CLOSED-FORM SOLUTIONS FOR OPTIMAL PORTFOLIO SELECTION WITH STOCHASTIC INTEREST RATE AND INVESTMENT CONSTRAINTS

We examine the portfolio choice problem of an investor with constant relative risk aversion in a financial market with partially hedgeable interest rate risk. The individual shadow price of the portfolio constraint is characterized as the solution of a new backward equation involving Malliavin derivatives. A generalization of this equation is studied and solved in explicit form. This result, applied to our financial model, yields closed-form solutions for the shadow price and the optimal portfolio. The effects of parameters such as risk aversion, interest rate volatility, investment horizon, and tightness of the constraint are examined. Applications of our method to a monetary economy with inflation risk and to an international setting with currency risk are also provided.     

Entry and exit in Dutch manufacturing industries

The purpose of this paper is to analyse entry and exit of establishments in 71 3-digit industries in Dutch manufacturing between 1986 and 1990. A distinction is made between existing firm entry and new firm entry and between general exit and exit by bankruptcy. The incentive effect of profitability and the barrier effect of capital intensity and advertising intensity appear to be stronger for new firm entry than for existing firm entry. Growth and capital intensity turn out to reduce exit by bankruptcy, whereas R&D intensity reduces general exit. The positive impact of general exit on new firm entry and vice versa points to replacement and displacement.An earlier version of this paper was presented at the 21st annual EARIE conference, Crete, Greece, September 4–6, 1994. We thank David Audretsch, Martin Carree, Roy Thurik and participants of the conference for valuable comments.     

Multi-channel service retailing: The effects of channel performance satisfaction on behavioral intentions

The number of channels that retailers can use interchangeably to provide customer service has increased. We report on a study of clients of a large retail bank that investigates the channel performance satisfaction-behavioral intentions relationship when the traditional service channel (i.e., branch office) is extended with technology-mediated channels (i.e., internet banking and telephone banking). For routine services, our findings suggest that behavioral intentions are most strongly influenced by satisfaction with office-related performance factors. For nonroutine services, satisfaction with service employee performance is the most significant driver of intentions. Our analysis also reveals interaction effects between traditional and technology-mediated channel performance satisfaction levels. These effects vary across service types, indicating contingencies in channel substitution and complementarity.     

INSIDER-OUTSIDER EFFECTS IN WAGE FORMATION: AN EMPIRICAL SURVEY*

The paper provides a review of empirical work on insider-outsider and duration effects in wage formation. It presents a theoretical model to investigate the relationship between previous employment and the wage rate. The impact of unemployment and long-term unemployment is considered. Empirical results show that the effect of previous employment on the wage rate is generally insignificant. Both short-term and long-term unemployment appear to have a significant negative impact. Micro-studies reveal that both firm-specific and aggregate variables play a role in wage determination.     

Optimal tax-timing and asset allocation when tax rebates on capital losses are limited

This article studies the portfolio problem with realization-based capital gain taxation when limited amounts of losses qualify for tax rebate payments, as is the case under current US tax law. When the tax rate applicable to realized losses exceeds that on realized capital gains, it can be optimal to realize capital gains immediately and pay capital gain taxes to regain the option to use potential future losses against a higher tax rate. This incentive adds an entirely new and as yet unstudied dimension to the portfolio problem. It causes risk averse investors to hold more equity and attain higher welfare levels than is the case when trading under a tax system that seeks to collect the same amount of taxes, but does not allow for tax rebate payments. This is because the benefit to these investors from having their losses subsidized is greater than the suffering from having profits taxed at a higher rate.