An Empirical Model of Efficiency Analysis on Flood Prevention Investment in Japan

This paper aims to evaluate the comprehensive efficiency of flood disaster prevention investment from 1955 to 1999 by developing and applying an integrated evaluation model. Our analysis results have clarified some important issues currently being discussed in Japan. Firstly, the average values of normalized flood losses decreased greatly between the 1955-1961 period and the 1984-1999 period. Secondly, the ratio of human loss to total loss caused by floods in Japan may be less than 10%, based on the concept of the value of statistical life (VOSL) and values estimated from the risk-money tradeoff. The proportion of intangible effect to total loss increased from less than 10% before the 1970s to approximately 20% after that period. Finally, flood prevention investment in Japan effectively reduced losses caused by flooding before the 1960s; however, since the 1980s, investment has changed from an efficient mode to an inefficient mode, not only from the economic standpoint, but also from that of total flood loss saving.     

Development Theory and the Multilateral Development Banks: An Assessment of the Effectiveness of Strategies Used in International Development Finance

Abstract . Although they are leading institutions in the world of modern development finance, the multilateral development banks have not been very explicit in outlining the development theories upon which they base their loan operations. This paper assesses the utility of the three prime theories employed by these institutions: the project approach, the macroeconomic (gap theory) approach, and the social welfare (or income distribution) approach. It indicates the questions to which each approach addresses itself, and it indicates weaknesses and theoretical inadequacies of each as a primary or sole development tool. Only a balanced and careful use of all these sometimes contradictory approaches will permit the multilateral lending institutions to fulfill their multifaceted obligations.     

Hyperbolic Discounting,Borrowing Aversion and Debt Holding

Analysis of an original Internet‐based survey reveals that debt holding is related to time discounting through: (i) present bias, measured by the degree of declining impatience in the generalized hyperbolic discount function; (ii) borrowing aversion, captured by a sign effect in that future losses are discounted at lower rates than future gains; and (iii) impatience, measured by the overall discount rate. Hyperbolic respondents are classified naïve if their answers reveal them to be time‐inconsistent procrastinators, and otherwise sophisticated. Naïve respondents with more steeply declining impatience are more likely to be debtors. The sign effect relates negatively to borrowing. Survey responses indicative of high or declining impatience are associated with credit card borrowing and other overborrowing indicators.     

OPTIMAL INVESTMENT STRATEGIES FOR CONTROLLING DRAWDOWNS

We analyze the optimal risky investment policy for an investor who, at each point in time, wants to lose no more than a fixed percentage of the maximum value his wealth has achieved up to that time. In particular, if M _t is the maximum level of wealth W attained on or before time t , then the constraint imposed on his portfolio choice is that W_tα M _t, where α is an exogenous number betweenα O and 1. We show that, for constant relative risk aversion utility functions, the optimal policy involves an investment in risky assets at time t in proportion to the "surplus" W _t - α M _t. the optimal policy may appear similar to the constant-proportion portfolio insurance policy analyzed in Black and Perold (1987) and Grossman and Vila (1989). However, in those papers, the investor keeps his wealth above a nonstochastic floor F instead of a stochastic floor α M _t. the stochastic character of the floor studied here has interesting effects on the investment policy in states of nature when wealth is at an all-time high; i.e., when Wt = M _t. It can be shown that at W _t= M _t, α M _t is expected to grow at a faster rate than W _t, and therefore the investment in the risky asset can be expected to fall. We also show that the investment in the risky asset can be expected to rise when W _t is close to α M _t. We conjecture that in an equilibrium model the stochastic character of the floor creates "resistance" levels as the market approaches an all-time high (because of the reluctance of investors to take more risk when W _t= M _t).