Big is Beautiful: debunking the myth of small business,by Robert D. Atkinson and Michael Lind

Business Economics -     

Connected and autonomous vehicle injury loss events: Potential risk and actuarial considerations for primary insurers

The introduction of connected and autonomous vehicles (CAVs) to the road transport ecosystem will change the manner of collisions. CAVs are expected to optimize the safety of road users and the wider environment, while alleviating traffic congestion and maximizing occupant comfort. The net result is a reduction in the frequency of motor vehicle collisions, and a reduction in the number of injuries currently seen as “preventable.” A changing risk ecosystem will introduce new challenges and opportunities for primary insurers. Prior studies have highlighted the economic benefit provided by reductions in the frequency of hazardous events. This economic benefit, however, will be offset by the economic detriment incurred by emerging risks and the increased scrutiny placed on existing risks. We posit four plausible scenarios detailing how an introduction of these technologies could result in a larger relative rate of injury claims currently characterized as tail‐risk events. In such a scenario, the culmination of these losses will present as a second “hump” in actuarial loss models. We discuss how CAV risk factors and traffic dynamics may combine to make a second “hump” a plausible reality, and discuss a number of opportunities that may arise for primary insurers from a changing road environment.     

The Effects of Creative Culture on Real Earnings Management*

Creativity and innovation have been identified by senior executives as some of the most desired characteristics of corporate culture. Accordingly, managers strive to build these cultures within their organizations. However, research in psychology suggests that these attempts may have unintended negative consequences. In this study, I predict and find that managers in a more (versus less) innovative company culture will engage in higher levels of real earnings management (REM). I then test two construal level theory (CLT)-based interventions designed to reduce REM. As I predict, I find that in more innovative corporate cultures an intervention that makes downside risk more salient reduces REM, but an intervention that encourages managers to consider the “big-picture” impact of their decision reduces REM to a greater extent. Unexpectedly, I also find that the effect of the “big-picture” intervention reverses in a less innovative corporate culture leading to an increase in REM. My findings contribute to the emerging accounting literature regarding REM. I also extend the psychology literature investigating the link between opportunistic behavior and creativity, and I also expand research into how interventions based on CLT can affect judgment and decision making in an accounting context.     

Model misspecification,Bayesian versus credibility estimation,and Gibbs posteriors

ABSTRACT

In the context of predicting future claims, a fully Bayesian analysis – one that specifies a statistical model, prior distribution, and updates using Bayes's formula – is often viewed as the gold-standard, while Bühlmann's credibility estimator serves as a simple approximation. But those desirable properties that give the Bayesian solution its elevated status depend critically on the posited model being correctly specified. Here we investigate the asymptotic behavior of Bayesian posterior distributions under a misspecified model, and our conclusion is that misspecification bias generally has damaging effects that can lead to inaccurate inference and prediction. The credibility estimator, on the other hand, is not sensitive at all to model misspecification, giving it an advantage over the Bayesian solution in those practically relevant cases where the model is uncertain. This begs the question: does robustness to model misspecification require that we abandon uncertainty quantification based on a posterior distribution? Our answer to this question is No, and we offer an alternative Gibbs posterior construction. Furthermore, we argue that this Gibbs perspective provides a new characterization of Bühlmann's credibility estimator.     

The Political Economy of Medical Marijuana Laws Revisited

Atlantic Economic Journal -     

Hedging nontradable risks with transaction costs and price impact

A risk‐averse agent hedges her exposure to a nontradable risk factor U using a correlated traded asset S and accounts for the impact of her trades on both factors. The effect of the agent's trades on U is referred to as cross‐impact. By solving the agent's stochastic control problem, we obtain a closed‐form expression for the optimal strategy when the agent holds a linear position in U. When the exposure to the nontradable risk factor is nonlinear, we provide an approximation to the optimal strategy in closed‐form, and prove that the value function is correctly approximated by this strategy when cross‐impact and risk‐aversion are small. We further prove that when is nonlinear, the approximate optimal strategy can be written in terms of the optimal strategy for a linear exposure with the size of the position changing dynamically according to the exposure's “Delta” under a particular probability measure.     

Fair value accounting: Current practice and perspectives for future research

A fundamental issue debated in the accounting literature centres on the appropriate basis for measuring firms’ assets and liabilities. During the last several decades, scholars have generated a growing body of important insights about the use of the fair value measurement attribute in financial reports around the globe. In this paper, we provide an overview of the institutional background of fair value accounting and the associated accounting standards that prescribe the use of fair value measurements under International Financial Reporting Standards and Generally Accepted Accounting Principles in the US. We discuss and document the extent to which firms across different industries and accounting regimes recognize and disclose in their financial reports assets and liabilities measured at fair value and we reflect on aspects of the fair value accounting literature. In doing this, we identify several areas in which additional research can further our understanding of fair value measurements and disclosures.     

The State of the Welfare State

Books reviewed in this article:
J.M Wildeboer Schut, J.C Vrooman and P.T de Beer, On Worlds of Welfare: Institutions and their Effects in Eleven Welfare States
Jørgen Goul Andersen and Per H Jensen, Changing Labour Markets, Welfare Policies and Citizenship