Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles

We model consumption and dividend growth rates as containing (1) a small long‐run predictable component, and (2) fluctuating economic uncertainty (consumption volatility). These dynamics, for which we provide empirical support, in conjunction with Epstein and Zin's (1989) preferences, can explain key asset markets phenomena. In our economy, financial markets dislike economic uncertainty and better long‐run growth prospects raise equity prices. The model can justify the equity premium, the risk‐free rate, and the volatility of the market return, risk‐free rate, and the price–dividend ratio. As in the data, dividend yields predict returns and the volatility of returns is time‐varying.     

Strategic intergenerational bequests with stochastic convex production

Summary This note reconsiders the well-known model of strategic bequest/ altruistic growth, but with stochastic production satisfying a strong convexity condition: The probability that the next stock exceeds any given level is concave in investment. Existence of a Markov-stationary equilibrium consumption schedule, which is continuous and with all slopes in [0,1], is established. Under smooth data and interiority assumptions, this schedule is differentiable, and marginal consumption is in (0,1). This property allows for a rigorous and straightforward treatment of the equilibrium characterization problem.The author is grateful to Wolfgang Leininger for helpful discussions on the subject of this paper. This research work was carried out while the author was visiting C.O.R.E., Belgium and the University of Dortmund, Germany. The author wishes to thank both institutions for providing a great work environment as well as financial support from the projects Markets as Games and Marktstruktut und Gesamtwirtschaftliche Entwicklung, respectively.     

Asymmetric Regulation of Identical Polluters in Oligopoly Models

Studies of optimal second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset. Yet, cost asymmetry between oligopoly firms may well give rise to private as well as social gains. A trade-off is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.     

Creditor control rights and firm investment policy

We present novel empirical evidence that conflicts of interest between creditors and their borrowers have a significant impact on firm investment policy. We examine a large sample of private credit agreements between banks and public firms and find that 32% of the agreements contain an explicit restriction on the firm's capital expenditures. Creditors are more likely to impose a capital expenditure restriction as a borrower's credit quality deteriorates, and the use of a restriction appears at least as sensitive to borrower credit quality as other contractual terms, such as interest rates, collateral requirements, or the use of financial covenants. We find that capital expenditure restrictions cause a reduction in firm investment and that firms obtaining contracts with a new restriction experience subsequent increases in their market value and operating performance.     

The economics of demonstrations: The effect of competition on demonstration and pricing strategies

Demonstrations of new software products and their equivalents in the automobile industry, i.e., test-drives, are an inherent part of sales efforts. Yet the quality of standard demonstrations has been criticized as being inadequate and, in particular, too short. Heavy competition at the dealer level has been pinpointed as the main reason for short, minimal demonstrations. An analysis of business cases from two industries—automobile and software—indicates that, while competition diminishes demonstration efforts in the automobile industry, it has the opposite effect in the software industry where heavy competition induces demonstration efforts. This paper studies demonstration policies in a monopoly and a duopoly and explores the role of competition and costs of production and demonstration on demonstration strategies in these two market settings. Comparing the set of conditions between the two market settings enables us to determine under which competition will increase (decrease) demonstration intensity.     

Safety survey of Iran's mines and comparison to some other countries

The increasing development of mining activities in Iran makes it necessary to have a closer look at the safety issues. Analysis of different incidents and damages in mines can be helpful for the adoption of suitable approaches to prevent the incidents. In this study, safety statistics of Iran's mines in 2011 and 2012 were assessed and important incidents and injuries happening to employees for 12 different groups of minerals were evaluated and eventually compared to the situation of some other countries. According to the obtained results, the average incidence probability in Iran's mines was calculated to be 0.18 for 2011 and the incidence probability of coal, copper and iron ore mines was greater than others. The injury rate of Iran's mines was 106 and 164 out of 10,000 persons for 2011 and 2012, respectively, and the maximum values of injury rate belonged to coal, dimension stone and aggregate mines. Also, it turned out that the fatal rate per 100 tons of production had the highest values in chromite and coal mines. Besides, comparison of injury rate and the fatal rate in Iran and some countries showed that the safety situation in Iran's mines was in a fair condition.     

Marine-tourism development on a small island in Indonesia: blessing or curse?

Indonesia is a popular tourist destination. Tourism creates jobs and generates revenue but can have negative impacts on culture, society and human rights. This study of one island community in Indonesia explores the relationship between the growth of tourism and the impacts on a local community. A quantitative survey, combined with in-depth interviews, examined perceptions of residents to tourism development. Residents perceived that tourism created jobs and improved access to goods and services. However, tourism has reduced social cohesion and decreased adherence to traditional customs. Conflict between the private sector and residents over ownership and access have also caused violence.     

Emissions Pricing Policies and Business Cycles: Fixed vs. Variable Tax Regimes

As by-products, emissions follow economic fluctuations. Ignoring this fact in environmental policies can lead to unexpected emissions fluctuations and an increase in intervention costs. Using a real business cycle model, we compare two policies: a fixed tax policy where the price is constant over time and a variable tax regime where the tax rate is set at the beginning of each period. We find that while both programs result in lower emissions, a variable tax regime is preferable since first, it can ensure that the maximum welfare is always achieved, and second, it is more effective in stabilising emissions.     

Corporate climate-related voluntary disclosures: Does potential greenwash exist among Australian high emitters reports?

This study examines the issue of greenwashing among corporate high emitters subject to government scrutiny. To do so, we investigate the relationship between the actual environmental performance, measured as carbon emissions, of companies subject to the Australian National Greenhouse Energy Reporting Act 2007 (NGER) and their climate-related voluntary disclosures. To measure climate-related disclosure, we construct a climate-related disclosure index based on four prominent frameworks and score corporate report content against that Index. Using a sample of 150 companies with NGER emissions data for Years 2016 and 2017, a period that precedes the issuance of recommendations for disclosure by the Task Force on Climate-Related Financial Disclosure (TCFD), our regression results show a disappointingly low level of climate-related disclosure by most companies. We also find a negative relationship between climate-related disclosure and 1-year lagged environmental performance among companies exhibiting a year-on-year rise in carbon emissions. That is, our findings provide evidence of potential greenwashing by poor environmental performers, presumably to change negative perceptions by stakeholders, as predicted by socio-political theories. In contrast, we find no evidence of greenwashing among companies experiencing a year-on-year decrease in emissions.