Homeownership as a Constraint on Asset Allocation

Personal preferences and financial incentives make homeownership desirable for most families. Once a family purchases a home they find it impractical (costly) to frequently change their ownership of residential real estate. Thus, by deciding how much home to buy, a family constrains their ability to adjust their asset allocation between residential real estate and other assets. To analyze the impact of this constraint on consumption, welfare, and post-retirement wealth, we first investigate an individual’s optimal asset allocation decisions when they are subject to a “homeownership constraint.” Next, we perform a “thought experiment” where we assume the existence of a market where a homeowner can sell, without cost, a fractional interest in their home. Now the housing choice decision does not constrain the individual’s asset allocations. By comparing these two cases, we estimate the differences in post-retirement wealth and the welfare gains potentially realizable if asset allocations were not subject to a homeownership constraint. For realistic parameter values, we find that the homeowner would require a substantial increase in total net worth to achieve the same level of utility as would be achievable if the choice of a home could be separated from the asset allocation decision. The robustness of the analysis is evaluated with respect to the model’s parameters and initial state variables. We find that changes in the values of the constraint (i.e., the value of the home) and the expected real rate of home value appreciation are the only state variables or parameter that is associated with a large change in asset allocation and/or the burden imposed by the housing constraint. This finding suggests the importance of a detailed examination of the impact of inter-regional differences in home prices and expected rates of appreciation on asset allocation and post-retirement wealth.     

Limited participation and the closed-end fund discount

In this paper, we present economic forces that affect the closed-end fund share price using a simple two-period model with limited participation. We characterize three economic forces: management fee, principal-agent problem effect and diversification benefit effect. The role of the management fee is consistent with recent studies by Ross [Ross S., 2002. Neoclassical finance, alternative finance and the closed end fund puzzle. European Financial Management 8, 129–137, Ross, S., 2002. A neoclassical look at behavioral finance: closed end funds. The Princeton lectures in finance III] and findings of various empirical studies [e.g., Kumar, R., Noronha, G.M., 1992. A re-examination of the relationship between closed-end fund discounts and expenses. Journal of Financial Research 15(2) Summer, 139–147; Russel, P.S., 2005. Closed-end fund pricing: The puzzle, the explanations, and some new evidence, Journal of Business and Economic Studies 11(1), 34–49; Gemmill, G., Thomas, D.C., 2002. Noise trading, costly arbitrage, and asset prices: Evidence from closed end funds. Journal of Finance 57(6), 2571–2594]. The model’s principal-agent problem effect is consistent with empirical findings by Brickley et al. [Brickley, James, Steven Manaster, Schallheim, James, 1991. The tax-timing option and the discounts on closed-end investment companies. Journal of Business 64, 287–312] of positive relation between the fund discount and the average variance of the constituent assets in the fund portfolio. In addition, it provides a theoretical framework for empirical studies, which examine the role of agency costs [Barclay, Michael J., Clifford G. Holderness, Jeffrey Pontiff, 1993. Private benefits from block ownership and discounts on closed-end funds. Journal of Financial Economics 33, 263–291] and compensation contracts [Coles, J., Suay, J., Woodbury, D., 2000. Fund advisor compensation in closed-end funds. Journal of Finance 55 (3), 1385–1414; Deli, Daniel N., 2002. Mutual fund advisory contracts: An empirical Investigation. Journal of Finance 57(1), 109–133] on the behavior of fund managers and fund discounts. The model’s diversification benefit effect supports the result in [Bonser-Neal C., Brauer,G., Neal, R.., Wheatley, S., 1990. International investment restrictions and closed-end country fund prices. Journal of Finance 45, 523–547] that announcement of financial market liberalization is associated with a decrease in the fund premium. It also supports the findings of [Kumar, R., Noronha, G.M., 1992. A re-examination of the relationship between closed-end fund discounts and expenses. Journal of Financial Research 15(2) Summer, 139–147; Chay, J.B., Trzcinka, Charles A., 1999. Managerial performance and the cross-sectional pricing of closed-end funds. Journal of Financial Economics 52, 379–408] of a positive relation between current premium and the risk-adjusted return over the following year.     

Wird der vom Regierungsentwurf eines VVG geplante Direktanspruch des Geschädigten gegen den Pflichthaftpflichtversicherer ein stumpfes Schwert? Zur Notwendigkeit eines Informationsanspruchs des Geschädigten in der neuen Pflichthaftpflichtversicherung

The amendment of the German Act on Insurance Contracts comprises a number of substantial modifications regarding liability insurance. The most important modification is the introduction of a direct claim against the insurer with regard to all compulsory insurances. Such a direct claim is up to now only known from the motor vehicle liability insurance. Yet, a direct claim will be advantageous for the aggrieved claimant only if he manages to identify the proper insurer. As a result of the structural differences to the motor vehicle liability insurance the act of identifying the insurer is almost utterly impossible for the claimant without any help by the insured. Thus the claimant must also be given a claim against the insured to be furnished with all necessary information regarding the insurer. This right originates from sec. 242 of the German Civil Code.     

