DESIGNING A MARKET STRUCTURE WHEN FIRMS COMPETE FOR THE RIGHT TO SERVE THE MARKET*

In many industries, a regulator designs an auction to select ex‐ante the firms that compete ex‐post on the product market. This paper considers the optimal market structure when firms incur sunk costs before entering the market and when the government is not able to regulate firms in the market. We prove that a free entry equilibrium results in an excessive entry when the entry costs are private information. Then, we consider an auction mechanism selecting the firms allowed to serve the market and show that the optimal number of licences results in the socially optimal market structure. When all the potential candidates are actual bidders, the optimal number of firms in the market increases with the number of candidates and decreases with the social cost of public funds. When the market size is small, as the net profit in the market decreases with the number of selected firms, entry is endogenous. As increasing competition in the market reduces competition for the market, the optimal structure is more concentrated than in the previous case.     

An internal control perspective on the market value consequences of IT operational risk events

IT internal controls are an important component of an organization's arsenal of internal controls. Upon conceptualizing failures of operational IT systems, or what we call IT operational risk events, as signals of IT internal control weaknesses, we theorize about these events' impact on internal control objectives in general and about how this impact is influenced by the regulatory environment in particular. We then perform an event study to examine the economic impact of a diversified sample of IT operational risk events from the U.S. financial services industry during 1985–2009. We specifically test the impact of contextual factors on the degree of this effect, including the events' target (confidentiality, integrity, or availability of IT assets), the source of disclosure (regulatory or voluntary), the enactment of the Sarbanes–Oxley Act, and firm-specific attributes. We find that investors penalize firms most strongly for experiencing events that compromise the availability of IT systems, consistent with our prediction that these events more negatively impact the reliability of financial reporting and the efficiency and effectiveness of operations. This result contrasts extant empirical studies that are predominantly concerned with information and security breaches. We find also that investors' penalty is the strongest for firms experiencing IT operational risk events that occurred after the passing of the Sarbanes–Oxley Act or were disclosed by a regulatory body. Finally, the market reaction is shown to be stronger for firms with high growth potential, firms that are larger, riskier, and are in the banking sector. Implications for research and practice are discussed along with directions for future research.     

Heterogeneity effects from market interventions

The aim of this paper is to test whether the European Commission activities generate a heterogeneity effect on the merging parties. A sample of 74 firms involved in 45 contested merger and acquisition operations during the years 1990 to 1999 is used. The methodology is based on the GARCH framework. The main result is that, globally, the DGC interventions seem not to reduce significantly the heterogeneity among investors, except for the operations where it takes strong decisions like prohibition. In these last cases, the signal coming from the DGC encompasses valuable information and is well understood by market participants.     

Criteria for the Stochastic Ordering of Random Sums,with Actuarial Applications

It is shown that vectors ( S M 1 , … , S Mn ) and ( S' M'1 , …, S' M'n ) of random sums of positive random variables are stochastically ordered by upper orthant dependence, lower orthant dependence, concordance or by the supermodular ordering whenever their corresponding random numbers of terms ( M 1 , … , M n ) and ( M' 1 , … , M' n ) are themselves ordered in this fashion. Actuarial applications of these results are given to different dependence structures for the collective risk model with several classes of business.     

Ruin probabilities and optimal capital allocation for heterogeneous life annuity portfolios

A large part of the actuarial literature is devoted to the derivation of ruin probabilities in various non-life insurance risk models. On the contrary, very few papers deal with ruin probabilities for life insurance portfolios. The difficulties arise from the dependence and non-stationarity of the annual payments made by the insurance company. This paper shows that the ruin probability in case of life annuity portfolios can be computed from algorithms derived by De Pril (1989) and Dhaene & Vandebroek (1995). Approximations for ruin probabilities are discussed. The present article complements the works of Frostig et al. (2003) who considered whole life, endowment, and temporary assurances, and of Denuit & Frostig (2008) who considered homogeneous life annuities portfolios. Here, heterogeneous portfolios (with respect to age and/or face amounts) are studied. Particular attention is paid to the capital allocation problem. The total amount of reserve is shared among the risk classes in order to minimize the ruin probability. It is then fair to charge a higher margin to the risk classes requiring more capital.     

