MODELING LIQUIDITY EFFECTS IN DISCRETE TIME

We study optimal portfolio choices for an agent with the aim of maximizing utility from terminal wealth within a market with liquidity costs. Under some mild conditions, we show the existence of optimal portfolios and that the marginal utility of the optimal terminal wealth serves as a change of measure to turn the marginal price process of the optimal strategy into a martingale. Finally, we illustrate our results numerically in a Cox–Ross–Rubinstein binomial model with liquidity costs and find the reservation ask prices for simple European put options.     

Volatility Estimation with Price Quanta

Volatility estimators based on high, low, opening and closing prices have been developed, and perform well on simulated data, but on real data they frequently give lower values for volatility than the simple open–close estimator. This may be due to the fact that for real data, the maximum (or minimum) price is often at the beginning or end of the day. While this could not happen if the observed process was log Brownian, it could happen if the observed process were log Brownian, but observed only to the nearest penny. We develop the theory of such approximations to derive the corrected versions of the basic estimators.     

The Impact of Market Orientation on the Internationalization of Retailing Firms: Tesco in Eastern Europe

This paper investigates a Western retailer's market orientation levels in two emerging markets. We examine whether the market orientation-company performance link holds true for retailers in emerging economies, despite environmental differences. By using concepts from key studies we have assimilated a fully representative model - applied through interviews with top management from Tesco and its subsidiaries and affiliates in Hungary and Slovenia. Using this example, we find that the market orientation-business performance link is valid for Western retailers in emerging economies. Here, the retailer applied market orientation predominately through; the use of matching with suppliers of own brand goods; top management emphasis on market orientation and risk taking. Intelligence generation and dissemination was exercised via global processes such as brand review.     

Getting Wisconsin to work

Since the mid-1980s the state of Wisconsin has been pre-eminent in the field of welfare reform. With a consensus across the political spectrum, the state has pioneered a series of bold and innovative programmes which have slashed cash assistance by $30 million a month, compared with 1987 levels, and reduced its caseload by 85%. The latest programme, Wisconsin Works, is known as W-2, and is widely regarded as the most successful of the many welfare-to-work initiatives which have appeared throughout the USA.     

The value of intellectual property rights to firms and society

Economists view intellectual property rights (IPRs) as policytools for encouraging innovation, but they recognize that theycan also inhibit competition. There are many types of IPRs andinstitutions concerned with their administration. We begin byoutlining how these complex and varied rights are supposed towork and how they interact with other characteristics of firmsand markets. We then survey the available literature on patents,trade marks, and copyright to assess the value of these IPRsto firms and the costs to firms of acquiring and defending theirrights. The paper concludes with suggestions for topics requiringfurther research to inform public policy better.     

Aid Quality and Donor Rankings

This paper offers new measures of aid quality covering 38 bilateral and multilateral donors, as well as new insights about the robustness and usefulness of such measures. The 2005 Paris Declaration on Aid Effectiveness and the follow-up 2008 Accra Agenda for Action have focused attention on common donor practices that reduce the development impact of aid. Using 18 underlying indicators that capture these practices—derived from the OECD-DAC’s Survey for Monitoring the Paris Declaration, the new AidData database, and the DAC aid tables—the authors construct an overall aid quality index and four coherently defined sub-indexes on aid selectivity, alignment, harmonization, and specialization. Compared with earlier indicators used in donor rankings, this indicator set is more comprehensive and representative of the range of donor practices addressed in the Paris Declaration, improving the validity, reliability, and robustness of rankings. One of the innovations is to increase the validity of the aid quality indicators by adjusting for recipient characteristics, donor aid volumes, and other factors. Despite these improvements in data and methodology, the authors caution against overinterpretation of overall indexes such as these. Alternative plausible assumptions regarding weights or the inclusion of additional indicators can still produce marked shifts in the ranking of some donors, so that small differences in overall rankings are not meaningful. Moreover, because the performance of some donors varies considerably across the four sub-indexes, these sub-indexes may be more useful than the overall index in identifying donors’ relative strengths and weaknesses.