Public help and self help: Towards a dual economic approach in social policy

With the welfare state of many Western societies under increasing economic pressure research into new ways of helping them to adapt to changing socioeconomic environments is emerging. Here the welfare state crisis is seen as three-fold—based on cost, benefit and legitimacy. A dualistic approach to welfare provision, incorporating both state help and individual self help is proposed, using examples in housing and public health.     

Combining random forest and copula functions: A heuristic approach for selecting assets from a financial crisis perspective

In this paper we propose a heuristic strategy aimed at selecting and analysing a set of financial assets, focusing attention on their multivariate tail dependence structure. The selection, obtained through an algorithmic procedure based on data mining tools, assumes the existence of a reference asset we are specifically interested to. The procedure allows one to opt for two alternatives: to prefer those assets exhibiting either a minimum lower tail dependence or a maximum upper tail dependence. The former could be a recommendable opportunity in a financial crisis period. For the selected assets, the tail dependence coefficients are estimated by means of a proper multivariate copula function. Copyright © 2010 John Wiley & Sons, Ltd.     

Complexity and thermodynamics : Towards a new ecology

This article proposes a thermodynamic paradigm for the development of ecosystems. Ecosystems are viewed as non-equilibrium structures and processes, open to material and energy flows. It is suggested that as ecosystems grow and develop, they should increase their total dissipation by developing structures and processes to assist energy degradation. Species which survive in ecosystems are those that funnel energy into their own production and reproduction and contribute to autocatalytic processes which increase the total dissipation of the ecosystem. These studies may allow for the development of measures useful to environmental management and may help the science of ecology with a much needed theoretical framework.     

Extending financial literacy to insurance literacy: a survey approach

We extend behavioural research in investment and retirement savings to insurance, by investigating factors that may influence individuals’ insurance decision making. These factors include financial literacy, specialist insurance education and some behavioural biases. Based on a definition of insurance literacy that requires both having, and applying insurance knowledge, we find from a survey of postgraduate students that financial literacy does not necessarily translate to insurance literacy, whereas more specialised education can improve insurance literacy. Results also indicate specialist education potentially reduces susceptibility to anchoring effects.     

Antecedents to management accounting change: a structural equation approach

This paper reports on a survey of manufacturing companies, and uses structural equation modeling to examine the relationships between the changing competitive environment, and a range of organizational variables as antecedents to management accounting change. The results indicate that an increasingly competitive environment has resulted in an increased focus on differentiation strategies. This, in turn, has influenced changes in organizational design, advanced manufacturing technology and advanced management accounting practices. These three changes have led to a greater reliance on non-financial accounting information which has led to improved organizational performance.     

Service-learning: an innovative approach to teaching accounting: a teaching note

Service-learning allows students to enhance their learning through real-world applications of accounting concepts. This Teaching Note describes the service-learning process and the benefits to students, faculty, the university, the community, and the accounting profession. Quotations from students' reflective journals are used as illustrations regarding how students develop communication, leadership, strategic, and critical thinking skills. Practical issues for implementing and supervising service-learning projects are also given.     

Scenario types and techniques: Towards a user's guide

Various scenario typologies have been suggested in attempts to make the field of futures studies easier to overview. Our typology is based on the scenario user's need to know what will happen, what can happen, and/or how a predefined target can be achieved. We discuss the applicability of various generating, integrating and consistency techniques for developing scenarios that provide the required knowledge. The paper is intended as a step towards a guide as to how scenarios can be developed and used.     

Student Loans: Towards a New Public/Private Mix

This article discusses how to construct student loans to ensure that, for the most part, they count as private spending. Though the specifics relate to the finance of higher education, the issue has much wider ramifications for flexible combinations of public and private activity, for example in financing public transport, paying for infrastructure, and the like. The opening section explains the issue, section 2 justifies the specific loan proposal and section 3 discusses ways of ensuring that the scheme is classified as private.     

