Waiting to Default: The Value of Delay

This paper analyzes the opportunity for early termination of a mortgage contract. We consider the possibility of defaulting on the property and explore the rules that are used by a value-maximizing borrower in exercising this option to default. The discussion centers on the value of waiting to make such a decision and the consequences of this rational inertia. We show that the observed delay in default usually attributed to transaction costs can instead be explained as entirely rational choice in a dynamic environment.     

The celler kefauver act and the deterrent effect

The purpose of this paper is to identify the major determinants of innovation and to examine whether they affect small firms differently than large firms. Using a cross-section of 247 four-digit SIC industries, we present an econometric analysis testing the hypothesis that innovation rates in 1982 were significantly influenced by market structure, and that these influences had disperate effects among large and small firms. We find that, while market structure does explain the variation in innovation rates across industries, the relationships are not always consistent with certain previously maintained hypotheses. Similarly, we find that innovation activity for large firms responds to a different market activity than does innovation for small firms.     

Real Estate Returns: A Comparison with Other Investments

Real estate returns, measured unleveraged, have been between those of stocks and bonds over 1960–1982. Due to appraisal smoothing and imperfect marketability, one must be careful about directly comparing measured real estate returns with those on other assets. It is likely, however, that low correlations with stocks and bonds make real estate a diversification opportunity for traditional portfolio managers. In addition, the issue of how various assets are priced is addressed. While stocks are priced primarily on market or beta risk, and bonds are priced primarily on interest rate and default risk, the real estate pricing mechanism includes residual risk and non-risk factors such as taxes, marketability costs and information costs.     

Substitution of Noncash Payment Instruments for Cash in Europe

The substitution of noncash (check, giro, credit and debit card) payments for cash transactions is of interest for monetary policy and for determining central banks' future seigniorage revenue. We develop a novel method for approximating the share of cash transactions using public information on currency stocks, noncash payments, and card payment technology for 10 European countries. We also provide a forecast of future cash use by country. The trend in cash substitution across countries is quite similar, but the countries themselves are at significantly different stages in this process. The spread of debit and credit card payments has been the key factor behind the substitution away from cash as the use of electronic cash is still in its infancy.     

Yardstick and incentive issues in UK electricity distribution price controls

Electricity distribution is a primary candidate for regulation since it is a natural monopoly whose costs it would be inefficient to duplicate in a competitive market. In the UK since privatisation of the electricity industry in 1990, this regulation has emphasised incentives for cost efficiency through the use of RPI‐X price capping applied to 14 regional distribution businesses. The paper examines the issues that have arisen in implementation, including the practice of bench‐marking the operating and capital expenditures of different companies. It analyses how the price set at the beginning of each review period depends on the determination of cost yardsticks, the weighted average cost of capital and the regulatory asset base of the companies. The analytical model is used to evaluate Ofgem's 1999 Distribution Price Control Review and compares it with other European distribution price regulations.     

Does Entry Size Matter? The Impact of the Life Cycle and Technology on Firm Survival

A wave of empirical studies has recently emerged showing that smaller-scale entry is confronted with a lower likelihood of survival than their larger counterparts. The purpose of this paper is to examine whether the relationship between size of a firm when entering an industry and the likelihood of survival holds under different technological conditions and across the different stages of the industry life cycle. The empirical evidence suggests that the relationship between firm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle. While the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts, the relationship does not hold for mature stages of the product life cycle, or in technologically intensive products. In mature industries that are still technologically intensive, entry may be less about radical innovation and possibly more about filling strategic niches, thus negating the impact of entry size on the likelihood of survival.     

Household Saving in Developing Countries: First Cross-Country Evidence

Although most studies have relied on domestic or private sectorsaving data, this article uses household data available fromthe U.N. System of National Accounts for a sample of 10 countries.Household saving functions are estimated using combined time-seriesand cross-country observations in order to test households'responses to income and growth, rates of return, monetary wealth,foreign saving, and demographic variables. The results showthat income and wealth variables affect saving strongly andin ways consistent with standard theories. Inflation and theinterest rate do not show clear effects on saving, which isalso consistent with their theoretical ambiguity. Foreign savingand monetary assets have strong negative effects on householdsaving, which suggests the importance of liquidity constraintsand monetary wealth in developing countries.     

Return generating processes of long-term bonds and measurement of risk: Theory and empirical tests

Using a continuous-time framework, Kazemi (1992) shows that changes in prices of long-term bonds could be perfectly correlated with changes in the representative investor's marginal utility of wealth. Therefore, the equilibrium expected excess return on any security would be proportional to its covariance with changes in prices of long-term bonds. The present paper first extends the above result to a discrete time framework and shows that there are significant differences between the continuous time and discrete time versions of the model. Second, we test an empirical implication of this result; the evidence supports the theoretical model.     

Customer-centered problem solving

If there is no single best way to attract new customers and retain current customers, there is surely an easy way to lose them: fail to solve the problems that arise in nearly every buyer-supplier relationship, or solve them in an unsatisfactory manner. Yet, all too frequently, companies do just that. Either we deny that a problem exists, we exert all our efforts to pin the blame elsewhere, or we "Band-Aid" the problem instead of fixing it, almost guaranteeing that we will face it again and again.     

Probabilistic Bounds on the Virtual Multipliers in Data Envelopment Analysis: Polyhedral Cone Constraints

The paper is concerned with the incorporation of polyhedral cone constraints on the virtual multipliers in DEA. The incorporation of probabilistic bounds on the virtual multipliers based upon a stochastic benchmark vector is demonstrated. The suggested approach involves a stochastic (chance constrained) programming model with multipliers constrained to the cone spanned by confidence intervals for the components of the stochastic benchmark vector at varying probability levels. Consider a polyhedral assurance region based upon bounded pairwise ratios between multipliers. It is shown that in general it is never possible to identify a center-vector defined as a vector in the interior of the cone with identical angles to all extreme rays spanning the cone. Smooth cones are suggested if an asymmetric variation in the set of feasible relative prices is to be avoided.