A learning methodology using Matlab/Simulink for undergraduate electrical engineering courses attending to learner satisfaction outcomes

Learner-centred approaches follow the prevailing tendency in modern University reforms which are primarily concerned about “how people learn”. The methodologies can be learner-centred in the sense of placing the student as the main actor of the teaching–learning process by increasing his interactivity and participation, but also considering what is relevant for the student by measuring the learner satisfaction. In order to promote both aspects, this paper proposes a synchronous software-based active methodology that makes use of the simulations to show a virtual scenario to the students and challenge them to predict and discuss the evolution of the scenario. The proposed methodology improves the visual interface, promotes discussion both among students and with the teacher in a brainstorming stage and shows real-world examples. This software-based methodology has been implemented into an Electric Machinery course at the University of Seville (Spain), and the evaluation has been carried out considering both the affective and cognitive domains. Principal components analysis proves to be useful to highlight the dimensions with a higher influence on learner satisfaction and the affective and cognitive results confirm the successful implementation of the proposal.     

Price-Matching Guarantees and Equilibrium Selection in a Homogenous Product Market: An Experimental Study

Price-matching guarantees have been alleged to sustain collusive prices in a homogenous product market. Theories in this literature also suggest that there exist multiple equilibria (i.e., a set of price equilibria between the competitive and the monopoly price) when all sellers adopt these guarantees in such a market. Theoretical prediction in this case fails to pin down the actual behavior of players a priori. This paper illustrates the essential role of controlled experiment in testing the collusive theory of price-matching guarantees and thereby shedding light on the embedded equilibrium selection problem. In particular, this paper studies two highly stylized market models, obtains testable predictions, and lays out the design of the controlled experiment. Results indicate that these guarantees facilitate collusion among sellers and thus solve the equilibrium selection problem considerably. I am grateful to Jim Cox, Martin Dufwenberg, Haimanti Bhattacharya, and the editor of this journal and the two referees for their suggestions. I thank seminar participants at the University of Arizona and North American Economic Science Association meeting at Tucson, 2003 for their helpful comments. A research grant from ESL, University of Arizona, for this project is gratefully acknowledged. I am solely responsible for any remaining errors and omissions.     

Programming for the Internet and Experiential Learning: a New Approach Incorporating a Constructed World

This paper reports on a novel approach taken by the author to the teaching of an Internet programming course targeted at final year diploma and second year degree students. The uniqueness of engineers and their identity is discussed, as is the self-constructed world and ways of knowing in which humankind operates. The novel approach to teaching a software-coding course, and this course’s underlying philosophies of learning, the approach taken in class-contact time, and the methods of interaction with the students are presented, along with the conventional structure, quantitative measures, outline, and assessment of the course. The effects and observations of approaches employed are discussed, and the quantitative outputs achieved are presented alongside the unquantifiable impressions, comments and positive feedback.     

An Analysis of the Out-of-Market Gap for DVDs in the U.S.

We examine the out-of-market gap – the time between the end of a film’s theatrical run and its release on DVD – for a sample of U.S. films during 1988-2005. The average gap declined from 58.14 days in 1998 to 27.93 days in 2005; by 2005, 39% of the films were released on DVD prior to leaving the theaters. Probit and hazard models are estimated to explore the factors that influence a distributor’s decision to release a film on DVD before it exits the theaters, and the timing of the release for films that appear on DVD after they leave the theaters.      

Measuring the Extent of Structural Remedy in Section 7 Settlements: Was the US DOJ Successful in the 1990s?

This paper suggests an innovative measure of structural relief obtained in a typical Section 7 settlement. The fraction of competitive overlap subject to divestiture as a condition of the settlement is modeled as a function of merger-specific efficiencies, the proportion of the deal held “hostage” to antitrust review, the merger’s anticompetitive potential, and other factors. The model is applied to data on 86 recent Justice Department cases covering the period 1990–2003 and to the subsample of 1990s cases. All data are collected from publicly available documents only. The government is found to secure larger divestitures when the cost to the acquirer of delaying the settlement is high. The resulting estimates are used to predict several out-of-sample observations. I would like to thank the General Editor and two anonymous referees for many helpful suggestions on earlier drafts of this paper. The remaining errors are mine.     

A panel data analysis of code-sharing,antitrust immunity,and open skies treaties in international aviation markets

This paper estimates the effects of code-sharing, antitrust immunity, and Open Skies treaties on prices, output, and capacity using an eleven-year panel of U.S.-Europe data. Code-sharing and immunized alliances are found to have significantly lower prices than does traditional interline (multi-carrier) service, but the effects are smaller in magnitude than those found in previous results that rely on cross-sectional data. Statistical tests that prices for immunized alliance service are equal to online (single carrier) service often cannot be rejected, providing additional evidence that immunity grants allow immunized carriers to internalize a double marginalization problem. Estimated output effects, consistent with the price effects, show that alliances are associated with large increases in passenger volumes. Lastly, estimates suggest that capacity expansions associated with “Open Skies” treaties are due entirely to expansion by immunized carriers on routes between their hubs. I would like to thank the editor and an anonymous referee for their helpful comments. The views expressed in this paper do not reflect those of the US Department of Justice. All errors are my own