Analysing Perceived Downside Risk: the Component Value‐at‐Risk Framework

Multinational companies face increasing risks arising from external risk factors, e.g. exchange rates, interest rates and commodity prices, which they have learned to hedge using derivatives. However, despite increasing disclosure requirements, a firm's net risk profile may not be transparent to shareholders. We develop the ‘Component Value‐at‐Risk (VaR)’ framework for companies to identify the multi‐dimensional downside risk profile as perceived by shareholders. This framework allows for decomposing downside risk into components that are attributable to each of the underlying risk factors. The firm can compare this perceived VaR, including its composition and dynamics, to an internal VaR based on net exposures as it is known to the company. Any differences may lead to surprises at times of earnings announcements and thus constitute a litigation threat to the firm. It may reduce this information asymmetry through targeted communication efforts.     

Consumer value conflicts surrounding ethical food purchase decisions: a focus on animal welfare

Ethical attitudes in relation to meat purchases were studied among urban and rural consumers in Scotland. All subjects perceived at least some ethical issues in relation to animal production systems, in particular, systems keeping animals in close confinement. Welfare‐friendly production systems were viewed as adding value to a food, but this value was not necessarily realizable to producers if purchases occurred only when foods were on special offer. Statements made by individuals were often contradictory, revealing ambivalence, unresolved value conflicts and a general lack of involvement in the nature of meat production. A number of barriers to the establishment of stable attitudes and behaviours in relation to the ethical treatment of food animals were also identified. A key finding of the study is that individuals can hold two views on animal welfare. On the one hand, they may think as citizens influencing societal standards, and on the other, as consumers at the point of purchase. As citizens, they support the notion of animals being entitled to a good life; as meat consumers, they avoid the cognitive connection with the live animal. This paper explores both the citizen–consumer relationship and purchase strategies used by consumers to resolve value conflicts. Lessons for public and commercial policy are highlighted in the context of the Curry Report (2002) which advocates more effective market segmentation where markets are finely attuned to their customers, with the development of a number of assurance schemes discussed in the article.     

Statistical Decision Problems and Bayesian Nonparametric Methods

This paper considers parametric statistical decision problems conducted within a Bayesian nonparametric context. Our work was motivated by the realisation that typical parametric model selection procedures are essentially incoherent. We argue that one solution to this problem is to use a flexible enough model in the first place, a model that will not be checked no matter what data arrive. Ideally, one would use a nonparametric model to describe all the uncertainty about the density function generating the data. However, parametric models are the preferred choice for many statisticians, despite the incoherence involved in model checking, incoherence that is quite often ignored for pragmatic reasons. In this paper we show how coherent parametric inference can be carried out via decision theory and Bayesian nonparametrics. None of the ingredients discussed here are new, but our main point only becomes evident when one sees all priors—even parametric ones—as measures on sets of densities as opposed to measures on finite-dimensional parameter spaces.     

Slow adjustment to shocks or true hysteresis?

In Western Europe in the last two decades the unemployment rate has increased during cyclical downturns only to persist at or around the higher level in the following phase of economic recovery. One of the most notable exceptions to this pattern of unemployment persistence, often termed hysteresis, is the United States. The following article examines the empirical evidence and the possible theoretical explanations for this difference.     

Population,agriculture, and the environment in Africa

An overview is provided of the World Bank study about the interaction between rapid population growth, poor agricultural performance, and environmental degradation. The links between these 3 phenomena are identified as traditional methods of crop and livestock production, land tenure systems, women's responsibilities, and methods of forest use. When land was abundant and capital limited, pastoralism, shifting cultivation, and setting aside fallow land was possible. Mobility and allowances for natural regeneration of vegetation could not continue with rapid population growth. Permanent settlements developed but cultivation methods remained the same; the result was deterioration of soil fertility, low yields, and erosion of soil as occurred in Rwanda, Burkina Faso, and parts of Nigeria. Technological innovation has been slow and poor roads have interfered with a market oriented economy. Inappropriate pricing, exchange rates, and fiscal policies also prevent productivity gains. A heavy demand is placed on women's time. Demand for children is high and is stimulated by environmental degradation, food insecurity, land tenure systems, and cultural traditions. Child labor is needed. The demand for contraception is 30-50% in North Africa, 36-55% in Asia, and 40-60% in South America. Land ownership problems have arisen under community ownership and between herders and settlers. Solutions have ranged from land nationalization and arbitrary designation of individual ownership. Open access situations have developed and lent themselves to exploitation. Fuelwood needs have exacerbated the destruction of forests. Commercial logging accounted for 10-20% of the forest loss. New approaches are needed to link cross-sectionally population, the environment, an agriculture. Emphasis should be on resource conservation, family planning, and environmentally benign intensive farming. Agricultural production needs to grow at 4%/year, fertility lowered by 50% over 30 years, and deforestation slowed. Women's time constraints should b alleviated and productivity improved. Open access and state ownership should be stopped.