WORLD OUTLOOK

Events in the Gulf have finally brought an end to the world economic boom of the last eight years. The oil price shock itself is only partly responsible for the downturn. The previous tightening of monetary policy in the face of inflationary pressures and the end of a rapid period of credit and asset price expansion had severely weakened the ability of some economies to respond to the shock. This is reflected in the diversity of response, most obviously in the United States where Fed fine tuning and the credit crunch have already weakened the economy. The rise in oil prices has led to a sudden collapse in consumer confidence and a swift cutback in output. Although we do not expect the recession to be deep, the financial problems will delay recovery. The Japanese economy was already in financial difficulties before the shock, although the real economy was stronger and here we expect a sharp deceleration from almost 6 per cent growth last year to around 3.5 per cent. In contrast the German economy, partly shielded by the substantial appreciation of the DM over the last year, has been affected less by the oil price shock and we expect the consumer and investment boom to continue this year as the economies merge. This provides a welcome boost to other European economies.     

Risk and the miller equilibrium: Capital structure choice with risk-averse investors

Merton Miller's (1977) tax model of equilibrium capital structure choice results in capital structure irrelevance and the existence of tax clienteles, assuming the restrictive case of risk-neutrality. Relaxation of the assumption of risk-neutrality in Miller's tax framework, allowing utility-maximizing risk-averse investors, indicates that capital structure irrelevance continues to hold under reasonable assumptions about utility. Evaluation of resulting tax clienteles shows that marginal tax rates do not restrict investors from investing in equities but do affect the tax status of purchased bonds.     

THE LAST MILE: AN EXAMINATION OF EFFECTS OF ONLINE RETAIL DELIVERY STRATEGIES ON CONSUMERS

The Internet has increased the level of importance of the end‐consumer market to transportation carriers. In two between subject experiments, carrier disclosure on retail merchant websites is examined as a strategic differentiation strategy. Predictions are offered concerning effects of carrier disclosure strategies on product delivery‐related expectations, consumer attitudes, and intentions to purchase a product online. Results from Study 1 reveal significant differences between disclosure and nondisclosure of the carrier for numerous product delivery‐related variables, as well as many differences between the six carriers examined in this first study. Study 2 extends these findings by showing that providing consumers with a choice of carrier leads to increased levels of satisfaction with the online experience and greater willingness to buy, relative to nondisclosure and disclosure strategies.     

Risk Management Using Quasi–static Hedging

In this paper, we try to develop a comprehensive theory of risk management for illiquid trading instruments and exotics by examining the consequences of a quasi–static hedging strategy. In contrast to a static hedging strategy, in which an initial hedge once executed is kept in place for the life of the trade, and a dynamic hedging strategy, in which hedges are frequently adjusted over the life of the trade, a quasi–static hedging strategy utilizes hedge adjustments but tries to minimize the frequency. Almost all the examples studied in the framework introduced here take this minimization to the extreme by limiting hedge adjustments to at most one during the life of a trade. We examine the application of this approach to long–dated forwards, long–dated options and exotic options such as cliquet and barriers. The model we present for barriers is a new generation of the Derman–Ergener–Kani approach which combines the flexibility of the approach with a sizable increase in model independence.     

Modeling ethical attitudes and behaviors under conditions of environmental turbulence: The case of South Africa

This study explores the impact of environmental turbulence on relationships between personal and organizational characteristics, personal values, ethical perceptions, and behavioral intentions. A causal model is tested using data obtained from a national sample of marketing research professionals in South Africa. The findings suggest turbulent conditions lead professionals to report stronger values and ethical norms, but less ethical behavioral intentions. Implications are drawn for organizations confronting growing turbulence in their external environments. A number of suggestions are made for ongoing research. Michael H. Morris became the Fletcher Jones Chair in Entrepreneurship at the University of the Pacific, Stockton, CA in 1993. He received his Ph.D. in Marketing. He is the author of two books and over forty articles in academic journals, including the Journal of International Business Studies, the Journal of Business Research, the Journal of Management, and the Journal of the Academy of Marketing Science. Dr. Morris' principal research interests include entrepreneurial behavior, industrial marketing strategy, and pricing.Amy Seidel Marks has been a Senior Lecturer in Marketing at the GSB UCT since 1989. She holds a Ph.D. in Marketing from the Kellogg Graduate School of Management, and has worked in the areas of consumer behavior analysis and social marketing for 20 years. During her time in South Africa she has conducted numerous research projects in areas such as AIDS prevention, tobacco control and iodine deficiency, and has also served as a consultant to national projects in tuberculosis drug compliance, tobacco control and adult education.Jeff Allen received his doctorate from the University of Kentucky. He is currently an Assistant Professor of Marketing at the University of Central Florida, Orlando, Florida, Dr. Allen has published in various national and international academic journals on topics of social responsibility, marketing ethics, and health care marketing. Newman S. Perry, Jr. is Professor of Management, School of Business and Public Administration at the University of the Pacific in Stockton California. He has just completed Business, Government, and Society: Managing Competitiveness, Ethics, and Social Issues published by Prentice-Hall and previously coauthored a book on strategic management.     

Is Germany a model for managers?

Most American managers have a hard time making sense of Germany. The country has a fraction of the resources and less than one-third the population of the United States. Labor costs are substantially higher, paid vacations are at least three times as long, and strong unions are deeply involved at all levels of business, from the local plant to the corporate boardroom. Yet German companies manage to produce internationally competitive products in key manufacturing sectors, making Germany the greatest competitive threat to the United States after Japan. The seemingly paradoxical nature of the German economy typically evokes one of two diametrically opposed responses. The first is to celebrate the German economy as a "model" worth emulating--indeed, as the answer to declining U.S. competitiveness. The alternative, more skeptical response is to question Germany's staying power in a new, more competitive global economy. According to Kirsten Wever and Christopher Allen, the problem with both points of view is that they miss the forest for the trees. Observers are so preoccupied with praising--or blaming--individual components of the German economy that they fail to see the dynamic logic that ties these components together into a coherent system. In their review of recent research on the German business system, Wever and Allen argue that managers can learn an important lesson from Germany. In the global economy, competition isn't just between companies but between entire socioeconomic systems. Germany's ability to design a cohesive economic and social system that adapts continuously to changing requirements goes a long way toward explaining that country's competitive success.     

Sources of Sectoral Growth in an Economy Wide Context: The Case of U.S. Agriculture

Growth in U.S. agriculture is linked to the non-farm economy through domestic terms of trade and factor market adjustments. With almost stable input growth, the relatively large contributions from growth in Total Factor Productivity (TFP) are passed on to intermediate and final consumers in the form of declining real prices for primary farm products. The resulting net growth in the real value of farm output (GDP) is relatively low (0.25% per annum). The decomposition of TFP suggests that public agricultural stock of knowledge and infrastructure are robustly associated with TFP growth, while spill-overs from private agricultural and economy wide research and development (R and D) are positive but, relatively small.