The impact of consumer inattention on insurer pricing in the Medicare Part D program

The Medicare Part D program relies on consumer choice to provide insurers with incentives to offer low‐priced, high‐quality pharmaceutical insurance plans. We demonstrate that consumers switch plans infrequently and search imperfectly. We estimate a model of consumer plan choice with inattentive consumers and show that high observed premiums are consistent with insurers profiting from consumer inertia. We estimate the reduction in steady state plan premiums if all consumers were attentive. An average consumer could save $1050 over three years; government savings in the same period could amount to $1.3 billion or 1% of the cost of subsidizing the relevant enrollees.     

The impact of mobile payment on payment choice

This paper investigates the effect of mobile payment on the adoption and use of traditional payment instruments such as cash, checks, and credit, debit and prepaid cards at the point of sale (POS). Data are from a 2012 representative survey on consumer payment choice in the United States. Using discrete-choice random utility models to simulate consumer behavior, the estimation provides two major findings. First, mobile payment does not replace physical payment cards, but is likely to substitute for paper-based payment methods such as cash and checks at the adoption stage. Second, mobile payment does not statistically significantly influence the choice of payment means at the POS in terms of usage. However, there is suggestive evidence that it is complementary to card payments and a substitute for paper-based payment instruments. The findings highlight the potential social welfare gains of mobile payment and provide key insights into challenging issues for the private industry sector. This paper furthermore offers novel evidence on the impact of mobile payment on the use and adoption of existing payment instruments and contributes to the literature on consumer payment choice.     

The impact of duration on management's discount rate choice

Previous research finds that firms increase their assumed discount rates to minimize their reported pension benefit obligation. This paper demonstrates that firms whose pension plans have short durations lower their discount rates (rather than increase them), since a lower discount rate decreases their pension expense. These results are especially relevant in the present climate of low interest rates and more firms freezing their defined benefit pension plans, thereby shortening the duration of their obligations. Given its importance in shaping management motivation we believe that firms should be required to disclose the duration of their future obligations.     

The impact of corporate governance on auditor choice: Evidence from China

As the largest and fastest growing emerging market, China is becoming more and more important to investors throughout the world. The purpose of this paper is to investigate the determinants of firms’ auditor choice in China in respect of their corporate governance mechanism. Normally firms have to take a trade-off in their auditor choice decisions, i.e., to hire high-quality auditors to signal effective audit monitoring and good corporate governance to lower their capital raising costs, or to select low-quality auditors with less effective audit monitoring in order to reap private benefits derived from weak corporate governance and less-transparent disclosure (the opaqueness gains). We develop a logit regression model to test the impact of firms’ internal corporate governance mechanism on auditor choice decisions made by IPO firms getting listed during a bear market period of 2001–2004 in China. Three variables are used to proxy for firms’ internal corporate governance mechanism, i.e., the ownership concentration, the size of the supervisory board (SB), and the duality of CEO and chairman of board of directors (BoDs). We classify all auditors in China into large auditors (Top 10) and others (non-Top 10), assuming the large auditors can provide higher quality audit services. The empirical results show that firms with larger controlling shareholders, with smaller size of SB, or in which CEO and BoDs chairman are the same person, are less likely to hire a Top 10 (high-quality) auditor. This suggests that when benefits from lowering capital raising costs are trivial, firms with weaker internal corporate governance mechanism are inclined to choose a low-quality auditor so as to capture and sustain their opaqueness gains. On the other hand, with improvement of corporate governance, firms should be more likely to appoint high-quality auditors.     

Market reaction to increased loan loss reserves at money-center banks

On May 19, 1987, Citicorp announced (after markets closed) that it would add $3 billion to its loan loss reserve in recognition of the poor quality of outstanding loans to Third World countries. Eleven other money-center banks followed this policy over the next five months. The reported reactions of politicians, economists, and market analysts to the increased loan loss reserves varied from despair to praise. Nevertheless, the important issue is the investor's reaction as evidenced by changes in the market prices of the banks' stock. This article uses an event study methodology to shed some light on the issue.Florida Atlantic University     

On the distribution of discounted loss reserves using generalized linear models

Renshaw and Verrall [] specified the generalized linear model (GLM) underlying the chain-ladder technique and suggested some other GLMs which might be useful in claims reserving. The purpose of this paper is to construct bounds for the discounted loss reserve within the framework of GLMs. Exact calculation of the distribution of the total reserve is not feasible, and hence the determination of lower and upper bounds with a simpler structure is a possible way out. The paper ends with numerical examples illustrating the usefulness of the presented approximations.     

The impact of loss offset limitations on project selection and development timing

This article examines how the anti-tax shelter Limitation on Loss Offset (LOL) rules affect the urban development process. It derives the LOL impacts on the pace and pattern of income-producing urban development and relates the results to the general characteristics of anticipated income time paths. It also shows that the LOL provision reduces the value of vacant land and how relative value declines systematically vary across locations in the urban area.     

Limited attention and portfolio choice: The impact of attention allocation on mutual fund performance

This study proposes that the performance of mutual fund managers is linked to how efficiently they allocate attention across assets in their investment set. Motivated by existing models of optimal portfolio choice and rational inattention, we posit that the efficiency of attention allocation increases when a manager chooses larger (smaller) active positions in assets that need more (less) information acquisition effort to resolve uncertainty about future payoffs. We show that the efficiency of attention allocation has a significantly positive impact on future fund performance. Efficient attention allocation has a lesser impact on performance as the total demands on a manager's limited attention increase.     

