Real option valuation of public sector R&D investments with a down-and-out barrier option

This paper presents a real options approach for valuing public-sector research and development projects, using a down-and-out barrier option. Specifically, it considers the potential savings to the tax payer for investing in technology to be purchased by a national government. The valuation is performed with stretched trinomial lattices. Government-driven demand for this technology is equated with the underlying asset, and valuation measured in terms of potential government savings. Two variables, volatility of demand for the technology and unit cost, are treated as uncertain. A Monte Carlo simulation is performed to understand the effects of these variables on the valuation. Other variables are estimated, and a parametric analysis is performed to understand the effects of these variables. To illustrate how this approach could be used, the development of a new sensor, to be used in large networks that track greenhouse gas fluxes, is considered as an example.     

Dealing with differences: the impact of perceived diversity outcomes on selection and assessment of minority candidates

Although many strategies have been employed to specifically recruit and select minority employees, the selection rates for designated minority groups are often lower than those for the majority group. Minority candidates with high cultural maintenance (CM) are particularly vulnerable to cultural bias in selection procedures, a process which has proved difficult to change. This paper aims to examine whether these effects may be moderated by recruiters’ perceived diversity outcomes; whether they view diversity as beneficial or threatening to the organization's performance. In an experimental study, participants belonging to a cultural majority group played the role of recruiters (n = 99). Their diversity perceptions were manipulated by asking them to think about, and discuss, either positive or negative outcomes of cultural diversity in the workplace. They were then asked to rate fictional profiles of minority candidates for a job opening. The results confirm that CM of minority candidates has a negative main effect on the ratings they receive in assessment procedures. However, as predicted, this effect is moderated by diversity perceptions. Recruiters who perceive individual differences in the workplace as positive and beneficial, give higher ratings to candidates who maintain their own culture. This provides a promising insight in possible ways to reduce cultural bias in selection procedures.     

Climate control? The relationship between leadership,climate for change,and work outcomes

Transformational leadership is seen as one of the most effective leadership styles from which the dynamic context of temporary work agencies may benefit. The current paper presents a theoretical framework that introduces participative leadership as an additional appropriate leadership style. The prediction is that transformational leadership and participative leadership both impact work outcomes via a climate for change. Data from 258 employees working for a large Dutch employment agency support these hypotheses. Results show that transformational leadership and participative leadership are both independently related to work outcomes. Moreover, results support an indirect process from participative leadership to work outcomes, via a climate for change.     

Reforming the Corporate Income Tax: The Case for a Hybrid Cash-flow Tax

Summary This paper argues for the adoption of a hybrid cash-flow tax on corporations that, on the one hand, taxes only corporate rents as they accrue, and, on the other hand, treats real and financial transactions neutrally. It is, therefore, a superior tax compared to the conventional corporate income tax – on both economic and administrative grounds. Its design also addresses the usual concerns associated with cash-flow taxation. The base of this hybrid cash-flow tax is the aggregate net cash inflow of combined real and financial transactions excluding capital expenditures, for which conventional depreciation allowances are retained with interest as compensation for the opportunity cost of equity capital. Furthermore, it is argued that it should be implemented on a destination basis that would render transfer pricing and thin capitalization moot. This paper is a revised version of an IMF working paper (WP/06/117) previously circulated under the title “A Superior Hybrid Cash-Flow Tax on Corporations.” The views expressed herein are those of the author; they do not necessarily reflect IMF policy and should not be reported as representing the views of the IMF. Helpful comments from Richard Bird, Isaias Coelho, John Isaac, Michael Keen, Russell Krelove, Alan Macnaughton, Peter Mullins, and two anonymous referees are gratefully acknowledged. Discussions with John Isaac have been particularly valuable. The usual disclaimer applies.     

On the decomposition of the harberger tax incidence equation

Conclusions This paper has re-examined an important area in tax incidence analysis: how the famous Harberger equation can and should be decomposed. The well-known and generally accepted decomposition scheme proposed by Mieszkowski has recently been challenged byH-H, with potential ramifications concerning the significance of the general equilibrium approach pioneered by Harberger. It has been shown that this challenge has been misplaced:H-H failed to appreciate the equal yield requirement in the Mieszkowski scheme and, consequently, their proposed method of decomposition is of little economic content. This analysis reaffirms the validity and usefulness of theH-M approach.This paper was written when the author was on the faculty of Louisiana State University. The views expressed herein are his and do not necessarily reflect those of the IMF or its staff.     

The Effect of Option Listing on Bid-Ask Spreads,Price Volatility,and Trading Activity of the Underlying OTC Stocks

This paper examines the changes in spreads, price volatility, and trading activity surrounding option listing for a sample of 144 OTC stocks. For this sample, both price volatility and volume increase, but the evidence on spreads is mixed. The increase in price volatility is attributed primarily to an increase in residual return variances. Furthermore, price volatility increases even after controlling for volume, insider trading, and spreads. Although these variables do not fully explain the causes for the increase in price volatility after option listing, the results suggest that liquidity trading or volume has a stronger effect on price volatility than insider trading. This study also finds that both the number of trades and institutional holdings show substantial increases, which are supportive of the notion that listing of options on OTC stocks attracts more attention.     

Lean planning in the semi-process industry, a case study

The lean approach is an idealizing improvement approach that has an enormous impact in the field of operations management. It started in the automotive industry and has since been widely applied in discrete manufacturing. However, extensions to the (semi-) process industry have been much slower. Resource characteristics of the (semi-) process industry obstruct a straightforward application. The notion of the point of discretization for the (semi-) process industry is helpful here. This notion builds on the fact that in most (semi-) process industries there is a point in production where process production turns into discrete production. Downstream of this point lean principles are applicable in a straightforward manner, while upstream lean needs to be interpreted in a more liberal way. In this article we address this issue by a case study. The study considers how the principles of ‘flow’ and ‘pull’ production - suggesting a regular, demand-driven product flow - may be implemented for the (semi-) process industry by introducing cyclic schedules. The conjectures guiding the case study are: (i) Cyclic schedules fit in a lean improvement approach for the semi-process industry, (ii) Cyclic schedules help to improve production quality and supply-chain coordination and (iii) Discrete event simulation is a useful tool in facilitating a participative design of a cyclic schedule. The case study is extensively described to be able to judge how the context of the changes and the intervention process contribute to the results of the intervention.