Politics, Insurance Regulation, and Unfunded Pension Liabilities

ABSTRACT: Insurance regulators operate in an environment in which resources are scarce and issues are most often complex and not salient to affected persons. Consequently, regulatory agencies, such as the Pension Benefit Guaranty Corporation (PBGC), need to use resources efficiently by making issues salient and not complex if regulatory goals are to be attained. To further its goal of full funding of defined benefit pension plans, the PBGC annually published a list of the Top Fifty Companies With the Largest Underfunded Pension Liability (LIST). This article investigates the issue of the economic effects of pension plan disclosure by measuring the share price response of the companies included on the LIST; then policy implications are drawn. The event study findings show that, on average, publication of the LIST did not have a negative effect on firm value. However, cross-sectional analysis provides some support for the contention that publication of the LIST had an economic cost on LISTed firms. The authors' results show that the value of large firms on the PBGC's list is less negatively affected at arrival (ARRIVAL) than smaller LISTed firms. Conversely, when firms leave the list (DEPARTURE), the value of large growth-oriented firms is more negatively affected than the value of other firms that reduce their unfunded pension liability. From a policy perspective, as hypothesized by Meier (1991), the PBGC used its scarce resources effectively by publishing the LIST. The issue of unfunded pension liability became less complex and more salient to interested parties. Consequently, consumer groups and political elites provided their support to further the regulatory agency's stated goal, which was the full funding of defined benefit pension plans. Furthermore, increased awareness of the underfunding problem contributed to the passage of the Retirement Protection Act of 1994.     

Risk Aversion and the Bid–Ask Spread

This paper studies the properties of bid and ask prices posted by a monopolistic market maker, without parametric assumptions about the utility function of the market maker or about the probability distribution of the return of the risky asset. We first prove that the two prices can be higher or lower than the expected value of the asset, and that the spread is decreasing in the initial wealth when the market maker exhibits decreasing absolute risk aversion. We conclude by some examples illustrating the fact that almost all shapes can be obtained for the bid–ask spread (as a function of the inventory) depending on the probability distribution of the payment of the risky asset.     

Local economic development: Policy and practice in South Africa

The policy of local economic development (LED) is currently attracting considerable attention in government and development circles in South Africa. This article seeks to critically examine and assess the key contextual considerations which influence LED, its emergence and its chances of success. In this regard, the notions of post‐Fordism and the important role of government are examined. It then outlines and assesses evolving LED policy and practice in the country in the light of current experiences in various centres. The article concludes with an examination of various practical considerations which appear to be affecting the further application of the concept in the country. These issues are deemed to be of relevance to policymakers if LED is to be successfully implemented.     

The Reconstruction Finance Corporation,the Gold Standard,and the Banking Panic of 1933

The banking crisis of 1933, which forced a national holiday closing the entire U.S. financial system, is often blamed on either publication of the names of banks borrowing from the Reconstruction Finance Corporation, a speculative run on the gold-backed dollar due to fears that president-elect Roosevelt would devalue the currency, or both. Evidence presented here indicates that neither factor started the final banking crisis of the depression. The Michigan bank holiday ignited the panic, resulting in a series of bank holidays and a run on the dollar. This chain of events toppled the United States financial system.     

Salary increases for the marketing executive

This article discusses how marketing executives view their pay raise. A study of 491 marketing executives examined their views on what is a meaningful salary increase and the reasons why their companies give pay raises.     

The role of home economics in agricultural extension

Home economics could play a vital, supportive and complementary role in agricultural extension. Home economics training is, however, in much need of reorientation if the profession is to play this much‐needed role. A comparison of the mission statements, foci and roles of these disciplines illustrates the value of including home economists in agricultural extension teams. The two professions have areas of similarity, but each also has specialist expertise vital to agricultural development. As a multidisciplinary, female‐dominated profession, home economics is able to assist agricultural extension officers in designing extension programmes which suit the needs of women farmers. The article outlines the areas of collaboration, specialist expertise and cooperation between the two professions while questioning the focus of traditional home economics training.     

Amenities and Fringe Benefits: Omitted Variable Bias

ABSTRACT If labor is fairly mobile, as it is in the United States, one would expect that households would move from less desirable areas toward more desirable areas until all areas are equally desirable. The way that areas become equally desirable is through the impact of movers on wages and rents (and possibly "endogenous" disamenities, such as congestion or pollution). That is, as people move to desirable areas, they will increase the demand for land (raising rents) and increase the supply of labor (lowering wages); in equilibrium, the wage and rent "compensation" for the niceness of an area reveals, in dollar terms, just how nice the area is. Blomquist, Berger, and Hoehn 1988 demonstrated the empirical importance of such amenity compensation in estimates of the "quality-of-life" in urban areas. However, those authors were unable to include fringe benefits, which are about 40 percent of explicit wage payments, in their wage compensation. This matters greatly as amenities are seen here to be even more important than previously thought and the regional implications are pronounced, with the West and Southeast looking "better" when fringe benefits are included and the East North Central and Northeast looking substantially "worse."     

Default premia on European government debt

Default Premia on European Government Debt. — This paper addresses the question of the existence and size of a risk premium in the Eurobond market. We measure the yield difference between German government bonds and bonds issued in Deutsche Mark by several European countries. The results are regressed against macroeconomic variables supposed to be determinants of the risk of default on government debt. Our yield differences are smaller than those found between US states. However, some of our macroeconomic variables seem to be good predictors of yield differentials. A conclusion is that yield differentials partially are related to risks perceived by market participants.     

WHAT DO WE KNOW ABOUT STOCK REPURCHASES?

Stock repurchases by U.S. companies experienced a remarkable surge in the 1980s and ‘90s. Indeed, in 1998, the total value of all stock repurchased by U.S. companies exceeded for the first time the total amount paid out as cash dividends. And the U.S. repurchase movement has gone global in the past few years, spreading not only to Canada and the U.K., but also to countries like Japan and Germany, where such transactions were prohibited until recently. Why are companies buying back their stock in such amounts? After dismissing the popular argument that stock repurchases boost earnings per share, the authors argue that repurchases serve to add value in two main ways: (1) they provide managers with a tax‐efficient means of returning excess capital to shareholders and (2) they allow managers to “signal” to investors their view that the firm is undervalued. Returning excess capital is value‐adding for two reasons: First, it helps prevent companies from pursuing growth and size at the expense of profitability and value. Second, by returning capital to investors, repurchases (like dividends) play the critically important economic function of allowing investors to channel their investment from mature or declining sectors of the economy to more promising ones. But if stock repurchases and dividends serve the same basic economic function, why are repurchases growing more rapidly? Part of the explanation is that, because repurchases are taxed as capital gains and dividends as ordinary income, repurchases are a more tax‐efficient way of distributing excess capital. But perhaps even more important than their tax treatment is the flexibility that (at least) open market repurchases provide corporate managers‐flexibility to make small adjustments in capital structure, to exploit (or correct) perceived undervaluation of the firm's shares, and possibly even to increase the liquidity of the stock, which could be particularly valuable in bear markets. For U.S. regulators, the growth in open market stock repurchases raises some interesting issues. Perhaps most important, companies are not required to (and rarely do) furnish their investors with details about a given program's structure, execution method, number of shares repurchased, or even its duration. Policy regulators (and corporate executives as well) should consider some of the benefits provided by other systems, notably Canada's, which provide greater transparency and more guidelines for the repurchase process.