Measurement error and panel data1

The underidentification of linear models with measurement error does not necessarily extend to panel data models, as has been shown by GAiliches and Hausman (1986). We discuss and extend some of their results for a simple case and address particular issues concerning identification and asymptotic variances.     

Analysis of interbudgetary financial flows in the Republic of Buryatia in 2001–2005

Financial flows between center and region are analyzed on the example of the Republic of Buryatia. Significant changes are shown to have occurred in the interbudgetary relations between the federal center and the region, which are associated with a revised delineation of authorities between different levels of authority. It has been the key factor in changing the sources and volumes of financial flows. The analysis is largely focused on the relations between the region and its municipalities.     

Call Options and Liquidation in Commercial Mortgage Financing

This paper models a commercial real estate project where a wealth-constrained manager uses outside debt financing to purchase a project who's return depends on future economic conditions and the manager's investment in the project. It is shown that it is inefficient to finance the project with callable debt. This prediction is consistent with observed real estate financing practice. I also model the outcome of financial distress allowing for (1) debt forgiveness, (2) equity in exchange for debt forgiveness, and (3) foreclosure. The model motivates (1) why commercial real estate loans are often foreclosed, and (2) why lenders foreclose assets at fire-sale prices.     

AN EMPIRICAL EXAMINATION OF RELATIONSHIP MAGNITUDE

Based upon a review of the extant literature, it is proposed that the structure of an interorganizational relationship is composed of relationship type and the under‐researched construct of relationship magnitude. Specifically, it is hypothesized that relationship magnitude, a second order construct composed of trust, commitment, and dependence, affects relationship type, which affects the perception of value of the relationship. The results of a survey analyzed through structural equation modeling support these hypotheses.     

Decomposition of Fraud‐Risk Assessments and Auditors' Sensitivity to Fraud Cues*

Practitioners and regulators are concerned that when auditors perceive management's attitude or character as indicative of low fraud risk, they are not sufficiently sensitive to high levels of incentive or opportunity risks in their overall fraud‐risk assessments. In this study, we examine whether a fraud‐triangle decomposition of fraud‐risk assessments (that is, separately assessing attitude, opportunity, and incentive risks prior to assessing overall fraud risk) increases auditors' sensitivity to opportunity and incentive cues when perceptions of management's attitude suggest low fraud risk. In an experiment with 52 practicing audit managers, we find that auditors who decompose fraud‐risk assessments are more sensitive to opportunity and incentive cues when making their overall assessments than auditors who simply make an overall fraud‐risk assessment. However, this increased sensitivity to opportunity and incentive cues appears to happen only when those cues suggest low fraud risk. When opportunity and incentive cues suggest high fraud risk, auditors are equally sensitive to those cues whether they use a decomposition or a holistic approach. We discuss and examine potential explanations for this finding.     

Endogenous Group Formation

While the rules governing the formation of groups engaging in collective action may have significant impact on group size and behavior of members, most experiments on public goods have been conducted with the subjects in exogenously fixed groups or of fixed sizes. We study endogenous formation of groups in a public‐goods provision game by allowing subjects to change groups under three sets of rules: free entry/exit, restricted entry with free exit, and free entry with restricted exit. We find that the rules governing entry and exit do have a significant impact on individual behavior and group‐level outcomes.     

Background Risk and the Performance of Insurance Markets under Adverse Selection

Background risk can influence the performance of insurance markets that must deal with adverse selection when applicants are risk vulnerable, since they are more averse to bearing the insurable risk as a result of their exposures to background risk. We show that background risk always results in a lower deductible for the incentive constrained contract, and that a broader range of markets attains the stable sequential equilibrium cross-subsidized pair of separating contracts. We conclude that background risk always improves the performance of markets for coverage against (insurable) foreground risks that must deal with adverse selection. We also find, however, that these improvements are never sufficient to offset the cost to insureds of bearing the background risk.     

Seeking convergence between history and futures research

The objective of this paper is to analyse how much the traditions of history research (HR) and futures research (FR) have in common and how they could assist each other. First, the role of time is analysed. Second, the path dependence theory, strategic decision-making, knowledge management and visionary management are discussed. Examples of the application of the latter in water and sanitation services and their long-term development are shown. Finally, some argumented views are presented on how the convergence between FR and HR could be improved.The key point of this research is the seeming discontinuity between presents, recent pasts and near futures. The traditions of HR probably make it more difficult to assess the effects of strategic decisions on the recent. If more convergence is wanted, the gap should be filled somehow. On the other hand, the core of FR research seems to concentrate more on strategic and visionary horizons while perhaps neglecting the operational horizon of the near future.