Riskiness of Real Estate Development: A Perspective from Urban Economics and Option Value Theory

In this article, we define a new construct for urban economic and investment analysis, which revisits the conventional wisdom that investment in real estate development is riskier than investment in stabilized property assets. This new construct, referred as a “development asset value index” (DAVI), is a value index for newly developed properties (only) in a given geographical property market. It tracks longitudinal changes in the highest and best use (HBU) value of locations, and it reveals developer and landowner behavior taking advantage of the optionality inherent in land ownership. In particular, the DAVI reflects developers' use of flexibility in the exercise of the call option to (re)develop the property to any legal use and density. We empirically estimate a DAVI for commercial property (i.e., central locations) and compare it with a corresponding traditional transaction‐price‐based property asset price index (PAPI) corrected for depreciation. We believe that the difference primarily reflects the realized value of flexibility in land development. We find that the DAVIs display greater value growth and are smoother over time and less cyclical than their corresponding PAPIs for the same locations. This suggests that developers successfully use flexibility, and that development may be riskier than stabilized property investment due primarily only to leverage effects (construction costs). Practical implications are also discussed.     

Transactional activities and total factor productivity growth in Taiwan

Total factor productivity (TFP) growth shows how rapidly an economy is enhancing technology and the efficiency with which it allocates resources. It has been argued that “miraculous” growth in East Asian economies may not be sustainable, due to relatively low rates of TFP growth. Among these economies, it appears that Taiwan has indeed exhibited substantial technological progress. Failure to control for transactional activities, however, can distort the impression of TFP growth. This study recalculates Taiwan's TFP growth for the 1957–1993 sample period, adjusting for transaction costs in the government and private sectors. For the early years of the sample, 1957–1973, the economy's technological progress is better than GDP-based calculations suggest. In recent years, 1983–1993, productivity improvement has been overstated, but the economy has still exhibited relatively fast TFP growth.     

Trade policy under imperfect competition: The economics of Russian roulette

Summary Neo-classical economic theory shows that managed trade or protectionism is (almost) always welfare decreasing. However, measurements of the welfare costs of protectionism based on neo-classical models seem to suggest that these costs are quite small. We discuss general new insights and developments in the theory, policy and empiricism of international trade. The observation that intra-industry trade and the services sector are important has led to a shift in theory away from constant returns to scale and perfect competition towards economies of scale and scope, externalities, market imperfections, and imperfect competition. Although this, in principle, opens the door to beneficial government intervention in the economic process, we emphasize that the true costs of protection can potentially be much higher than is generally acknowledged as a result of the above mentioned shift.We would like to thank, without implicating, Martin Fase, Harry Garretsen, Catrinus Jepma, Simon Kuipers, Ger Lanjouw, Tenn Schmidt, Albert de Vaal, and Jean-Marie Viaene for stimulating conversations and useful suggestions. We thank Thijs Knaap for excellent research assistance.     

Investor behaviour and reaching for yield: Evidence from the sterling corporate bond market

We provide evidence on how corporate bond investors react to a change in yields, and how this behaviour differs in times of market‐wide stress. We also investigate ‘reaching for yield’ across investor types, as well as providing insights into the structure of the corporate bond market. Using proprietary sterling corporate bond transaction data, we show that insurance companies, hedge funds and asset managers are typically net buyers when corporate bond yields rise. Dealer banks clear the market by being net sellers. However, we find evidence for this behaviour reversing in times of stress for some investors. During the 2013 ‘taper tantrum’, asset managers were net sellers of corporate bonds in response to a sharp rise in yields, potentially amplifying price changes. At the same time, dealer banks were net buyers. Finally, we provide evidence that insurers, hedge funds and asset managers tilt their portfolios towards higher risk bonds, consistent with ‘reaching for yield’ behaviour.     

A Tale of Two Models: Comparing structuralist and neoclassical computable general equilibrium models for South Africa

This paper compares two working models of the South African economy, an orthodox, neoclassical computable general equilibrium model in which savings drive investment, and a more structuralist, eclectic, model for which there is an independent investment function. Both models are calibrated to the same social accounting matrix. Comparative statics of simplified prototype models are presented and identical simulations with the corresponding applied versions are compared. It is seen that the neoclassical model fully supports the principles of the 'Washington Consensus' while the structuralist model requires a far more heterodox set of policies to avoid slow growth or high inflation.     

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Task,technology, and tailoring in communicative action: An in-depth analysis of group communication

Communication is fundamental to team work and it occurs increasingly often in a technology-mediated environment. Understanding how communication evolves in such environments is essential to ensuring that the right technology is provided for whatever task a group needs to accomplish, even if it is not precisely known how the technology is going to be used. With the growing body of research on different tools for supporting computer-mediated groups, we still have much to learn about how communication evolves, where potential breakdowns occur, and how groups tailor technology during the communication process. This paper addresses these important issues by providing an in-depth analysis of two-person dyads that communicated over a web-based set of collaboration tools during a 6-week project. We analyze communication through the lens of communicative action theory, showing how social action unfolds during communication and how groups challenge and resolve validity claims in different task-technology environments. This study contributes by exploring group processes, developing and applying group communication analysis tools, and enhancing theorizing on technology tailoring.