Appropriate contract durations in the German markets for on-line reserve capacity

This paper explores the economic implications of different contract durations in markets for on-line (primary and secondary) reserve capacity in Germany with the crucial feature of separate markets for spot energy and reserve capacity provision. The analysis is based on an equilibrium model developed by Just and Weber (Energy Econo 30:3198–3221, 2008) for reserve markets. It reveals the implicit trade-off for the bidders and implicit interdependencies between the reserve and the spot markets. Even if the markets are not explicitly coordinated, they are interrelated through the dispatch decisions of the power plant owners. The paper concludes that the current German reserve market design is inefficient and should be improved. The results clearly show that shorter periods (with resulting lower variations in overall electricity demand) lead to more efficient dispatch and market results. Not only prices in the reserve capacity markets are expected to be lower, but also spot market prices. As these benefits can be partially reaped by owners of large generation portfolios also under longer contract durations, it discriminates against smaller generation companies and can potentially deter market participation. Further, the paper takes a broader perspective and discusses security concerns against shorter contract durations. It is shown that the opportunity costs character of the reserve market implies sufficient incentives for supplying online reserve capacity. The concerns do not appear to be predominant and it should be possible to manage them appropriately.     

The impact of cash transfers on household welfare in Namibia

Namibia has a long history of providing a universal and non-contributory old age pension, child grants using means testing and quasi-conditionalities, and other cash transfers. Multivariate analysis presented in this paper confirms that these transfers play an important role in alleviating poverty, especially for the very poor. The poverty-reducing effects of the child grants are likely to increase further as access is being rapidly expanded. However, the impact in terms of reducing Namibia's extremely high inequality is limited. The targeting of the cash transfers towards the poorest groups takes place through two main channels. For the child grant, targeting occurs as a result of the orphan status eligibility criteria, as orphans are over-represented in lower-income households. For the universal social pension, it appears that some of the relatively less poor do not receive it even if they are eligible. Means testing of child grants appears ineffective, even without considering administrative costs.     

Hedging nontradable risks with transaction costs and price impact

A risk‐averse agent hedges her exposure to a nontradable risk factor U using a correlated traded asset S and accounts for the impact of her trades on both factors. The effect of the agent's trades on U is referred to as cross‐impact. By solving the agent's stochastic control problem, we obtain a closed‐form expression for the optimal strategy when the agent holds a linear position in U. When the exposure to the nontradable risk factor is nonlinear, we provide an approximation to the optimal strategy in closed‐form, and prove that the value function is correctly approximated by this strategy when cross‐impact and risk‐aversion are small. We further prove that when is nonlinear, the approximate optimal strategy can be written in terms of the optimal strategy for a linear exposure with the size of the position changing dynamically according to the exposure's “Delta” under a particular probability measure.     

Are Private Vices Public Finance Virtues? An Empirical Investigation

The article investigates the impact of widely accepted private vices (smoking and alcohol and gasoline consumption) on public finance. Introducing the concept of “vice-related deficit,” which aggregates the positive effects on public finance on the revenue side (cash inflows) and the negative effects on the expenditures side (cash outflows), the article looks upon cigarette, alcohol, and gasoline consumption as determinants of vice-related deficit for a number of 68 countries for year 2012. We found that smoking had a negative effect on vice-related budget balance, while alcohol and gasoline consumption had a positive effect. As control variables, we used life expectancy and size of the economy, both having been found with negative effects. The results prove robust to different sample adjustments. We also found that the negative effect of private vices on public finance is stronger for Christian countries than for non-Christian countries. Policy recommendations were made accordingly.     

Elimination of systemic risk in financial networks by means of a systemic risk transaction tax

Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function, and collapses. It has recently become possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (loans), liabilities and other obligations, such as derivatives. We demonstrate that it is possible to quantify the share of SR that individual liabilities within a financial network contribute to the overall SR. We use empirical data of nationwide interbank liabilities to show that the marginal contribution to overall SR of liabilities for a given size varies by a factor of a thousand. We propose a tax on individual transactions that is proportional to their marginal contribution to overall SR. If a transaction does not increase SR, it is tax-free. With an agent-based model (ABM) (CRISIS macro-financial model), we demonstrate that the proposed ‘Systemic Risk Tax’ (SRT) leads to a self-organized restructuring of financial networks that are practically free of SR. The SRT can be seen as an insurance for the public against costs arising from cascading failure. ABM predictions are shown to be in remarkable agreement with the empirical data and can be used to understand the relation of credit risk and SR.     

Temporary Agency Work and Firm Competitiveness: Evidence from German Manufacturing Firms

This paper addresses the relationship between the utilization of temporary agency workers by firms and their competitiveness measured by unit labor costs, using a rich, newly built, dataset of German manufacturing enterprises. We conduct the analysis by applying different panel data models while taking the inherent selection problem into account. Making use of dynamic panel data models allows us to control for firm‐specific fixed effects as well as for potential endogeneity of explanatory variables. The results indicate an inverse U‐shaped relationship between the extent that temporary agency workers are used and the competitiveness of firms.     

Adopting Design Thinking in Novice Multidisciplinary Teams: The Application and Limits of Design Methods and Reflexive Practices

Scholarly and practitioner literature have both described the potential benefits of using methods associated with a “design thinking” approach to develop new innovations. Most studies of the main design thinking methods—needfinding, brainstorming, and prototyping—are based either on analyses of experienced designers or examine each method in isolation. If design thinking is to be widely adopted, less‐experienced users will employ these methods together, but we know little about their effect when newly adopted. Drawing on perspectives that consider concept development as broadly consisting of a divergent concept generation phase followed by a convergent concept selection phase, we collected data on 14 cases of novice multidisciplinary product development teams using design methods across both phases. Our hybrid qualitative and quantitative analysis indicate both benefits and limits of formal design methods: First, formal design methods were helpful not only during concept generation, but also during concept selection. Second, while brainstorming was valuable when combined with other methods, increased numbers of brainstorming sessions actually corresponded to lower performance, except in the setting where new members may join a team. And third, increased team reflexivity—such as from debating ideas, processes, or changes to concepts—was associated with more successful outcomes during concept generation but less successful outcomes during concept selection. We develop propositions related to the contingent use of brainstorming and team reflexivity depending on team composition and phase of development. Implications from this study include that novice multidisciplinary teams are more likely to be successful in applying design thinking when they can be guided to combine methods, are aware of the limits of brainstorming, and can transition from more‐ to less‐reflexive practices.     

Uncertainty and the Great Recession

Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the United States? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10% of the drop in GDP at the height of the recession and up to 0.6 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.     

THE IMPACT OF OWNERSHIP AND CAPITAL STRUCTURE ON MANAGERIAL MOTIVATION AND STRATEGY IN MANAGEMENT BUY-OUTS: A CULTURAL ANALYSIS

This study examines, from a cultural perspective, owner-managers’and other stakeholders’interpretations of the partial fusion of ownership and control through high leverage in eight UK management buy-outs (MBOs). Owner-control and debt-control are interpreted as having positive effects on managerial motivation, organizational decision-making processes and implementation of cost reduction strategies and negative ones on fundamental changes in strategy and acquisition. These interpretations accord broadly with agency theory propositions but show that owner-managers place less emphasis on wealth incentive effects and more emphasis on the enabling and facilitating roles of collective ownership and the freedom it gives from inappropriate corporate control.