Choosing project risk management techniques. A theoretical framework

The pressure for increasing quality while reducing time and costs places particular emphasis on managing risk in projects. To this end, several models and techniques have been developed in literature and applied in practice, so that there is a strong need for clarifying when and how each of them should be used. At the same time, knowledge about risk management is becoming a matter of paramount importance to effectively deal with the complexity of projects. However, communication and knowledge creation are not easy tasks, especially when dealing with uncertainty, because decision-making is often fragmented and a comprehensive perspective on the goals, opportunities and threats of a project is missing. With the purpose of providing guidelines for the selection of risk techniques taking into account the most relevant aspects characterising the managerial and operational scenario of a project, a theoretical framework to classify these techniques is proposed. Based on a literature review of the criteria to categorise risk techniques, three dimensions are defined: the phase of the risk management process, the phase of the project life cycle and the corporate maturity towards risk. The taxonomy is then applied to a wide selection of risk techniques according to their documented applications. This work helps to integrate the risk management and the knowledge management processes. Future research efforts will be directed towards refining the framework and testing it in multiple industries.     

Investment decisions,net present value and bounded rationality

The Net Present Value maximizing model has a respectable ancestry and is considered by most scholars to be a theoretically sound decision model. In real-life applications, decision makers use the NPV rule, but apply a subjectively determined hurdle rate, as opposed to the ‘correct’ opportunity cost of capital. According to a heuristics-and-biases-program approach, this implies that the hurdle-rate rule is a biased heuristic. This work shows that the hurdle-rate rule may be interpreted as a fruitful strategy of bounded rationality, where several domain-specific and project-specific elements are integrated and condensed into an aspiration level. The paper also addresses the issue of a productive cooperation between bounded and unbounded rationality.     

Expected Shortfall: A Natural Coherent Alternative to Value at Risk

We discuss the coherence properties of expected shortfall (ES) as a financial risk measure. This statistic arises in a natural way from the estimation of the 'average of the 100% worst losses' in a sample of returns to a portfolio. Here p is some fixed confidence level. We also compare several alternative representations of ES which turn out to be more appropriate for certain purposes
(J.E.L.: G20, C13, C14).     

Strategic trade policy: a review of the theoretical debate

This paper reviews the recent debate on strategic trade policies, whose main conclusion is that while the real world may be far from the condition of perfect competition considered by standard theory, free trade remains the best ruleofthumb policies. In the second part of the paper several issues are reviewed which suggest that the debate is far from complete. Two aspects, in particular, require closer scrutiny: (i) the implications of multiple equilibria and pathdependency phenomena in a world in which innovation activities have crucial effects on trade performance; (ii) the problems of collective action associated with the constitution of a free trade régime.     

Does Accounting Conservatism Discipline Qualitative Disclosure? Evidence From Tone Management in the MD&A*

We investigate whether accounting conservatism, which has been found to be effective in constraining management opportunism in other settings, constrains upward tone management (UTM) in the Management's Discussion and Analysis (MD&A) portion of the 10-K filing. We hypothesize that conservatism makes it harder for managers to opportunistically downplay bad news and magnify good news when discussing current performance. Consistent with this hypothesis, we find that UTM is negatively associated with several accounting conservatism proxies. Additionally, we hypothesize and find that this association is stronger for firms where managers have higher incentives to manipulate tone. In supplemental analyses, we find evidence to suggest that our results are not due to an endogenous relationship between conservatism and UTM. We also find that conservatism neither encourages downward tone management (DTM) nor constrains managers from conveying real information about future good news. Together, our results suggest that accounting conservatism improves disclosure narratives.     

Estimating asymptotic standard errors and inconsistencies of impact multipliers in nonlinear econometric models

This paper presents and discusses an analytic simulation procedure which can be used to estimate the asymptotic standard errors of impact multipliers in a structural, nonlinear econometric model. A stochastic simulation approach is used to obtain an approximate estimate of the inconsistencies of multipliers when computed from simulated results. A numerical example for the nonlinear Klein-Goldberger model is provided.     

A bayesian estimation of reliability based on the extended gamma process as prior over the cumulative hazard function

The Dykstra and Laud's extended gamma process is assumed as prior process over the cumulative hazard function, (t), for a bayesian nonparametric estimation of the reliability functionR(t) from both exact and censored data. Particular cases and interpretative aspects are discussed also in the light of an illustrative example.This research was supported by Ministero della Pubblica Istruzione, grant 40% (Gruppo di ricerca «Modelli probabilistici»).     

Does market competitiveness significantly affect public intervention in agricultural insurance: the case in Italy

Analyses of agricultural insurance failures often assume the existence of competitive supply, tracing the reasons for high insurance cost and limited farmer participation to informational problems, and suggesting the need for premium subsidization in order to increase participation. However, in countries such as Spain and Italy, where agricultural insurance is most highly subsidized, it could be that supply is not fully competitive. In this article, we explore the incidence of public subsidies to agricultural insurance premia when supply is noncompetitive. Through the use of a simple empirical model of an insurance market, it is shown that, while in the case of a competitive supply, subsidies to insurance would benefit farmers, a monopolistic supply would capture most of the subsidy, thus eliminating the potential incentive towards wider participation by farmers. The model is applied to a panel of Italian farms for different levels of risk aversion to demonstrate the limited effect that a subsidy to a hypothetical all risk yield insurance would have on farmer participation in the case of monopolistic supply.