Some results about averaging in stochastic approximation

The paper presents some results concerning the averaging approach in a general linear regression model in one dimension under suitable conditions about the martingale structure of errors. At first asymptotics of the primary and averaged estimators are discussed. Then it is shown that variances of estimators can be consistently estimated by appropriate integrated squared deviations functionals. Finally applications to the construction of confidence regions are considered.     

What's wrong with strategy?

Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with the way most companies go about developing strategy? Andrew Campbell and Marcus Alexander take a common sense look at why the planning frameworks managers use so often yield disappointing results. Companies often fail to distinguish between purpose (what an organization exists to do) and constraints (what an organization must do in order to survive), the authors say. Many executives mistakenly believe, for example, that satisfying stakeholders is an objective that drives thinking about strategy. In fact, it's a constraint, not an objective. Companies that don't win the loyalty of stakeholders will go out of business. Strategy is not about plans but about insights, the authors add. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. Furthermore, because executives develop most of their insights while actually doing the real work of running a business, it is important for companies not to separate strategy development from implementation. Is there a better way? The answer is not new planning processes or more effort. Instead, managers must understand two fundamental points: the benefit of having a well-articulated, stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.     

The Added Value of Understanding Informal Social Networks in an Adaptive Capacity Assessment: Explorations of an Urban Water Management System in Indonesia

Social networks play an important role in environmental governance regimes, and they are a key to the adaptive capacity of systems that deal with complex, contextual and multi-faceted issues. Urban water systems are typical examples of complex systems facing many pressures, such as increased population, water quality deterioration, and climate change. This paper explores social networks of the key stakeholders engaged in urban water management, in Makassar City, Indonesia, in the context of exploring ways to improve management of an increasingly complex urban water system. Three social networks were explored; those constituted by formal and informal interactions and networks perceived by stakeholders to be “ideal”. Formal networks were identified through an examination of the legislative instruments and government agencies’ documents relating to water provision in Makassar, while the informal and “ideal” networks were investigated in collaboration with the stakeholders. The research found that the informal social network was more extensive than were the formally required networks, and the investigation of informal networks created a potentially more robust and adaptive water management system than would have occurred through inclusion of formal institutional arrangements. We suggest that in examination of the adaptive capacity of an urban water system, one also considers the informal arrangements and linkages, as this additional information about the system is necessary to enhance our understanding of potential adaptation of water management and improved urban water systems.     

Realizing the Potential of Real Options: Does Theory Meet Practice?

The idea of viewing corporate investment opportunities as “real options” has been around for over 25 years. Real options concepts and techniques now routinely appear in academic research in finance and economics, and have begun to influence scholarly work in virtually every business discipline, including strategy, organizations, management science, operations management, information systems, accounting, and marketing. Real options concepts have also made considerable headway in practice. Corporate managers are more likely to recognize options in their strategic planning process, and have become more proactive in designing flexibility into projects and contracts, frequently using real options vocabulary in their discussions. Thanks in part to the spread of real options thinking, today's strategic planners are more likely than their predecessors to recognize the “option” value of actions like the following: ? dividing up large projects into a number of stages; ? investing in the acquisition or production of information; ? introducing “modularity” in manufacturing and design; ? developing competing prototypes for new products; and ? investing in overseas markets. But if real options has clearly succeeded as a way of thinking, the application of real options valuation methods has been limited to companies in relatively few industries and has thus failed to live up to expectations created in the mid‐ to late‐1990s. Increased corporate acceptance and implementations of real options valuation techniques will require several changes coming together. On the theory side, we need more realistic models that better reflect differences between financial and real options, simple heuristic methods that can be more easily implemented (but that have been carefully benchmarked against more precise models), and better guidance on implementation issues such as the estimation of discount rates for the “optionless” underlying projects. On the practitioner side, we need user‐friendly real options software, more senior‐level buy‐in, more deliberate diffusion of real options knowledge throughout organizations, better alignment of managerial incentives with long‐term shareholder value, and better‐designed contracts to correct the misalignment of incentives across the value chain. If these challenges can be met, there will continue to be a steady if gradual diffusion of real options analysis throughout organizations over the next few decades, with real options eventually becoming not only a standard part of corporate strategic planning, but also the primary valuation tool for assessing the expected shareholder effect of large capital investment projects.     

Does the Basle Capital Accord reduce bank fragility? An assessment of the value-at-risk approach

We examine the economic implications arising from a bank using a VaR-constrained mean-variance model for the selection of its trading portfolio as a consequence of the Basle Capital Accord. Surprisingly, we show that when a VaR constraint is imposed, it is plausible that certain banks will end up selecting ‘riskier’ portfolios than they would have chosen in the absence of the constraint. Accordingly, regulators such as the Basle Committee on Banking Supervision should be aware that allowing a bank to use VaR to determine its minimum regulatory capital may increase its fragility. Alternatives to VaR-based bank capital regulation that mitigate or even preclude its perverse implications are presented.     

Stakeholder Engagement: Defining Strategic Advantage for Sustainable Construction

Although sustainable development is increasingly becoming a part of business plans, it is unclear what makes the economic, social and environmental dynamics strategically compatible. This research examines which of the following in sustainable development – government policy, managerial attitude and stakeholder engagement – is the most influential on the profitability of companies in the UK construction sector. Quantitative and qualitative analyses were rendered through a survey and semi‐structured interviews. Patterns of ambiguity in legislation were discovered as an obstacle for changing the sector's mind‐set. Stakeholder engagement was identified as the defining factor increasing managers' awareness, helping legislation to be effectively implemented and making sustainability highly appealing to clients. These findings indicate that to gain competitive advantage, companies should embark on long‐term strategic alliances which adopt the proposals of environmental non‐governmental organisations and closely follow public opinion. This, strengthens brand equity, allows for premium pricing, increases market share and maximizes profit. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

Modeling the Transition from Enhanced Oil Recovery to Geologic Carbon Sequestration

Policy debates suggest a future role for geologic carbon sequestration. As geologic sequestration (GS) evolves from enhanced oil recovery operations to an emissions‐mitigation option, regulations must evolve to manage the risks of carbon dioxide (CO₂) migration. We develop an engineering‐economic model to understand the key deployment pathways in this transition. Major results reveal that dedicated CO₂ storage in aquifers is associated with the greatest net revenues under only a limited number of scenarios. This finding suggests that regulators should anticipate GS operations in reservoirs that were not initially intended as GS operations and, therefore, may have higher leakage rates. Copyright © 2013 John Wiley & Sons, Ltd.