Stickiness of Rental Rates and Developers’ Option Exercise Strategies

In this study we incorporate sticky rents into a real options model to rationalize the widely documented overbuilding puzzle in real estate markets. Given the assumption that developers’ objective function is to maximize total revenue by selecting an optimal occupancy level, our model provides a better explanation of the phenomena we observed in the real world than the traditional market-clearance based real options models. We also show that developers’ exercise strategies can be affected by the size and the type of property markets. In other words, developers’ exercise strategies could differ among markets and under different conditions. Submitted to Cambridge—Maastricht 2005 Symposium.     

Sickness absence and health care in an economic federation

This paper addresses vertical fiscal externalities in a model where the state governments provide health care and the federal government provides a sickness benefit. Both levels of government tax labor income and policy decisions affect labor income as well as participation in the labor market. The results show that the vertical externality affecting the state governments’ policy decisions can be either positive or negative depending on, among other things, the wage elasticity of labor supply and the marginal product of expenditure on health care. Moreover, it is proved that the vertical fiscal externality will not vanish by assigning all powers of taxation to the states.      

Optimal risk sharing with non-monotone monetary functionals

We consider the problem of sharing pooled risks among n economic agents endowed with non-necessarily monotone monetary functionals. In this framework, results of characterization and existence of optimal solutions are easily obtained as extensions from the convex risk measures setting. Moreover, the introduction of the best monotone approximation of non-monotone functionals allows us to compare the original problem with the one which involves only ad hoc monotone criteria. The explicit calculation of optimal risk sharing rules is provided for particular cases, when agents are endowed with well-known preference relations.      

Optimal dividend policy and growth option

We analyse the interaction between the dividend policy and the decision on investment in a growth opportunity of a liquidity constrained firm. This leads us to study a mixed singular control/optimal stopping problem for a diffusion that we solve quasi-explicitly by establishing a connection with an optimal stopping problem. We characterize situations where it is optimal to postpone the distribution of dividends in order to invest at a subsequent date in the growth opportunity. We show that uncertainty and liquidity shocks have an ambiguous effect on the investment decision.      

A comment on the role of prices for excludable public goods

Blomquist and Christensen [(2005). The role of prices for excludable public goods, International Tax and Public Finance, 12 ,61–79] argue that welfare is initially decreasing in the price of an excludable public good and that the case for a positive price for an excludable public good price is weak. We argue that this result follows from their particular characterization of the public good and that an alternative and equally reasonable characterization overturns their result. Hence, the policy case for a positive price on the public good is stronger than Blomquist and Christiansen suggest. JEL Classification H21 · H41     

On the short-time behavior of the implied volatility for jump-diffusion models with stochastic volatility

In this paper we use Malliavin calculus techniques to obtain an expression for the short-time behavior of the at-the-money implied volatility skew for a generalization of the Bates model, where the volatility does not need to be a diffusion or a Markov process, as the examples in Sect. 7 show. This expression depends on the derivative of the volatility in the sense of Malliavin calculus. E. Alòs’ research is supported by grants MEC FEDER MTM 2006 06427 and SEJ2006-13537. J.A. León’s research is partially supported by the CONACyT grant 45684-F. J. Vives’ research is supported by grant MEC FEDER MTM 2006 06427.     

Sequential American Exchange Property Options

Property development activities often occur in stages, which are appropriately modeled as sequential American exchange property options, where there are interim expenditures required in order to keep the property development options “alive”. Normally American exchange options require a numerical solution, but herein there is a new closed-form approximate solution, which is computationally efficient and accurate. This method combines repeats of Margrabe European exchange and Geske compound option solutions with tight upper boundaries of either American perpetuities or European exchange options with a high volatility. Illustrations are provided of the sensitivity of the real sequential options and optimal timing to changes in several parameters, which provide a framework for property policy (tax, subsidy and regulatory) guidelines and for property development strategy evaluation. There are several plausible applications of these real option models in commercial and residential property development, within commercial property leases, with regard to switching tenants, and agricultural alternatives.     

Corporate and personal income tax declarations

Decisions by firms and individuals on the extent of their tax payments have generally been treated as separate choices. Empirically, a positive relationship between corporate and personal income tax evasion can be observed. The theoretical analysis in this paper shows that a manager's decision on the firm's behaviour will be independent of his personal preferences if the gain from reducing corporate tax payments is certain, as in the case of tax avoidance. If, however, the firm evades taxes so that the manager's income depends on whether the firm's activities are detected or not, corporate and personal income tax evasion choices cannot be separated. Jel Code H 24 · H 25 · H 26