From insurance risk to credit portfolio management: a new approach to pricing CDOs

We present a new approach for pricing collateralized debt obligations (CDOs) which takes into account the issue of the market incompleteness. In particular, we develop a suitable extension of the actuarial framework proposed by Bayraktar et al. [Valuation of mortality risk via the instantaneous Sharpe ratio: Applications to life annuities. J. Econ. Dyn. Control, 2009, 33, 676–691], Milevsky et al. [Financial valuation of mortality risk via the instantaneous Sharpe-ratio: Applications to pricing pure endowments. Working Paper, 2007. Available at: http://arxiv.org/abs/0705.1302], Young [Pricing life insurance under stochastic mortality via the instantaneous Sharpe ratio: Theorems and proofs. Technical Report, 2007. Available at: http://arxiv.org/abs/0705.1297] and Young [Pricing life insurance under stochastic mortality via the instantaneous Sharpe ratio. Insurance: Math. Econ., 2008, 42, 691–703], which is based on the so-called instantaneous Sharpe ratio. Such a procedure allows us to incorporate the attitude of investors towards risk in a direct and rational way and, in addition, is also suitable for dealing with the often illiquid CDO market. Numerical experiments are presented which reveal that the market incompleteness can have a strong effect on the pricing of CDOs, and allows us to explain the high bid-ask spreads that are frequently observed in the markets.     

Assessing the quality of a security market: a new approach to transaction-cost measurement

I discuss a new method for measuring the deviations betweenactual transaction prices and implicit efficient prices. Theapproach decomposes security transaction prices into random-walkand stationary components. The random-walk component may beidentified with the efficient price. The stationary component,the difference between the efficient price and the actual transactionprice, is termed the pricing error. Its dispersion is a naturalmeasure of market quality. I describe practical strategies forestimating these quantities. For a sample of NYSE stocks, theaverage pricing error standard deviation estimate is roughly0.33 percent of the stock price. If the pricing error is normallydistributed and if it is always a positive cost incurred bythe transaction initiators, the corresponding average transactioncost for these traders is 0.26 percent of the stock price. Thedispersion of the pricing error is also found to be elevatedat the beginning and end of the trading session.     

The domestic benefits of tropical forests: a critical review.

This review focuses on forests in the humid tropics and on two of their potentially most important benefits. These include hydrological benefits, such as erosion control and regulation of stream flows, and non-timber forest products, such as rubber, rattan, fruits, and nuts. The first benefit is motivational. Host countries capture only a small proportion of the global benefits, which stem from biodiversity conservation. Demonstration of palpable local benefits could help to build support for biodiversity-oriented projects. The second benefit is the magnitude of domestic benefits that could influence project financing. Sufficiently large net domestic benefits could justify financing of a project on narrow economic grounds, with biodiversity conservation as a by-product. Overall, it is noted that the quantifiable benefits of forest preservation in providing hydrological services and non-timber forest products are highly variable. These classes of domestic benefits may in general be smaller than popularly supposed. In view of this, the need for financing conservation from the Global Environmental Facility or other global sources is emphasized rather than placing the burden on domestic resources.     

Modelling household finances: A Bayesian approach to a multivariate two-part model

We contribute to the empirical literature on household finances by introducing a Bayesian multivariate two-part model, which has been developed to further our understanding of household finances. Our flexible approach allows for the potential interdependence between the holding of assets and liabilities at the household level and also encompasses a two-part process to allow for differences in the influences on asset or liability holding and on the respective amounts held. Furthermore, the framework is dynamic in order to allow for persistence in household finances over time. Our findings endorse the joint modelling approach and provide evidence supporting the importance of dynamics. In addition, we find that certain independent variables exert different influences on the binary and continuous parts of the model thereby highlighting the flexibility of our framework and revealing a detailed picture of the nature of household finances.     

21st century scandals: towards a risk approach to financial reporting scandals

Financial reporting scandals in the 21^st century have been followed by many changes in the regulatory framework of financial reporting. While it is natural to ask for research evidence on the effectiveness of these changes in preventing new scandals, we discuss some of the difficulties in conducting this type of research as well as limitations of commonly used approaches. We argue as the central point of this paper that both research and regulation should be based on an explicit acceptance of a permanent risk of financial reporting failure, rather than working on the assumption that this risk can and should be ever further reduced. Acceptance of this point of view can turn what is currently a scattering of unconnected research efforts into a coherent research agenda with potentially high relevance. Facing the existence of permanent financial reporting risk leads to a series of interconnected questions including the measurement of this risk, both actual and as perceived by various stakeholder groups, communication and education concerning these risks, and mechanisms to share or transfer these risks.     

