Congestion games with malicious players

We study the equilibria of non-atomic congestion games in which there are two types of players: rational players, who seek to minimize their own delay, and malicious players, who seek to maximize the average delay experienced by the rational players. We study the existence of pure and mixed Nash equilibria for these games, and we seek to quantify the impact of the malicious players on the equilibrium. One counterintuitive phenomenon which we demonstrate is the “windfall of malice”: paradoxically, when a myopically malicious player gains control of a fraction of the flow, the new equilibrium may be more favorable for the remaining rational players than the previous equilibrium.     

The diffusion of a new service: Combining service consideration and brand choice

We propose an individual-level model of a two-stage service diffusion process. In the first stage, customers decide whether to “consider” joining the service. This (Consideration) stage is modeled by a hazard model. Customers who decide to consider the service move on to the Choice stage, wherein they choose among the service alternatives and an outside No Choice option. This stage is modeled by a conditional Multinomial Logit model. The service provider does not observe the transition in the first stage of potential customers who have yet to choose a brand. Such potential customers may have started to consider joining the service, yet chose the outside alternative in each period thereafter. One of the main contributions of the model is its ability to distinguish between these two non-adopter types. We estimated the model using data on the adoption process of newly introduced service plans offered by a commercial bank. We employed the hierarchical Bayes Monte Carlo Markov Chain procedure to estimate individual as well as population parameters. The empirical results indicate that the model outperforms competing models in breadth of analysis, model fit, and prediction accuracy.     

Cost benefit analysis of conservation efforts to preserve an endangered species: The Griffon Vulture (<Emphasis Type="Italic">Gyps fulvus</Emphasis>) in Israel

The major goal of this study was to determine whether protective measures in the case of the Eurasian Griffon Vulture are in accordance with public priorities. To this end we used the Travel Cost (TCM) and Contingent Valuation Methods (CVM) to estimate its value. We also determined the break even point in the allocation of funds targeted to protection at the regional level and performed a cost-benefit analysis of conservation efforts on a national level in Israel. The value of the marginal vulture was found to be approximately 34,000 NIS at Gamla and 316,000 NIS at Hai-Bar Nature Reserves. The economic efficiency of feeding stations was examined from two aspects: At the regional level, the break-even point for a feeding station to be efficient was 0.24 and 2.20 vultures per year for the Hai-Bar and Gamla NRs respectively. At the national level, in most cases, the national project to save vultures, ‘Porsim Kanaf’ (‘Porsim Kanaf’ is the national birds of prey conservation project in Israel) passes a Cost-Benefit test based on the valuation results.     

A meta-model for passenger and freight transport in Europe

On the basis of the outcomes of five disaggregate national models for passenger transport, four national models for freight transport and two European transport models, a fast and approximate meta-model for passenger and freight transport in Europe has been developed. The meta-model for passenger transport includes a detailed segmentation of the population, which makes it possible to investigate the impact of policies on many different groups of the population. The meta-model for passenger and freight transport has been applied for a reference scenario for 2020 and to simulate many elements of the European Commission's Common Transport Policy. These policy measures were also assessed in terms of the consequences on the internal and external cost of transport.     

Florida's Pension Election: From DB to DC and Back

During the year 2002, the State of Florida's 600,000 public employees were given the choice of converting their traditional defined benefit (DB) pension plan into an individual‐account defined contribution (DC) plan with full control over asset allocation and investment decisions. To mitigate some of the risk and uncertainty in the decision, the State granted each employee electing the DC plan an additional option to switch back (i.e., change their mind once) at any point prior to retirement. This option has been labeled the 2nd election by the State and the cost of reentry is fixed at the accumulated benefit obligation of their pension entitlement, which is the present value of the life annuity. Our article presents some original analytic insights relating to the optimal time and financial value of this unique 2nd election. Although our model is deterministic in nature, we believe that it provides a number of intuitive insights that are quite robust. Our results can be contrasted with Lachance, Mitchell, and Smetters (2003) . We estimate that the increase in retirement wealth that arises from having the 2nd election is equivalent to at most 30 percent in future value, and only when utilized optimally. Furthermore, for most State employees above the age of 45, the 2nd election has little economic value because the DB plan dominates the DC plan from day one. Of course, it remains to be seen what percent of Florida's 600,000 employees will elect to behave rationally with their newfound pension autonomy.     

