The formation of networks with transfers among players

We examine the formation of networks among a set of players whose payoffs depend on the structure of the network, when players may bargain by promising or demanding transfer payments when forming links. We vary three aspects of the game: (i) whether players can only make transfers to (and receive transfers from) players to whom they are directly linked, or whether they can also subsidize links that they are not directly involved in, (ii) whether or not transfers relating to a given link can be made contingent on the full resulting network or only on the link itself, and (iii) whether or not players can pay other players to refrain from forming links. We characterize the networks that are supported under these variations and show how each of the above aspects either accounts for a specific type of externality, or deals with the combinatorial nature of network payoffs.     

A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

Summary. A model is presented in which banks update public records, accept deposits of fiat money and intermediate capital. I show that inside money is more liquid than outside money, increasing the turnover rates of idle capital. The model offers a simple explanation for the dual role of financial institutions: Banks are monitored and can issue nominal assets upon request, which helps them to transfer capital in sufficiently high rates and to also become intermediaries. The model shares some features with those of Diamond and Dybvig [5], and Kiyotaki and Wright [7].Received: 18 February 2003, Revised: 16 February 2004, JEL Classification Numbers: E51, G21, G24.Ricardo de O. Cavalcanti: I thank two anonymous referees, Susumu Imai, B. Ravikumar and Neil Wallace, as well as participants at the Economic Theory symposium Recents Developments in Money and Finance, and seminar participants at the Richmond Fed, Queens University, and Sabanci University for comments on an early draft. The hospitality and financial support of the Cleveland Fed Central Bank Institute and CNPq are greatfully appreciated. The authors opinions are not necessarily those of the Federal Reserve Bank of Cleveland or the Federal Reserve System.     

A role for preferred stock in the financing decision of a public utility

Summary We have shown that preferred stock has a unique role in the financing of public utility capital expenditures, particulary when returns allowed by regulatory commissions are perceived to be inadequate. From the firm's perspective there is no tax advantage for debt because the commission effectively passes the tax savings through the consumers. If allowed returns on common stock are inadequate and the firm has exhausted its perceived debt capacity, then preferred stock becomes the optimal financing instrument. The regulatory commissions compute the costs of debt and preferred stock so that companies can expect returns to cover payments on debt and preferred stock if the assets being financed are necessary and will be included in the rate base. During extremely bad years when revenues are much less than expected, the companies can delay or miss preferred stock dividends without running the risk of default. The data on new capital sources for the electric and gas utilities indicate that these companies made adjustments which are consistent with the implications of our model, but they did not follow the extreme policy of using only debt and preferred stock when market-to-book ratios for common stock were below one. Regulators have, on occasions, used capital structures for rate-making that differ from actual capital structures, and a utility might be penalized for using an extreme capital structure policy. The main emphasis of regulatory review of capital structure, however, has been on the debt component. One strategy would be to use a debt level that satisfies the regulatory commission and then adjust equity between preferred stock and common stock to maximize value for common stockholders.     

Is there a managerial life cycle? Evidence from the NFL

We use data from the NFL over 1920–2004 to examine the relationship between age and managerial performance controlling for other relevant influences. Our results indicate that age enhances performance up to a point at which increasing age predicts diminished performance—a managerial life cycle. Moreover, rates of change in the life cycle are relatively gradual, which is consistent with gradual changes in the marginal product of human capital and depreciation rates for human capital rather than levels that are fixed for long periods. With a lag of about 7–10 years, the effects are very similar to those found between age and athletic performance in previous studies by Fair. Copyright © 2006 John Wiley & Sons, Ltd.     

The role of employee communication in a changing health care environment

Employee communication and medical management are two vital components of an effective health care delivery system. They must work together to support appropriate, cost-effective care and the efficient consumption of resources.