Dynamic portfolio choice with deferred annuities

We derive the optimal life-cycle portfolio choice and consumption pattern for households facing uncertain labor income, risky capital market, and mortality risk. In addition to stocks and bonds, the households have access to deferred annuities. Deferred payout life annuities are financial contracts providing life-long income to the annuitant after a specified period of time conditional on survival. We find that deferred annuities play an important role in household portfolios and generate significant welfare gains. Households with high benefits from state pensions, moderate risk aversion and moderate labor income risk purchase deferred annuities from age 40 and gradually increase their portfolio share. At retirement, deferred annuities account for 78% of total financial wealth. Households with low state pensions and high labor income risk purchase more annuities and earlier. Uncertainty with respect to future mortality rates has the same effect, i.e. household hedge against longevity risks using deferred annuities.     

Participation as motif in community-based tourism: a practice perspective

Community-based tourism (CBT) is a diversely interpreted term, which has presented understanding and practice contests. These contests highlight the centrality (or not) of participation in CBT, and even its developmental failure. We attempt to move the conversation away from whether and how much participation exists to focus on emic interpretations of how CBT is experienced. As such, our focus is on how and why communities participate in CBTs, as informed by practice theory. We examine how participation might be understood and explained across three cases from Kenya, namely Il Ngwesi, Lumo Wildlife Sanctuary and Mwaluganje Elephant Sanctuary. The data were obtained through in-depth interviews, participant observation and documented sources. The findings highlighted that CBT was a response to contextual challenges, led by the community elders. Community participation was often through representation, which is interpreted in relation to local practices. Case narratives and thematic analysis demonstrated that community participation appeared across the cases as a recurrent practice, or motif, its different forms influenced by local sociocultural, economic and sometimes political tensions in each case environment. Understanding how community participation takes place in different settings informs possibilities for realizing and enhancing tourism-led community development strategies, freeing participation from apparent Western standards.     

Banks as Catalysts for Industrialization

We provide a new theory of the role of banks as catalysts for industrialization. In their influential analysis of continental European industrialization, Gerschenkron and Schumpeter argued that banks promoted the creation of new industries. We formalize this role of banks by introducing financial intermediaries into a “big push” model. We show that banks may act as catalysts for industrialization provided they are sufficiently large to mobilize a critical mass of firms and that they possess sufficient market power to make profits from coordination. The theory provides simple conditions that help explain why banks seem to play a creative role in some but not in other emerging markets. The model also shows that universal banking helps to reduce the cost of acting as catalyst. Journal of Economic Literature Classification Numbers: G21, N2, O14, O16.     

Social Economics and Evolutionary Institutionalism Today

This paper discusses theoretical and methodological elements that constitute social economics. It also considers those elements for evolutionary (Veblenian) institutional economics. It investigates how these “heterodoxies” may further converge. Such convergence would probably not trigger a complete unification, but lead to a broadly defined common research program and a strategy for joint “heterodox” survival, in face of the ranking game of the neoclassical “mainstream” and of the dominant powers supporting it as the discipline providing ideological legitimization. A common denominator of “heterodoxies” in terms of real-world orientation, direct interdependency and interaction of agents (social decision situations), appropriate complexity, and the treatment of values is drafted. Theoretical concepts discussed include complex and open systems, individual agency, institutions, embeddedness, networks, social reform, and process orientation. Formal methodological developments considered are complex modeling, game theory, or computer simulations. We arrive at a more formal common basis, which we term socio-economics. We also consider the relations of evolution and institutions, the institutional dichotomy, and the theory of institutional change. The monism of the “market” of the “mainstream” turns out to dissolve into the institutional diversity of real-world network forms, which helps explaining real-world forms of markets, hierarchies, or spatial clusters. Focuses of “heterodox” convergence will have to be the related “microfoundations” and “macrofoundations” projects, integrating an interdisciplinary “naturalistic” approach to genetic-cultural co-evolution of cooperation, and social reform. While modern socio-economics makes “heterodoxies” leading in economic research, their future still appears open between ideological cleansing and extinction through the mainstream, and proactive paradigmatic pluralism.     

Increases in Executive Pay Following Privatization

The average chief executive at one of Britain's twelve regional electricity distribution companies experienced nearly a threefold salary increase in the two years following the industry privatization in 1990. It is hard to account for the tremendous pay raises with conventional explanations for executive compensation rates. They are not attributable to increases in managerial talent, because privatization brought virtually no changes in personnel at the top rank. In addition, the salary increases did not coincide with dramatic changes in firm scale, and cross-firm differences in the raises are uncorrelated with stock-market returns and other measures of firm performance. By contrast, salary increases are highly correlated with firms' potential profits (as measured by the administratively assigned price cap). The findings presented here thus provide new perspectives on the determinants of executive compensation.     

EXPERIENCE OF PRIVATIZATION IN EASTERN GERMANY*

ABSTRACT^**: The analysis of the experience of privatization in Eastern Germany shows that the boundaries between the private and public sectors will become increasingly blurred, with the public sector becoming more like the private sector. One may also expect that employment will fall and productivity greatly increase. The legislature's urge to regulate everything will ultimately subside but the public sector will continue to be of vital importance for the economy as a whole. A modernized public sector will be able to deploy its services to make an important contribution to economic growth and employment.     

Einzelbesprechungen

Ohne ZusammenfassungAus dem Englischen übersetzt von J. SteindlAus dem Italienischen übersetzt von Erich Allina, Wien