MEASURING HEDGE EFFECTIVENESS FOR FAS 133 COMPLIANCE

Financial Accounting Standard (FAS) 133 requires business entities to document their anticipation of hedge effectiveness in order to qualify for hedge accounting treatment of gains and losses from financial derivatives. In the absence of specific guidelines, the accounting industry has espoused the "80–125" rule for determining hedge effectiveness. But the authors observe that meaningful assessment of anticipated hedge effectiveness must consider two distinct aspects of a firm's hedging strategy: (1) the strength of the hedging relationship, which is determined by the choice of the hedging instrument; and (2) the position taken in the hedging instrument relative to the holdings of the hedged item. They take both aspects of hedging into consideration in developing alternative measures of hedge effectiveness and distinguishing between the potential and attained effectiveness of a particular hedge. This approach enables the user to evaluate the relative merits of alternative hedging strategies to support risk management decisions, and also to document a selected hedging strategy's anticipated effectiveness for purposes of compliance with FAS 133. While the authors endorse a fairly broad interpretation of hedge effectiveness, their approach can also be used in the narrower context of an "80–125" rule.     

The choice of policy instruments for the control of carbon dioxide emissions

Increasing concern in scientific and policy-making circles about the possibility of global warming induced by the accumulation of CO₂ and other greenhouse gases in the atmosphere has promoted the consideration of policies to limit emissions of these gases. This paper gives an overview of policy instruments targeted at the control of CO₂ emissions, including the command-and-control approach, energy taxes, carbon taxes and tradeable carbon permits, with special attention being paid to the economic instruments.     

Open access,common property and scarcity rent in fisheries

Open access resources are frequently not managed efficiently, resulting in falling stock levels and a declining income for fishermen. In the late 1970's, the policy response to this problem was the implementation of 200-mile fishing zones, which enabled the European Union to formulate and implement the Common Fisheries Policy, aimed at (among other things) conservation and distribution of available stocks. In Germany, this shift from an open access regime towards a common property regime had favourable outcomes. The trend of falling prices was reversed. The conclusion was that intertemporal efficiency had increased as a result of (inter)governmental policy. Apparently, a wedge was formed between price and marginal harvesting costs, implying that scarcity rent had returned as a component of prices.     

Influence of photoperiod on carbon dioxide and methane emissions from two pilot-scale stabilization ponds

Greenhouse gas (GHG) emissions (CO(2), CH(4)) from pilot-scale algal and duckweed-based ponds (ABP and DBP) were measured using the static chamber methodology. Daylight and nocturnal variations of GHG and wastewater characteristics (e.g. chemical oxygen demand (COD), pH) were determined via sampling campaigns during midday (12:30-15:30) and midnight (00:30-03:30) periods. The results showed that under daylight conditions in ABP median emissions were -232 mg CO(2) m(-2) d(-1) and 9.9 mg CH(4) m(-2) d(-1), and in DBP median emissions were -1,654.5 mg CO(2) m(-2) d(-1) and 71.4 mg CH(4) m(-2) d(-1), respectively. During nocturnal conditions ABP median emissions were 3,949.9 mg CO(2) m(-2) d(-1), 12.7 mg CH(4) m(-2) d(-1), and DBP median emissions were 5,116 mg CO(2) m(-2) d(-1), 195.2 mg CH(4) m(-2) d(-1), respectively. Once data measured during daylight were averaged together with nocturnal data the median emissions for ABP were 1,566.8 mg CO(2) m(-2) d(-1) and 72.1 mg CH(4) m(-2) d(-1), whilst for DBP they were 3,016.9 mg CO(2) m(-2) d(-) and 178.9 mg CH(4) m(-2) d(-1), respectively. These figures suggest that there were significant differences between CO(2) emissions measured during daylight and nocturnal periods (p < 0.05). This shows a sink-like behaviour for both ABP and DBP in the presence of solar light, which indicates the influence of photosynthesis in CO(2) emissions. On the other hand, the fluxes of CH(4) indicated that DBP and ABP behave as net sources of CH(4) during day and night, although higher emissions were observed from DBP. Overall, according to the compound average (daylight and nocturnal emissions) both ABP and DBP systems might be considered as net sources of GHG.     

