What the Pension Benefit Guaranty Corporation can learn from the Federal Savings and Loan Insurance Corporation

This article attempts to draw attention to some important lessons that the Pension Benefit Guaranty Corporation (PBGC) can learn from the experience of the Federal Savings and Loan Insurance Corporation (FSLIC). FSLIC was the government agency that insured deposits at savings and loan associations until it was replaced in 1989, leaving a massive deficit to be financed by taxpayers. Like FSLIC, the PBGC is a government agency that guarantees a form of private corporate debt. As guarantor of the pension benefits promised by private plan sponsors, the PBGC bears the risk of a shortfall between the value of insured benefits and the assets securing those benefits. There has been a significant change in the attitude and behavior of senior public officials and legislators as a result of the S&L debacle. Directors of the PBGC and the Secretaries of Labor to whom they report have pointed out the weaknesses of some of the pension funds that the PBGC insures and have pursued an active legislative agenda designed to reduce the PBGC's vulnerability to those weaknesses. Those efforts have resulted in a series of laws and amendments to laws that have significantly improved the U.S. pension guarantee system. But the magnitude of the PBGC's exposure to shortfall risk depends on three factors: (1) the financial strength of plan sponsors, (2) the degree of underfunding of insured benefits, and (3) the mismatch between the market-risk exposure of insured benefits (a form of long-term corporate debt) and the market-risk exposure of the assets securing that debt. Only the first two of these have been addressed by past legislative reforms. The third factor appears not to be well understood. It is apparently a widespread belief among policymakers that a well-diversified pension portfolio of equity securities provides an effective long-run hedge against liabilities of defined-benefit pension plans, so that there is no mismatch problem. This belief is mistaken. Equities are not a hedge against fixed-income liabilities even in the long run. Thus, even if the PBGC achieves the goal of full funding at one point in time, the mismatch between the market-risk exposure of the pension benefits that it insures and the pension assets backing them creates the potential for large shortfall losses in the future as the economy and capital market rates change in unpredictable ways. Therein lies an uncomfortable parallel with the S&L debacle.     

For the last time: stock options are an expense

Should stock options be recorded as an expense on a company's income statement and balance sheet, or should they remain where they are, relegated to footnotes? The extraordinary boom in share prices during the Internet bubble made critics of option expensing look like spoilsports. But since the crash, the debate has returned with a vengeance. And no wonder: The authors believe the case for expensing options is overwhelming. In this article, Nobel Iaureate Robert Merton, one of the inventors of the Black-Scholes option-pricing model; his coauthor on the classic textbook Finance, Zvi Bodie; and Robert Kaplan, creator of the Balanced Scorecard, examine and dismiss the principal claims put forward by those who continue to oppose options expensing. They demonstrate that stock-option grants do indeed have real cash-flow implications that need to be reported. They show that effective ways certainly exist to quantify those implications. They detail the distortions that relegating stock-option accounting to footnotes creates. And they show why reporting option costs should in no way hamper young companies in their efforts to provide incentives. Options are indeed a powerful incentive, the authors agree, and failing to record a transaction that creates such powerful effects is economically indefensible. Worse, it encourages companies to favor options over alternative incentive systems. It is not the proper role of accounting standards, the authors argue, to distort executive and employee compensation by subsidizing one particular form of compensation and no other. Companies should choose compensation methods according to their economic benefits--not the way they are reported.     

On measuring serial correlation: Implications for finance and accounting research studies

Accounting and finance studies that measure serial correlation implicitly make two assumptions. One, the studies assume that the sample estimate of the autocorrelation coefficient is unbiased. The assumption is intuitively appealing, but incorrect. This article provides a measure of the size of the bias. Two, the studies assume that the target of the time series is constant over time. However, over a long period target values may change. This article models the general case in which not only do random shocks affect actual values, but also random changes affect target values.     

Transition to smallholder agriculture in Central Asia

The article reviews the development of smallholder farming in Central Asia's former Soviet republics. One of the striking features of the agricultural transition in Central Asia (and Commonwealth of Independent States [CIS] in general) is the dramatic shift, since 1992, from the predominance of large corporate farms to individual or family agriculture based on a spectrum of small farms. Evidence shows that individualization of agriculture is associated with the observed posttransition recovery in Central Asia (and in CIS in general) and that small family farms outperform the large enterprises. This clashes with the traditional philosophy of economies of scale and with the inherited view of small family farms as an undesirable aberration. We discuss the policies that helped smallholder farms in Kazakhstan, Kyrgyzstan, and Tajikistan and severely restricted their growth and development in Uzbekistan and especially Turkmenistan.     

On the Validity of the “Importance Minus Performance” Construct—A Genuine Contribution of the Tourism Literature or a Mishap?

Measuring service quality in a reliable and valid manner is crucial. Accordingly, this study explores whether the tourism-oriented Importance-Performance construct is a theoretically sound measure of service quality. The conceptual analysis is followed by an empirical test of the construct's prediction capability within the realm of service quality/satisfaction framework in the tourism context of a large festival. Both the conceptual and empirical results clearly indicate that the validity of the Importance-Performance construct should be strongly doubted, and that tourism and hospitality managers as well as researchers would be better off avoiding the use of the Importance-Performance construct.     

Existence and Uniqueness of Ordinal Nash Outcomes

In this paper we present necessary and sufficient conditions for existence and uniqueness of ordinal Nash outcomes. These outcomes are derived from the ordinal Nash solution—a reinterpretation and an extension of the Nash bargaining solution that allows bargainers to have preference relations that are more general than expected utility. Our task is undertaken by the construction of a new notion called “induced utilities”. Journal of Economic Literature Classification Number: C78.     

Job and wage mobility with minimum wages and imperfect compliance

We propose a job search model with minimum wage regulations and imperfect compliance to explain the doubling of the mean and variance of hourly earnings of white males during the first 18 years of labor market experience. The model encompasses job mobility and on‐the‐job wage growth as sources of wage dynamics, and is estimated by simulated generalized method of moments using data from the National Longitudinal Survey of Youths 1979. Our estimates provide a good fit for the observed levels and trends of the main job and wage mobility data, and for the increase in the mean and variance of wages over the life cycle, as well as for the fall in the fraction of workers paid below the minimum wage. Job mobility explains 40–50% of the observed wage growth. Increases in the minimum wage and/or compliance deliver small effects on the wage distribution and the nonemployment rate. Copyright © 2010 John Wiley & Sons, Ltd.     

中国金融创新和技术进步的前景展望--2001年中国金融国际论坛发言集萃

首先,我想谈谈金融在促进技术进步方面的历史地位。然后我想讲讲它在为新企业融资方面所起的作用及其形式。其中的主要观点是美国现代风险投资公司只是发挥为新企业创建初期提供资金的功能的一种组织形式。这种功能就是为新企业提供资金。有许多途径可以实现这种功能,从使用个人储蓄到使用家庭储蓄等等。所以在讨论金