The Netherlands and the United Kingdom: a European unemployment miracle?

Unemployment rates in both the UK and the Netherlands have declined substantially since the early 1980s. This has been a decline in equilibrium unemployment, the result of combinations of supply-oriented policies. The combinations are partly overlapping and partly differing between the two countries. The main difference is in wage negotiations: where the Dutch unions were already co-operative, British unions were made to co-operate. The main overlap is in the popularity of part-time work and the re-enforcement of financial incentives for work for unemployed workers collecting benefits.     

Optimal Smoothing of Profit Via Overhead Allocation

Income smoothing, as defined in Statistical Activity Cost Theory (SACT), is the rational statistical adjustment of periodic accounting earnings to reduce their time volatility around average long-term profit per period. This article demonstrates how overhead cost allocations can be applied to smooth accounting earnings optimally in accordance with this definition. Such an approach parallels earlier work, such as that by Lane and Willett (1997 , 1999 ), in which a depreciation formula was derived and applied for this purpose. In particular, it is shown that, to realize an income smoothing effect in profit making firms, the usual optimal strategy is to over-allocate costs, giving support to the accounting principle of conservatism.     

Options and efficiency: Some experimental evidence

This paper examines the information aggregation role of options when agents possess diverse information about possible asset returns. We construct two identical experimental markets: one with and one without options. We find that options speed the information aggregation process. Asset markets that have parallel option markets aggregate traders' diverse information faster than markets where options trading is not available. Implied ranges were calculated from asset and option prices and compared to the actual ranges. These comparisons suggest that options may provide a means for agents to coordinate beliefs about asset values.     

The secularization of science and a new deal for science policy

The secularization of science, by analogy with the separation of Church and state, would divest all science funding from the state, except where it bears directly on matters of public policy. I argue for an intensification of this tendency, which is already occurring across the Euro-American world. I then explore the policy implications in some detail, including historical precedents in New Deal attitudes toward the role of science in public policy. I begin by reviewing the secularization of Christendom, which turns out to be intimately tied with the social ascendency of the natural sciences. I then explore more recent conditions that contribute to the secularization of science itself, during which I claim that the Cold War's scaling up of state support for scientific research should be regarded as a historical aberration that we are currently getting over. However, I still reserve a very strong role for the state in the public distribution of already existing knowledge, the primary vehicle for which will remain the university.     

DOLLARIZATION FOR ARGENTINA

In January 1999, President Carlos Menem suggested replacing the Argentine peso with the U.S. dollar. President Menem's announcement has sparked a debate throughout Latin America and Eastern Europe about what has been termed dollarization. That debate prompted U.S. Treasury Secretary Robert Rubin to deliver a major policy speech on alternative exchange-rate regimes on April 21, 1999 and the U.S. Senate Banking Committee to hold dollarization hearings the following day featuring Fed Chairman Alan Greenspan and Deputy Secretary of the Treasury Lawrence Summers.
This article presents a case for officially dollarizing Argentina. Dollarization is not new. Unofficial dollarization is widespread in emerging market countries; in fact, as much as 70% of the stock of U.S. dollars now circulates abroad. Twenty-eight countries and dependent territories are officially dollarized. Although official dollarization would result in Argentina losing seigniorage of about 0.22 percent of GDP, the author estimates that this cost would be more than offset by a reduction in interest rates that would increase Argentina's trend rate of GDP growth by about two percent.
After debunking the most common criticisms of dollarization, the article closes by offering recommendations about the specific form of dollarization and presenting a detailed dollarization statute for Argentina. The author proposes a competitive currency regime for Argentina, one in which all foreign money would be legal tender.     

Predicting mispricing of initial public offerings

This article investigates the ability of neural network models to predict mispricing of initial public offerings (IPOs). The aim is to improve the modest explanatory power of existing models that are based on the theory of asymmetrically informed economic agents surrounding post‐issue market value of IPOs. This study develops and compares linear regression and neural network models. The results show that modelling variable interactions and non‐linearity allows a potentially fruitful approach for stagging in IPOs. Neural networks have been criticized for being a black box; however, this paper shows that, by using sensitivity analysis, neural networks can provide a reasonable explanation of their predictive behaviour and direction of association between variables. Copyright © 2005 John Wiley & Sons, Ltd.     

Integrating Systemic Risk into Modern Portfolio Theory and Practice

Conventional wisdom holds that the performance of investment managers should be measured against some broad market index such as the S&P 500. The broad market averages provide a useful benchmark because they are assumed to be beyond the influence of investment managers and provide a way of capturing what financial economists call “systematic risk,” which is the part of total risk that cannot be avoided through portfolio diversification. But one clear limitation of such an approach to performance evaluation is that by focusing on risks and rewards at the portfolio level only, it fails to consider risks and rewards at a systemic level, where the performance of all portfolios is increasingly likely to be affected. The author begins by making the case that the performance evaluation and collective decision‐making of investment managers could have the effect of increasing the level of systematic risk in both the markets and the real economy. Then, after suggesting that the strength or weakness of environmental, social, and governance (ESG) frameworks can have substantial effects on overall market returns, he discusses a number of efforts currently underway to integrate ESG factors into portfolio‐level decision‐making. The author closes by urging asset owners to take the following three steps to help bridge the gap between investment decision‐making and ESG consequences: (1) acknowledge the connection between investment decision‐making and systems‐level risks and rewards; (2) determine which systemic frameworks are most appropriate and useful for their purposes; and (3) implement investment practices that allow them to manage systemic‐level risks and rewards while simultaneously achieving competitive financial returns in their portfolios. With the help of new measurement and management tools, asset owners can strengthen systemic frameworks, communicate the importance of ESG performance to their investees and investors, and align their efforts with those of governmental and non‐governmental organizations to limit systemic risk.     

Private Equity in the U.S.: Building a New Future

Despite the recent downturn, private equity firms still have an important role to play in the global economy. At the same time, many PE firms may need to rethink their strategies. Practices that have been worked in the past may not produce acceptable returns in a future, particularly given the current constraints on financing and leverage. One source of PE's comparative advantage, as demonstrated during the recent crisis, has been the ability of the best and most experienced firms to reorganize their portfolio companies when they get into financial trouble. But in addition to their financial management skills, specialized operating expertise has become more critical to success, and those PE firms that have not acquired it are especially likely to find that past success in raising capital is no guarantee of success in the future. The authors begin by providing a brief overview of the past three decades of global private equity to identify how the market arrived at its current position. Using the findings of academic research together with case studies and interviews with PE practitioners in the U.K., the authors suggest a number of building blocks for the future that reflect the considerable success of the most reputable and experienced PE firms in increasing the value of their portfolio companies.