Learning,diversification and the nature of risk

In many economic settings, faster learning is achievable only through greater exposure to risk. We study this conflict in the context of project choice, where a risk-averse agent must choose whether to invest in two projects of the same type (focus) or of different types (diversification). Focus enables faster learning across periods, but is riskier due to common type-specific shocks. Optimal choice involves balancing these two considerations. We show that focus is preferred for intermediate learning speeds, and that higher prior uncertainty may encourage focus. Thus, what matters for the focus-diversification choice is not only the level of risk, but also whether the risk is permanent or can be “learned away.” We are grateful to two anonymous referees, Serkan Bahceci, Steve Cecchetti, Adam Jaffe, Bojan Jovanovic, Kala Krishna, Blake LeBaron, Rachel McCulloch, Yana Rodgers, participants at the 2004 AEA-CSWEP Meetings and the 2003 North East Universities Development Conference, and seminar participants at Brandeis University for comments and suggestions.     

Pledger modelling: Help the Aged case study

• The recruitment of pledgers (as a proxy for potential legators) to charitable organisations plays a vital role in their continued success, and as a percentage of all fundraising income generated it can represent substantial proportions. However, of all the ‘donation asks’ made of supporters, asking for a legacy is the most difficult. Therefore, it is important that the target audience should be as well researched and highly targeted as possible.
• Help the Aged had reached the stage where decisions need to be made about its future marketing in order to protect longer-term income. The findings of this legacy targeting project were to feed into communication programmes, direct marketing, and the overall legacy marketing strategy.
• The key objective was to identify the best prospects to mail a legacy ask to, across the supporter database, with the likelihood that they are going to pledge as a result.
• It was found that whilst tailored data analysis comes at a price, the average value of a legacy justifies the cost of using sophisticated targeting tools. However, because of the pledge-to-legacy time lapse, there will always be issues with measuring any long-term return on investment (ROI). Nonetheless, pledgers have to be taken on their word for the purpose of testing (and subsequent rollouts). Pledge data should be tested and the outcomes should inform legacy marketing. However, as mentioned above, pledgers necessarily need to be taken on their word and therefore, formulating models based on the type and/or value of pledges is not recommended.

Copyright © 2005 John Wiley & Sons, Ltd.     

Rethinking the impact of GDP on financial development: Evidence from heterogeneous panels

This paper examines the nonlinear impact of real GDP per capita on financial development in a panel of 125 countries. It also determines the moderating effect of inflation on the impact of GDP on financial development. It employs the dynamic panel system generalized method of moments (GMM) and the dynamic common correlated effects (CCE) to do both panel and country‐specific analysis, as well as control for cross‐sectional dependence, heterogeneity and endogeneity. This study shows that GDP has a positive impact on financial development in the entire panel. However, when we split the panel into different income groups, we find a positive impact in the high‐ and middle‐income groups while the impact is insignificant in the low income group. Although we find no evidence of a nonlinear impact of GDP on financial development in the panel, the country‐specific analysis reveals a significant nonlinear relationship between GDP and financial development in 73 countries. We also show that inflation adversely moderates the positive impact of GDP on financial development in middle‐income countries. This study implies that the relationship between GDP and financial development depends on the levels of GDP and inflation rate. We recommend some policy options based on the findings.     

Investment decisions: The trade-off between economic and environmental objectives

