Robust bootstrap procedures for the chain-ladder method

Insurers are faced with the challenge of estimating the future reserves needed to handle historic and outstanding claims that are not fully settled. A well-known and widely used technique is the chain-ladder method, which is a deterministic algorithm. To include a stochastic component one may apply generalized linear models to the run-off triangles based on past claims data. Analytical expressions for the standard deviation of the resulting reserve estimates are typically difficult to derive. A popular alternative approach to obtain inference is to use the bootstrap technique. However, the standard procedures are very sensitive to the possible presence of outliers. These atypical observations, deviating from the pattern of the majority of the data, may both inflate or deflate traditional reserve estimates and corresponding inference such as their standard errors. Even when paired with a robust chain-ladder method, classical bootstrap inference may break down. Therefore, we discuss and implement several robust bootstrap procedures in the claims reserving framework and we investigate and compare their performance on both simulated and real data. We also illustrate their use for obtaining the distribution of one year risk measures.     

The impact of the bird flu on public willingness to pay for the protection of migratory birds

In this paper, we present the results of a unique time series analysis of contingent values and models for migratory bird protection based on an identical contingent valuation (CV) survey carried out over a three year time period since the first bird flu outbreak in 2003. Although there exists no scientific evidence for a direct relationship, migratory birds are believed to play an important role in spreading the bird flu virus worldwide. The time series analysis allows us to test the temporal stability of stated preferences for migratory bird protection and at the same time examine indirectly the possible impact of increased media attention and public awareness levels regarding the bird flu. We test the impact of the bird flu on public willingness to pay (WTP) for migratory bird protection in the final 2005 survey whilst accounting for procedural variance introduced by sequencing and question ordering-effects, but we are unable to demonstrate a direct negative relationship. A novelty of the study presented here is that respondents in the CV surveys are given the opportunity to pay an annual money amount or a one-time-off lump-sum. Annual WTP values appear to be significantly higher than one-time-off WTP values, suggesting a negative implicit discount rate. Self-selection bias is an important reason for the observed differences. We find that respondents who agree to pay annually differ significantly from respondents who wish to pay a lump-sum in terms of their underlying preferences and motivations towards migratory bird protection.     

Strategic flexibility, rigidity and barriers to the development of absorptive capacity in business markets: Themes and research perspectives

The marketing and strategy literature hail strategic flexibility as a key success factor in creating continuously customer value and generating competitive advantage. However, empirical evidence indicates that rigidity in market strategies and actions is more the rule than the exception in organizations. The focus of this special issue is on better understanding rigidity and flexibility in business markets. This lead article seeks to elaborate on why companies face rigidity and how they can create flexibility. To do this, we relate rigidity in organizations to the concepts of dominant logic, industry recipe and persistence. The case illustrations highlight barriers to the development of absorptive capacity in business organizations. Identifying such barriers is a first step in better understanding how companies can remain agile and flexible in demanding and fast changing markets. The paper then proceeds with a brief introduction to the other contributions of this special issue and concludes with a research agenda.     

Marketmaking Middlemen

This article develops a model in which market structure is determined endogenously by the choice of intermediation mode. There are two representative modes of intermediation that are widely used in real-life markets: one is a middleman mode where an intermediary purchases inventory from the wholesale market and resells to buyers; the other is a market-making mode where an intermediary offers a platform for buyers and sellers to meet and trade. We show that a marketmaking middleman, who adopts a mixture of these two intermediation modes, can emerge in a directed search equilibrium and discuss implications for the market structure.     

MEETINGS AND MECHANISMS

This article shows how meeting frictions affect equilibrium trading mechanisms and allocations in an environment where identical sellers post mechanisms to compete for buyers with ex ante heterogeneous private valuations. Multiple submarkets can emerge, each consisting of all sellers posting a particular mechanism and the buyers who visit those sellers. Under mild conditions, high-valuation buyers are all located in the same submarket, and low valuation buyers can be in: (i) the same submarket, (ii) a different submarket, and (iii) a mixture of (i) and (ii). The decentralized equilibrium is efficient when sellers can post auctions with reserve prices or entry fees.