Investment and concern for relative position

Economists typically analyze individuals' market behavior in isolation from their nonmarket decisions. While this research strategy has generally been successful, it can lead to systematic errors when agents' nonmarket behavior affects their market choices. In this paper we analyze how individuals' investment behavior changes as a result of nonmarket behavior. Specifically, we analyze a model in which individuals must decide how to allocate their initial endowment between two random investments, where the returns are perfectly correlated across individuals for the first investment but independent across individuals for the second. We consider an environment in which men and women match, with wealthier individuals more successful in matching. We show how individuals' concern about relative wealth can affect their investment decisions, and we provide conditions under which individuals bias their investments either toward or away from the investment with correlated returns. A modification of the model is used to explain why agents' investments might exhibit a home country bias.     

Social Security fixes--beware of conjurers!

Among the many proposals for reform, there is one that offers the best chance of truly solving Social Security's financial problems, these authors believe. That proposal would increase savings by requiring workers to invest an additional 2% of their covered wages in individual accounts. At retirement, 75% of the money would go toward buying the current level of Social Security benefits, and 25% would be given to the individual as an "extra" pension. Individuals, not the government, would control investment of these accounts.     

When are thrift institutions closed? an agency-theoretic model

This article examines the determinants of both book-value insolvency and regulatory closure in the thrift industry. Agency theory suggests that the determinants of insolvency and closure are a function of conflicts between shareholders and creditors, shareholders and managers, and regulators and taxpayers. Certain thrift attributes may have differing effects upon insolvency and closure because regulators' best interests may not be served by promptly closing insolvent institutions. In this study, both thrift insolvency and thrift closure are modeled as functions of two broad risk factors: operating risk and agency risk. Using a bivariate probit model to jointly examine determinants of insolvency and closure, the analysis reveals that measures of both operating risk and agency risk generally are statistically significant with the expected signs, providing evidence consistent with the existence both of moral hazard by thrift oweners and of expense-preferent behavior by thrift managers. The results also show that agency conflicts between regulators and taxpayers are important in explaining why some thrifts were closed while others were not.Theviews reflected in this article are soiely those of the author and do not represent theviews or policies of the Board of Governors of the Federal Reserve System. Helpful comments were received from Robert Eisenbeis, Edward Kane, George Kaufman, Joseph McKenzie, Eugenie Short, and two anonymous referees. An earlier version of this article was presented at the 1990 Annual Meeting of the American Finance Association. Any remaining errors are solely the responsibility of the author.     

The effect of changes in ownership structure on performance: Evidence from the thrift industry

Restrictions on stock ownership may harm a company's performance, because restrictions prevent owners from choosing an optimal structure. We examine the stock-price performance and ownership structure of a sample of thrift institutions that converted from mutual to stock ownership. We find that after conversion and the expiration of ownership-structure restrictions, firm performance improves significantly, and the portions of the firm owned by managers and the firm's employee stock ownership plan increase. Changes in performance are positively associated with changes in ownership by managers, but negatively associated with changes in ownership by employee stock ownership plans.     

The application of "integrated marketing communications" to social marketing and health communication: organizational challenges and implications

Influencing consumer behavior is a difficult and often resource-intensive undertaking, with success usually requiring identifying, describing, and understanding target audiences; solid product and/or service positioning relative to competitors; and significant media and communication resources. Integrated marketing communication (IMC) is a new way of organizing and managing persuasive communication tools and functions which involves realigning communications to consider the flow of information from an organization from the viewpoint of end consumers. Although the application of IMC to social marketing remains relatively unexplored, the IMC literature and recent efforts by the US Centers for Disease Prevention and Control suggest that integrated communication approaches have much to offer social marketing and health communication efforts. IMC, IMC and social marketing, and implications of IMC for public and private sector social marketing programs are discussed.     

