Complex Systems and the Merger Process

This paper considers how some of the generic principles that have emerged in the course of recent study and thinking around complex systems might be applied in a helpful way to the particular context of understanding the nature of the merger process. Theoretically, the paper stresses the connections between the processual and time-dependent nature of learning and knowledge acquisition and the systemic nature of socio-economic development and transformation. When carried into the substantive domain of mergers and their contribution to restructuring in the pharmaceuticals industry, we suggest that the complex systems approach provides a fruitful complement to alternative conceptual frameworks, albeit one which is still at an early stage of development in terms of this particular application.     

Utility valuation of multi-name credit derivatives and application to CDOs

We study the impact of risk-aversion on the valuation of credit derivatives. Using the technology of utility-indifference pricing in intensity-based models of default risk, we analyse resulting yield spreads in multi-name credit derivatives, particularly CDOs. We study first the idealized problem with constant intensities where solutions are essentially explicit. We also give the large portfolio asymptotics for this problem. We then analyse the case where the firms have stochastic default intensities driven by a common factor, which can be viewed as another extreme from the independent case. This involves the numerical solution of a system of reaction-diffusion PDEs. We observe that the nonlinearity of the utility-indifference valuation mechanism enhances the effective correlation between the times of the credit events of the various firms leading to non-trivial senior tranche spreads, as often seen from market data.     

Welfare criteria for tax reforms: Efficiency aspects

This paper provides unexpected support to Nash's view of how bargaining determines the social choice. We first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters' preferences and their choice probabilities. The outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a Nash-type social welfare function (theorem 1). This electoral outcome is also interpreted as a unanimity likelihood maximum (corollary 1). Within our framework, existence and uniqueness of such an outcome are guaranteed (corollaries 2 and 3).     

RISK DIFFERENCES AND FINANCIAL REPORTING

Financial leverage as reported by a consolidated financial statement may differ substantially from leverage for the parent company. To assess the financial risk for the parent (not the consolidated entity), employing consolidated data is hazardous; the problem is magnified by the fact that virtually all firms report only consolidated data. Consolidated leverage almost always equals or exceeds parent leverage for a wholly owned subsidiary, and many firms reporting only consolidated data have betas significantly greater than otherwise comparable firms that report both consolidated and parent company information.     

Corporate transparency, cream-skimming and FDI

We develop a simple information-based model of Foreign direct investment (FDI) flows. On the one hand, the relative abundance of “intangible” capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country relative corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI. The model also demonstrates that the gains for the host country from FDI [over foreign portfolio investment (FPI)] are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors. We provide also some evidence on the effects of corporate transparency indicators, such as accounting standards, on bilateral FDI flows from a panel of 24 OECD countries over the period of 1981-1998.     

Establishing standards for intranet on-line education

Following a clear set of on-line programming standards assists educators with consistency the training expectations from participants. Placing staff educational materials and health information online is an effective way to disseminate information and an efficient method of providing ongoing staff education. The presentation of on-line programming should be organized, comprehensive, and up-to-date. In addition, on-line programming should also be appealing, dynamic, and, above all practical. Today's clinical staff are pushed to the limits of time and resources. On-line training is one way to help staff meet their learning needs in today's reality. The inception of the UWMF on-line educational programs began in January 2002. Since that date employee participation has increased steadily. The time for Intranet on-line program development is part of the staff education department. For example, one area of programming is the mandatory educational credits needed for the organizations 100 certified medical assistants (CMAs). Figure 1 shows the nearly 3.5 years (January 2002 through May 2005) of participation. The 912 sessions made available 1,870 CEs for the CMAs. If the organization's CMAs were to pay for the continuing education credits (CEs) outside of the clinic setting, it could cost on average of dollar 10.00 per CE, or dollar 18,700 during the same 3-year period. Another aspect of economics is the cost in time away from work. On-line education allows employees to participate when time is available, versus having to leave work when traditional educational inservices are being held. This flexibility in participation can lead to better staff coverage.