A real options analysis of Australian wheat production under climate change

A significant portion of the world's agricultural systems currently operate at the extreme end of the climate conditions that are considered to be suitable for crop and livestock production. Under these conditions, even moderate climate changes are anticipated to drive substantial transformational changes to agricultural systems. Transformations require new investments and infrastructure and can leave some assets stranded. These transformations can be partially or wholly irreversible, and hysteresis effects can make switching difficult and mistakes costly to reverse. This study demonstrates how a real options decision framework, ‘Real Options for Adaptive Decisions’ (ROADs), can be used to investigate how uncertainties about the climate affect the adaptation and transformation of agricultural systems. By building upon recent developments in the mathematics of stochastic optimisation, we extend traditional economic analyses of agricultural investment decisions based on net present values to better represent incomplete knowledge and uncertainty. We report results from a case study in South Australia that describes the transition pathways farmers might follow as their industries are transformed in response to climate change.     

The treatment of direct labor in cost/managerial texts

Cost/managerial textbook authors have typically defined and treated direct labor production costs as a pure variable cost that is proportionally related to the level of output. One implication of such treatment is that management will hire and fire workers as output levels vary. Historically, management did frequently adjust labor to reflect seasonal variations in sales and short-term changes in demand levels. This attitude was incorporated into the at-will employment rule.In the last few decades, the at-will employment rule has been successfully challenged in court. Other factors, such as the need for a highly trained work force and employment contract guarantees, have changed the nature of direct labor to that of a mixed or, in some cases, a fixed cost. In addition, at some highly automated plants, direct labor cost may be a small enough proportion of manufacturing cost to combine with overhead as a conversion cost.Accounting educators need to consider the effect this change may have on various managerial practices and methods. These include operational budgeting and cost-volume-profit analysis.     

Women's empowerment in agriculture: Implications for technical efficiency in rural Bangladesh

Although a great deal of research exists on gender and agriculture, few studies investigate the implications of reduced gender disparities in households for technical efficiency. In this article, I compare the levels of technical efficiency achieved on plots operated by households with different levels of gender disparities. Using plot‐level data from the 2011–2012 Bangladesh Integrated Household Survey and drawing on indicators derived from the Women's Empowerment in Agriculture Index, I estimate a stochastic frontier production function model, which includes women's empowerment in agriculture as an exogenous determinant of technical inefficiency. I find that reduced gender disparities within households (measured in terms of the empowerment gap between spouses) are associated with higher levels of technical efficiency. This result extends to plots that women jointly manage with their spouses, as well as those that women do not actively manage.     

Personal taxes,cost of insurer equity capital,and the case of offshore hedge fund reinsurers

Insurer investment returns are taxed in the United States at the corporate level and at the personal level when they are distributed to shareholders. This paper examines the implications of personal taxes for the tax cost on insurers equity capital and how these tax costs have varied over time under different tax regimes and with different asset portfolios. The paper also discusses how personal taxes provide tax incentives to form offshore hedge fund reinsurers, which provide an interesting case study illustrating the relevance of personal taxes. Finally, the paper discusses the tax treatment of alternative capital arrangements, such as collateralized reinsurance and sidecars.     

Matching soulmates

We study iterated matching of soulmates (IMS), a recursive process of forming coalitions that are mutually preferred by members to any other coalition containing individuals as yet unmatched by this process. If all players can be matched this way, preferences are IMS-complete. A mechanism is a soulmate mechanism if it allows the formation of all soulmate coalitions. Our model follows Banerjee, Konishi, and Sönmez, except reported preferences are strategic variables. We investigate the incentive and stability properties of soulmate mechanisms. In contrast to prior literature, we do not impose conditions that ensure IMS-completeness. A fundamental result is that, (1) any group of players who could change their reported preferences and mutually benefit does not contain any players who were matched as soulmates and reported their preferences truthfully. As corollaries, (2) for any IMS-complete profile, soulmate mechanisms have a truthful strong Nash equilibrium, and (3) as long as all players matched as soulmates report their preferences truthfully, there is no incentive for any to deviate. Moreover, (4) soulmate coalitions are invariant core coalitions—that is, any soulmate coalition will be a coalition in every outcome in the core. To accompany our theoretical results, we present real-world data analysis and simulations that highlight the prevalence of situations in which many, but not all, players can be matched as soulmates. In the Appendix we relate IMS to other well-known coalition formation processes.     

A simple method for extracting the probability of default from American put option prices

We present a novel method for extracting the risk-neutral probability of default (PD) of a firm from American put option prices. Building on the idea of a default corridor proposed by Carr and Wu, we derive a parsimonious closed-form formula for American put option prices from which the PD can be inferred. The method is easy to implement. Our empirical results based on seven large US firms for the period 2002–2010 show that, in some cases, our option-implied PD can provide a more accurate estimate of default probability than the estimates implied from credit default swaps.     

Tourism destination decisions: the impact of risk aversion and prior experience

This study broadly explores the impact of risk aversion on tourists' destination decisions and, in particular, explores for differences in individuals' leisure and medical tourism destination decisions. The results of this study indicate that risk aversion significantly distinguishes tourists' destination decisions in both leisure and medical tourism in Indonesia, but not in Singapore. All risk-averse groups are less likely to visit Indonesia than Singapore for leisure and medical purposes. By contrast, all risk-averse groups are likely to visit Singapore for leisure purposes, although they remain unlikely to travel to Singapore for medical tourism. In addition, the study found that the impact of prior experience on the likelihood that the two risk-averse groups will travel to Indonesia and Singapore for leisure was significant. Conversely, the effects of prior experience on medical tourism generally do not significantly differ between the two countries.     

Indonesian politics in 2011: democratic regression and Yudhoyono's regal incumbency

In 2011, a number of trends in Indonesian politics became clearer. President Susilo Bambang Yudhoyono (SBY) has not become a more reformist and risk-taking president in his second term, contrary to the hopes of many, but has rather become more cautious, aloof and regal in style. He is irked by criticism and dislikes any disturbance to the authority of his rule. The political elite, often in concert with the SBY government, pushed through a range of democratically regressive measures, including allowing politicians to be appointed to the Elections Commission. The malaise within the party system deepened, with less than a quarter of the electorate professing any party affiliation. Most Islamic parties slid closer to the political periphery, and the largest one, PKS, was beset by controversy. Government and community responses to a brutal attack on the Ahmadiyah sect in early 2011 showed the limits of Indonesia's much lauded religious tolerance.     

The influence of international taxation structures on corporate financial disclosure patterns

This paper investigates the extent of financial instrument disclosures (FIDs) within the annual reports of Australian listed extractive resource companies over a 4-year longitudinal period (2003–2006) and its association with international tax characteristics. Statistical analysis shows that thin capitalisation structures and withholding taxes are positively and significantly associated with disclosure patterns. In contrast, the occurrence of foreign sourced income and tax haven links are significantly negatively associated with FID patterns. These findings demonstrate that international tax structures can influence corporate disclosure patterns. This paper contributes to an understanding of the extent, trends and rationale behind resource firms’ financial instrument disclosure practices in Australia.