While there are broader socio-political, psychological, and structural factors that influence investment decisions (see Harris et al., 2016), in line with the critical approach, this study provides an empirical insight into the notion that financialization, specifically the tendency to prioritise economic over environmental objectives, has a strong bearing on how managers view investment trade-off decisions in relation to sustainability issues. The study empirically investigates this notion by examining the investment trade–off preferences of Australian managers in relation to three decision attributes – economic outcomes (i.e. financial returns), environmental impact (i.e. carbon emissions) and stakeholder pressure to consider environmental issues. We use the discrete choice experimental method to quantify the trade-offs between the above mentioned three attributes. In addition, we also investigate the potential effect of three contingency factors on individual's preferences. Specifically, at the organisational level, we explore the effects of financial and environmental rewards and at the individual level, we explore the effect of environmental consciousness. In line with the financialization hypotheses our results indicate that managers prioritise financial returns over carbon emissions and stakeholder pressures with the preference for financial returns found to be positively associated with rewards for financial performance. However, in line with the pragmatic approach and despite the overall dominance of financial returns, there is evidence that manager's focus on financial returns can be influenced, with the preference for financial returns negatively associated with rewards for environmental performance and environmental consciousness. In addition, while stakeholder pressure was not found to be associated with any of the three contingency factors and, manager's emphasis on carbon emissions was not associated with financial rewards, manager's emphasis on carbon emissions was found to be positively associated with both rewards for environmental performance and environmental consciousness. Therefore, our findings suggest that corporate management have an important role to play, both in respect to the design of performance rewards systems and the recruitment of environmentally conscious managers, in order to promote the sustainability agenda.     

Discrete choice models of firms’ strategic decisions

This paper outlines the methods and applications related to the nascent area of empirical discrete games in marketing. Many key strategic decisions firms make involve discrete choices such as deciding the location of a new store, determining where in product space to position a product, or what options to offer in a service contract. These decisions are fairly complex and typically involve the consideration of a number of demand, cost, and competitive factors. What makes these discrete choices particularly interesting (and challenging to analyze) is that they are interrelated with the choices of other firms because firms take into account the actions of their competitors when making their own decisions. We describe the basic problem of dealing with interrelated discrete choices in a game-theoretic framework and present the various estimation methods available. A discussion of the existing applications and future research opportunities concludes the article.     

A model of retail job characteristics,employee role ambiguity,external customer mind-set,and sales performance

Based upon findings from the sales, retailing, marketing, management, and organizational behavior literatures, the authors develop and test a model of retail employee sales performance that differs from previous efforts by utilizing multi-dimensional conceptualizations of potential antecedents as well as a promising yet previously unexamined employee job attitude–external customer mind-set. The results indicate that the characteristics of the retail employee’s work environment, with one exception, are directly associated with enhanced job attitudes and reduced ambiguity. The exception is that greater amounts of job autonomy are associated with increased levels of ambiguity. Retail employee ambiguity regarding customers and external customer mind-set are both associated with sales performance.     

Trends in helmet use by motorcycle riders in the decades following the repeal of mandatory helmet laws

Several US states repealed universal motorcycle helmet laws in the 1990s and 2000s. The purpose of this study was to examine national trends in helmet use among adult trauma patients with motorcycle-related injuries. We hypothesized that motorcycle helmet use declined over time. We retrospectively analyzed the National Trauma Data Bank's National Sample Program for 2003–2010. We also obtained data on US motorcycle fatalities reported in the Fatality Analysis Reporting System and population data from the U.S. Census Bureau to calculate motorcycle-related fatality rates over time. A total of 255,914 patients met inclusion criteria, of whom 148,524 (58%) were helmeted. During the study period, helmet use increased from 56% in 2003 to 60% in 2010 (p < 0.001). However, motorcycle-related fatality rates also increased in states with and without universal helmet laws. Nationally, rates of helmet use have increased. However, fatalities due to motorcycle crashes have also increased during the same period.     

Distributing Start‐Up Equity: A Theoretical Foundation for an Emerging Practice

We use agency theory to model equity division in venture capital financing with three complementary value‐creation factors—the entrepreneur's effort, the venture capitalist's advising/monitoring service, and the investment amount. While considering that investors often base their funding decisions on gut feeling, even as they employ rational decision‐making processes, we derive closed‐form expressions for optimal ownership sharing. Our findings provide theoretical explanation to support the recent call for practitioners to allocate ownership equity based on the relative potential contributions of the entrepreneur and the venture capitalist to generate value for the new investment prospect.