Discretionary Disclosures to Risk‐Averse Traders: A Research Note

Verrecchia (1983) investigates a manager's incentives for costly, discretionary disclosure of his information to risk‐averse traders when the functional form of prices is exogenously specified. We extend Verrecchia (1983) by deriving the endogenously determined functional form of prices that would arise when all traders have constant risk tolerance. We show that these endogenously determined prices are inconsistent with the assumed prices in Verrecchia (1983) when the manager elects to not disclose. We derive the manager's disclosure strategy for our setting and extend the comparative static results in Verrecchia (1990) for risk‐neutral traders to a setting where traders have constant risk tolerance and prices are endogenously derived. Further, in our setting, discretionary disclosure does not affect how traders price risk of different outcomes. Also, we offer a representation of risk‐averse traders' prices using risk‐adjusted distributions. Finally, these results provide implications for empirical‐archival discretionary disclosure studies.     

The pricing of FIREARMs (“Falling Interest Rate Adjustable-Rate Mortgages”)

The purpose of this article is to propose and price a new type of adjustable-rate mortgage: the FIREARM (Falling Interest Rate Adjustable-Rate Mortgage). The interest payments on this mortgage adjust downward whenever interest rates decline, while remaining stable when interest rates increase. The FIREARM is alternatively priced as a prepayable and non-prepayable mortgage with a spread over the short-term interest rate. We price these two instruments and contrast their prices with those of fixed-rate mortgages using the parsimonious assumptions of a non-stationary arbitrage-free binomial term structure model.     

Fairness in a tradeable-permit treaty for carbon emissions reductions in Europe and the former Soviet Union

This paper evaluates the distributional implications of alternative permit allocations in a tradeable permit regime for carbon emissions reductions (20% below baseline) in 2010 for a region consisting of Europe and the states of the former Soviet Union (FSU). Participation in such a regime is expected to hinge on the fairness of the distributional consequences. We find that initial permit allocations by populationand/or GDP are unlikely to induce participation by most countries of Eastern Europe and FSU because of the net costs involved. We identify a set of initial allocations that would at least compensate these countries. A fair treatment of the countries in Western Europe (WE) is here one which equalizes net costs perGDP. For a wide set of cost functions for carbon emission reductions, the cost gains that WE would reap from a tradeable permit system relative to unilateral reductions by WE as a group are found to be on the order of 85 percent. This would imply, among other things, a significant increase in WE'scapacity to make further emissions reductions.     

中国居民医疗支出不公平性分析

基于2002年大样本家计调查资料,本文以家庭为单位分析了家庭收入与医疗支出的关系。就中国整体而言,收入相关的居民医疗支出集中指数为48%,而可支配收入的基尼系数是45%,这表明医疗支出具有累退倾向。对其进行分解分析,结果表明这种不公平性根源在于中国城市与农村居民医疗支出严重失衡,城市居民的平均医疗支出几乎是农村的6倍,换句话说,医疗支出方面的公共资金大都集中于发达的城市医疗部门。在中国农村内部和城市内部也存在医疗支出不公平性问题,这种层次的不公平性大多可以归结为中国的东部、中部和西部在平均医疗支出水平上的差异。因此,可以说居民医疗支出的不公平主要是由于地域上的差异造成的。众所周知,中国公共卫生投资缺乏公平性,如果中国政府有意改变这种情况,那么在区域之间重新分配国家补贴就势在必行。在公共卫生预算不变的情况下,应该采取措施引导医疗补贴流向农村地区,特别是西部地区,而流向中国城市地区,特别是东部城市地区的补贴应该减少。     

Modelling trends in food market integration: Method and an application to Tanzanian maize markets

Pushed by increasing availability of price data and extensive market liberalisation efforts in many developing countries, research on food market integration has evolved rapidly over the last two decades. Empirical methods to measure market integration diverged in two directions: on the one hand, there is the parity bounds model (PBM) using a switching regressions technique, while on the other hand the use of threshold autoregressive (TAR) models has been proposed. This article provides a discussion on the two methods and argues that TAR models are better able to capture the dynamics of the arbitrage process underlying interconnected markets. Furthermore, we extend the standard TAR model to include a time trend in both the threshold and the adjustment parameter. Using weekly maize price data on seven selected markets in Tanzania, we illustrate how both transaction cost and the speed of adjustment have changed during the nineties.     

Equity–Efficiency Optimizing Resource Allocation: The Role of Time Preferences in a Repeated Irrigation Game

We study repeated water allocation decisions among small scale irrigation users in Tanzania. In a treatment replicating water scarcity conditions, convexities in production make that substantial efficiency gains can be obtained by deviating from equal sharing, leading to an equity–efficiency trade‐off. In a repeated game setting, it becomes possible to reconcile efficiency with equity by rotating the person who receives the largest share, but such a strategy requires a longer run perspective. Correlating experimental data from an irrigation game with individual time preference data, we find that less patient irrigators are less likely to use a rotation strategy.     

On the role of telecommunications in development

Numerous studies document the relationship between telecommunications and economic development. The main types and relative merits of these are summarized. The paper argues that more of the same will do little to help promote accelerated telecommunications investment in developing countries as needed. Rather, the efforts should now mainly concentrate on conveying existing sector knowledge to governments and international agencies. The paper focuses on examples of simple, proven tools which can be used to supplement telecommunications project analysis for this purpose.     

Flexibility in cash-flow classification under IFRS: determinants and consequences

International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms’ cash-flow classification choices vary, with about 76, 60, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market’s assessment of the persistence of operating cash flows and accruals varies with the firm’s classification choices and the results of certain OCF prediction models are sensitive to classification choices.