Spatial majority voting equilibria and the provision of public goods

This paper develops general equilibrium conditions for urban areas where a pure public good is provided at a level decided upon by majority voting. Models with a property tax and a head tax and external land ownership are analyzed, and equilibrium solutions are compared using a specific form for the utility function. Optimal cities are characterized and compared to those emerging from the majority voting equilibria. Models where aggregate land rent is divided equally among the urban residents are also developed.     

The "Invisible Hand"

The argument of the "Invisible Hand" is that the system of free enterprise benefits society in general even though it is not the aim of any particular economic agent to do that. This article proposes an analysis of why this is so. The key is that the morality of the market forbids only force and fraud; it does not require people to do good to others. Nevertheless, when all transactions are voluntary to both parties, that is exactly what we can expect to happen. This is both because the sum of the benefits of innumerable transactions, which are beneficial to both parties, is very great, but also and especially because of Positive Externalities. People use the particular products and services they get in market exchanges in ways that benefit others in ways not at all foreseen by the agents to those transactions at the time. These externalities range from the benefits of invention and ingenuity to the exercise of charity and philanthropy, all of which flourish in developed capitalist societies.     

Mitigating America's demographic dilemma by pre-funding social security

Financing Social Security benefits at current levels implies significant increases in payroll taxes within the next 20 years under current US demographic developments. Using a general-equilibrium overlapping-generations model with realistic patterns of fertility and lifespan extension, this study shows that future generations would be harmed during the demographic transition due to rising payroll taxes, which crowd out savings and slow real wage growth below the rate of technological progress. A faster rate of technological progress would mitigate only some of the payroll tax increase and its economic consequences but could not overcome them. Addressing the financing problem by reducing Social Security benefits as needed or by raising the eligibility age for benefits imposes major welfare losses on current or near term retirees. By contrast, a pre-funding of Social Security financed with consumption taxes more evenly spreads the welfare losses across generations, and it helps future generations, especially the poor, by stimulating capital formation.     

Wird der vom Regierungsentwurf eines VVG geplante Direktanspruch des Geschädigten gegen den Pflichthaftpflichtversicherer ein stumpfes Schwert? Zur Notwendigkeit eines Informationsanspruchs des Geschädigten in der neuen Pflichthaftpflichtversicherung

The amendment of the German Act on Insurance Contracts comprises a number of substantial modifications regarding liability insurance. The most important modification is the introduction of a direct claim against the insurer with regard to all compulsory insurances. Such a direct claim is up to now only known from the motor vehicle liability insurance. Yet, a direct claim will be advantageous for the aggrieved claimant only if he manages to identify the proper insurer. As a result of the structural differences to the motor vehicle liability insurance the act of identifying the insurer is almost utterly impossible for the claimant without any help by the insured. Thus the claimant must also be given a claim against the insured to be furnished with all necessary information regarding the insurer. This right originates from sec. 242 of the German Civil Code.     

Pricing Asian options in a semimartingale model

In this paper we studyy arithmetic Asian options when the underlying stock is driven by special semimartingale processes. We show that the inherently path dependent problem of pricing Asian options can be transformed into a problem without path dependence in the payoff function. We also show that the price is driven by a process with independent increments, Levy processes being a special case. This approach applies for both discretely or continuously options.     

THE NUMÉRAIRE PROPERTY AND LONG‐TERM GROWTH OPTIMALITY FOR DRAWDOWN‐CONSTRAINED INVESTMENTS

We consider the portfolio choice problem for a long‐run investor in a general continuous semimartingale model. We combine the decision criterion of pathwise growth optimality with a flexible specification of attitude toward risk, encoded by a linear drawdown constraint imposed on admissible wealth processes. We define the constrained numéraire property through the notion of expected relative return and prove that drawdown‐constrained numéraire portfolio exists and is unique, but may depend on the investment horizon. However, when sampled at the times of its maximum and asymptotically as the time‐horizon becomes distant, the drawdown‐constrained numéraire portfolio is given explicitly through a model‐independent transformation of the unconstrained numéraire portfolio. The asymptotically growth‐optimal strategy is obtained as limit of numéraire strategies on finite horizons.     

Real call options to enlarge foreign subsidiaries – The moderating effect of irreversibility on the influence of economic volatility and political instability on subsequent FDI

This paper develops a real option model to explain the decision of enlarging a new foreign subsidiary by subsequent investment. The model is tested on a panel of 1148 subsidiaries in 22 host countries. The findings complement the traditional process model of firm internationalization. Rather than abiding by an incremental pattern of investment, internationalizing firms seem to keep foreign investment strategies flexible and build up their subsidiaries contingent upon the interaction of economic volatility and irreversibility of investment. However, the moderating effect of irreversibility on the relationship between uncertainty and investment may not hold for downside risks such as political instability.     

Does microcredit reduce the gender gap in employment? Evidence from Egypt

In Egypt, there is a remarkable gap between men's and women's participation in the labour market. In this study, we examine the impact of microcredit on the labour supply of men and women and subsequently investigate whether microcredit can reduce the employment gap between men and women in Egypt. We find a negative effect of microcredit on men's employment, but a positive effect on the employment of women. Borrowing from a microcredit source increases the probability of women working by 8.5 percentage points and mainly affects self‐employed work. We also find a positive effect of microcredit on work in small businesses. This finding suggests that women can use microcredit to open small shops or household businesses. Finally, using decomposition analysis, we find that microcredit reduces the overall employment gap between men and women by 0.743%.     

Analyzing the effect of derivatives on the financial soundness of commercial banks in Italy: An approach based on the CAMELS framework

Italian economy is among the biggest economies in the Europe which suffered from the repercussions of the global financial crisis during this last decade. The weakness of Italian banking system coincides with the common debate about the implication of derivatives in the distress of banks’ soundness. Thus, the aim of our research is to examine the effect of derivative instruments on the banks’ soundness in Italy. To reach our goal, the CAMELS approach is employed to define the soundness of Italian commercial banks. To overcome the endogeneity issue of variables, an appropriate econometric procedure, namely the dynamic Generalized Method of Moments (GMM system) is applied using data from 22 commercial banks in Italy over the period 2005–2015. Explanatory variables are defined by derivative instruments (forwards, swaps, options, and futures), bank‐specific variable (bank's size as non‐CAMELS variable), industry‐specific variables (CR3, CR5, and HHI as indicators of bank's sector and market concentrations), and country‐specific variables (GDP and inflation). The main results reveal that the majority of the CAMELS indicators are favorably affected by derivative instruments especially forwards and options. The most important conclusion is that using derivative instruments does not threaten the financial soundness of commercial banks in Italy. As major implication decision‐makers and experts—after the global financial crisis—should not consider derivatives in part as responsible of the fragility of the Italian banking system.