Cost uncertainty and budget overspending: A safety-first perspective

In this study we model a cost center manager's decision about how to achieve a required level of output. The spending plan that the manager adopts is expected to result in successful performance, but at an uncertain cost. The uncertainty associated with the spending plan is inversely related to the expected cost. The analysis presented in this article suggests that a manager who exhibits Safety-First behavior and wishes to avoid large budget deviations is more likely to exceed what he or she perceives to be the overspending limit rather than the underspending limit. That manager will tend to incur costs in excess of the budget. This mathematical result has an intuitive appeal; a manager is willing to pay a certain “risk premium” to avoid the risk of large budget deviations and accompanying adverse consequences. This result has implications for both performance evaluation and budget setting, particularly in the public sector. Under the circumstances that we describe, using budgets in evaluating managerial performance may be misleading. Another application of our study relates to the “budget creep” phenomenon and how, under particular circumstances, its size can be reduced.     

Optimal Annuitization Policies

Abstract

At, or about, the age of retirement, most individuals must decide what additional fraction of their marketable wealth, if any, should be annuitized. Annuitization means purchasing a nonrefundable life annuity from an insurance company, which then guarantees a lifelong consumption stream that cannot be outlived. The decision of whether or not to annuitize additional liquid assets is a difficult one, since it is clearly irreversible and can prove costly in hindsight. Obviously, for a large group of people, the bulk of financial wealth is forcefully annuitized, for example, company pensions and social security. For others, especially as it pertains to personal pension plans, such as 401(k), 403(b), and IRA plans as well as variable annuity contracts, there is much discretion in the matter.

The purpose of this paper is to focus on the question of when and if to annuitize. Specifically, my objective is to provide practical advice aimed at individual retirees and their advisors. My main conclusions are as follows:

? Annuitization of assets provides unique and valuable longevity insurance and should be actively encouraged at higher ages. Standard microeconomic utility-based arguments indicate that consumers would be willing to pay a substantial “loading” in order to gain access to a life annuity.

? The large adverse selection costs associated with life annuities, which range from 10% to 20%, might serve as a strong deterrent to full annuitization.

? Retirees with a (strong) bequest motive might be inclined to self-annuitize during the early stages of retirement. Indeed, it appears that most individuals—faced with expensive annuity products—can effectively “beat” the rate of return from a fixed immediate annuity until age 75?80. I call this strategy consume term and invest the difference.

? Variable immediate annuities (VIAs) combine equity market participation together with longevity insurance. This financial product is currently underutilized (and not available in certain jurisdictions) and can only grow in popularity.     

Bailouts and the modeling of bank distress

In this article, we develop a model for predicting distress events among large banks. We show that a bailout possibility induces different behaviors among small and large banks, and the proposed failure prediction model for large banks is thus considerably different from that for small banks. Major bank-level fundamentals show opposite conjecture directions for large versus small banks. The Tier 1 capital ratio, which is under the scrutiny of regulators and investors, has almost no distress prediction power among large banks. However, banks rescued by governments tend to maintain a lower Tier 1 ratio. The cost of funding in large banks is negatively correlated with the probability of failure, reflecting the fact that lenders internalize the too-big-to-fail (TBTF) policy and demand a lower interest rate from TBTF banks.     

Cultural and economic integration of immigrant minorities: Analytical framework and policy implications

The cultural diversity that new immigrants bring to the host economy is potentially beneficial for the productivity of both immigrants and natives, but immigrants must assimilate to some extent for these benefits to be realized. In general, immigrants assimilate more slowly than natives would like, as they ignore the external material benefits of assimilation for natives and their resistance to foreign cultural influences. We develop a formal framework that highlights the complementarity between immigrants' cultural assimilation, economic integration, and investment in human capital, indicating the scope for mutually beneficial policies, offering immigrants material incentives to assimilate more rapidly.