The diversity of forecasts from macroeconomic models of the US economy

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated US recessions. We generate forecasts from six different models of the US economy and compare them to professional forecasts from the Federal Reserve??s Greenbook and the Survey of Professional Forecasters (SPF). The model parameters and model forecasts are derived from historical data vintages so as to ensure comparability to historical forecasts by professionals. The mean model forecast comes surprisingly close to the mean SPF and Greenbook forecasts in terms of accuracy even though the models only make use of a small number of data series. Model forecasts compare particularly well to professional forecasts at a horizon of three to four quarters and during recoveries. The extent of forecast heterogeneity is similar for model and professional forecasts but varies substantially over time. Thus, forecast heterogeneity constitutes a potentially important source of economic fluctuations. While the particular reasons for diversity in professional forecasts are not observable, the diversity in model forecasts can be traced to different modeling assumptions, information sets and parameter estimates.     

Adoption of farm‐based irrigation water‐saving techniques in the Guanzhong Plain,China

This article analyses adoption of farm‐based irrigation water saving techniques, based on a cross‐sectional data set of 357 farmers in the Guanzhong Plain, China. Approximately 83% of the farmers use at least one farm‐based water‐saving technique. However, the traditional, inefficient techniques border and furrow irrigation are still prevalent whereas the use of advanced, more efficient techniques is still rather rare. We develop and estimate an adoption model consisting of two stages: awareness of water scarcity and intensity of adoption. We find that awareness of water scarcity and financial status enhance adoption of more advanced techniques whereas access to better community‐based irrigation infrastructure discourages it. We furthermore find both community‐based irrigation infrastructure and farm‐based irrigation water‐saving techniques have mitigating effects on production risk. From the results it follows that adoption can be stimulated via financial support and via extension aimed at enhancing awareness of water scarcity.     

Co-evolution of global sourcing: The need to understand the underlying mechanisms of firm-decisions to offshore

In this introductory paper, we first discuss the emergence of global sourcing of business services and how these have been largely ignored in the IB field. Offshoring of business services has reached substantial proportions. Despite the radical growth, IB research on global sourcing is still in its infancy. Offshoring of business services represents a new type of internationalization. The offshoring of high-value services confronts companies with many of the challenges that are typical of an internationalization process in which well-known models and concepts of internationalization are applicable but also leave important unanswered questions requiring reconsideration and revision of these theoretical positions. Offshoring of business services is fundamentally different from outsourcing offshore of manufacturing activities. Using data from the Offshore Research Network (ORN), we track patterns of the emergence and diffusion of global sourcing of business services. On the basis of these new insights, we make a plea for a more encompassing, co-evolutionary perspective of global sourcing stressing the interactions between managerial intentionality, path-dependent experience and knowledge accumulation, as well as the institutional and selection forces. In particular, we develop a co-evolutionary offshore decision model integrating managerial intentionality, knowledge/experience and institutional and selection forces that explain the heterogeneous outcomes of offshoring. Although emergent outcomes of co-evolutionary dynamics are highly idiosyncratic, we identify in this paper some underlying mechanism that drive specific global sourcing patterns. Finally, we position the papers of this special issue in this co-evolutionary model.     

Cost-effectiveness of beef slaughterhouse decontamination measures in the Netherlands

The cost-effectiveness of seven decontamination measures to reduce Escherichia coli O157:H7 (VTEC)-contaminated carcass quarters in a typical Dutch dairy-beef industrial slaughterhouse were explored. To estimate the effectiveness a stochastic epidemiological-simulation model was used and to estimate the net cost a deterministic-economic model. The estimated baseline prevalence of daily-contaminated quarters was 9.16% (with a 90% confidence interval 4.40-13.10%). A reduction in the prevalence of VTEC-contaminated quarters to 2% using decontamination measures is achieved at costs of €0.20 to €0.50 per quarter, which is 16-40% of the net profit per carcass. A reduction to a prevalence of 1% will cost €0.50-€1.00 per quarter. Additional carcass trim and carcass steam-pasteurization are considered as the most cost-effective decontamination measures with costs of €16,340 and €20,243 per year to achieve a 1% prevalence reduction. Nevertheless, the lowest level of VTEC prevalence, less than 1%, is achieved using a set of measures that costs between €1.00 and €2.00 per quarter or, by implementing irradiation, which costs €4.65 per quarter.