The implications of research on the R&D manager's role to the selection and training of scientists and engineers for management

A methodology for improving the process of selection and development of scientists and engineers for management is presented. This involves (1) specifying the R&D management role in terms of both behavior and style; (2) utilizing such a specification to estimate ‘probabilities of trainability’ and (3) employing the probabilities as criteria for the allocation of resources among managerial selection efforts versus training and development.     

How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise

In theory, the sum of squares of log returns sampled at highfrequency estimates their variance. When market microstructurenoise is present but unaccounted for, however, we show thatthe optimal sampling frequency is finite and derives its closed-formexpression. But even with optimal sampling, using say 5-minreturns when transactions are recorded every second, a vastamount of data is discarded, in contradiction to basic statisticalprinciples. We demonstrate that modeling the noise and usingall the data is a better solution, even if one misspecifiesthe noise distribution. So the answer is: sample as often aspossible.     

The Effects of NAFTA on Antidumping and Countervailing Duty Activity

Treatment of unfair trade laws has become an important topicin negotiations on preferential trading areas. Recent preferentialtrading areas involving the United States, one of the most significantusers of these laws, have established special binational disputesettlement panels to arbitrate disagreements. Using a paneldatabase of U.S. antidumping and countervailing duty activityfrom 1980 through 2000, the article examines whether the useof dispute settlement panels has reduced such activity betweenthe United States and its North American Free Trade Agreementpartners. The analysis finds little evidence for any effect,calling into question the effectiveness of dispute settlementpanels in reducing unfair trade law activity.     

Strategic Price Discrimination in Compulsory Insurance Markets

This paper considers price discrimination when competing firms do not observe a customer’s type but only some other variable correlated to it. This is a typical situation in many insurance markets—such as motor insurance—where it is also often the case that insurance is compulsory. We characterise the equilibria and their welfare properties under various price regimes. We show that discrimination based on immutable characteristics such as gender is a dominant strategy, either when firms offer policies at a fixed price or when they charge according to some consumption variable that is correlated to costs. In the latter case, gender discrimination can be an outcome of strategic interaction alone in situations where it would not be adopted by a monopolist. Strategic price discrimination may also increase cross subsidies between types, contrary to expectations.JEL Classification No.: L13, G22     

Dynamic Insurance Contracts and Adverse Selection

We take a dynamic perspective on insurance markets under adverse selection and study a dynamic version of the Rothschild and Stiglitz model. We investigate the nature of dynamic insurance contracts by considering both conditional and unconditional dynamic contracts. An unconditional dynamic contract has insurance companies offering contracts where the terms of the contract depend on time, but not on the occurrence of past accidents. Conditional dynamic contracts make the actual contract also depend on individual past performance (such as in car insurances). We show that dynamic insurance contracts yield a welfare improvement only if they are conditional on past performance. With conditional contracts, the first‐best can be approximated if the contract lasts long. Moreover, this is true for any fraction of low‐risk agents in the population.     

Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities

A commonly held view in corporate finance is that firms are less leveraged than they should be, given the potentially large tax benefits of debt. In this paper, I study the effect of firms' leverage on default probabilities as represented by the firms' ratings. Using an instrumental variable approach, I find that the leverage's effect on ratings is three times stronger than it is if the endogeneity of leverage is ignored. This stronger effect results in a higher impact of leverage on the ex ante costs of financial distress, which can offset the current estimates of the tax benefits of debt.     

The Two Faces of Analyst Coverage

We find that positive excess (strong) analyst coverage is associated with overvaluation and low future returns. This finding is consistent with the view that excessive analyst coverage, driven by investment banking incentives and analyst self-interests, raises investor optimism causing share prices to trade above fundamental value. However, weak analyst coverage causes stocks to trade below fundamental values. This finding indicates that investors tend to believe that these firms are more likely to be plagued by information asymmetries and agency problems. The results remain robust after controlling for the possible endogenous nature of analyst coverage and analysts' self-selection bias.     

Frictions, Heterogeneity and Optimality in Mortgage Modeling

The purpose of this article is to provide a unified framework for incorporating frictions into a theoretical options-pricing model (OPM) for mortgages. This article presents formulation for a frictions-adjustable mortgage model that integrates borrower heterogeneity while simultaneously preserving prepayment and default financial decisions. Our model demonstrates the flexibility of the OPM by simulating separate and concurrent effects of three categories of frictions on the mortgage and mortgage components. Researchers can use our example formulation to determine the effects of specific borrower characteristics on mortgage values without destroying the options theoretic framework.