Come Rain or Shine: Evidence on Flood Insurance Purchases in Florida

This article provides a detailed analysis of the operation of the National Flood Insurance Program (NFIP) in Florida, which accounts for 40 percent of the NFIP portfolio. We study the demand for flood insurance with a data set of more than 7.5 million NFIP policies‐in‐force (the largest ever studied) for the years 2000–2005, as well as all NFIP claims filed in Florida. We answer four questions: What are the characteristics of the buyers of flood insurance? What types of contracts (deductibles and coverage levels) are purchased? What are the determinants of claims payments? How are prices determined and how much does NFIP insurance cost?     

Managerial perceptions of service-infused IORs in China & India: A discursive view of value co-creation

This paper explores the managerial challenges facing firms seeking to build relationships with other network actors while doing business in foreign markets. By taking a critical perspective on an area of increasing importance in both manufacturing and service sectors, that of value co-creation, the paper explores how managers in different cultural contexts make sense of the notion of ‘value’ in inter-organizational B2B relationships between New Zealand service and service-infused supplier firms and buyers in China and India. From an analysis of the interview-based accounts on both sides of the buyer–seller dyad marked differences emerge regarding value-creation within managers' discourse around partnerships, collaboration and cooperation. Our findings suggest that the Indian manager's discursive use of ‘partnership’ draws on service-dominant logic in viewing this type of interaction as a means for co-creating value; they and their New Zealand suppliers are jointly involved in co-creating value within a service system, creating value-in-use. In contrast, the predominant perspective seen in the discourse of Chinese managers is the use of cooperation as a means of making transactions more cost-effective, or to fill gaps in their supply chains, resulting in the creation of transaction-based, co-production of value, which suggests a value-in-exchange orientation. In both cases, there is repeated reference to more peripheral actors whose efforts result in what we interpret as network value creation, based on their interactions with actors within the buyer–seller dyad.     

The impact of multiple structural changes on mortality predictions

Most mortality models proposed in recent literature rely on the standard ARIMA framework (in particular: a random walk with drift) to project mortality rates. As a result the projections are highly sensitive to the calibration period. We therefore analyse the impact of allowing for multiple structural changes on a large collection of mortality models. We find that this may lead to more robust projections for the period effect but that there is only a limited effect on the ranking of the models based on backtesting criteria, since there is often not yet sufficient statistical evidence for structural changes. However, there are cases for which we do find improvements in estimates and we therefore conclude that one should not exclude on beforehand that structural changes may have occurred.     

Introduction to designing information and organizations with a positive lens

The role and potential contribution of a positive lens to the design of systems and organizations is the focus of this introductory essay. The positive lens refers to a perspective in the social sciences that emphasizes the capacity of people and organizations to construct better work environments, customer experiences and socio-technical systems through a positive discourse. Joining a positive lens on organizing with the transformative power of design thinking opens new horizons and uncovers previously overlooked possibilities for creating organizational and social well-being. This volume aims to introduce design with a positive lens into the research on information systems and organizations and to explore its potential value.     

Reconfiguration of the conceptual landscape: a tribute to the service logic of Richard Normann

This article is a tribute to the late Richard Normann, whose call for a “service logic” (Normann, Reframing Business: When the Map Changes the Landscape, Wiley, Chichester, p. 99, 2001) both parallels and enriches service-dominant (S-D) logic (Vargo and Lusch, J. Mark, 68:1–17, 2004a). Like Vargo and Lusch, Normann shifted the focus of the offering from an output to a process of value creation and perceived the firm as an organizer of this process, with the customer as a co-producer, rather than a receiver of value. He also argued that offerings are “frozen knowledge,” similar to Vargo and Lusch’s contention that the basis of exchange is applied operant resources (service) and suggested that the ‘dematerialization’ of resources increases their ‘liquidity’, which allows increased “density” for value creation. Thus, he suggested that firms need to “reframe business”—rethink the logic of value creation—to reveal opportunities in reconfiguring the value constellations of which they are part. This tribute explores these and other similarities and differences between Normann’s work and the evolving S-D logic.