Endogenous Growth and Negative Externalities

Received March 5, 2001; revised version received August 5, 2002 Published online: April 30, 2003     

Analysis of interbudgetary financial flows in the Republic of Buryatia in 2001–2005

Financial flows between center and region are analyzed on the example of the Republic of Buryatia. Significant changes are shown to have occurred in the interbudgetary relations between the federal center and the region, which are associated with a revised delineation of authorities between different levels of authority. It has been the key factor in changing the sources and volumes of financial flows. The analysis is largely focused on the relations between the region and its municipalities.     

Towards a complete real-time electricity market design

The general design for the real-time electricity market presented in this paper optimizes and prices both real and reactive power simultaneously in an AC setting, where all assets—generation, load and transmission—are allowed to bid and are financially settled at the locational price times energy consumed or produced. The result is that transmission lines are compensated for both capacity and admittance, providing incentives for efficient operation of transmission-related assets such as FACTS devices, if price-taking behavior is assumed. Losses are incorporated into the design and become an operating cost for transmission. The market design is shown to be revenue neutral and, under some assumptions, nonconfiscatory.      

Call Options and Liquidation in Commercial Mortgage Financing

This paper models a commercial real estate project where a wealth-constrained manager uses outside debt financing to purchase a project who's return depends on future economic conditions and the manager's investment in the project. It is shown that it is inefficient to finance the project with callable debt. This prediction is consistent with observed real estate financing practice. I also model the outcome of financial distress allowing for (1) debt forgiveness, (2) equity in exchange for debt forgiveness, and (3) foreclosure. The model motivates (1) why commercial real estate loans are often foreclosed, and (2) why lenders foreclose assets at fire-sale prices.     

AN EMPIRICAL EXAMINATION OF RELATIONSHIP MAGNITUDE

Based upon a review of the extant literature, it is proposed that the structure of an interorganizational relationship is composed of relationship type and the under‐researched construct of relationship magnitude. Specifically, it is hypothesized that relationship magnitude, a second order construct composed of trust, commitment, and dependence, affects relationship type, which affects the perception of value of the relationship. The results of a survey analyzed through structural equation modeling support these hypotheses.     

Decomposition of Fraud‐Risk Assessments and Auditors' Sensitivity to Fraud Cues*

Practitioners and regulators are concerned that when auditors perceive management's attitude or character as indicative of low fraud risk, they are not sufficiently sensitive to high levels of incentive or opportunity risks in their overall fraud‐risk assessments. In this study, we examine whether a fraud‐triangle decomposition of fraud‐risk assessments (that is, separately assessing attitude, opportunity, and incentive risks prior to assessing overall fraud risk) increases auditors' sensitivity to opportunity and incentive cues when perceptions of management's attitude suggest low fraud risk. In an experiment with 52 practicing audit managers, we find that auditors who decompose fraud‐risk assessments are more sensitive to opportunity and incentive cues when making their overall assessments than auditors who simply make an overall fraud‐risk assessment. However, this increased sensitivity to opportunity and incentive cues appears to happen only when those cues suggest low fraud risk. When opportunity and incentive cues suggest high fraud risk, auditors are equally sensitive to those cues whether they use a decomposition or a holistic approach. We discuss and examine potential explanations for this finding.     

Endogenous Group Formation

While the rules governing the formation of groups engaging in collective action may have significant impact on group size and behavior of members, most experiments on public goods have been conducted with the subjects in exogenously fixed groups or of fixed sizes. We study endogenous formation of groups in a public‐goods provision game by allowing subjects to change groups under three sets of rules: free entry/exit, restricted entry with free exit, and free entry with restricted exit. We find that the rules governing entry and exit do have a significant impact on individual behavior and group‐level outcomes.     

Extracting the information: espionage with double crossing

This paper addresses two very old issues in human society: espionage and double crossing. Our major conclusion points out that there will be a serious over rewarding problem in the direct mechanism due to double crossing in espionage, and a competitive mechanism with a relative performance regime can possibly mitigate the over rewarding problem and still extract the information.