Market Structures for U.S. Water Quality Trading

The use of transferable discharge permits as a water pollution control policy is rapidly increasing in the United States. Drawing on evidence from existing water quality trading programs, this paper provides a taxonomy of the forms that such markets take. Four main structures are identified: exchanges, bilateral negotiations, clearinghouses, and sole-source offsets. Each of these structures has its own strengths and weaknesses; none is optimal for all scenarios. Since market structure is largely determined by a program's rules, policy makers should be aware of the differences between these structures and the conditions under which each comes to be.     

“De‐risking” Corporate Pension Plans: Options for CFOs

Until the stock market bubble burst in 2000–2002, most CFOs viewed their defined benefit pension plans as profit centers and relatively risk‐free sources of income. Since neither pension assets nor liabilities were reported on corporate balance sheets, and expected returns on pension stocks could be substituted for actual returns when reporting net income, the risks associated with DB plans were masked by GAAP accounting and thus assumed to have no bearing on corporate capital structure. But when stock prices and corporate profits fell together, the risks associated with conventional stock‐heavy pension plans showed up first in reduced pension surpluses (or, in many cases, deficits) and then later in higher required cash contributions and lower reported earnings. As a consequence, today's investors (and rating agencies) are viewing pension and other legacy liabilities as corporate debt, and demands for transparency and increased funding have triggered accounting changes and proposed legislative reforms that will further unmask the economics. This article aims to provide both private‐sector and public‐sector CFOs with suggestions for reducing and controlling the cost of providing for the retirement of their employees. Profitable, tax‐paying companies with DB plans should consider (1) funding any unfunded liabilities (if necessary, by issuing debt) and (2) reducing pension equity and interest rate exposures by shifting some (if not all) pension assets into bonds and defeasing the pension liability (achieving a tax arbitrage in the process). And in cases where the expected costs of maintaining DB plans outweigh the benefits, companies should consider freezing or terminating their plans and switching to a defined contribution (DC) or some form of hybrid plan. The authors also propose similar changes for public pension plans, where underfunding and mismatch problems are greater, less transparent, and in some ways less tractable than those of corporate DB plans.     

The Effects of Occupational Injuries After Returns to Work: Work Absences and Losses of On-the-Job Productivity

We extend the research on postinjury employment by estimating productivity losses for workers with permanent partial disabilities (PPDs) in the first three years after injury. Our method distinguishes between productivity losses attributed to spells of work absence versus reduced earnings during spells of employment. The method is applied to data for 800 Ontario workers with PPDs. The results document large productivity losses persisting at least three years after injury, with different loss patterns for workers returning to stable versus unstable employment. Human capital investments or job accommodations can reduce productivity losses, but the significant determinants of losses differ for the stable versus unstable employment groups.     

Estimating the effectiveness of extension information systems using farm trials and subjective probabilities

A method of combining survey data and Dairy Herd Improvement Association (DHIA) records to achieve low cost farm trials is presented. Farm trials and surveys of current practices and production responses are useful to identify yield gaps between expectations predicted from experimental findings and actual field results. Different management schemes can be ranked using subjective probabilities and stochastic dominance to enhance successful implementation of research findings and to increase the feedback between researchers, extension workers, and producers. A survey of current masitis control practices and expected milk yield response is the example. Combining survey results with DHIA records allowed estimating the relationship between somatic cell counts (SCC) and milk yield. Eliciting beliefs about the relationship between SCC and milk yield showed that producers agreed with predictions from the statistical model. Subjective probabilities about SCC and mastitis control practices showed that our sample of experts and producers consistently ranked the different practices but extension agents had no consensus about the the most or least effective ones.     

Risk and the miller equilibrium: Capital structure choice with risk-averse investors

Merton Miller's (1977) tax model of equilibrium capital structure choice results in capital structure irrelevance and the existence of tax clienteles, assuming the restrictive case of risk-neutrality. Relaxation of the assumption of risk-neutrality in Miller's tax framework, allowing utility-maximizing risk-averse investors, indicates that capital structure irrelevance continues to hold under reasonable assumptions about utility. Evaluation of resulting tax clienteles shows that marginal tax rates do not restrict investors from investing in equities but do affect the tax status of purchased bonds.     

Organisation vs. culture: Japanese automotive transplants in the US

It has long been argued that the Japanese production organization is culture-bound and therefore not transferable to other countries. This article examines seven major Japanese automobile assembly plants and over 270 Japanese automotive parts suppliers in the US. The successful transfer of Japanese work and production organization in these ‘transplants’ suggests that Japanese production practices are organizational forms which can be uncoupled from Japanese culture and transferred to other countries.     

Do Small Banks have an Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large and Small Banks

Consolidation in the banking industry has sparked concern about the survival of small banks, particularly as it relates to the availability of credit to small businesses. However, if small banks have an advantage in processing credit information, compared to large banks, they should continue to survive in a competitive environment. We evaluate risk-adjusted commercial loan yields (gross yields less net charge-offs and the risk-free rate of return) at small and large banks for the period of 1996 through 2001. Our primary finding is that, after controlling for market concentration, cost of funds, and a variety of other factors that might influence yields, smaller banks earn greater risk-adjusted yields than larger banks. This result suggests that small banks make better choices from the available small business loans and is consistent with the notion that these banks have an information advantage in evaluating credit.     

THE EFFECTS OF THE INSIDER TRADING SANCTIONS ACT OF 1984: THE CASE OF SEASONED EQUITY OFFERINGS

Previous empirical research indicates that corporate insiders tend to increase (decrease) their shareholdings before events that increase (decrease) firm value. More recent evidence suggests, however, that passage of the Insider Trading Sanctions Act of 1984 (ITSA) may have deterred this behavior. Our results indicate that before passage of the ITSA, insiders exploited their access to nonpublic information by selling shares before the announcement of equity issues. However, after passage of the ITSA insiders no longer displayed this behavior. We conclude the ITSA has a deterrent effect, which is more heavily concentrated on insiders at the highest level of the firm who are most visible to regulators and other market participants.