Using Parametric Bootstrap to Introduce and Manage Uncertainty: Replicated Loaded Insurance Life Tables

Insurance companies develop loaded life tables to protect themselves against deviations, for example, in the number of expected deaths or in the (residual) expectation of life of their insured. In doing so, however, the single random vector of experience crude death rates from which loaded tables are constructed is treated as deterministic or, at best, as a single realization of an underlying stochastic process, omitting the fact that it is estimated and subject to error and uncertainty. This can result in serious consequences for the insurer. To solve this problem, we follow the example of other researchers and propose a method to replicate loaded life tables using parametric bootstrap. We focus on estimating period-loaded life tables from company portfolios, where the sizes of the exposed-to-risk populations are significantly smaller than those of general populations. If we have a set of B loaded life tables, the average behavior and some extreme values can be computed and subsequently used in managing premiums or reserves. This article offers life insurers a simple way of incorporating the experience uncertainty in actuarial tasks (for example, in pricing) by comparing the limits of the confidence intervals obtained between parametric bootstrap and classical approaches (such as limit theorems).     

Banking competition and economic growth: cross-country evidence

The aim of this paper is to analyse the effect of banking competition on industry economic growth using both structural measures of competition and measures based on the new empirical industrial organisation perspective. The evidence obtained in the period 1993–2003 for a sample of 53 sectors in 21 countries indicates that financial development promotes economic growth. The results also show that bank monopoly power has an inverted-U-shaped effect on economic growth, suggesting that bank market power has its highest growth effect at intermediate values. The latter result is consistent with the literature on relationship lending, which argues that bank competition can have a negative effect on the availability of finance for companies that are informationally more opaque.     

Some results on relocation policies

In this paper, we derive general results concerning optimal relocation policy under some assumptions. We consider a firm that is located in a specific location, producing at a certain level of efficiency. With time, the firm can decide to change its location to a new and more efficient site, paying relocation costs. Moreover, we assume that these new sites become available according to a Poisson process, and that the levels of efficiency improvement inherent to each one of these sites are random variables. With this framework, we characterise certain parameters of the optimal relocation policy. In particular, we characterise the expected relocation time and we prove that it depends on the distribution of the level of efficiency improvement only through an expected value. Therefore, the optimal policy shows a kind of robustness in terms of the stochastic assumptions of the problem, which has a major impact in the application of relocation policies. In addition, we also characterise the optimal relocation time. Impacts on the final results driven by the characteristics of the firm's original location site, the market environment and the way in which risk is modelled are studied numerically. The overall results are in line with economic intuition.     

Debate: Cutback management through public procurement

The policy of contestability has become an important policy in relation to the delivery of public services. This article describes the theoretical underpinnings of contestability and its application to public services in the UK. It discusses the necessary conditions for achieving effective contestability and extending the application of contestability in public service provision.     

Product Quality as a Formative Index: Evaluating an Alternative Measurement Approach*

Product quality is a critical competitive issue when launching new products. However, the product quality construct has been measured inconsistently in prior research, with researchers often not considering multiple components of quality. Thus, results may not be comparable across studies, and when dimensions of quality are excluded, relationships found between quality and other constructs may be spurious. As a response, we develop a formative measurement approach to product quality. The components of product quality are not interchangeable in measurement as typical reflective approaches assume. These dimensions make up the quality construct, necessitating a formative measurement approach. Here, this approach is developed and tested, compared with the traditional reflective approach, and its relationships with other constructs evaluated in a model of new product performance. Overall, this formative approach is shown both to be theoretically appropriate and to possess strong measurement properties. This approach has clear implications for research concerning product quality and improving its measurement in the future.     

Solving the Winner Determination Problem in a Divisible-Object Auction

In an auction of a divisible object, bidders' demand functions are often assumed to be nonincreasing, meaning that bidders are willing to pay less or the same price for every additional unit. Under this assumption, the optimal allocation that maximizes the auctioneer's revenue can be found using a greedy-based procedure. This article argues that situations may arise where a bidder may need to express her preferences through a nondecreasing demand function; when such a bidder is present in the auction, the greedy-based procedure does not guarantee the optimal allocation. Thus, this article proposes a mixed integer program that finds the optimal allocation in a divisible-object auction at which bidders submit their bids as arbitrary stepwise demand functions. The practical aspect of the mathematical program is presented by means of a simple yet illustrative example in a treasury bond auction setting. The results of the auctioneer's revenue are reported as a function of the number of bidders with nonincreasing and nondecreasing demand functions.     

A competition‐based explanation of collaborative invention within the firm

Existing literature shows that collaborative invention within the firm enhances innovativeness by facilitating knowledge recombination. Despite such benefit, firms vary in their use of collaborative invention when drawing on their individual inventors' knowledge. In addressing this puzzle, we argue that competition from rival products building on similar knowledge compels firms to favor search depth over exploratory search and respond expeditiously, thus reducing a firm's inclination toward collaborative invention. In contrast with prior research's focus on how upstream resources influence a firm's position in downstream markets, this study shows that downstream competition drives heterogeneity across firms in their utilization of upstream resources. Copyright © 2013 John Wiley & Sons, Ltd.     

Price elasticity of demand for broadband: Evidence from Latin America and the Caribbean

In this study the authors analyze fixed broadband retail prices in Latin America and the Caribbean (LAC), and provide estimates about the effect of price changes on broadband adoption. The analysis is based on a survey of plans and tariffs conducted by the authors during Q2 2010. Their results suggest that fixed broadband services in LAC are generally expensive and of poor quality when benchmarked against Organisation for Economic Co-operation and Development (OECD) countries, although there is significant variance between markets in the region. In order to isolate the effect of prices on broadband adoption they use an instrumental-variable approach. Their findings show that broadband demand is relatively elastic to price in LAC but not in the OECD. They estimate that an average price reduction of 10% would result in an increase of almost 22% in the penetration rate in LAC, equivalent to almost 8.5 million additional broadband connections. Several policy implications result from these findings. First, national broadband policies in LAC should pay a closer attention to a deficit of competition in fixed broadband services, as households and firms face high prices for poor quality services, thus deterring adoption. Second, while their findings generally suggest that price reductions could significantly increase penetration, they elasticity estimates reveal that price effects might not be sufficient to achieve the penetration goals set in national broadband plans. This validates the need for complementary policy strategies that affect other determinants of broadband demand. The example of Brazil is used to illustrate this finding.     

Mortgages Denominated in Domestic and Foreign Currencies: Simple Models

We design a family of simple models of foreign currency-denominated (FXD) loans to compare the cash flows of installments and the paths of outstanding debts denominated in domestic and foreign currencies, respectively. Using them, we draw several conclusions relevant to the recent debates about the FXD loans. We demonstrate the key role played by the uncovered interest rate parity in the comparisons. Moreover, we give a closed-form solution for the trade-off between the currency depreciation and the unilateral FX interest rate increases by the banks. We determine the optimal size of domestic and FXD loans, respectively.     

Happier with the Same: Job Satisfaction of Disadvantaged Workers

Job satisfaction evaluations depend not only on the objective circumstances that workers experience in their jobs, but also on their subjective dispositions, such as their aspirations, expectations, feelings of entitlement or personal evaluation criteria. We use matched employer–employee data from the United Kingdom to examine whether and how subjective dispositions influencing job satisfaction vary across workers with different socio‐demographic traits. We approximate jobs using detailed occupations within workplaces and find that most of the variability in job satisfaction is at the worker rather than the proximate‐job level, and that workers with disadvantaged statuses report higher satisfaction with the same jobs than those with advantaged statuses.