Terrorism risk concern in Europe

Motivated by the Bayesian framework, we explore terrorism risk perception differences across European countries. Perception variation is explained by the long-term terrorism countries face, while the cyclical part of terrorism does not seem to play any role.     

On the determinants of credit rationing: Firm-level evidence from transition countries

Using survey data for firms from Eastern European transition economies we investigate the determinants of credit rationing. Our rationing definition incorporates firms whose loan application was rejected, but also ‘discouraged’ potential borrowers. We employ a bivariate probit with censoring, approach that accounts for the underlying selectivity since rationed firms are a subset of those without a loan. We include firm-specific attributes related to the alleviation of informational asymmetries, and therefore expected to affect credit rationing. We find that credit rationing depends on firm size, profitability, sales growth, ownership type, legal status, sectoral heterogeneity and the country-specific level of domestic credit.     

Do U.S. Insurance Firms Offer the “Wrong” Incentives to Their Executives?

We examine the relation between executive compensation and market‐implied default risk for listed insurance firms from 1992 to 2007. Shareholders are expected to encourage managerial risk sharing through equity‐based incentive compensation. We find that long‐term incentives and other share‐based plans do not affect the default risk faced by firms. However, the extensive use of stock options leads to higher future default risk for insurance firms. We argue that this is because option‐based incentives induce managerial risk‐taking behavior, which seeks to maximize managerial payoff through equity volatility. This could be detrimental to the interests of shareholders, especially during a financial crisis.     

Holistic investment assessment: optimization,risk appraisal and decision making

On deciding for the most appropriate investment when capital restrictions exist, investors define their alternatives and analyze each one of them. Traditionally, the definition, appraisal and analysis stages are treated separately. Herein, an innovative holistic method is proposed for bridging these stages. Within this method, investment attributes definition occurs by genetic algorithm optimization, while the analysis of the investment is realized through simulation. The method also proposes the NPV Expected Shortfall and the NPV Risk Preference Index as investment evaluation criteria. An illustrative case study of two mutually exclusive renewable energy investment scenarios is also used for demonstration purposes. Copyright © 2008 John Wiley & Sons, Ltd.     

Economics of export subsidies under costly and imperfect enforcement

The present paper builds on the published literature on agricultural policy analysis under costly and imperfect enforcement by introducing enforcement costs and misrepresentation into the economic analysis of export subsidies. Specifically, the present paper examines the economic causes of cheating on export subsidies and the consequences of enforcement costs and misrepresentation for the welfare effects and the transfer efficiency of this policy instrument. Policy design and implementation is modelled as a sequential game between a government that designs and enforces the policy and the recipients of the payments. Two alternative policy implementation scenarios are considered. In the first scenario, export subsidies are paid to private trading firms while in the second scenario subsidies are paid directly to the producers of the subsidised commodity. Analytical results show that the introduction of enforcement costs and cheating changes the welfare effects of export subsidies and their efficiency in redistributing income to producers. The analysis also shows that, contrary to what is traditionally believed, the incidence of export subsidies depends on the group that is subsidised to export the surplus quantity – the way the policy is implemented. The results provide additional support for the contention that the economic consequences of cheating are highly policy-specific. Finally, the analysis reveals that when the government faces restrictions on either the volume or the value of export subsidies, cheating reduces the distortionary effects of the policy on international markets. This is true irrespective of whether subsidies are paid to trading firms or to producers.     

Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters

Evidence from a large and growing body of empirical literature strongly suggests that there have been changes in the inflation and output dynamics in the United Kingdom. The majority of these papers base their results on a class of econometric models that allows for time-variation in the coefficients and volatilities of shocks. While these models have been used extensively for studying evolving dynamics and for structural analysis, there has been little evidence that they are useful for forecasting UK output growth and inflation. This paper attempts to fill this gap by comparing the performances of a wide range of time-varying parameter models in forecasting output growth and inflation. We find that allowing for time-varying parameters can lead to large and statistically significant gains in forecast accuracy.     

On the robustness of R&D

Alternative models of productivity predict a range of its determinants besides that of research and development (R&D). We investigate the robustness of R&D vis-à-vis a dozen productivity determinants in a panel of 16 Organisation for Economic Co-operation and Development countries through panel cointegration, bootstrap simulations and extensive sensitivity tests. Domestic knowledge stocks, international knowledge diffusion and human capital remain robust across all measures. The cross-country differences in accumulated knowledge stocks and human capital appear to explain productivity differences across countries.     

Human capital contributions to explain productivity differences

This paper develops a parametric decomposition framework of labor productivity growth relaxing the assumption of labor-specific efficiency. The decomposition analysis is applied to a sample of 121 developed and developing countries during the 1970–2007 period drawn from the recently updated Penn World Tables and Barro and Lee (A new data set of educational attainment in the world 1950–2010. NBER Working Paper No. 15902, 2010) educational databases. A generalized Cobb–Douglas functional specification is used taking into account differences in technological structures across groups of countries to approximate aggregate production technology using Jorgenson and Nishimizu (Econ J 88:707–726, 1978) bilateral model of production. The measurement of labor efficiency is based on Kopp’s (Quart J Econ 96:477–503, 1981) orthogonal non-radial index of factor-specific efficiency modified in a parametric frontier framework. The empirical results indicate that the weighted average annual rate of labor productivity growth was 1.239 % over the period analyzed. Technical change was found to be the driving force of labor productivity, while improvements in human capital and factor intensities account for the 19.5 and 12.4 % of that productivity growth, respectively. Finally, labor efficiency improvements contributed by 9.8 % to measured labor productivity growth.     

The effects of fair trade on coffee growers: a framework and analysis

The world coffee market has undergone a significant transformation in the past couple of decades resulting in declining farm prices despite the fact that coffee demand has been strong and consumer prices have been soaring. Fair Trade organizations have tried to address this price imbalance by providing an alternative method of trading aimed at increasing the prices received by coffee growers. Despite their noble objectives, Fair Trade movements have had limited success in improving coffee growers’ welfare, however. This paper utilizes a novel framework of heterogeneous producers and relevant market information to provide insights on the market and welfare impacts of the Fair Trade regime when important idiosyncrasies of Fair Trade production and marketing are included in the analysis.     

Infringement of Intellectual Property Rights: Causes and Consequences

A game-theoretic model of heterogeneous producers is developed to examine the economic causes and consequences of intellectual property right (IPR) infringement in the context of a small open developing economy. Analytical results show that complete deterrence of IPR infringement is not always economically optimal. IPR infringement affects economic welfare and has important ramifications for the pricing and adoption of the new technology (biotechnology). The quantitative nature of results depends on the labeling regime. If the TRIPs agreement follows the custom of retaliatory sanctions under GATT, IPR enforcement will remain imperfect and innovators' ability to obtain value for their biotech traits will be limited.