Time of the essence

In most industries, ranging from information systems development to construction, an overwhelming proportion of projects are delayed beyond estimated completion time. This fact constitutes somewhat of a puzzle for existing theory. The present paper studies project delays and optimal contracts under moral hazard in a setting with time to build. Within this setup, project delays are found to be most likely to happen at early stages of development and intimately connected to the degree of commitment of the procurer and the class of contracts that can be enforced. The first-best, optimal spot contracting and optimal long-term contract scenarios are analyzed, as well as commonly encountered additional constraints on the long-term contract.     

Human capital composition, growth and development: an R&D growth model versus data

The effect of human capital composition on growth and development has been somewhat neglected in economic literature. However, evidence has suggested the importance of engineering and technical (high-tech) skills to economic growth, and international organizations have suggested their shortage in developed countries. Using a standard increasing variety growth model, we propose various measures of human capital composition that are related with economic growth and development. When compared to data, the model does well in explaining the rate of growth and the level of development as a function of these measures. “the British colonies had a better educated population (...). Education was secular with emphasis on pragmatic skills and yankee ingenuity (...). The 13 British colonies had nine universities in 1776 for 2.5 million people. New Spain, with 5 million, had only two universities (...) which concentrated on theology and law.” –(Maddison, 2001)     

Multiple-unit English auctions

This paper examines the outcome of an ascending-price multiple-unit auction. Two bidders, facing continuous, downward-sloping demand functions, participate in the auction of some divisible objects. The auctioneer starts the process by announcing an initial price and asking both bidders to submit sealed-bids of desired quantities. The auctioneer increases the price until the total amount bid for is less than the total supply. We compute the outcome of this auction game under full information and suggest that this mechanism may not maximize expected revenue.     

Notes and Comments: An approximation of caplet implied volatilities in Gaussian models

Abstract It is market practice to quote interest rate derivatives traded “over the counter” in terms of their implied volatility. For this reason, the term structure of at-the-money cap volatilities as well as the volatility surface of at-the-money swaptions are directly observed. This paper analyzes the case of caps. Any analysis of these markets would most likely report two main facts. The first is that the level of the volatility is inversely related to the level of the interest rates. The second is that the term structure is either a decreasing or a humped function of maturity. For a reference, see Rebonato (2003) and Brigo and Mercurio (2001). Rebonato (2003) suggests that the structure of implied volatility is humped in periods of normal market conditions and decreasing when markets are “excited”. Interpreting and explaining such phenomena is indeed an interesting and important issue. Mathematics Subject Classification (2000): 91B70 Journal of Economic Literature Classification: E43, C13     

GAME THEORETIC MODELS OF MIXED OLIGOPOLY

Abstract. In this paper we review various models that have been proposed for the study of mixed oligopoly, that is markets in which private and public firm compete on equal basis using only market instruments.     

Commodity Price Volatility and the Sources of Growth

This paper studies the impact of the growth and volatility of commodity terms of trade (CToT) on economic growth, total factor productivity, physical capital accumulation and human capital acquisition. We use the standard system generalized methods of moments (GMM) approach as well as the dynamic common correlated effects pooled mean group (CCEPMG) methodology for estimation to account for cross‐country heterogeneity, cross‐sectional dependence and feedback effects. Using both annual data for 1970–2007 and 5‐year non‐overlapping observations, we find that while CToT growth enhances real output per capita, CToT volatility exerts a negative impact on economic growth operating mainly through lower accumulation of physical and human capital. Productivity, however, is not affected by either the growth or the volatility of CToT. Our results also indicate that the negative growth effects of CToT volatility offset the positive impact of commodity booms. Therefore, we argue that volatility, rather than abundance per se, drives the ‘resource curse’ paradox. Copyright © 2014 John Wiley & Sons, Ltd.     

Valuation of forward start options under affine jump-diffusion models

Under the general affine jump-diffusion framework of Duffie et al. [Econometrica, 2000, 68, 1343–1376], this paper proposes an alternative pricing methodology for European-style forward start options that does not require any parallel optimization routine to ensure square integrability. Therefore, the proposed methodology is shown to possess a better accuracy–efficiency trade-off than the usual and more general approach initiated by Hong [Forward Smile and Derivative Pricing. Working paper, UBS, 2004] that is based on the knowledge of the forward characteristic function. Explicit pricing solutions are also offered under the nested jump-diffusion setting proposed by Bakshi et al. [J. Finance, 1997, 52, 2003–2049], which accommodates stochastic volatility and stochastic interest rates, and different integration schemes are numerically tested.     

A network-based analysis of the impact of structural damage on urban accessibility following a disaster: the case of the seismically damaged Port Au Prince and Carrefour urban road networks

The magnitude 7.0 earthquake that struck Haiti in January 2010 led to an unprecedented effort in collecting and providing geographical information in support of humanitarian aid. Although most of the compiled datasets and generated maps were able to provide specific and detailed information regarding the location of damaged buildings and road interruptions, none or little information was available to describe the accessibility—or otherwise—of the urban space. Here we try to offer an alternative method to define the urban accessibility landscape in the aftermath of earthquake damage, by combining simple graph theory concepts and GIS-based spatial analysis to assess how the urban space accessibility decreases when the road network is damaged.     

Simultaneous Pooled Auctions

Suppose a seller wants to sell k similar or identical objects and there are n > k potential buyers. Suppose that each buyer wants only one object. In this case, we suggest the use of a simultaneous auction that would work as follows. Players are asked to submit sealed bids for one object. The individual with the highest bid chooses an object first; the individual with the second-highest bid chooses the next object; and this process continues until the individual with the kth highest bid receives the last object. Each individual pays the equivalent to his or her bid. When objects are identical, we show that the proposed auction generates the same revenue as a first-price sealed-bid sequential auction. When objects are perfectly correlated, there is no known solution for sequential auctions, whereas we can characterize bidding strategies in the proposed auction. Moreover, the proposed auction is optimal (given an appropriately chosen reserve price), and it may be easier and cheaper to run than a sequential auction.     

Income and religion: a heterogeneous panel data analysis

A recent empirical literature has addressed the relationship between income and religion, but most of the studies are based on microdata. Macroeconomic analysis of the issue has largely ignored the potential heterogeneity between countries. Using retrospective data on church attendance rates for a panel of countries between 1925 and 1990, we apply heterogeneous panel data estimators and reveal that the effect of participation in religious activities on income per capita is mostly non-significant. This is consistent with some of the recent research that casts doubt onto the influence of religion on income, once causality is taken into account.