Sector-specific capital, “Bang-bang” investment,and the Filippov solution

Bang-bang investment in a two-sector growth model with immobile capital is rational and leads to a unique and globally stable long-run equilibrium along a sliding trajectory. This steady state coincides with the stationary equilibrium in the traditional model with non-sector-specific capital.This article was written while the authors were visiting scholars at Cornell University. We gratefully acknowledge financial assistance from the Erasmus University Trust Fund and the Netherlands Scientific Organization. We would like to thank, without implicating, two anonymous referees, Martijn Herrmann, Jean-Marie Viaene, Claus Weddepohl, and the participants of seminars at the University of Maryland, the University of Montreal, and Erasmus University Rotterdam for perceptive remarks and useful comments. Jeroen Hinloopen and Rien Wagenvoort provided able graphical assistance. The views expressed in this article are those of the authors and not necessarily those of the World Bank.     

A way out of the credibility crisis of models used in integrated environmental assessment

Integrated Assessment Models (IAMs) have been widely used in environmental policy making because they simulate natural and socio-economic systems by integrating knowledge derived from a wide range of disciplines. The current IAMs have been found to be limited due to their inability to display both the value-laden nature of the assumptions that underlie the model and the uncertainties in their outputs. A Post-Normal Science approach is required for dealing with these issues, involving participation of ‘extended peer communities’ providing their ‘extended facts’.     

Earnings management and initial public offerings: Evidence from the Netherlands

This paper presents one of the first studies of earnings management by initial public offering (IPO) firms in a European country. Using a sample of 64 Dutch IPOs, we investigate the pattern of discretionary current accruals (DCA) over time. We find that managers manage their company's earnings in the first year as a public company but not in the years before the IPO. We also examine the impact of earnings management on the long-run stock price performance of IPOs. We find a negative relation between the size of the DCA in the first year as a public company and long-run stock price performance over the next 3 years. A number of additional tests support these findings.     

The minimum variance hedge and the bankruptcy risk of the firm

In this paper, we analyze the influence of hedging with forward contracts on the firm's probability of bankruptcy (POB). The minimization of this probability can serve as a substitute for the maximization of shareholders' wealth. It is shown that the popular minimum variance hedge is generally neither necessary nor sufficient for the minimization of the firm's POB. Moreover, our model suggests a correction of the widespread view that a reduction in the variance of the future value of the firm is inevitably accompanied by a reduction in its default risk. We derive an analytical solution for the variance-minimizing hedge ratio of a firm exposed to both input and output price uncertainty that takes into account the issue of correlation. Based on this solution, we provide a graphical analysis to prove our claim that there is a fundamental difference between hedging policies focused on bankruptcy risk and those following conventional wisdom even if positive correlation constitutes a “natural” hedge.     

The Global Determinants of Direct Office Real Estate Returns

We investigate the determinants of direct office real estate returns by analyzing rents, capital appraisals, and total returns. A recently compiled global database of major cities in Asia, Europe, and the United States provides a unique opportunity to give a macro-view on the effects of economic growth and supply and demand factors on nominal real estate returns. The global database provides quarterly observations from 1986 to 1999. To address the smoothness problem of appraisal-based price data and regulated rents, we employ the Generalized Method of Moments to estimate a dynamic panel-data model. The model allows us to combine the cross-sectional and time-series dimension in our quarterly data. We find that gross domestic product, inflation, unemployment, vacancy rate, and the available stock all have an effect on real estate returns.     

Complementarity, coordination and compatibility: The role of fixed costs in the economics of systems

We analyze industry equilibrium and incentive to compatibility when goods produced by different producers generate utility only when consumed as component parts of a system. We assume the presence of two systems, each composed of some basic component and a set of differentiated complementary products. The combination of complementarity between the two components of the system and of fixed costs in the production of the complementary product results in a form of network effect. We focus on the role played by the size of the fixed costs in the production of the complementary products in determining the size of this system effect and, by this means, the structure and types of equilibria that may be observed: monopolistic or duopolistic, symmetric or asymmetric. We also highlight the consequence of the same fixed costs for the private and social incentives to render the systems compatible.     

Measuring and improving safety culture in organisations: an exploration of tools developed and used in Belgium

To support organisations in addressing their safety culture, practical tools have been developed worldwide. Based on such practical tools, it is possible to measure where an organisation is situated regarding its safety culture in order to identify priority areas, formulate appropriate improvement strategies and determine changes over time. In this paper, it is examined which practical tools to measure and improve safety culture are provided on the Belgian market. In total, 15 Belgian tools were identified, of which 8 agreed to cooperate. Amongst the included tools, there is a lot of variation regarding the methods to diagnose the safety culture and the overall procedure to improve the safety culture. The importance to adapt the tool to the specific needs and context of organisations is acknowledged in most of the tools, as well as the importance to use a multi-method approach to measure the safety culture. Also, it is recognised that all hierarchic levels should participate during the process of diagnosing the safety culture. A point of attention is this overall participation during the validation of the results of the diagnosis, and the priority setting of the recommendations, which is mainly done by the higher management. The development of the Belgian tools is based on experience with a focus on direct practical application, which leads to the fact that none of the tools are validated through scientific evidence. Another point of attention is that organisations pay too little attention at the continuity of safety culture research. And finally, the question can be raised if the safety culture tools actually address the concept ‘safety culture’, or if they address only a subset of the concept. When safety culture is addressed, a comprehensive approach should be used, where technological, organisational, human and external aspects are taken into account as interacting and interrelating elements.