Discounting inflation — a note

The aim of this paper is to clarify the confused issue of the effect of inflation on the discounting procedure for investment appraisal. The standard approach is considered, together with the impact of inflation, and the problem of how to adjust the standard approach to take account of inflation. The point is made that it is usually easiest to estimate expected returns in current prices, in which case the discount rate should reflect the real opportunity cost of capital, to avoid mixing real returns and nominal interest in a manner which leads to the rejection of worthwhile projects. An example is given of how the real rate of interest can be computed from the nominal rate of interest and the rate of inflation, and the difference this makes to discounting a sample project. The paper then illustrates how real rates of interest have frequently been negative over the past decade and how this implies that projects may be acceptable even if the sum of future undiscounted returns is less than the initial outlay. The conclusion drawn is that investors should maximize economic profit defined as the surplus over opportunity cost, which reduces the deterrent of nominally high interest rates, for the maximization of surplus over opportunity cost has the corollary of minimization of opportunity loss.     

Interregional inequalities in Israel, 1948–1995: divergence or convergence?

A model is proposed which explains the spatial distribution of different income groups in terms of the relation between the cost of living in a particular geographic area and the income of its inhabitants. The applicability of this model to spatial inequalities in Israel is investigated, using data from five subsequent censuses of population and housing. The analysis indicates that changes in the spatial variation of various indicators of development do not follow a uniform pattern: the extent of interregional disparity differs with the indicator selected for measuring it. Furthermore, whereas development in the central part of Israel has tended to become more uniform over time, the country's peripheral regions have become more polarized. Several strategies are proposed for reducing the extent of interregional disparities.     

To pay or not to pay — the role of monetary incentives in an optimal blood donation service bundle

• This study derives four attributes that make up the typical blood donation service bundle. It focuses on the role of monetary incentives in such bundles, but also discusses three other attributes, namely the offering organization, the distance to donation location, and the donation time. Each attribute is discussed in the context of a blood donation marketing mix. In an empirical conjoint study, 529 potential blood donors evaluate different designs of blood donation service bundles. Monetary incentives are found to be the most important factor when donors compare different blood donation service bundles. It is found that the distance to the donation location is almost as important as monetary incentives. Blood donation organizations aiming to collect all blood donations from unremunerated blood donors should therefore shape their service bundles to be attractive for potential blood donors. It is concluded that nonpaying blood donation organizations have to offer superior convenience to their donors to be able to compensate for not offering monetary incentives. Operating with mobile donation teams is one of the concrete suggestions for blood donation marketing that are given in this study.

Copyright © 2013 John Wiley & Sons, Ltd.     

Note on ‘Loss of monetary discretion in a simple dynamic policy game’

Jensen (1994a) finds that loss of monetary discretion leads to lower welfare. However, by extending his model we show that if real base money holdings are relatively low, as is likely to be the case for modern economics, a zero-inflation rule may well be preferable to monetary discretion. If the emphasis on achieving the output and public spending targets falls, a zero-inflation rule is more likely to be preferred. The increased support for binding policy rules thus conforms with a less tolerant attitude towards inflation.     

How to draft ‘good’ minutes of monetary policy decisions

The minutes of monetary policy decisions at central banks vary substantially. A common norm does not exist. To ensure accountability and guide policy expectations, the minutes should satisfy some basic requirements. In search of criteria for ‘good’ minutes, it is relevant to look at how supreme courts write their decisions. Four criteria for ‘good’ minutes are proposed. The minutes of six central banks are assessed against the proposed criteria. In spite of the substantial variation in format, their minutes largely satisfy the criteria. The central banks' minutes seem to reflect their individual communication histories. The central banks could learn from each other, but also from the supreme courts, especially in terms of how they organise the writing of the minority view.     

Budgeting — an unnecessary evil

Almost 30 years ago — in 1970 — the largest commercial bank in Sweden, Handelsbanken, was in a major crisis. Profitability was low and the bank was in conflict with the authorities. As a result of the crisis the executive director left the bank, as did several of the top officials.At this point the board of the bank asked me to become executive director. At that time I was head of a provincial bank in the northern part of Sweden – Sundsvallsbanken. I had been at that bank for ten years. Before that I was a professional economist, head of a major research institute and an associate professor at the University of Stockholm. I did not have any practical business experience and knew nothing about banking, but after 10 years in Sundsvallsbanken, I had learned a lot and developed some firm ideas about how to run a bank with a large network of branch offices.