Valuing Retail Shopping Center Lease Contracts

In this article we set up a real option model of retail shopping center leases. The model incorporates the effects of stochastic sales externalities and the possibility of tenant default, and in the presence of these effects, we derive and solve a partial differential equation that can be used to price a lease transaction. The model then sums across all tenants to determine the value of the shopping center. The model generates a number of new predictions, including why a Jorgensonian user cost of capital may overestimate shopping center values, why the general industry practice is to ignore percentage rent payments and tenant default risk in commercial mortgage underwriting and why shopping center owners may not act opportunistically as most observers seem to think they do.     

Trade patterns and institutional change in East Asia

We investigate how trade patterns – institutionally intensive exports (IIX) – affect institutional quality in East Asia compared to the rest of the world, and whether the effect changed due to the Asian financial crisis. To examine this, we use panel data of 117 countries for the period 1988–2007. Our fixed effect model estimation reveals that the effect of IIX on institutional quality is negative and significant for East Asia, while the effect is insignificant for the rest of the world. The negative effect in East Asia is more pronounced for the five East Asian countries that were strongly affected by the crisis – South Korea, Indonesia, Malaysia, the Philippines and Thailand – than for other East Asian countries. Furthermore, our results reveal that the negative effect for East Asia does not change significantly after the crisis, both in the short and long term, and that improvement in institutional quality after the crisis is not different from that of the rest of the world. This suggests that the crisis had no significant impact on East Asia's institutional quality or on the effects of IIX on institutional quality.