Improved earthquake response via simulation and integrated space- and ground-based technologies: the TREMOR proposal

Earthquakes occurring around the world each year cause thousands ofdeaths, millions of dollars in damage to infrastructure, and incalculablehuman suffering. In recent years, satellite technology has been asignificant boon to response efforts following an earthquake and itsafter-effects by providing mobile communications between response teamsand remote sensing of damaged areas to disaster management organizations.In 2007, an international team of students and professionals assembledduring theInternational Space University’s Summer Session Program in Beijing, Chinato examine how satellite and ground-based technology could be betterintegrated to provide an optimised response in the event of an earthquake.The resulting Technology Resources for Earthquake MOnitoring and Response(TREMOR) proposal describes an integrative prototype response system thatwill implement mobile satellite communication hubs providing telephone anddata links between response teams, onsite telemedicine consultation foremergency first-responders, and satellite navigation systems that willlocate and track emergency vehicles and guide search-and-rescue crews. Aprototype earthquake simulation system is also proposed, integratinghistorical data, earthquake precursor data, and local geomatics andinfrastructure information to predict the damage that could occur in theevent of an earthquake. The backbone of these proposals is a comprehensiveeducation and training program to help individuals, communities andgovernments prepare in advance. The TREMOR team recommends thecoordination of these efforts through a centralised, non-governmentalorganization.

The Determinants of Urban (Un)employment Duration: Evidence from Barcelona

This paper analyses the likelihood of leaving and joining employment in an urban area. Estimates show that individual, firm, regulatory and macroeconomic factors a ffect urban (un)employment duration in di fferent degrees. Also, national and urban (un)employment seem to share a common baseline hazard and similar macroeconomic and regulatory drivers. Individual characteristics are the only source of di fference we can identify between national and urban (un)employment duration. Keywords: Duration Models, Urban (Un)employment. JEL Classi fication: J64, R23.

Endogenous Credit Cycles and Financial Dampening in an Adverse Selection Economy

We propose an adverse selection framework in which the financial sector has a dual role. It amplifies or dampens exogenous shocks and also generates endogenous fluctuations. We fully characterize constrained optimal contracts in a setting in which entrepreneurs need to borrow and are privately informed about the quality of their projects. Our characterization is novel in analyzing pooling and separating allocations in a context of multi-dimensional screening: specifically, the amounts of investment undertaken and of entrepreneurial net worth are used to screen projects. We then embed these results in a dynamic competitive economy. First, we show how endogenous regime switches in financial contracts may generate fluctuations in an economy that exhibits no dynamics under full information. Unlike previous models of endogenous cycles, our result does not rely on entrepreneurial net worth being counter-cyclical or inconsequential for determining investment. Secondly, the model shows the different implications of adverse selection as opposed to pure moral hazard. In particular, and contrary to standard results in the macroeconomic literature, the financial system may dampen exogenous shocks in the presence of adverse selection.

Organizational Choice and Environmental Change

We explain the choice between franchising and vertical integration by estimating a model of relative performance in a sample of 250 Spanish car distributors, controlling for self-selection and including environmental factors. The method allows us to estimate performance counterfactuals. Organizational choice seemingly aims to contain moral hazard for both distributors and manufacturers but it is subject to start-up constraints and switching costs. While the market for franchises remained underdeveloped, information asymmetries led to the opening of integrated outlets. Their subsequent conversion into franchised outlets probably involved prohibitive transaction costs. Consequently, they performed worse than would have been expected had they been independent, as confirmed by the systematic improvement observed when they were in fact converted. The timing of such conversions suggests that switching costs were prohibitive until firms developed a substantial cushion of temporary contracts, previously forbidden by regulation.

Taming SIFIs

We model a Systemically Important Financial Institution (SIFI) that is too big(or too interconnected) to fail. Without credible regulation and strong supervision,the shareholders of this institution might deliberately let its managers take excessiverisk. We propose a solution to this problem, showing how insurance againstsystemic shocks can be provided without generating moral hazard. The solutioninvolves levying a systemic tax needed to cover the costs of future crises and moreimportantly establishing a Systemic Risk Authority endowed with special resolutionpowers, including the control of bankers' compensation packages during crisisperiods.

