Real options and game theoretical approaches to real estate development projects: multiple equilibria and the implications of different tie-breaking rules

This paper contributes to a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the in formation set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.

Occupational futures? Divesting real estate and corporate PFI

Property ownership can tie up large amounts of capital and management energy that business could employ more productively elsewhere. Competitive pressures, accounting changes and increasingly sophisticated occupier requirements are building demand for new and innovative ways to satisfy corporate occupation needs. The investment climate is also changing. Falling interest rates and falling inflation can be expected to undermine returns from the traditional FRI lease. In future, investment returns will be more dependent on active and innovative management geared to the needs of occupiers on whom income depends. Occupier and investor interests, therefore, look set to coincide, but unlocking the potential for both parties will depend on developing new finance and investment vehicles that align their respective needs. In the UK, examples include PFI in the public sector and off-balance sheet financing in the private sector. In the USA, “synthetic lease” structures have also become popular. Growing investment market experience in assessing risks and returns suggests scope for further innovative arrangements in the corporate sector. But how can such arrangements be structured? What are the risks, drivers and barriers?

Glaciodynamics of the central sector of the last British–Irish ice sheet in Northern England

The central sector of the last British–Irish Ice Sheet (BIIS) was characterised by considerable complexity, both in terms of its glacial stratigraphy and geomorphological signature. This complexity is reflected by the large number and long history of papers that have attempted to decipher the glaciodynamic history of the region. Despite significant advances in our understanding, reconstructions remain hotly debated and relatively local, thereby hindering attempts to piece together BIIS dynamics. This paper seeks to address these issues by reviewing geomorphological mapping evidence of palimpsest flow signatures and providing an up-to-date stratigraphy of the region. Reconciling geomorphological and sedimentological evidence with relative and absolute dating constraints has allowed us to develop a new six-stage glacial model of ice-flow history and behaviour in the central sector of the last BIIS, with three major phases of glacial advance. This includes: I. Eastwards ice flow through prominent topographic corridors of the north Pennines; II. Cessation of the Stainmore ice flow pathway and northwards migration of the North Irish Sea Basin ice divide; III. Stagnation and retreat of the Tyne Gap Ice Stream; IV. Blackhall Wood–Gosforth Oscillation; V. Deglaciation of the Solway Lowlands; and VI. Scottish Re-advance and subsequent final retreat of ice out of the central sector of the last BIIS. The ice sheet was characterised by considerable dynamism, with flow switches, initiation (and termination) of ice streams, draw-down of ice into marine ice streams, repeated ice-marginal fluctuations and the production of large volumes of meltwater, locally impounded to form ice-dammed glacial lakes. Significantly, we tie this reconstruction to work carried out and models developed for the entire ice sheet. This therefore situates research in the central sector within contemporary understanding of how the last BIIS evolved over time.

Dissecting the illegal ivory trade: an analysis of ivory seizures data

Reliable evidence of trends in the illegal ivory trade is important for informing decision making for elephants but it is difficult to obtain due to the covert nature of the trade. The Elephant Trade Information System, a global database of reported seizures of illegal ivory, holds the only extensive information on illicit trade available. However inherent biases in seizure data make it difficult to infer trends; countries differ in their ability to make and report seizures and these differences cannot be directly measured. We developed a new modelling framework to provide quantitative evidence on trends in the illegal ivory trade from seizures data. The framework used Bayesian hierarchical latent variable models to reduce bias in seizures data by identifying proxy variables that describe the variability in seizure and reporting rates between countries and over time. Models produced bias-adjusted smoothed estimates of relative trends in illegal ivory activity for raw and worked ivory in three weight classes. Activity is represented by two indicators describing the number of illegal ivory transactions--Transactions Index--and the total weight of illegal ivory transactions--Weights Index--at global, regional or national levels. Globally, activity was found to be rapidly increasing and at its highest level for 16 years, more than doubling from 2007 to 2011 and tripling from 1998 to 2011. Over 70% of the Transactions Index is from shipments of worked ivory weighing less than 10 kg and the rapid increase since 2007 is mainly due to increased consumption in China. Over 70% of the Weights Index is from shipments of raw ivory weighing at least 100 kg mainly moving from Central and East Africa to Southeast and East Asia. The results tie together recent findings on trends in poaching rates, declining populations and consumption and provide detailed evidence to inform international decision making on elephants.

Brain activity in advantageous and disadvantageous situations: implications for reward/punishment sensitivity in different situations

OBJECTIVE: This study modeled win and lose trials in a simple gambling task to examine the effect of entire win-lose situations (WIN, LOSS, or TIE) on single win/lose trials and related neural underpinnings. METHODS: The behavior responses and brain activities of 17 participants were recorded by an MRI scanner while they performed a gambling task. Different conditions were compared to determine the effect of the task on the behavior and brain activity of the participants. Correlations between brain activity and behavior were calculated to support the imaging results. RESULTS: In win trials, LOSS caused less intense posterior cingulate activity than TIE. In lose trials, LOSS caused more intense activity in the right superior temporal gyrus, bilateral superior frontal gyrus, bilateral anterior cingulate, bilateral insula cortex, and left orbitofrontal cortex than WIN and TIE. CONCLUSIONS: The experiences of the participants in win trials showed great similarity among different win-lose situations. However, the brain activity and behavior responses of the participants in lose trials indicated that they experienced stronger negative emotion in LOSS. The participants also showed an increased desire to win in LOSS than in WIN or TIE conditions.

Paying for long-term performance: restructuring bankers’ pay for risk regulation

The purpose of this paper is to propose hybrid capital securities as a new approach to compensation for senior bank executives and risk-takers instead of cash or equity-based compensation currently adopted by the industry. The global financial turmoil indicated that misaligned pay-for-performance compensation arrangements encouraged management short-termism and rewarded excessive risk-taking behaviour in Anglo-Saxon system. Rather than regulating specific instruments and processes, we believe that it is much more efficient to overhaul the compensation scheme to align it with risk management and governance. This empirical paper investigates the European hybrid market by employing data from the Merrill Lynch Global Index System from 2000 to 2010. Our paper contributes to both literature and practices by designing a structured scheme to tie the executive’s interests to long-term performance of the bank, the goal of regulators and the economy at large which consequently reduce the probability of future bank failures.

The impact of career capital on expatriates’ perceived marketability

We examine how the development of three types of career capital (knowing how, knowing whom, and knowing why) during an international assignment affects the perceived marketability of organizational expatriates. Using the perceived marketability perspective and long-term follow-up data, we show that knowing how is seen as the most transferable type of career capital, while the development of other aspects of career capital has little impact on perceived marketability. We also show that career capital development is more recognized in the external market than by current employers. Our findings expand our understanding of long-term career marketability among people who have completed international assignments.