Inverse stochastic dominance,inequality measurement and Gini indices

We investigate the relationship between the third degree inverse stochastic dominance criterion introduced in Muliere and Scarsini (1989) and inequality dominance when Lorenz curves intersect. We propose a new definition of transfer sensitivity aimed at strengthening the Pigou-Dalton Principle of Transfers. Our definition is dual to that suggested by Shorrocks and Foster (1987). It involves a regressive transfer and a progressive transfer both from the same donor, leaving the Gini index unchanged. We prove that finite sequences of these transfers and/or progressive transfers characterize the third degree inverse stochastic dominance criterion. This criterion allows us to make unanimous inequality judgements even when Lorenz curves intersect. The Gini coefficient becomes relevant in these cases in order to conclusively rank the distributions.     

Option pricing when correlations are stochastic: an analytical framework

In this paper we develop a novel market model where asset variances–covariances evolve stochastically. In addition shocks on asset return dynamics are assumed to be linearly correlated with shocks driving the variance–covariance matrix. Analytical tractability is preserved since the model is linear-affine and the conditional characteristic function can be determined explicitly. Quite remarkably, the model provides prices for vanilla options consistent with observed smile and skew effects, while making it possible to detect and quantify the correlation risk in multiple-asset derivatives like basket options. In particular, it can reproduce and quantify the asymmetric conditional correlations observed on historical data for equity markets. As an illustrative example, we provide explicit pricing formulas for rainbow “Best-of” options.     

The Structural Determinants of External Vulnerability

This article examines empirically how domestic structural characteristicsrelated to openness and product- and factor-market flexibilityinfluence the impact of terms of trade shocks on aggregate output.Applying semistructural vector autoregressions to a panel of88 countries with annual observations for the period 1974–2000,the analysis isolates and standardizes the shocks, estimatestheir impact on GDP, and examines how this impact depends onthe domestic conditions outlined above. The article finds thatgreater trade openness magnifies the output impact of termsof trade shocks, particularly negative ones, while financialopenness reduces their impact. Flexibility of labor and firm-entryare beneficial, with labor flexibility dampening the impactof negative shocks and ease of firm-entry magnifying positiveones only. Domestic financial depth has a more nuanced rolein stabilizing the economy. Analysis of interactions acrossstructural determinants reveals complementarities among macroeconomicconditions (trade and financial openness and depth) and, separately,among microeconomic conditions (flexibility of labor marketsand ease of firm-entry). Variables across these groups tendto behave as substitutes for each other.     

The contribution of Design Thinking to the R of R&D in technological innovation

Literature on Design Thinking has mainly focused on whether its key principles enhance performance in the development phase (the D of R&D) of the technological innovation process. However, it has dedicated scant attention to the earlier research phase (the R of R&D). This aspect is surprising, given that many innovations fail as a result of early research actions and decisions. This article examines how it is possible and desirable to apply Design Thinking to the research phase of the technological innovation process. How can Design Thinking support innovation, even when advanced breakthrough technologies are at stake, the market is distant, and product applications and specific user needs have not been identified yet? To respond to this question, we investigate the research work of the design center of a global electronics company that uses a design approach called Proxemics to envision future interactions between bodies (people), objects (technology), and spaces (context). Although Proxemics is consistent with and implements the human centeredness and experimentation principles of Design Thinking, results of this study show that its logics and tools are different from those used in Design Thinking in the D of R&D due to the more abstract nature of the tasks in the R of R&D.     

International house prices and macroeconomic fluctuations

The paper investigates linkages between general macroeconomic conditions and the housing market for the G-7 area. Among the key results of the paper, we find that the US are an important source of global fluctuations not only for real activity, nominal variables and stock prices, but also for real housing prices. Secondly, albeit distinct driving forces for real activity and financial factors can be pointed out, sizeable global interactions are also evident. In particular, global supply-side shocks are an important determinant of G-7 house prices fluctuations. The linkage between real housing prices and macroeconomic developments is however bidirectional, with investment showing in general a stronger reaction than consumption and output to housing price shocks. Implications for the real effects of the sub-prime crisis are also explored.     

