Homeownership as a Constraint on Asset Allocation

Personal preferences and financial incentives make homeownership desirable for most families. Once a family purchases a home they find it impractical (costly) to frequently change their ownership of residential real estate. Thus, by deciding how much home to buy, a family constrains their ability to adjust their asset allocation between residential real estate and other assets. To analyze the impact of this constraint on consumption, welfare, and post-retirement wealth, we first investigate an individual’s optimal asset allocation decisions when they are subject to a “homeownership constraint.” Next, we perform a “thought experiment” where we assume the existence of a market where a homeowner can sell, without cost, a fractional interest in their home. Now the housing choice decision does not constrain the individual’s asset allocations. By comparing these two cases, we estimate the differences in post-retirement wealth and the welfare gains potentially realizable if asset allocations were not subject to a homeownership constraint. For realistic parameter values, we find that the homeowner would require a substantial increase in total net worth to achieve the same level of utility as would be achievable if the choice of a home could be separated from the asset allocation decision. The robustness of the analysis is evaluated with respect to the model’s parameters and initial state variables. We find that changes in the values of the constraint (i.e., the value of the home) and the expected real rate of home value appreciation are the only state variables or parameter that is associated with a large change in asset allocation and/or the burden imposed by the housing constraint. This finding suggests the importance of a detailed examination of the impact of inter-regional differences in home prices and expected rates of appreciation on asset allocation and post-retirement wealth.     

The Influence of Household Formation on Homeownership Rates Across Time and Race

Homeownership rates equal the number of households that own homes divided by the number of households in the population. Differences in the propensity to form a household, therefore, may contribute to changes in homeownership rates over time in addition to long-standing racial gaps in homeownership. We examine these issues on an age-specific basis using data from the 1970 to 2000 public use microsamples of the decennial census. Results indicate that lower headship rates tend to reduce homeownership rates. This pattern is most notable for individuals in their early and mid 20s. For these individuals, declining headship rates between 1970 and 2000 reduced homeownership rates by three to five percentage points. Moreover, 2000 African American headship rates narrow white–black gaps in homeownership by roughly three percentage points, whereas 2000 Hispanic headship rates widen white–Hispanic gaps in homeownership by two to three percentage points. Thus, controlling for differences in headship behavior, white–black homeownership gaps are somewhat more severe than previously recognized, but the reverse is true for white–Hispanic gaps.     

Knowledge Disclosure and Transmission in Buyer–Supplier Relationships

A buyer’s technical knowledge may increase the efficiency of its supplier. Suppliers, however, frequently maintain relationships with additional buyers. Knowledge disclosure then bears the risk of benefiting one’s own rival due to opportunistic knowledge transmission through the common supplier. We show that in one-shot relationships no knowledge disclosure takes place because the supplier has an incentive to transmit and, anticipating that, buyers refuse to disclose any of their knowledge. In repeated relationships knowledge disclosure is stabilized by larger technological proximity between buyers and suppliers and destabilized by the absolute value of the knowledge.      

Measuring the Extent of Structural Remedy in Section 7 Settlements: Was the US DOJ Successful in the 1990s?

This paper suggests an innovative measure of structural relief obtained in a typical Section 7 settlement. The fraction of competitive overlap subject to divestiture as a condition of the settlement is modeled as a function of merger-specific efficiencies, the proportion of the deal held “hostage” to antitrust review, the merger’s anticompetitive potential, and other factors. The model is applied to data on 86 recent Justice Department cases covering the period 1990–2003 and to the subsample of 1990s cases. All data are collected from publicly available documents only. The government is found to secure larger divestitures when the cost to the acquirer of delaying the settlement is high. The resulting estimates are used to predict several out-of-sample observations. I would like to thank the General Editor and two anonymous referees for many helpful suggestions on earlier drafts of this paper. The remaining errors are mine.     

Relationships in the purchasing of business to business professional services: The role of personal relationships

There has been a shift from transactional to relational exchange and relationship marketing both in the business to business and professional services contexts. This paper seeks to explore the manner in which personal relationships affect the process and outcomes of purchasing of professional business services. Specifically, it focuses on the role of the professional service providers as boundary spanners in the formation of personal relationships. These personal relationships constitute the underlying basis of long-term relationships between the purchasing and provider organizations in such complex service settings. The findings of this study demonstrate that the manner in which the boundary spanners cultivate relationships support the concept of relationship specific tasks. It extends this conception by use of the data to outline the chronological process over time Understanding the roles, function, and ultimately importance, of these relationships facilitates the identification and development of appropriate strategies to manage these relationships.     

Let chaos reign,then rein in chaos—repeatedly: managing strategic dynamics for corporate longevity

Combining longitudinal field research and executive experience, we propose that corporate longevity depends on matching cycles of autonomous and induced strategy processes to different forms of strategic dynamics, and that the role of alert strategic leadership is to appropriately balance the induced and autonomous processes throughout these cycles. We also propose that such strategic leadership is the means through which leadership style exerts its influence on corporate longevity. Our findings can be related to organizational research on structural inertia, learning and adaptation, as well as to formal theories of complex adaptive systems. They also contribute to resolving the seeming contradiction between a study of corporations that attributes exceptional long‐term success to leadership style, and the more common proposition that strategy is the determinant of long‐term performance. Copyright © 2007 John Wiley & Sons, Ltd.     

FROM COMPETITION TO REGULATION: THE SIX-YEAR BATTLE TO REGULATE CALIFORNIA'S INSURANCE MARKETS

Abstract: The passage of California's Proposition 103 in November 1988 changed the State's regulatory structure for insurers from a competitive to a heavily regulated system. The six-year legal battle that followed resulted in several California Supreme Court and United States Supreme Court rulings and an ultimate implementation of rate roll backs on property-liability insurers on November 22, 1994. The study examines both property-liability and life insurers' returns. While only property-liability insurers are affected by the rale rollback and prior approval rate regulation, both life and property-liability insurers are affected by the proposition's other provisions. This paper examines the effect of successive changes on both types of insurance companies and analyzes the differential impact of the changes in regulatory structure.     

Optimal investment and production decisions and the value of the firm

We explore the effects of uncertainty on a firm that can respond by modifying its investment or production schedule (or both simultaneously) to variations in output price. Investment may increase capacity and/or reduce costs. We consider a firm with finite resources.Our model uses option theory instead of the more traditional net present value framework. One of the early papers using this approach is Brennan and Schwartz (1985) in which an investment project to extract a finite natural resource is valued. In that paper, the value of the firm is a function of two state variables, the finite resource to be extracted (output to be produced in the future) and the commodity spot price. In order to maximize firm value, the manager can respond by modifying one control variable, the production level. In our model we handle instead three state variables (spot price, resources, accumulated investment) and two control variables (production rate and investment rate), and solve numerically.We obtain both the value and the optimal policy of a firm that has investment projects that increase capacity and/or reduce costs and illustrate optimal policies as resources and available investments decrease over the life of the firm. Firms may start by only investing, then invest and produce, to end only producing.We thank Scott Wo, the referee and the editor for their comments and suggestions. Cortázar and Lowener acknowledge the financial support from FONDECYT and FONDER.     

The Asymptotic Optimality of Residual Income Maximization

Residual income subtracts from operating income an interest charge for invested capital. Residual income can be calculated each period from current accounting information, unlike discounted cash flow (DCF), which requires the knowledge of future cash flows. This paper provides a normative justification for residual-income maximization by showing that if investment decisions are made myopically each period to maximize residual income, the resulting path asymptotically maximizes discounted cash flow. Thus, under the assumptions of the model, residual-income maximization is a heuristic that leads to the long-run DCF-optimum.