Book Reviews

Hadi Soesastro and Man Pangestu (eds), Technological Challenge in the Asia-Pacific Economy, Sydney: Allen & Unwin, in Association with the Pacific Trade and Development Conference Secretariat at the Australian National University, 1990, pp. xiv + 371. A$34.95.

Jeffrey D. Sachs and Susan M. Collins (eds), Developing Country Debt and Economic Performance, Voi 3: Country Studies - Indonesia, Korea, Philippines, Turkey. Book I: Wing Thye Woo and Anwar Nasution, Indonesian Economic Policies and Their Relation to External Debt Management, Chicago and London: University of Chicago Press for the National Bureau of Economic Research, 1989, pp: x + 821 (Book I, pp. 17-149).

Yoon-Je Cho and Deena Khatkhate, Lessons of Financial Liberalization in Asia: A Comparative Study, Washington DC: The World Bank, 1989, pp. xviii + 228.

Nick Devas (with Brian Binder et al.), Financing Local Government in Indonesia, Monographs in International Studies, Southeast Asia Series, No, 84, Athens, OH: Ohio University Center for International Studies, 1989, pp. xvi + 344. US$14.00.

James Clad, Behind the Myth: Business, Money and Power in Southeast Asia, London: Unwin Hyman, 1989, pp. xii + 275. £14.95.

Lea Jellinek, The Wheel of Fortune: The History of a Poor Community in Jakarta, Asaa Southeast Asia Publications Series 18, 1991, pp. xxviii + 214. A$24.95.

Daniel Benoit, Patrice Levang, Marc Pain and Olivier Sevin, Transmigration et Migrations Spontanees en Indonesie [Transmigration and Spontaneous Migrations in Indonesia]: Propinsi Lampung, Paris and Jakarta: Orstom (Institut Francais de Recherche Scientifique pour le Developpement en Cooperation) and Department of Transmigration, 1989, bilingual text in French and English, pp. 444, large Size (21 × 30 cm), + 20 separate maps (50 × 56 cm) + wall map (100 × 118 Cm).

J. W. Taco Bottema, Hoky Siregar, Sahat M. Pasaribu, Govert Gijsbers and Rofik S. Basuki, Potato in Indonesia: Prospects for Medium Altitude Production, CGPRT No. 21, Bogor: CGPRT, 1989, pp. xxvi + 136.

CGPRT, Soybean Commodify System in Indonrsio. CGPRT No. 3, Bogor. CGPRT, 1988, pp. xvi + 83.

BRIEFLY NOTED: H.W. Arndt, Pembangunan Ekonomi Indonesia: Pandangan Seorang Tetangga [Indonesian Economic Development: As Seen by a Neighbour], Yogyakarta: Gadjah Mada University Press, 1991 [translation edited by Mubyarto], pp. xi + 286.

David Anderson (Ed.), Australia and Indonesia: A Partnership in the Marking, Sydney: Pacific Research Institute, 1991, pp. 63. A$5.00.     

Farmers' Preferences for Alternative Crop and Health Insurance Subsidy

In addition to production risks, farmers desire to balance personal risks of health care. A theoretical framework is developed for holistic health and crop insurance products that provide the opportunity to switch a portion of existing crop insurance subsidy for greater health coverage. A random utility discrete choice experiment is used to assess farmers' stated preferences for holistic insurance products. Farmers prefer higher levels of coverage and are price sensitive. A sample of farmers did not prefer the subsidy switch. However, the subsidy switch is preferred by older farmers, those with higher health care spending, and farmers who have experienced major health problems.     

Modified duration and convexity with semiannual compounding

Both duration and convexity are a function of the curvilinear bond price: yield relationship. While duration measures the slope of the price:yield curve at a given yield-to-maturity, convexity measures the change in duration at this yield-to-maturity. Three shortcomings exist in the presentation of bond price volatility in financial education. First, modified duration and convexity should be used together as measures of bond price volatility. Second, these measures of bond price volatility should properly reflect semiannual compounding. Third, simple linear models for modified duration and convexity should be generally adopted in financial education literature.