to the headquarters of a retailer. Thus, effective management of headquarters selling task has a strategic importance for the manufacturer. This study examines the role of absorptive capabilities in outsourcing headquarters selling task. Using resource-advantage theory, this study proposes a theoretical model to link the resources and absorptive capabilities of the outsourcer (manufacturer) and the outsourcee (sales and marketing agency) to performance outcomes. Using data from field interviews of managers an empirical model was tested. The results showed that resources of both the outsourcer and the outsourcee are important in turning potential complementarities into higher outsourcing performance. Contrary to the common belief that outsourcing is a one-sided transaction where only the outsourcee is responsible from the performance outcomes, this study suggests that both parties involved need to combine their resource assortments in the accomplishment of the task.     

Maximizing survival,growth and goal reaching under borrowing constraints

In this paper, we consider the survival, growth and goal reaching maximization problems treated in Browne [Math. Oper. Res., 1997, 22, 468–493] and solve them in a market constrained due to borrowing prohibition. To solve the problems, we first construct an auxiliary market introduced by Cvitanic and Karatzas [Ann. Appl. Probab., 1992, 2, 767–818] and then apply the dynamic programming approach. Via our solutions, an alternative approach is introduced in order to solve the problems defined under an auxiliary market.     

A theory of subjective compound lotteries

We develop a Savage-type model of choice under uncertainty in which agents identify uncertain prospects with subjective compound lotteries. Our theory permits issue preference; that is, agents may not be indifferent among gambles that yield the same probability distribution if they depend on different issues. Hence, we establish subjective foundations for the Anscombe-Aumann framework and other models with two different types of probabilities. We define second-order risk as risk that resolves in the first stage of the compound lottery and show that uncertainty aversion implies aversion to second-order risk which implies issue preference and behavior consistent with the Ellsberg paradox.