TAXING LAND VALUE IS JUST ANOTHER QUESTIONABLE TAX

There has recently been much public debate about the introduction of a land value tax. To its supporters such a tax promises to achieve several goals simultaneously. On closer inspection, however, the arguments in favour of land value taxation are not convincing. On the contrary, the economic foundations on which proponents of this tax rely are dubious, and there are significant legal, moral and practical problems with land value taxation.     

BESSEL PROCESSES, ASIAN OPTIONS, AND PERPETUITIES

Using Bessel processes, one can solve several open problems involving the integral of an exponential of Brownian motion. This point will be illustrated with three examples. The first one is a formula for the Laplace transform of an Asian option which is "out of the money." The second example concerns volatility misspecification in portfolio insurance strategies, when the stochastic volatility is represented by the Hull and White model. The third one is the valuation of perpetuities or annuities under stochastic interest rates within the Cox-Ingersoll-Ross framework. Moreover, without using time changes or Bessel processes, but only simple probabilistic methods, we obtain further results about Asian options: the computation of the moments of all orders of an arithmetic average of geometric Brownian motion; the property that, in contrast with most of what has been written so far, the Asian option may be more expensive than the standard option (e.g., options on currencies or oil spreads); and a simple, closed-form expression of the Asian option price when the option is "in the money," thereby illuminating the impact on the Asian option price of the revealed underlying asset price as time goes by. This formula has an interesting resemblance with the Black-Scholes formula, even though the comparison cannot be carried too far.     

Endogenous trading in credit default swaps

We introduce a real options model in order to quantify the moral hazard impact of credit default swap (CDS) positions on the corporate default probabilities. Moral hazard is widely addressed in the insurance literature, where the insured agent may become less cautious about preventing the risk from occurring. Importantly, with CDS the moral hazard problem may be magnified since one can buy multiple protections for the same bond. To illustrate this issue, we consider a firm with the possibility of switching from an investment to another one. An investor can influence the strategic decisions of the firm and can also trade CDS written on the firm. We analyze how the decisions of the investor influence the firm value when he is allowed to trade credit default contracts on the firm’s debt. Our model involves a time-dependent optimal stopping problem, which we study analytically and numerically, using the Longstaff–Schwartz algorithm. We identify the situations where the investor exercises the switching option with a loss, and we measure the impact on the firm’s value and firm’s default probability. Contrary to the common intuition, the investors’ optimal behavior does not systematically consist in buying CDSs and increase the default probabilities. Instead, large indifference zones exist, where no arbitrage profits can be realized. As the number of the CDSs in the position increases to exceed several times the level of a complete insurance, we enter in the zone where arbitrage profits can be made. These are obtained by implementing very aggressive strategies (i.e., increasing substantially the default probability by producing losses to the firm). The profits increase sharply as we exit the indifference zone.     

The Role of Industry Effects in Simultaneous Reversal and Momentum Patterns in One-Month Stock Returns

When stocks are ranked by returns in one month, the portfolio of loser stocks tends to outperform the portfolio of winner stocks in the subsequent month. Yet industry portfolios tend to display momentum. We develop a model of information diffusion among agents with constrained information processing ability that reconciles these well-documented phenomena. We test whether this model or the overreaction hypothesis is consistent with the data. Additionally, a trading strategy based on the model outperforms strategies based on overreaction and on industry momentum. The strategy produces abnormal returns while controlling for market–risk and the size, book value, January, momentum, and liquidity effects.     

What preconceptions and attitudes about engineering are prevalent amongst upper secondary school pupils? An international study

In the Netherlands, as well as in many other countries, there is an increasing interest in implementing education about engineering as a part of general education at the upper secondary school level. In order to know what pupils at that level think about engineering, a study has been done to investigate their attitude towards and their concept of engineering. This study was done not only in the Netherlands but also in 39 other countries. In the preparation of the study, pupils were asked to draw concept maps of what they thought engineering was about. In the quantitative main part of the study, pupils were asked to respond to 33 Likert-type attitude items and 32 concept-items of the same type. A factor analysis was done in order to reveal the dimensions in the pupils’ attitude and concept. In contrast to studies carried out amongst students in lower secondary school levels, a fairly clear concept about engineering was found. The gender differences relating to engineering, found in lower secondary education, were not found in upper secondary education. The prevalent attitude of students towards engineering indicated a fairly positive image of engineering.     

Organizing The Ordinary City: How Labor Reform Strategies Travel to the US Heartland

In New York, Chicago and Los Angeles, formal alliances between labor unions and community organizations have spurred successful workplace and policy organizing campaigns. As a result, the institutional form of the community–labor coalition is travelling to smaller, less unionized and more politically conservative cities, where the replication of established organizing strategies must contend with political, economic and institutional differences that often go unnoted. Comparing community–labor alliances in Indianapolis, St. Louis and Chicago, this article identifies heretofore unobserved conditions of possibility for successful urban labor organizing in the US. Compared to smaller cities, Chicago and the large urban areas from which ideal practices are abstracted feature higher levels of union membership, significantly more funding of basic social and neighborhood services, and larger immigrant communities. Operating with minimal human services and limited recourse to the social and institutional networks of immigrant workers, labor coalitions in St. Louis and Indianapolis face recurrent barriers to identifying workplace problems, mobilizing low‐wage workers and sustaining citywide reform campaigns. This indicates geographical limits to the current organizing model and highlights the limitations of urban scholarship derived from large cities unrepresentative of urbanity as a whole.     

A multi-criteria modeling approach to jury selection

The decision to select a particular group of individuals to serve as a jury is critically important to insure the fairness and impartiality in a trial under the United States Constitution. Yet, the amount of effort and, particularly, the time required under currently used methods of jury selection adds substantially to judicial system costs and can contribute to the inability of the courts to provide a timely hearing. This paper presents an approach to this decision process that incorporates current questionnaire data collection approaches with a multi-criteria, multi-objective modeling approach. An illustrative example from an actual trial case study is presented to demonstrate the informational efficacy of the modeling approach in selecting candidates for jury trials.     

Productive efficiency of French grain producers: A latent variable model

In this article we propose to implement a covariance structure analysis to deal with the estimation of a stochastic frontier production function on panel data and the measurement of a time-varying technical efficiency. First, this method solves the potential problem of correlations between input quantities and individual effects. Second, individual effects and efficiency measures can be recovered as a byproduct of the analysis through the so-called factor scores. We implement this approach by fitting to a balanced panel of French grain producers, a parsimonious version of the Cornwell, Schmidt, and Sickles [1990]'s model where technical efficiencies are individual-specific linear functions of time. A specification search shows that this model is preferred to the traditional production function. Results shed light on the temporal pattern of efficiency in the French grain production sector.The authors thank Jacques Mairesse, Quang Vuong, two referees, the editor, and session participants at the Econometric Society European Meeting, Cambridge, September 1991, at the Second European Workshop on Efficiency and Productivity Analysis, Louvain-la-Neuve, October 1991, at the Conference on Current Issues in Productivity, Newark, December 1991, and at the ENSAE-EHESS seminar, Paris, March 1992, for helpful comments and suggestions.