The impact of keeping up with the Joneses behavior on asset prices and portfolio choice

This paper studies the asset pricing and portfolio choice implications of keeping up with the Joneses preferences. In terms of portfolio choice, we provide sufficient conditions on the utility function under which no portfolio bias can arise across agents in equilibrium. Regarding asset prices, we find that under Joneses behavior asset prices are a function of the economy's aggregate consumption, the agents preference parameters, the wealth endowment distribution and the weighting across agents in the Joneses definition. We present necessary and sufficient conditions such that equilibrium prices are only a function of aggregate wealth. Non-financial, non-diversifiable income is introduced in the model. In the presence of Joneses behavior, an under-diversified equilibrium emerges where investors will bias their portfolios towards the financial assets that better hedge their exposure to the non-financial income risk.     

Interest on reserves

In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate, whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that financing through earnings on the central bank's portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium.     

The impact of the choice of VaR models on the level of regulatory capital according to Basel II

The Basel II framework allows the calculation of the capital requirements for market risk with Value-at-Risk models. Since no special model is prescribed in the framework, banks may use simple models with questionable assumptions concerning their underlying distributions. Our numerical analysis reveals that simple VaR models that perform noticeably worse than comparable simple models with more realistic assumptions may lead to a lower level of regulatory capital for banks. For this reason, banks have a major incentive to implement bad models. This is obviously contrary to the interests of regulatory authorities.     

The impact of accounting rule and economic differences on the firm’s choice of cash and share-puts

While prior literature has sought to explain why firms issue put options on their own stock (Gibson et al., 2006), no one has focused on examining why some firms choose to structure put contracts in a way that provides them the ability to settle future put obligations with their own common equity rather than cash. FAS 150, which changed the reporting requirements, highlights that under the prior rules firms included share-settlement terms in their put contracts to avoid showing their open put position as a balance sheet obligation. However, some evidence suggests that the choice between including cash or share settlement terms may be economically driven by the potential impact that each settlement-type has on firm solvency and equity holdings. Our results support the economic-based motivation for put-type choice by showing that firms elect to include share-settlement terms in their put contracts to provide themselves payment flexibility in the event internally generated cash flows are not sufficient to meet future contractual put obligations. These results support the FASB’s announcement that it is reconsidering homogeneous liability classification of cash and share-settled puts in its re-examination of FAS 150.     

The market value impact of operational loss events for US banks and insurers

This paper conducts an event study analysis of the impact of operational loss events on the market values of banks and insurance companies, using the OpVar database. We focus on financial institutions because of the increased market and regulatory scrutiny of operational losses in these industries. The analysis covers all publicly reported banking and insurance operational risk events affecting publicly traded US institutions from 1978 to 2003 that caused operational losses of at least $10 million – a total of 403 bank events and 89 insurance company events. The results reveal a strong, statistically significant negative stock price reaction to announcements of operational loss events. On average, the market value response is larger for insurers than for banks. Moreover, the market value loss significantly exceeds the amount of the operational loss reported, implying that such losses convey adverse implications about future cash flows. Losses are proportionately larger for institutions with higher Tobin’s Q ratios, implying that operational loss events are more costly in market value terms for firms with strong growth prospects.     

2007年度沪市公允价值变动损益对利润的影响与分析

2007年是上市公司执行新会计准则的第一年。新准则中引入了公允价值计量属性,在投资性房地产、企业合并、股份支付、生物资产、债务重组和非货币性交换,特别是金融工具的确     

Consideration of the social context of auditors’ reliance on expert system output during evaluation of loan loss reserves

Auditors are accountable for judgments made within the social context of the accounting firm. Tetlock (1985) states that decision makers often use the acceptability heuristic to cope with accountability. According to this heuristic, individuals make decisions which they are reasonably confident will be acceptable by others to whom they are accountable. When auditors form judgments with the aid of expert system output, they must determine the appropriate level of reliance on the expert system output. Since the expert system output is based on the input of experts, auditors may decide the output is ‘acceptable‘ and overrely on the output. In addition, because of the conservative nature of the accounting firm, expert system output which is negative may be viewed as more acceptable than positive output leading to greater overreliance. The results indicate that auditors do overrely on expert system output and rely to a greater degree on output which is negative versus output which is positive. Copyright © 1999 John Wiley & Sons, Ltd.     

The effect of risk on intertemporal choice

The strong similarities between intertemporal and risky choice raised the possibility that risk and time delay were psychologically interchangeable in the way they influence preference. Consistent with the single‐process view, several previous studies have indicated that introducing uncertainty to intertemporal choice could decrease the degree of discounting future rewards just as adding time delay to it. However, the opposite effect has been observed in other cases. The present study examined the role of risk in intertemporal choice using the choice titration procedure. The results of two experiments indicated that risk and time delay had opposite effects on the preference in intertemporal choices. That is, the external uncertainty increased the degree of discounting future, whereas the opposite is true for time delays. Thus, our results were unfriendly to the single‐process theory. In addition, the present study demonstrated the presence of an immediacy effect as well as a magnitude effect in intertemporal choice regardless of whether or not the reward is certain.     

The stability of the demand for international reserves

Empirical studies based on data from the 1960s and 1970s yielded estimated demands for international reserves that have been regarded as stable functions of a limited set of variables, exept during the period surrounding the collapse of the Bretton Woods system. This paper examines the stability of these estimated demands by extending the samles to include data from the 1980s. The new estimation results indicate that the emergenceof external payments difficulties and reduced access to international financial markets of many countries have been accompanied by changes in the changes in the estimated demands for reserves that were as large as those that occurred during the collapse ofthe Bretton Woods system.