Contemporary public–private partnership: Towards a global research agenda

This paper reviews the research agenda lineage on public–private partnerships (PPPs) from Broadbent and Laughlin's seminal piece in 1999. The PPP phenomenon is viewed at five levels: project delivery, organisational form, policy, governance tool and as a phenomenon within a broader historical and cultural context. We argue that whilst a variety of research issues will continue to be relevant, five corresponding areas deserve future visibility for a renewed research agenda: (1) Financialisation of PPPs, (2) global PPP market actors, (3) internationalisation of policy on PPPs, (4) long‐term complex contracts as a governing regime and (5) PPPs in BRICS and developing countries.     

Beyond shareholders versus stakeholders: Towards a Rawlsian concept of the firm

This paper critiques the principle of shareholder value and offers an alternative paradigm. We consider different theories describing the corporation and its relationship with shareholders, concluding that much of the modern academic discourse on corporate governance centres around the notion of the firm as a contractual arrangement. We provide a full critique of shareholder primacy from an economic as well as a moral perspective, which includes a focus on Rawls. An alternative contractarian paradigm is offered, one that is based on the concept of the corporation as a ‘social union.’ This characterisation justifies participation of a wider group of stakeholders in the governance of a corporation, and we make a distinction between electoral and moral constituents. A role for the application of the principles of deliberative democracy is also discussed.     

Value-at-Risk: a multivariate switching regime approach

This paper analyses the application of a switching volatility model to forecast the distribution of returns and to estimate the Value-at-Risk (VaR) of both single assets and portfolios. We calculate the VaR value for 10 Italian stocks and a number of portfolios based on these stocks. The calculated VaR values are also compared with the variance–covariance approach used by JP Morgan in RiskMetrics™ and GARCH(1,1) models. Under backtesting, the VaR values calculated using the switching regime beta model are preferred to both other methods. The Proportion of Failure and Time Until First Failure tests [The Journal of Derivatives (1995) 73–84] confirm this result.     

The 4% strategy revisited: a pre-commitment mean-variance optimal approach to wealth management

In contrast to single-period mean-variance (MV) portfolio allocation, multi-period MV optimal portfolio allocation can be modified slightly to be effectively a down-side risk measure. With this in mind, we consider multi-period MV optimal portfolio allocation in the presence of periodic withdrawals. The investment portfolio can be allocated between a risk-free investment and a risky asset, the price of which is assumed to follow a jump diffusion process. We consider two wealth management applications: optimal de-accumulation rates for a defined contribution pension plan and sustainable withdrawal rates for an endowment. Several numerical illustrations are provided, with some interesting implications. In the pension de-accumulation context, Bengen (1994)’s [J. Financial Planning, 1994, 7, 171–180], historical analysis indicated that a retiree could safely withdraw 4% of her initial retirement savings annually (in real terms), provided that her portfolio maintained an even balance between diversified equities and U.S. Treasury bonds. Our analysis does support 4% as a sustainable withdrawal rate in the pension de-accumulation context (and a somewhat lower rate for an endowment), but only if the investor follows an MV optimal portfolio allocation, not a fixed proportion strategy. Compared with a constant proportion strategy, the MV optimal policy achieves the same expected wealth at the end of the investment horizon, while significantly reducing the standard deviation of wealth and the probability of shortfall. We also explore the effects of suppressing jumps so as to have a pure diffusion process, but assuming a correspondingly larger volatility for the latter process. Surprisingly, it turns out that the MV optimal strategy is more effective when there are large downward jumps compared to having a high volatility diffusion process. Finally, tests based on historical data demonstrate that the MV optimal policy is quite robust to uncertainty about parameter estimates.