The effects of employment uncertainty and wealth shocks on the labor supply and claiming behavior of older American workers

Unemployment rates in developed countries have recently reached levels not seenin a generation, and workers of all ages are facing increasing probabilities of losingtheir jobs and considerable losses in accumulated assets. These events likely increasethe reliance that most older workers will have on public social insurance programs,exactly at a time that public finances are suffering from a large drop in contributions.Our paper explicitly accounts for employment uncertainty and unexpectedwealth shocks, something that has been relatively overlooked in the literature, butthat has grown in importance in recent years. Using administrative and householdlevel data we empirically characterize a life-cycle model of retirement and claimingdecisions in terms of the employment, wage, health, and mortality uncertainty facedby individuals. Our benchmark model explains with great accuracy the strikinglyhigh proportion of individuals who claim benefits exactly at the Early RetirementAge, while still explaining the increased claiming hazard at the Normal RetirementAge. We also discuss some policy experiments and their interplay with employmentuncertainty. Additionally, we analyze the effects of negative wealth shocks on thelabor supply and claiming decisions of older Americans. Our results can explainwhy early claiming has remained very high in the last years even as the early retirementpenalties have increased substantially compared with previous periods, andwhy labor force participation has remained quite high for older workers even in themidst of the worse employment crisis in decades.

Cashing by the hour: Why large law firms prefer hourly fees over contingent fees

Large law firms seem to prefer hourly fees over contingent fees. Thispaper provides a moral hazard explanation for this pattern of behavior.Contingent legal fees align the interests of the attorney with those ofthe client, but not necessarily with those of the partnership. We showthat the choice of hourly fees is a solution to an agency problem withmultiple principals, where the interests of one principal (law firm)collide with the interests of the other principal (client).

Quasi-integration in less-than-truckload trucking

This work studies the organization of less-than-truckload trucking from a contractual point of view. We show that the huge number of owner-operators working in the industry hides a much less fragmented reality. Most of those owner-operators are quasi-integrated in higher organizational structures. This hybrid form is generally more efficient than vertical integration because, in the Spanish institutional environment, it lessens serious moral hazard problems, related mainly to the use of the vehicles, and makes it possible to reach economies of scale and density. Empirical evidence suggests that what leads organizations to vertically integrate is not the presence of such economies but hold-up problems, related to the existence of specific assets. Finally, an international comparison hints that institutional constraints are able to explain differences in the evolution of vertical integration across countries.

Portfolio delegation under short-selling constraints

In this paper we study delegated portfolio management when themanager's ability to short-sell is restricted. Contrary to previousresults, we show that under moral hazard, linear performance-adjustedcontracts do provide portfolio managers with incentives to gatherinformation. The risk-averse manager's optimal effort is an increasingfunction of her share in the portfolio's return. This result affectsthe risk-averse investor's optimal contract decision. The first best,purely risk-sharing contract is proved to be suboptimal. Usingnumerical methods we show that the manager's share in the portfolioreturn is higher than the rst best share. Additionally, this deviationis shown to be: (i) increasing in the manager's risk aversion and (ii)larger for tighter short-selling restrictions. When the constraint isrelaxed the optimal contract converges towards the first best risksharing contract.

The effects of uncertainty avoidance on brand performance: Marketing creativity, product innovation and the brand duration

This paper investigates the link between brand performance and cultural primes in high-risk,innovation-based sectors. In theory section, we propose that the level of cultural uncertaintyavoidance embedded in a firm determine its marketing creativity by increasing the complexityand the broadness of a brand. It determines also the rate of firm product innovations.Marketing creativity and product innovation influence finally the firm marketingperformance. Empirically, we study trademarked promotion in the Software Security Industry(SSI). Our sample consists of 87 firms that are active in SSI from 11 countries in the period1993-2000. We use the data coming from SSI-related trademarks registered by these firms,ending up with 2,911 SSI-related trademarks and a panel of 18,213 observations. We estimatea two stage model in which first we predict the complexity and the broadness of a trademarkas a measure of marketing creativity and the rate of product innovations. Among severalcontrol variables, our variable of theoretical interest is the Hofstede s uncertainty avoidancecultural index. Then, we estimate the trademark duration with a hazard model using thepredicted complexity and broadness as well as the rate of product innovations, along with thesame control variables. Our evidence confirms that the cultural avoidance affects the durationof the trademarks through the firm marketing creativity and product innovation.