Reducing microbiological risk in the kitchen: piloting consensus conference methodology as a communication strategy

Foodborne diseases are a major public health problem. Improper storage and food preparation at home can favour microbial contamination of food. Consumers play a crucial role in controlling this risk. To reduce exposure to risk, it is essential to provide information and guidance on contamination management in the home. The aim of this study was to pilot a method of participatory communication addressed to young consumers and designed to reduce the microbiological risks associated with the consumption of meat products. The methodology was based on application of the ‘consensus conference’ model on food safety issues. The consensus conference served not only as a participatory strategy to share knowledge but also as a method for sharing in the development of risk communication content (guidelines) to be disseminated to the reference target. Young people’s perceptions, habits and behaviour in the kitchen were explored in the preparatory stage of the consensus conference by means of a survey and a focus group. Three consensus conferences were held in Italy attended by 60 university students (19 and 22 years old). Application of the consensus conference model as a communication process proved to be an effective opportunity to engage young consumers and experts on the topic of food safety. This discursive participation approach was broadly welcomed by the participants. Specifically, direct interaction with the experts was considered to be an important part of the communication process. The findings of the project were used to select concise communication content based on the perceptions, behaviours and fact-finding needs of the selected target. Publication of this content in the form of guidelines on microbiological risk management at home has enabled the results of the consensus conferences to be extended and the targeted communication material on risk reduction in daily food handling practices to be disseminated.     

Mesure de l'efficacitééconomique des modes de faire valoir au Brésil

L'objet de cet article est de tester économétriquement l'efficacité des différents modes de faire valoir rencontrés au Brésil. À cettefin, nous utilisons une mesure de l'eficacitééconomique des exploitations dérivée d'un modèle de frontière de profit stochastique dans lequel la variable d'efficacité dépend du mode de faire valoir et de l'investissement dans la conservation et l'amélioration de la terre. Les résultats montrent que le métayage est un contrat inefficace dont l'existence peut s'expliquer par une gestion plus soucieuse de la conservation et de l'amélioration du capital d'exploitation que dans le cadre du fermage. Les résultats permettent aussi d'opposer les exploitations des différentes régions du Brésil en fonction de leur degré d'efficacité et de la viabilitéà long terme des systkmes productifs. L'étude porte sur un écchantillon de données de panel, agrégées au niveau des États brésiliens. The purpose of this paper is to test econometrically the efficiency of different tendril patterns in Brazil. We use a measure of farm economic efficiency derived from a stochastic profit function in which the efficiency variable depends on the tenurial contract and on the investment in conservation and land improvement. The results show that sharecropping is an inefficient contract the existence of which may be explained by a type of management that is more concerned with conservation and enhancing of the farming capital than within the framework of a fied-rent contract. The results also allow us to compare the farms of different regions in Brazil in terms of their efficiency level and the long-term viability of their systems of production. The study bears on n sample of panel data aggregated at the level of Brazilian states.     

EVALUATING UNCERTAINTY IN RISK-BASED INTERDEPENDENCY MODELING WITH INTERVAL ARITHMETIC

Several sources of uncertainty exist in the effort to quantify the efficacy of preparedness decision-making in interdependent systems. For the Inoperability Input–Output Model (IIM), a risk-based extension of the traditional Leontief model, which describes the propagation of inoperability throughout interconnected economic sectors, uncertainty is manifested in parameters describing the strength of interdependencies among sectors and in parameters describing the adverse impacts of a disruptive event, among others. As the model is used to evaluate preparedness options to reduce the impact of these disruptive events, such uncertainty can impact decision-making efforts. This paper introduces interval arithmetic as an approach for dealing with uncertainties in the IIM when probability distributions are not known and only variable bounds are available. Illustrative examples highlight the use of the approach as well as a means to improve the evaluation and comparison of risk management strategies in interdependent systems when only intervals are known.