A critical review of the “ladder of investment” approach

The “ladder of investment” is a regulatory approach proposed by Cave (2006), which has been widely embraced by national regulatory authorities in the European telecommunications sector. The approach entails providing entrants, successively, with different levels of access—the “rungs” of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements—albeit they have been traditionally viewed as substitutes—in promoting competition. The regulators, thus, have shown a strong interest in this approach. The paper provides a critical review of the ladder of investment approach by setting out its two underlying assumptions and discussing their validity with references to the related industrial organization literature.     

How to learn new tasks: Shop floor performance effects of knowledge transfer and performance feedback

We investigate how learning and the task performance of individuals are affected by different forms of knowledge transfer. Whereas previous research has proven the positive performance impacts of knowledge transfer, self-observation and feedback mechanisms individually, we explore the cumulative effect of these factors on learning and performance. With the help of two laboratory experimental studies reproducing manufacturing tasks that are typical for industrial production, we show that explicit knowledge transfer is superior to other forms of knowledge transfer. Externally provided performance feedback in the form of cost information and non-financial performance indicators has no effect on the order of different forms of knowledge transfer. Moreover, external feedback does not even have an additional significant performance effect on learning new tasks irrespective of the type of knowledge transfer.     

Forecasting development outcomes under alternative surplus labour assumptions

Economic forecasts are useful to policymakers both as aids to planning, and as baselines against which counterfactual scenarios can be compared. However, policy makers should be aware that assumptions relating to model structure can influence forecast results. We explore the sensitivity of forecasts to one aspect of model structure important in modelling developing economies: surplus agricultural labour. We outline a framework for modelling surplus agricultural labour that relies on average product remuneration. We embed this within a model of a developing economy (the Philippines) characterized by surplus agricultural labour. We compare the results of two forecasts that differ in their treatment of the agricultural labour market. In the first, the surplus labour theory is activated, establishing average product remuneration in agriculture. In the second, the surplus labour theory is not activated, creating a failure to recognize average product remuneration in agriculture. By comparing the two simulations, we show that failure to model the presence of average product remuneration, when it would be appropriate to do so, has an impact that would be material to economic planners, leading them to: under-estimate agricultural employment; over-estimate GDP growth; and, over-estimate important policy variables (like tax revenue) that are related to GDP growth.     

Physical and Economic Consequences of Sea-Level Rise: A Coupled GIS and CGE Analysis Under Uncertainties

This paper develops a modelling framework that links GEMINI-E3, a multi-regional, multi-sectoral computable general equilibrium model with a cost-benefit analysis approach at local level using geographical information system tools to assess the physical and economic consequences of sea-level rise (SLR) in the twenty first century. A set of future scenarios is developed spanning the uncertainties related to global warming, the parameters of semi-empirical SLR estimates, and coastal developments (cropland, urban areas and population). The importance of incorporating uncertainties regarding coastal development is highlighted. The simulation results suggest that the potential development of future coastal areas is a greater source of uncertainty than the parameters of SLR itself in terms of the economic consequences of SLR. At global level, the economic impact of SLR could be significant when loss of productive land along with loss of capital and forced displacement of populations are considered. Furthermore, highly urbanised and densely populated coastal areas of South East Asia, Australia and New Zealand are likely to suffer significantly if no protective measures are taken. Hence, it is suggested that coastal areas needs to be protected to ameliorate the overall welfare cost across various regions.     

FAIR RETIREMENT UNDER RISKY LIFETIME*

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime and compare the laissez‐faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare, allowing for a compensation for unequal life expectancies, and (2) the maximin on realized lifetime welfare, allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles as well as raising the retirement age. This result is robust to the introduction of unequal life expectancies and unequal productivities.     

Cumulative prospect theory and the St. Petersburg paradox

Summary. We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. The paradox occurs in particular in the setting and the parameter regime studied by Tversky and Kahneman [15] and in subsequent works. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability distributions and admissible parameter regimes for the weighting- and value functions for which finiteness of the subjective value can be proved. Alternatively, we suggest a new weighting function for CPT which guarantees finite subjective value for all lotteries with finite expected value, independent of the choice of the value function. Some of these results have already been found independently by Blavatskyy [4] in the context of discrete lotteries.Received: 14 October 2004, Revised: 6 May 2005, JEL Classification Numbers: C91, D81.We thank Pavlo Blavatskyy and Thorsten Hens for their helpful remarks regarding our paper. Moreover, we thank the referee for his constructive suggestions. This research was supported by the University Research Priority Program “Finance and Financial Markets” a research instrument of the University of Zürich.     

Are sponsorship announcements good news for the shareholders? Evidence from international stock exchanges

The objective of this study is to analyse investors’ perceptions of sponsorship’s ability to increase brand equity, through the impact of sponsorship announcement on stock market value. An event study method, based on a unique sample of 293 worldwide sponsorship announcements from 2010, shows substantial negative abnormal returns following announcement dates. In addition, a cross-sectional regression analysis reveals the influence of several featured factors. Philanthropic sponsorships and sponsorships of events with distinctive values are less negatively perceived by investors, but US companies exhibit more negative returns in shareholder value than other firms. This study offers no support for varying impacts of event audience, renewal agreement, property sponsorship and title sponsorship on abnormal returns though.     

Long-term reactions to large stock price declines and increases in the European stock market: a note on market efficiency

This study tests for underreaction and overreaction in European large cap markets by examining the abnormal returns of those stocks in the EuroStoxx 50 Index following large price increases and decreases. We find that large price increases and declines tend to be followed by average market returns. Thus, our results support the efficient market theory, rather than any of the behaviour finance hypotheses. This insight is contrary to price patterns found in various national markets.