Measuring Stigma: The Behavioral Implications of Disgust

Stigmatization of products and technologies can lead to large monetary losses even when there are no associative risks. This paper reports on experiments that provide insight into the behavioral responses of disgust from an economic perspective. We use a dead sterilized cockroach to ‘contaminate’ drinking water and generate willingness-to-pay (WTP) and willingness-to-accept (WTA) measures of participants’ reactions. These results are contrary to previous results from research not involving financial incentives, as most participants’ WTP and WTA values are near zero for drinking cockroach contaminated water. Additionally, filtration of cockroach water leads participants to become significantly more likely to request compensation compared to spring water, but it does not result in requesting significantly more money to drink it. Finally, WTP and WTA differences can be explained by participants’ decision on whether or not to request compensation and not by the amount of compensation.     

Towards a contingency theory of corporate planning: a systematic literature review

A major research stream examines corporate planning in its context by drawing on the contingency approach, which forms a major theoretical basis for the fields of strategic management and management control. This research paper provides a comprehensive review of this research stream and identifies important contingency factors, recurring results, and commonalities with the theoretical basis of the contingency approach. It reviews 195 studies that investigate the context factors of corporate planning at the organizational level of analysis and were published in ranked academic journals since 1967. This review contributes three findings to a contingency theory of corporate planning. First, this research stream is highly fragmented, replication of findings is scarce, and the cumulative growth of knowledge is restricted. My review shows that 866 different causal models link 30 context factors and 54 design aspects of the corporate planning system, and yet 498 of these causal models are only addressed in one single study. Second, the majority of contingency studies employ the selection fit approach and cross-sectional data. The more rigorous tests of contingency hypotheses, interaction fit and system fit approaches based on longitudinal data, are relatively scarce. Third, this review highlights consistent results across divergent research settings and designs. Thus, it identifies four important context factors of a corporate planning system: (a) management and planning philosophy, (b) organizational size, (c) environmental uncertainty, and (d) task interdependence. This comprehensive set of context factors facilitates the development of a more pronounced contingency theory of corporate planning.     

Are Rational Expectations Equilibria with Private Information Eductively Stable?

The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.revised version received September 11, 2003     

Bestimmung von Deckungsgrenzen bei nicht-proportionalen Rückversicherungsverträgen: Selbstbehalte in Abhängigkeit von Risikoeinstellungen

Risk measures and accordingly risk measurement increasingly gains in importance in economics. Over the past years risk measures were already used at credit and shareholders' equity depositations due to Basel II regulations. The article now introduces a hybrid decision modell and applies it to the reinsurance business. The modell uses a convex combination of risk measures and therewith enables the modelling of risk attitudes. First of all, by doing that, it can be shown, which risk attitude leads to the acceptance of a reinsurance contract, and secondly which deductible an insurer is prepared to undertake. Consequently it is possible to determine the risk attitudes of insurers. In turn, on knowledge of risk attitudes, it becomes possible to generate recommendations of the extent of the deductible at similar reinsurance contracts.     

Investor sentiment and stock returns: Some international evidence

We examine whether consumer confidence – as a proxy for individual investor sentiment – affects expected stock returns internationally in 18 industrialized countries. In line with recent evidence for the U.S., we find that sentiment negatively forecasts aggregate stock market returns on average across countries. When sentiment is high, future stock returns tend to be lower and vice versa. This relation also holds for returns of value stocks, growth stocks, small stocks, and for different forecasting horizons. Finally, we employ a cross-sectional perspective and provide evidence that the impact of sentiment on stock returns is higher for countries which have less market integrity and which are culturally more prone to herd-like behavior and overreaction.     

Estimating Beta-Coefficients of German Stock Data: A Non-Parametric Approach

Abstract

Although the consumption based asset pricing theory appears to be theoretically superior and more elegant than the beta pricing model, in practice the beta pricing model is more widely applied. Indeed, beta pricing models are one of the most widely adopted tools in financial analysis. They readily allow handling systematic risk as priced in financial assets. However, accurately estimating beta-coefficients is not as straightforward as implicitly suggested by Sharpe's standard market model, i.e. simply using the ordinary least-squares (OLS) regression. This is primarily because beta-coefficients cannot generally be assumed to be stable over time. In order to overcome this deficiency, we present and apply a non-parametric estimation technique that allows capturing this time effect and promises both more reliable estimates than obtained with an OLS regression as well as better manageability compared with the existing time-series approaches dealing with time-varying beta-coefficients. Estimation results for constant and time-varying betas are presented for portfolios of German industries.     

Business credit information sharing and default risk of private firms

We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms’ payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.     

Basic research, openness, and convergence

We study a model where economic growth is fueled by public basic-research investment and the importation of leading technology from foreign countries. In each period, the government chooses the amount of basic research, balancing the costs and benefits of stimulating growth through both channels. We establish the existence of steady states and the long-run share of technologically advanced sectors in the economy. Then we explore how different degrees of openness affect long-term incentives to invest in basic research. Our main insight is that higher openness tends to encourage more investment in basic research, which, in turn, yields a larger share of leading sectors. If, however, there are prospects of importing major technology advances, highly open countries will reduce basic research as such imports become particularly valuable.     

Raising juveniles

This paper investigates how families decide how juveniles use their time. The problem is analyzed in three variations: (i) a ‘decentralized’ scheme, in which parents control the main budget, but their children dispose of their time as they see fit, together with any earnings from work on their own account; (ii) ‘hierarchy’, in which parents can enforce, at some cost, particular levels of schooling and supervised work contributing to the main budget; and (iii) the cooperative solution, in which resources are pooled and the threat point is one of the non-cooperative outcomes. Adults choose which game is played. While the subgame perfect equilibrium of the overall game is pareto-efficient, it may yield less education than ‘hierarchy’. Restrictions on child labor and compulsory schooling generally affect both the threat point and the feasible set of bargaining outcomes. Families may choose more schooling than the legal minimum.