Regret theory and policy reform ∗

This paper offers an explanation of policy reforms undertaken in times of an economic crisis. Our explanation does not depend either on conflicts of interests between different socio-economic groups, or on the informational imperfection about the effectiveness of the current policy regime. The single decision maker in our model experiences regrets when the uncertain reform outcome is worse than the status quo. We show that an economic crisis which reduces the status-quo income makes the regret-experiencing decision maker more eager to undertake reforms in times of an economic crisis, despite the higher utility costs of adjustments.     

GROWTH AND VARIABILITY OF SCHOOL DISTRICT INCOME TAX REVENUES: IS TAX BASE DIVERSIFICATION A GOOD IDEA FOR SCHOOL FINANCING?

School districts in Ohio have the option of diversifying their revenue base by adopting income taxes. Using a panel of Ohio school districts that adopted a local income tax from 1990 to 2008, we find that revenues are procyclical and fluctuate only mildly. The estimated short‐ and long‐run income elasticity of school district income tax revenues is 1.05 and 1.04, respectively. We also find that the school district tax base fully adjusts to its long‐run equilibrium within 2 years. Finally, we show that school district income tax adoption does not provide more stability to total school district tax revenues in the short or the long run. (JEL H71, H75)     

Expected Option Returns

This paper examines expected option returns in the context of mainstream asset-pricing theory. Under mild assumptions, expected call returns exceed those of the underlying security and increase with the strike price. Likewise, expected put returns are below the risk-free rate and increase with the strike price. S&P index option returns consistently exhibit these characteristics. Under stronger assumptions, expected option returns vary linearly with option betas. However, zero-beta, at-the-money straddle positions produce average losses of approximately three percent per week. This suggests that some additional factor, such as systematic stochastic volatility, is priced in option returns.     

PROMETHEE Group Decision Support System and the House of Quality

Quality function deployment (QFD) is a multi-step method that monitors customer needs throughout a product development process. The House of Quality (HOQ) exercise undertaken in the first phase of QFD is considered as the most important, since customer needs must be accurately translated into a set of technical requirements for the final product. This paper provides a PROMETHEE group decision support system (GDSS) approach that integrates the design preferences of the QFD team. We highlight the selection and ranking of the technical requirements in the HOQ exercise, where a group of multidisciplinary decision makers (DMs) in a globally dispersed QFD team is required to input their individual preferences. Our approach advances the HOQ group decision making context in three important areas. First, it treats each criterion and DM as unique in terms of the preference function and threshold levels. Second, it seeks a multi-criteria approach for the HOQ process, where some DMs may play a more important role than others on a certain criterion. Third, sensitivity analysis through the Geometrical Analysis for Interactive Assistance (GAIA) plane provides valuable information about the conflicts, similarities, or independencies between the criterion and the DMs, respectively. A case on an automotive part illustrates the performance of the PROMOTHEE approach with GAIA.