External Imbalances and Fiscal Fragility in the Euro Area

This paper presents two views of the European sovereign debt crisis. The first is that countries in the South of the Eurozone were fiscally irresponsible and failed to implement pro-competitive supply side policies. The second view holds that the crisis reflects a deep divide between the external surpluses of the North and external deficits of the South. Basic stylized facts cast doubt on the explanation based on the first thesis alone. A relatively simple model shows how poor fundamentals can create a debt problem independently of fiscal responsibility. The empirical analysis of the determinants of government bond yield spreads relative to Germany suggests that both views in fact provide useful insights into the roots of the current sovereign crisis. However, differences in growth and competitiveness and capital flows between North and South have assumed a much more dominant role since the onset of the global crisis.     

What Plato Knew About Enron

This paper applies Plato’s cave allegory to Enron’s success and downfall. Plato’s famous tale of cave dwellers illustrates the different levels of truth and understanding. These levels include images, the sources of images, and the ultimate reality behind both. The paper first describes these levels of perception as they apply to Plato’s cave dwellers and then provides a brief history of the rise of Enron. Then we apply Plato’s levels of understanding to Enron, showing how the company created its image and presented information to support that image, and how the public eventually emerged from the cave to realize the truth about Enron’s actual accounting practices and financial state, which led to the corporation’s downfall. We find Plato’s allegory both useful in analyzing the relationship between Enron and the public and instructive about the power and moral responsibility of Enron’s executives.     

Allocation of public funds to R&;D: a portfolio choice-styled decision model and a biotechnology case study

A decision problem—allocating public research and development (R&D) funding—is faced by a planner who has ambiguous knowledge of welfare effects of the various research areas. We model this as a reverse portfolio choice problem faced by a Bayesian decision-maker. Two elements of the planner’s inferential system are developed: a conditional distribution of welfare ‘returns’ on an allocation, given stated preferences of citizens for the different areas, and a minimum risk criterion for re-allocating these funds, given the performance of a status quo level of funding. A case study of Canadian public research funds expended on various applications of agricultural biotechnology is provided. The decision-making methodology can accommodate a variety of collective expenditure and resource allocation problems.     

Deferred taxation under default risk

In this article, we have used a continuous EBIT-based model to study deferred tax liabilities under default risk. Quite surprisingly, default risk has been disregarded in research on deferred taxation. In order to underline its importance, we first calculated the probability of default, over a given time period, together with the contingent value of tax deferral. We then applied our theoretical model to a sample of 27,749 OECD companies. We showed that, when accounting for both firms with a negative EBIT and firms with a probability of default higher than 50% (over a 10-year period), a relevant percentage of firms were close enough to default. Hence, the expected present value of deferred taxes is much lower than that obtained in a deterministic context. From the Government’s point of view, deferred tax liabilities are a risk-free loan. Since only a portion are subsequently repaid, the Government should account for future losses due to companies’ default. So far, these estimates have been missing, although techniques do exist and are quite practical.     

Incorporating risk in a positive mathematical programming framework: a dual approach

In this study we develop a new methodological proposal to incorporate risk into a farm‐level positive mathematical programming (PMP) model. We estimate simultaneously the farm nonlinear cost function and a farmer‐specific coefficient of absolute risk aversion as well as the resource shadow prices. The model is applied to a sample of representative arable crop farms from the Emilia‐Romagna region in Italy. The estimation results confirm the calibration ability of the model and reveal the values of the individual risk aversion coefficients. We use the model to simulate different scenarios of crop price volatility, in order to explore the potential risk management role of an agri‐environmental scheme.     

Using FTE and RVU performance measures to assess financial viability of academic nurse-managed centers

Financial performance measures are essential to improve the fiscal management of academic nurse-managed centers (ANMCs). Measures are compared among six ANMCs in a consortium and against an external, self-sustainable, profitable ANMC and national data for family practice physicians. Performance measures help identify a center's strengths and weaknesses facilitating the development of strategies aimed at a variety of targets (business practices related to revenue and costs) to improve financial viability. Using a variety of financial performance measures to inform decision making will aid ANMCs in keeping their doors open for business.