Multidimensional Screening in Insurance Markets with Adverse Selection

Bundled coverage of different losses and distinct perils, along with differential deductibles and policy limits, are common features of insurance contracts. We show that, through these practices, insurers can implement multidimensional screening of insurance applicants who possess hidden knowledge of their risks, and thereby reduce the externality cost of adverse selection. Competitive forces drive insurers to exploit multidimensional screening, enhancing the efficiency of insurance contracting. Moreover, multidimensional screening allows competitive insurance markets to attain pure strategy Nash equilibria over a wider range of applicant pools, resolving completely the Rothschild–Stiglitz nonexistence puzzle in markets where the perils space is sufficiently divisible.     

Social learning with differentiated products

Learning from friends is a key process by which consumers acquire information about available products. This article embeds social learning in a model of firms producing differentiated products. I consider how the structure of social relationships between consumers influences pricing and welfare. In particular, how a variety of characteristics of social networks ‐ distribution of friendships, homophily, clustering, and correlations between an individual's preferences and number of friends ‐ influence these outcomes. I also find conditions under which consumer awareness and the sensitivity of demand to prices are useful measures of the informational efficiency of markets.     

Should more local governments purchase a bond rating?

We investigate whether issuers that choose to forgo a bond rating suffer an interest cost penalty greater than the cost of the rating. We use estimated ratings provided by Moody’s Investor Service to proxy for what the rating would have been if it had been purchased. We find that the primary factors associated with an issuer’s decision to purchase a rating are the rating expected by the issuer and the extent to which an issue is marketed locally. After controlling for self-selection bias, we find that the issuers that forgo a rating do not suffer an interest cost penalty.

Genetic Algorithms and Public Economics

To address common limitations of traditional economic models while maintaining a convenient mathematical framework, some economists have begun to employ genetic algorithms (GAs). GA optimization occurs in a way that may resemble the dynamics of actual decision making. It also alleviates any need for a closed form to the policy problem and can 'decide' between alternative optima. This paper provides a tutorial on the use of GAs in economics and constructs an example application in the area of tax policy formation. It also critically surveys the landscape of current uses, focusing on both the advantages and disadvantages of GAs in public economics contexts.     

Beyond belief: A benchmark for human resources

Many Human Resource (HR) professionals feel and believe that they have made progress during the 1980s. Unfortunately, without data to benchmark progress, assessments must depend on perception rather than evidence. To move beyond belief towards a national HR database, this article reports research on over 10,000 individuals in 1200 businesses in 91 firms. It establishes a benchmark for HR practices and HR professionals. It also highlights areas where HR professionals may focus attention to become more successful as business partners.     

GROUP EFFECTS AND BETA NONSTATIONARITY

Recent evidence indicates that while random diversification can lead to the elimination of the majority of systematic risk, the systematic selection of securities can result in significant group effects blocking this dissipation of unsystematic risk. The group effects associated with investment in growth, cyclical, stable and oil stocks found by Farrell and Martin and Klemkosky were reexamined while allowing for beta nonstationarity. It was found that the beta nonstationarity effect, while quite large for individual stocks and small portfolios tended diversify away quite quickly. It was further found that much of what has in the past been termed a group effect is actually the result of beta nonstationarity.     

Integer goal programming model for the implementation of multiple corporate objectives

The problem of long-range planning and investment project evaluation is complicated by the presence of multiple conflicting goals measured in incommensurable units, indivisibility of alternative projects, and the desire of management to consider mutually exclusive marketing-pricing strategies. The model proposed in this study attempts to allow for these complexities through the use of integer goal programming. It is the hope of the authors that this model will provide management with an additional decision-making tool for implementation of multiple corporate objectives.