DYNAMIC SPANNING: ARE OPTIONS AN APPROPRIATE INSTRUMENT?1

Ross (1976) has shown, in a static framework, how options can complete financial markets. This paper examines the possible extensions of Ross's idea in a dynamic setup. Surprisingly enough, we find that the answer is very sensitive to the choice of the stochastic model for the underlying security returns. More specifically we obtain the following results: In a discrete-time model, classical European options typically become redundant with some probability (Proposition 2.1). Obnly path dependent (“exotic”) options may generate dynamic spanning (Proposition 4.1). In a continuous-time model with stochastic volatility of the underlying security, and under reasonable assumptions, a European option is always a good instrument for completing markets (Proposition 5.2).     

Which Dimensions of Social Responsibility Concern Financial Investors?

Social and environmental ratings provided by social rating agencies are multidimensional. The first goal of our paper is to identify a small number of independent and relevant socially responsible (SR) dimensions reflecting a firms’ coherent posture toward social issues. We put forward that these dimensions are not exactly the same as the ESG ones (Environment, Social, and Governance). Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main independent SR dimensions related to (1) business stakeholders (employees, customers, and suppliers), (2) societal stakeholders (environment and society), and (3) financial stakeholders (stockholders and debt holders). The second objective of our paper is to explore the link between stock returns and these three SR dimensions. Our most notable finding is that for each SR dimension, investors ask for an additional risk premium when they accept to hold non-socially responsible stocks. The cost of equity is thus lower for SR firms. The average premium over the period 2003–2010 is larger for the components “business stakeholders” and “financial stakeholders” than for the component “societal stakeholders.” The premium for this last component has only existed since the end of 2008. Since that time, environment and community involvement have become important risk factors strongly considered by investors. For the three dimensions, investors notably penalize large non-social firms and reward small social firms.     

On the identification of the procurement model

Under multiplicative separability of the cost function, this paper investigates the identification of the procurement model. Moreover, we characterize the model restrictions on observables and show its observational equivalence to one where the function of private information is the identity.     

Design principles for corporate venture transition processes in established technology firms

Corporate venturing has become a well‐known approach toward new business development and strategic renewal for established technology firms. However, without an effectively designed process for aligning and integrating a corporate venture in the established business, the firm increases the risk of venture failure. This paper provides a process perspective on corporate venture transition. Based on the results of an empirical study of six corporate venture transition processes, we present suitable actions for each of the different phases of the venture transition process. In addition, we indicate the proper timing for venture transition, which is one of the long‐standing difficulties in this area. Finally, we integrate the results of the empirical study with knowledge from extant literature in a set of design principles. These design principles provide practical guidelines to improve corporate venture transition processes.     

Fee-for-service payments and consultation length in general practice: a work–leisure trade-off model for French GPs

This article presents an adaptation of the labour supply model applied to the independent medical sector. First, we model simultaneous General Practitioner (GP) decisions on both the leisure time and the consultation length for two payment schemes: fixed fees and unregulated fees. The objective of this econometric study is to validate the theoretical prediction that doctors under unregulated fees may make choices about the length of patient consultations independent of their personal leisure decision. Indeed, according to our empirical results, the bidirectional link between leisure choice and consultation length – verified with fixed fees – does not hold any longer under unregulated fees. Our findings can be seen as a necessary but not a sufficient condition to legitimize unregulated fees in general practice.     

Deleveraging crises and deep recessions: a behavioural approach

Macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings. Standard microfounded macroeconomic models account for these patterns through exogenous and persistent shocks. In this article, we develop a fully decentralized and microfounded macroeconomic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firms’ leverage and households’ precautionary saving behaviour. A major emergent property of our model is precisely the complex successions of stable and unstable macroeconomic regimes. The model is further able to account for a wide spectrum of macro and micro empirical regularities. Within this framework, we analyse a series of macroeconomic phenomena of key relevance in the current macroeconomic debate, especially the occurrence of deleveraging crises and Fisherian debt-deflation recessions. Our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflationary path are critical determinants of the severity of the recession and the chances of recovery.     

Cost-effectiveness analysis of bariatric surgery for morbid obesity in Belgium

Aims: This study presents the cost-effectiveness analysis of bariatric surgery in Belgium from a third-party payer perspective for a lifetime and 10-year horizon.

Materials and methods: A decision analytic model incorporating Markov process was developed to compare the cost-effectiveness of gastric bypass, sleeve gastrectomy, and adjustable gastric banding against conventional medical management (CMM). In the model, patients could undergo surgery, or experience post-surgery complications, type 2 diabetes, cardiovascular diseases, or die. Transition probabilities, costs, and utilities were derived from the literature. The impact of different surgical methods on body mass index (BMI) level in the base-case analysis was informed by the Scandinavian Obesity Surgery Registry and the Swedish Obese Subject (SOS) study. Healthcare resource use and costs were obtained from Belgian sources. A base-case analysis was performed for the population, the characteristics of which were obtained from surgery candidates in Belgium.

Results: In the base-case analysis over a 10-year time horizon, the increment in quality-adjusted life-years (QALYs) gained from bariatric surgery vs CMM was 1.4 per patient, whereas the incremental cost was €3,788, leading to an incremental cost-effectiveness ratio (ICER) of €2,809 per QALY. Over a lifetime, bariatric surgery produced savings of €9,332, an additional 1.1 life years and 5.0 QALYs. Bariatric surgery was cost-effective at 10 years post-surgery and dominant over conventional management over a lifetime horizon.

Limitations: The model did not include the whole scope of obesity-related complications, and also did not account for variation in surgery outcomes for different populations of diabetic patients. Also, the data about management of patients after surgery was based on assumptions and the opinion of a clinical expert.

Conclusions: It was demonstrated that a current mix of bariatric surgery methods was cost-effective at 10 years post-surgery and cost-saving over the lifetime of the Belgian patient cohort considered in this analysis.