The Damoclean tax and innovation

The paper presents a novel tax that is designed to improve the performance of research and development (R&D) investments. Ideally, the tax allows the technical efficiencies of monopoly while bringing about the desirable effects of the competitive pressure of R&D rivalry. Thus, with the tax, the state can sanction a monopoly of R&D investment in order to attain technical efficiencies and yet avoid the underinvestment in R&D that would result without competitive pressures. A critique of the tax emphasizes the problems of implementing it and offers a more practical alternative that would achieve the same desirable effects.     

TESTS OF THE BLACK-SCHOLES AND CONSTANT ELASTICITY OF VARIANCE CURRENCY CALL OPTION VALUATION MODELS

An adaptation of the Cox-Ross/Emanuel-MacBeth call option valuation model for constant elasticity of variance diffusion processes is tested here against an adaptation of the Black-Scholes call option valuation model for the pricing of call currency options. Synchronized transactions data supplied by the Philadelphia Exchange are used. A maximum likelihood estimation procedure indicates a significant association between currency return variances and exchange rate levels. The constant elasticity of variance model exhibits significantly superior pricing accuracy for predictive intervals of three or fewer trading days.     

An Examination of Option-Implied S&P 500 Futures Price Distributions

Expected S&P 500 futures price distributions are derived using no-arbitrage option pricing models. These distributions are parameterized both as the lognormal and as a less restrictive three-parameter Burr-XII distribution. The resulting option-based probability assessments display some evidence of miscalibration very near to expiration and far from expiration, but are accurate over intermediate time ranges. The means of the implied price distributions correspond closely to the contemporaneous futures prices for both distributions, although marginally better with the Burr-XII. The Burr-XII distribution also performs better than the lognormal based on calibration statistics, and hence, is used to recalibrate estimated distributions.     

Rate Setting in the Utilities Industry: Does Size Make a Difference?

This study provides evidence that the “size effect,”which has been investigated extensively in the literature, has not been considered by regulators in the utility rate setting process. In essence, the results indicate the rates assigned to both large and small utilities have not differed significantly in the past, statistically. However, to be consistent with the behavior observed in the competitive financial markets, the rates regulators set should be significantly higher for small utilities compared to large utilities. The fact that this was not observed might suggest inequities exist in the rate-setting process.     

An Investigation of the Effect of the 1990 Reserve Requirement Change on Financial Asset Prices

In 1990, the Federal Reserve reduced reserve requirements on large, nonpersonal time deposits and net Eurocurrency liabilities. In this article we provide evidence on who gained from the reduction in this tax. No evidence is found to suggest that large depositors gained by way of higher yields. Rather, evidence indicates a decline in Eurodollar interest rates relative to other money market rates. Evidence further shows that bank shareholders were recipients of abnormal share price appreciation following the announcement. There is little evidence to indicate that shareholders outside of the banking industry experienced similar abnormal gains.     

Transgenic varieties and productivity of smallholder cotton farmers in China

Genetically modified cotton varieties have greater production efficiency for smallholders in farming communities in China. We also find that the adoption of Bacillus thuringiensis (Bt) cotton varieties leads to a significant decrease in the use of pesticides. Hence, we demonstrate that Bt cotton appears to be an agricultural technology that improves both production efficiency and the environment. In terms of policies, our findings suggest that the government should investigate whether or not they should make additional investments to spread Bt to other cotton regions and to other crops.