ASSET ALLOCATION AND ANNUITY-PURCHASE STRATEGIES TO MINIMIZE THE PROBABILITY OF FINANCIAL RUIN

In this paper, we derive the optimal investment and annuitization strategies for a retiree whose objective is to minimize the probability of lifetime ruin, namely the probability that a fixed consumption strategy will lead to zero wealth while the individual is still alive. Recent papers in the insurance economics literature have examined utility-maximizing annuitization strategies. Others in the probability, finance, and risk management literature have derived shortfall-minimizing investment and hedging strategies given a limited amount of initial capital. This paper brings the two strands of research together. Our model pre-supposes a retiree who does not currently have sufficient wealth to purchase a life annuity that will yield her exogenously desired fixed consumption level. She seeks the asset allocation and annuitization strategy that will minimize the probability of lifetime ruin. We demonstrate that because of the binary nature of the investor's goal, she will not annuitize any of her wealth until she can fully cover her desired consumption with a life annuity. We derive a variational inequality that governs the ruin probability and the optimal strategies, and we demonstrate that the problem can be recast as a related optimal stopping problem which yields a free-boundary problem that is more tractable. We numerically calculate the ruin probability and optimal strategies and examine how they change as we vary the mortality assumption and parameters of the financial model. Moreover, for the special case of exponential future lifetime, we solve the (dual) problem explicitly. As a byproduct of our calculations, we are able to quantify the reduction in lifetime ruin probability that comes from being able to manage the investment portfolio dynamically and purchase annuities.     

Rules and software for detecting rank degeneracy

We describe an algorithm that can be used to select a set of independent columns of a matrix when numerical rank can be determined, and we associate the uncertainty of the data with rank selection. Mathematical software written in Fortran which implements this algorithm is available for a variety of computing machines.     

Home alone and often unprepared – intercultural communication training for expatriated partners in German MNCs

This article reports the results of a study of partners who accompany the expatriated representatives of multinational corporations (MNCs) on overseas missions and identifies that they are mostly home alone and often unprepared. Following a review of the literature on issues related to expatriated partners, in particular intercultural communication training (ICT), the article presents the findings of empirical research conducted in Germany on current ICT trends for expatriated partners. The study identifies the ICT methods German MNCs use to support these partners before and during international assignments. The authors surveyed 141 German expatriated partners who went on overseas missions to 36 countries. The results of this research project indicate that traditional ICT is only provided to the minority of partners in German MNCs, follows no predictable time pattern, and is mostly perceived as rather useless by participants. Particular attention is paid, however, to the target culture in the ICT design. Non-traditional ICT methods, such as Look-&-See Trips, are rather generously taken advantage of.     

College Attainment of Women

Up to the late 1970's the Sex College Attainment Ratio (SCAR), or ratio of college attainment between men and women, was about 1.6. Assortative mating within education groups in marriages is strong enough in the United States to prevent accounting for the SCAR feature based on males' higher earnings. We document the puzzling nature of the SCAR, and we explore various theories to account for it. Our main finding is that if parents' well-being is affected by the number of grandchildren, gender differences in the steepness of the negative relation between educational attainment and number of children provides the best theory to understand the SCAR. Journal of Economic Literature Classification Numbers: J12, J16, I20.     

Television advertising television: measuring the ability of television promos to deliver ratings for new programs using single-source data

The entertainment industry relies heavily on advertising to attract audiences. This article demonstrates a method to measure the effect of on-air television promotions, or promos, on viewing behaviour, based on a well-established single-source method for determining the causal impact of advertising on sales. We illustrate this method on 18 new prime-time programs, showing that promos have a positive impact on viewing behaviour. Exposed viewers are substantially more likely to view the premiere episode of a new series, across a wide range of different television-viewing weights, frequency of promo exposures and program types. The research also shows evidence of reach-based scheduling strategies being generally more efficacious than frequency-based strategies. These findings provide guidance to help networks implement their promo strategy more effectively, as well as a method for future research into the effectiveness of television promos as this approach can be utilized in any country with a television ratings panel.     

Surpluses in Disequilibrium Urban Land Markets

It is unlikely that urban land markets are in equilibrium. If land markets are out of equilibrium, zones within an urban area would have residential location surpluses. This paper shows how to derive and estimate an index of income surplus by residential zone. The procedure is applied to the Baltimore Metropolitan Area for 1978. Households should be at attracted to zones with high surpluses. A comparison of the estimated location surpluses and growth rates for the Baltimore area show this correspondence.     

Encouraging organizational performance through the influence of technological distinctive competencies on components of corporate entrepreneurship

Firms’ technological distinctive competencies (TDCs) help CEOs to confront their reality based on technological knowledge to achieve and exploit competitive advantage by encouraging the different dimensions of corporate entrepreneurship (innovation, new business venturing, proactiveness and self-renewal). The main purpose of this paper is thus to highlight how companies that strive to improve technological competencies within the firm achieve higher organizational performance through different components of corporate entrepreneurship and their interrelationships. This study seeks to fill this research gap by analyzing theoretically and empirically how TDCs enhance innovation, new business venturing and proactiveness and their interrelationships to achieve self-renewal and thus improve firms’ organizational performance. The methodology used is LISREL analysis. We test the model with data from 201 Spanish organizations. Our research contributes theoretical and empirical arguments on the value of TDCs to the organization, arguments that are especially important because organizations sometimes fail to achieve sustainable competitive advantage due to their limited understanding of the relationships between these strategic variables.     

Risk aversion, moral hazard, and the principal's loss

Summary. In their seminal paper on the principal-agent model with moral hazard, Grossman and Hart (1983) show that if the agent's utility function is , then the loss to the principal from being unable to observe the agent's action is increasing in the agent's degree of absolute risk aversion. Their proof is restricted to the case where the number of observable outcomes is equal to two, and it uses an argument that is specific to that case. In this note, we provide an alternative proof that generalizes their result to any (finite) number of outcomes. Received: March 21, 2001; revised version: June 21, 2001     

Consensus Problem-Solving Increases Perceived Communication Openness in Organizations

Members of three established teams in different organizations participated in problem-solving sessions using a structured consensus model. Participants perceived a significant increase in communication openness during these sessions as compared to their previous problem-solving sessions. The increase in communication openness suggests an improved openness to the flow of information among team members. The results of this study provide early indicators of successful applications for this consensus model, including improving the participation of team members during strategic planning and enhancing the upward flow of information to senior decision-makers for purposes of organizational change and development.     

Authors’ Reply: Forecasting Social Security Actuarial Assumptions - Discussion by John A. Beekman; Cecil J. Nesbitt; Krzysztof M. Ostaszewski; Gregory Savord; Richard S. Foster,October 1997

Abstract

This study provides an economic analysis of life insurance company expenses and develops a methodology for the construction of benchmark expense factors. These benchmarks can facilitate the pricing of new business, cost control within companies, and expense comparisons among companies. We derive the expense factors by estimating a cost function wherein total general expenses are modeled as a function of input prices and physical outputs, and the physical outputs are proxies for the cost drivers of the different lines of business. This methodology has two important advantages: first, the derived expense factors are independent of the methods that insurers use in allocating total expenses across lines of business. Second, the estimated cost function explicitly accounts for different degrees of economies of scale and consequently in the present value of marginal expenses across insurers. Hence, this study demonstrates that economies of scale and, in turn, size must be considered when constructing an expense table.