Adaptive credit granting policies

We analyze here the optimal interest rate determination of a bank that learns about the repayment behavior of its customers from their past behavior. Optimal dynamic methods are first suggested for determining the interest rate for a bank that learns about the probability of default of its borrowers. It is shown that such a bank determines lower than or equal interest rates than a bank that does not adapt its probability of default according to its past experience. Similar results also obtain when the bank learns about the probabilities that its borrowers belong to each of K (K larger than 2) quality groups.     

Aggregation of multiple prior opinions

Experts are asked to provide their advice in a situation of uncertainty. They adopt the decision maker?s utility function, but each has a potentially different set of prior probabilities, and so does the decision maker. The decision maker and the experts maximize the minimal expected utility with respect to their sets of priors. We show that a natural Pareto condition is equivalent to the existence of a set Λ of probability vectors over the experts, interpreted as possible allocations of weights to the experts, such that (i) the decision maker?s set of priors is precisely all the weighted-averages of priors, where an expert?s prior is taken from her set and the weight vector is taken from Λ; (ii) the decision maker?s valuation of an act is the minimal weighted valuation, over all weight vectors in Λ, of the experts? valuations.     

Bargaining In International Trade Under Exchange-Rate Uncertainty

This paper examines the implications of various contracting alternatives between exporting and importing firms on the volume of international transactions. the contracts that we study are determined in a bargaining situation under exchange-rate uncertainty. First we look at contracts which entail an ex ante commitment on price and quantity of exports without the possibility of renegotiation ex post. Second, spot contracts, i.e., the price and the quantity of exports are negotiated after the exchange the rate is known. A third type of contracts consists of ex ante commitment and ex post renegotiation.     

Determinants of Israeli Judicial Discretion in Issuing Injunctions against Strikers

The study examines all cases (1990–7) in Israel in which employers petitioned the labour court to issue an injunction against striking workers, and identifies how judges use their discretion in deciding the petition. The findings indicate that, judicial rhetoric to the contrary, the labour court limits its considerations almost solely to the parties' formal compliance with the legal rule. The implications of these findings for the relationship of the legal and industrial relations systems are discussed, particularly with reference to the dual task of labour law: to govern the industrial relations system, and to facilitate its autonomy.     

Bonding and Bridging Associational Social Capital and the Financial Performance of Local Authorities in Israel

Abstract

This study explores whether bridging and bonding social capital differ in their impacts on government performance at the local level and the extent to which these impacts vary between localities exhibiting differing socioeconomic resources. The study is based on an analysis of 256 local authorities in Israel. The findings show that bridging and bonding social capital do differ in their respective effects on government performance and that the nature of the relationship of each type of capital with government performance varies by the community's socioeconomic profile. Poor communities with high densities of bridging social capital were characterized by lower deficits as a percentage of total municipal budgets, more accurate expenditure forecasts and greater spending on services per capita.     

The demand for regulation of financial disclosures: The case of the insurance industry

Policyholders and other claimants in insurance companies are interested in “solidity,” i.e., the ability of insurers to meet their claims obligations in both the short run and the long run. Insurance regulators exist in order to represent the interests of consumers. Great emphasis is placed by the regulators of the market on the mandatory and uniform disclosure of relevant financial and operating aspects of insurers. This paper employs simple gametheoretic techniques to address two aspects of the general issue of the desirability of establishing a regulator to assess the solidity of insurers. First, why would uniform information about insurers be desirable? Given that uniformity is desirable, it could be achieved by voluntary agreement of insurers or via regulation. The second issue is how that uniformity is to be achieved; that is, what is the value of a regulator in achieving uniformity? Insurance provides an interesting instance of the general problem. A key determinant is the structure of costs and benefits of securing voluntary agreements across firms.     

INFORMATION ASYMMETRY AND THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS: FURTHER EMPIRICAL EVIDENCE

Information Asymmetry is usually assumed in most explanations of the underpricing of initial public offerings (IPOs). In Baron's (1982) model, the underwriter is better informed than the issuing firm concerning the demand for the IPO. The greater uncertainty associated with the demand will lead to a greater underpricing due to the enhanced value of the underwriter's expertise. In the case that the issuer is also an informed investment banker, Baron's hypothesis predicts no underpricing. Our results based on Canadian investment bankers do not support Baron's hypothesis.     

ACTIVITY SELECTION UNDER CONDITIONS OF RISK AND INSTABILITY: CONSIDERATION OF FREQUENCY

The terms ‘instability’ and ‘risk’ are sometimes used interchangeably in the literature. Some make the argument that instability will shift the firm's supply curve to the left if the producer is risk-averse Risk, however, is associated with the unpredictable residuals, or deviations from the producer's revenue expectations. The inherent instability of these returns does not necessarily imply an added exposure to risk as long as the producer forms his expectations based on the entire information set available to him when constructing the mathematical model representing his judgement on the variables' future behaviour. The producer may also respond to the relative instability of the returns generated by an enterprise even if risk, as defined above, is perceived to be non-existent. The existence of prediction errors exposes the producer to conditions of choice under risk while the predictable component exposes the producer to conditions of choice under instability. His preferences with regard to risk and instability may be quite different. The purpose of this paper is to extend the traditional planning model under risk to account for the producer's attitude toward the predicted instability of returns over time, and to illustrate the effect that this attitude will have upon his production plans.     

EVIDENCE ON HOW COMPANIES CHOOSE BETWEEN DIVIDENDS AND OPEN-MARKET STOCK REPURCHASES

Dividends and open-market stock repurchases are by far the two most common mechanisms for distributing excess cash to shareholders. This article identifies and then tests three potentially important factors for the corporate choice between increasing cash dividends and initiating openmarket stock repurchases. More specifically, the authors argue that companies are more likely to distribute cash to investors through open-market repurchases than through dividend increases when (1) management believes its stock is undervalued, (2) management compensation packages include stock options, and (3) the company's stockholder base is dominated by institutional investors.
To test these three explanations, the authors use a matched-pair design in which each company announcing an open market repurchase program in a given year is matched with a comparable-size firm from the same industry that increased its cash dividends but did not initiate an open-market repurchase program. As predicted, the results suggest that equity undervaluation, management compensation, and the level of institutional holdings are all important contributors to corporate choices between dividend increases and open-market repurchases.