Hedging,Financing and Investment Decisions: A Simultaneous Equations Framework

We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.     

Communities of tomorrow

The social spotlight seems to be refocusing to the scale of local community at a time when globalisation of the economy is threatening the authority of nation-states. Certain small communities are in peril of falling out of the global economy while losing local customs to a globalised culture. Globally beleaguered nation-states are being squeezed in a two-pronged grip: from the growing weight of global capital and from local communities rising to global pressures by demanding local solutions. National authority is also being bypassed as new global communities of interest form on the Internet, expanding the meaning of the term community. But, is community more than common interest—a celebration of difference, negotiating symbiosis among diversity of ethnicity, lifestyle and aspirations for the future? This paper explores five scenarios of tomorrow’s communities. One scenario is a nostalgic return to the romantic notion of the white-picket fence. Then there is the drop-out feral community. In another future the fence becomes a fortress wall, or a ring of barbed wire. Yet another is a virtual community beyond place, where people sharing a common interest live in cyber-reality. The viable community is one for the long haul. To be viable in a global world it must make local-global links to create synergies by sharing resources and inspirations throughout a diverse, planetary society. Viable, local-global network communities of tomorrow set a global example for creativity by honouring difference and open exchange. They take responsibility for their own futures.Two powerful images from recent events remain with me, in juxtaposition. After considering the American attacks on Afghanistan, a well-experienced teacher feels isolated at the periphery, and powerless. In addition, she watches, in “quiet despair”, one of her pupils “virtually going crazy” before her eyes. She shares these words with me:

“Neither he nor I, it seems, have anywhere to run except to the graciousness and the care of the other children, that as classroom leader I’m tying daily to coalesce, in order to put a cocoon of community around him. Bit like the planet!”

“We all work to keep our very bright and fairly disturbed ADHD-labelled¹ learner connected to us in genuine relationship. That’s the foundation of authentic learning support. I’m not operating a medical model!”

Our leaders and the babbling mass media ignore this, the first image, and many similar to it.By contrast, the second image gets constant exposure. It gets instant recall from most TV viewers. It is the scramble of screen jockeys, on what is left of Wall Street, playing the casino economy, in a frenzy of greed. Curiously the main media focus emphasizes images that represent the world at the global scale. They largely ignore images of life at the scale of community.Why is this? Why does the second image of the so-called finance community, where the focus is the dollar, override the more basic image of a hometown community where the focus is human life-support? Are the media reflecting our true priorities, and have we got it wrong? Is money more important than community?     

Accounting for Option–based Compensation: The Economic Cost Approach

The intrinsic value approach amortizes over the life of the option, the difference between the stock price on the date of the grant and the exercise price of the option. The fair market value approach amortizes over the life of the option, the market value of stock options on the date of the grant. These approaches do not reflect the changes in the option–based compensation cost after the grant date. This paper proposes an economic cost approach that not only adjusts for the changes in the value of the options during its life but also records the issuance of the stock at fair market value on the exercise date.     

Using Medicare data for short-run projections of the elderly population.

As the elderly population of the United States grows in absolute number and as a proportion of total population, accurate projections of that population become increasingly important for sound policy decisions. Cohort component techniques are typically used for state and local projections of the elderly population, but are often outdated or even nonexistent for many local areas. This paper suggests an alternative approach, based on Medicare data and simple projection techniques. Projections for several base periods and projection horizons are made for all states and for counties in Florida and are compared with actual Medicare enrollment. On the basis of these comparisons it appears that Medicare data and simple projection techniques can produce very useful short-run projections of the elderly population for states and local areas.     

Unemployment compensation and episodes of nonemployment

This paper examines the influence of unemployment insurance (UI) on the length of nonemployment spells experienced by young workers. The analysis introduces a flexible duration model to estimate the effects of the weekly benefit amount and weeks of eligibility on the amount of time spent between jobs by men, distinguishing between the experiences of UI and non-UI recipients. The empirical findings suggest three conclusions: (1) UI recipients experience longer spells of nonemployment than their non-UI recipient counterparts, at least up to the point of exhaustion of UI benefits; (2) the level of the weekly benefit amount does not significantly affect the length of nonemployment spells; and (3) increasing the number of weeks of eligibility offered by a UI program leads to longer episodes of nonemployment.     

Issues in the estimation and application of latent structure models of choice

Our paper provides a brief review and summary of issues and advances in the use of latent structure and other finite mixture models in the analysis of choice data. Focus is directed to three primary areas: (1) estimation and computational issues, (2) specification and interpretation issues, and (3) future research issues. We comment on what latent structure models have promised, what has been, to date, delivered, and what we should look forward to in the future.     

An Option-Pricing Approach to the Costs of Export Credit Insurance

This article investigates the relationship between a debtor country's external financial indicators and the costs associated with the insurance of export credits to that country. For this purpose a stylized model of export credit insurance (ECI) is developed, the central idea being that ECI is similar to a contingent claim such as a European put option. Thus, tools from option pricing theory were used to calculate the price of ECI, implying that not only the current financial position but also the volatility of the changes in that position determine such costs. The empirical results of a statistical analysis of the premium rates for ECI, applied by a private export credit insurer to seventy-seven developing countries during 1993, provide some support for these hypotheses. In particular, the reserves-over-imports ratio of a debtor country and the volatility of the rates of change of this ratio appear to contribute significantly to the premium rates that apply to that country. Thus, the article provides evidence that option pricing parameters do play role in practical insurance pricing, even if this pricing is not explicitly based on these parameters. Premium rates are set as if an underlying option market operated. Thus, the trade of countries with volatile external financial positions is saddled with higher costs than that of countries with more stable positions.     

Retail pricing: Does channel length matter?

The number of intermediary levels between a manufacturer and the final market in a distribution channel varies from industry to industry. In some cases, none are used (i.e. the distribution function is vertically integrated), while several middleman levels are used in other cases (e.g. the use of a wholesaler, a jobber, and a retailer in the distribution of meat). In this paper we examine the effect of competition on the profit-maximizing length of the distribution channel. We find that the optimal number of middleman levels increases with the substitutability of products in the market, but that there are institutional limits on the maximum number of levels in a channel. The analysis also suggests that differences in the objectives of channel members (e.g. the maximization of total channel profit versus the maximization of each member's individual profit) affect optimal channel length: a goal of total channel profit maximization produces a channel at least as long as one of individual (non-co-operative) member profit maximization. The work thus complements existing research focusing on intra-channel (e.g. cost-based) explanations of channel length, using a framework similar to those investigating competitive incentives for vertical integration in distribution.