Dividends in the theory of derivative securities pricing

This paper develops the fundamental aspects of the theory of martingale pricing of derivative securites in a setting where the cumulative gains processes are Itô processes while the cumulative dividend processes of both the underliers and the derivative securities are general enough to cover all cases encountered in practical applications. A key ingredient is a general formula for how to change the unit of account of a cumulative dividend process. The formula is inconsistent with parts of the earlier literature. It obeys a unit-invariance rule for trading strategies, satisfies a consistency property when the unit is changed twice in a row, gives the correct results in well-known and uncontroversial special cases, and fits perfectly into a generalization of the martingale valuation theory. Using that generalized theory, we show that the value of a dividend process equals the value of a claim to the nominal amount of dividends yet to be accumulated plus the value of a flow of interest on the cumulative dividends at each point in time.     

Squandering European Labour: Social Safety Nets in Times of Economic Turbulence

This paper reviews the argument that high long‐term unemployment in Europe is caused by generous social safety nets in times of economic turbulence. We report on the empirical evidence of a more turbulent economic environment and present the theoretical arguments that establish a link between turbulence and high unemployment. We conclude that a cure to the European unemployment problem must entail a reform of the unemployment insurance system so that benefits decline over the unemployment spell. If the social consensus in Europe makes it difficult to implement declining benefits, we suggest that a complementary way of providing incentives for the unemployed would be to reduce their leisure by imposing work requirements.     

Grocery retail loyalty program effects: self-selection or purchase behavior change?

In the retail sector, consumers typically patronize multiple outlets for a variety of products, which raises the important issue of how outlets can gain a greater share of consumer expenditures. One such way is to increase repeat purchases through loyalty programs. This article examines the impact of loyalty programs, which target existing customers, on repurchase behavior in grocery stores. It finds that heavier, more frequent customers of a store enroll in the loyalty program earlier; that buying behavior changes only slightly after buyers join the program; and that small changes in loyalty appear to erode 6–9 months after buyers join.     

Capital structure choice and company taxation: A meta-study

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 48 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham, 1996) avoid a downward bias in estimates for the debt response to tax. Moreover, econometric specifications and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of about 0.27.     

A theory of self-fulfilling political expectations

In their pursuit of being re-elected, politicians might not choose high-quality policies but just conform to popular wisdom. The larger are the office spoils, and the more precise is an incumbent's knowledge of voter opinion, the more likely that she will resort to such populism. My main result is that the public's trust or distrust in politicians' behavior may be self-fulfilling. When voters assess the quality of an incumbent politician, they will compare her policy choices with their own prior opinion. If voters think that the incumbent was just trying to conform, a failure to do so will be even more damaging for the incumbent's election chances. However, this only increases the incumbent's incentives to conform, which indeed confirm voters' skepticism. Loosely put, a skeptic voter attitude tends to generate conformist politicians, while a trusting attitude tends to generate confident ones.     

The market power of OPEC 1973–2001

We apply a multi-equation dynamic econometric model on monthly data to test if the behaviour of OPEC as a whole or different sub-groups of the cartel is consistent with the characteristics of dominant producers on the world crude oil market in the period 1973–2001. Our results indicate that the producers outside OPEC can be described as competitive producers, taking the oil price as given and maximizing profits. The OPEC members do not fit the behaviour of price-taking producers. Our findings of low residual demand price elasticities for OPEC underpin the potential market power of the producer group, and are in line with the results in some recent energy studies. On the other hand, our findings indicate that neither OPEC nor different sub-groups of the cartel can be characterized as a dominant producer in the period 1973–1994. However, we find that the characteristics of a dominant producer to some extent fit OPEC-Core as from 1994. Thus, although OPEC clearly has affected the market price, the producer group has not behaved as a pure profit-maximizing dominant producer.