Contractual allocation of decision rights and incentives: The case of automobile distribution

We analyze empirically the allocation of rights and monetary incentives in automobile franchise contracts. These contracts substantially restrict the decision rights of dealers and grant manufacturers extensive contractual completion and enforcement powers, converting the manufacturers, de facto, in a sort of quasi-judiciary instance. Variation in the allocation of decision rights andincentive intensity is explained by the incidence of moral hazard in the relation. In particular, when the cost of dealer moral hazard is higher and the risk of manufactureropportunism is lower, manufacturers enjoy more discretion in determining the performance required from their dealers and in using mechanisms such as monitoring, termination and monetary incentives to ensure such performance is provided. We also explore the existence of interdependencies between the different elements of the system. and find some complementarities between completion and termination rights, and between monitoring rights and the intensity of incentives.

Should banking supervision and monetary policy tasks be given to different agencies?

This paper adds some new arguments to the thesis that the responsibility forbanking supervision should be assigned to an agency formally separated bythe Central bank. We also provide some additional evidence on the macroand microeconomic performance of OECD countries whose banking systems areclassified according to the regulatory regime in place. We find that theinflation rate is considerably higher and more volatile in countries wherethe Central bank acts as a monopolist in banking supervision. Besides,although banks seem to be more profitable when Central banks supervise them,they incur into higher costs and rely more on deposits with respect to moresophisticated liabilities as a funding source.The data are not definitively in favor of functional separation. However, we argue that the evolution of financial intermediaries, moral hazard problems and especially cost accountability seem to suggest that separation would be a better solution for industrialized countries.We also critically discuss the current arrangement of financial regulationand supervision in the EMU: our proposal is to establish an independentEuropean System of Financial Supervisors (ESFS) structured similarly to theESCB.

How important are tobacco prices in the propensity to start and quit smoking? An analysis of smoking histories from the Spanish National Health Survey

This paper analyses the effect of tobacco prices on the propensity tostart and quit smoking using a pool of the 1993, 1995 and 1997 editionsof the Spanish National Health Surveys. The estimates for severalparametric models of the hazard rate for starting and quitting suggestthat i) The public health measures applied as of 1992 have had asignificative effect on both reducing the hazard of starting andincreasing the hazard of quitting, ii) Prices have a very weak effect onthe hazard of starting in the male population and no significant effectin the female population, iii) The price floor of cigarrettes, proxiedby the average price of a pack of black cigarrettes, has a significanteffect on the quitting hazard which is robust across specifications andapplies to both men and women. The implied price elasticity of the timeup to quitting is situated around -1.4.

The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform

Reductions in firing costs are often advocated as a way of increasingthe dynamism of labour markets in both developed and less developed countries. Evidence from Europe and the U.S. on the impact of firing costs has, however, been mixed. Moreover, legislative changes both in Europe and the U.S. have been limited. This paper, instead, examines the impact of the Colombian Labour Market Reform of 1990, which substantially reduced dismissal costs. I estimate the incidence of a reduction in firing costs on worker turnover by exploiting the temporal change in the Colombian labour legislation as well as the variability in coverage between formal and informal sector workers. Using a grouping estimator to control for common aggregate shocks and selection, I find that the exit hazard rates into and out of unemployment increased after the reform by over 1% for formal workers (covered by the legislation) relative to informal workers (uncovered). The increase of the hazards implies a net decrease in unemployment of a third of a percentage point, which accounts for about one quarter of the fall in unemployment during the period of study.

The lender of last resort: A 21st Century approach

The object of this paper is to analyze rigorously the role of a Lender ofLast Resort by providing a framework where the distinction betweeninsolvency and illiquidity is not clearly cut. Determining the optimalLender of Last Resort policy requires a careful modeling of the structureof the interbank market and of the closure policy. In our set up, theresults depend upon the existence of moral hazard. If the main source ofmoral hazard is the banks lack of incentives to screen loans, then theLender of Last Resort may have to intervene to improve the e¢ciency of anunsecured interbank market; if instead, the main source of moral hazard isloans monitoring, then the interbank market should be secured and theLender of Last Resort should never intervene.