An axiomatic characterization of a generalized index of concentration

The Hannah-Kay [1977] generalized concentration index contains the well-known Herfindahl [1950]-Hirschman [1945] and the entropy indices as particular cases. In this papaer we show that the Hannah-Kay class can be regarded as a particular member of a generalized family of indices, which we refer to as self-weighted quasilinear means. We then show that among all self-weighted quasilinear means the Hannah-Kay family is the only class of concentration indices which satisfies the replication principle, a requirement which states that an m-fold replication of the industry, firm by firm, will multiply the concentration index by the factor 1/m.The refereeing process of this paper was handled through N.R. Adam.We are grateful to two anonymous referees for their suggestions.     

Conservation,Discrimination, and Salvation: Investors’ Social Concerns in the Stock Market

Stocks appear to have investor clienteles based on their business practices and products. The variety in expressive benefits each individual receives from owning controversial stocks causes them to modify their portfolio to accommodate their beliefs. We examine the ownership of firms with social concerns and sin stocks (tobacco, alcohol and gambling). Women tilt their portfolios towards stocks with progressive labor policies for women and minorities. Younger investors avoid companies with poor environmental records but seek companies with progressive labor policies. Democratic voters favor stocks with progressive policies regarding women/minorities and gays/lesbians and are less likely to own sin stocks. Christian objections to homosexuality lead their members to invest less in stocks with progressive labor policies for gays and lesbians. The Christian denominations vary, though, in regard to sin stocks. Catholics are more likely while Mormons are less likely to own a sin stock relative to other investors. Socially responsible investors are clearly not all alike. Social characteristics that are important to one investor may not be important to another socially conscious investor.     

A contingent plan for disaster response

Natural and man-made disasters imply a great deal of uncertainty in terms of potential damage, though it is certain that there would be a huge spike in the demand for relief supplies causing shortages and/or delays in providing aid. Ruptures in the infrastructure (roads, utility, and communication lines) cause additional delays due to repairs. Therefore, the relief providers need to work in collaboration with retailers, and infrastructure service providers for improving responsiveness. The relief providers (government and non government) rely on acquiring and delivering supplies in real time because such actions accompany little risk of resource underutilization, though the cost of real time acquisitions can be high. In contrast, a proactive response, while minimizing acquisition cost, can be very ineffective if demand surges are high. We study a hybrid of reactive and proactive approaches, where the reactive response is contingent upon the disaster intensity exceeding a certain threshold. We show how the threshold value may impact capacity acquisitions and prices and establish the optimality of contingent response. Further, we establish how an infrastructure contract may help reducing the social cost of disaster.     

Equity and efficiency as components of a social welfare function

An income distribution-based abbreviated social welfare function is an increasing function of equity and efficiency. When inequality is of relative type, we characterize variants of the Atkinson–Kolm–Sen and the Shorrocks abbreviated welfare functions, where the variation results from the existence of a corresponding trade-off parameter, and in each case if the parameter becomes one the two forms coincide. When the value of the parameter increases, equity gains more weight in the equity–efficiency trade-off. For absolute inequality, we characterize the Blackorby–Donaldson–Kolm welfare function. Some implications of the lexicographic-type equity used in the paper are also considered.     

Vulnerability Orderings for Expected Poverty Indices

Vulnerability to poverty refers to the risk of an individual or household falling below the poverty line. A partial vulnerability to poverty ordering is defined to indicate when a situation characterized by uncertainty means that people are more vulnerable to poverty than in another situation. The family of expected poverty indices used in this context contains versions under vulnerability of many well‐known poverty indices. The ordering resembles the Hardy et al. result on the Lorenz partial ordering. A separate ordering for the expected income gap ratio is also investigated. First‐order stochastic dominance is used to indicate when the expected value of the censored returns from the states increases.     

Did decimalization hurt institutional investors?

We examine institutional trading costs around the move to penny size ticks in 2001 (i.e., decimalization). We find that overall trading costs declined, with improvements in most partitions across order size, firm size, and manager style. Improvements were most pronounced for orders that were executed over multiple days and for stocks where the minimum tick sizes were likely to have been binding. However, costs did increase for orders executed within a single day. The improvements we document contrast with changes accompanying the reduction of minimum ticks to sixteenths in 1997 though, in both cases, results suggest that more patient traders fare relatively better than those that demand immediacy.     

Contracting in the shadow of the law

Economic models of contract typically assume that courts enforce obligations based on verifiable events (corresponding to the legal rule of specific performance). As a matter of law, this is not the case. This leaves open the question of optimal contract design given the available remedies used by the courts. This article shows that American standard form construction contracts can be viewed as an efficient mechanism for implementing building projects given existing legal rules. It is shown that a central feature of these contracts is the inclusion of governance covenants that shape the scope of authority and regulate the ex post bargaining power of parties. Our model also implies that the legal remedies of mistake, impossibility and the doctrine limiting damages for unforeseen events developed in the case of Hadley v. Baxendale are efficient solutions to the problem of implementing complex exchange.     

Priced risk and asymmetric volatility in the cross section of skewness

We investigate the sources of skewness in aggregate risk factors and the cross section of stock returns. In an ICAPM setting with conditional volatility, we find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market returns resemble these predictions; however, size, book-to-market, and momentum factor returns are not always consistent with our predictions. We find evidence that size and book-to-market may be priced post-crisis but not in the decade before. Momentum does not appear priced by our test. We link aggregate risk and skewness to individual stocks and find empirically that the risk aversion effect manifests in individual stock skewness. Additionally, we find several firm characteristics that explain stock skewness. Smaller firms, value firms, highly levered firms, and firms with poor credit ratings have more positive skewness.