How enforcement institutions affect markets

In an experiment we study market outcomes under alternative incentive structures for third-party enforcers. Our transactions resemble an anonymous credit market where lenders can give loans and borrowers can repay them. When borrowers default, judges are free to enforce repayment but are themselves paid differently in each of three treatments. First, paying judges according to lenders votes maximizes surplus and the equality of earnings. In contrast, paying judges according to borrowers votes triggers insufficient enforcement, destroying the market and producing the lowest surplus and the most unequal distribution of earnings. Lastly, judges paid the average earnings of borrowers and lenders achieve results close to those based on lender voting. We employ a steps-of-reasoning argument to interpret the performances of different institutions. When voting and enforcement rights are allocated to different classes of actors, the difficulty of their task changes, and arguably as a consequence they focus on high or low surplus equilibria.

Long term debt with hidden borrowing

We consider borrowers with the opportunity to raise funds from a competitive baking sector,that shares information about borrowers, and an alternative hidden lender. We highlight thatthe presence of the hidden lender restricts the contracts that can be obtained from the banking sector and that in equilibrium some borrowers obtain funds from both the banking sector and the (inefficient) hidden lender simultaneously. We further show that as the inefficiency of the hidden lender increases, total welfare decreases. By extending the model to examine a partially hidden lender, we further highlight the key role of information.

Optimal bail out policy, conditionality and constructive ambiguity

This paper addresses the issue of the optimal behaviour of the Lender of Last Resort (LOLR) in its microeconomic role regarding individual financial institutions in distress. It has been argued that the LOLR should not intervene at the microeconomic level and let any defaulting institution face the market discipline, as it will be confronted with the consequences of the risks it has taken. By considering a simple costbenefit analysis we show that this position may lack a sufficient foundation. We establish that, instead, uder reasonable assumptions, the optimal policy has to be conditional on the amount of uninsured debt issued by the defaulting bank. Yet in equilibrium, because the rescue policy is costly, the LOLR will not rescue all the banks that fulfill the uninsured debt requirement condition, but will follow a mixed strategy. This we interpret as the confirmation of the "creative ambiguity" principle, perfectly in line with the central bankers claim that it is efficient for them to have discretion in lending to individual institutions. Alternatively, in other cases, when the social cost of a bank's bankruptcy is too high, it is optimal for the LOLR to bail out the insititution, and this gives support to the "too big to fail" policy.

Wild bids. Gambling for resurrection in procurement contracts

This paper analyzes the problem of abnormally low tenders in theprocurement process. Limited liability causes firms in a bad financialsituation to bid more aggressively than good firms in the procurementauction. Therefore, it is more likely that the winning firm is a firm infinancial difficulties with a high risk of bankruptcy. The paper analyzesthe different regulatory practices to face this problem with a specialemphasis on surety bonds used e.g. in the US. We characterize the optimalsurety bond and show that it does not coincide with the current USregulation. In particular we show that under a natural assumption the USregulation is too expensive and provides overinsurance to the problem ofabnormally low tenders.

Failure to collude in the presence of asymmetric information

In this paper, we design the optimal contract when two agents can collude under asymmetric information. They have correlated types, produce complementary inputs and are protected by limited liability. Therefore, a joint manipulation of reports allows them to internalize informational and productive externalities. We show that by taking advantage of the transaction costs created by asymmetric information, even though they collude, the principal can achieve the outcome without collusion regardless of the sign and the degree of correlation. In particular, the principal can implement a non-monotonic quantity schedule in a collusion-proof way while this is impossible if collusion occurs under complete information.

Pension plan funding and stock market efficiency

The paper argues that the market signifficantly overvalues firms with severely underfunded pension plans. These companies earn lower stock returns than firms with healthier pension plans for at least five years after the first emergence of the underfunding. The low returns are not explained by risk, price momentum, earnings momentum, or accruals. Further, the evidence suggests that investors do not anticipate the impact of the pension liability on future earnings, and they are surprised when the negative implications of underfunding ultimately materialize. Finally, underfunded firms have poor operating performance, and they earn low returns, although they are value companies.

Els errors en les relacions assistencials: una aproximació des de la bioètica

De manera general, cal tenir present quel'error és habitual en els sistemes complexos, com la biologia ens ho ensenya ja a nivell cel·lular: els errors en la replicació de l'ADN els anomenem mutacions i pel que sabem han jugat i juguen un rol fonamental en l'evolució de les espècies vivents. L'error, per tant, és omnipresenten els organismes vivents; però, a diferènciade les màquines artificials, els organismesvivents poden funcionar amb l¿error i malgratl¿error.

A theoretical and practical study on linear reforms of dual taxes

[cat] En aquest treball extenem les reformes lineals introduïdes per Pfähler (1984) al cas d’impostos duals. Estudiem l’efecte relatiu que els retalls lineals duals d’un impost dual tenen sobre la distribució de la desigualtat -es pot fer un estudi simètric per al cas d’augments d’impostos-. Tambe introduïm mesures del grau de progressivitat d’impostos duals i mostrem que estan connectades amb el criteri de dominació de Lorenz. Addicionalment, estudiem l’elasticitat de la càrrega fiscal de cadascuna de les reformes proposades. Finalment, gràcies a un model de microsimulació i una gran base de dades que conté informació sobre l’IRPF espanyol de l’any 2004, 1) comparem l’efecte que diferents reformes tindrien sobre l’impost dual espanyol i 2) estudiem quina redistribució de la riquesa va suposar la reforma dual de l’IRPF (Llei ’35/2006’) respecte l’anterior impost.

Low Water Stream Crossing: Design and Construction Recommendations, December 2001

Most counties have bridges that are no longer adequate, and are faced with large capital expenditure for replacement structures of the same size. In this regard, low water stream crossings (LWSCs) can provide an acceptable, low cost alternative to bridges and culverts on low volume and reduced maintenance level roads. In addition to providing a low cost option for stream crossings, LWSCs have been designed to have the additional benefit of stream bed stabilization. Considerable information on the current status of LWSCs in Iowa, along with insight of needs for design assistance, was gained from a survey of county engineers that was conducted as part of this research (Appendix A). Copies of responses and analysis are included in Appendix B. This document provides guidelines for the design of LWSCs. There are three common types of LWSCs: unvented ford, vented ford with pipes, and low water bridges. Selection among these depends on stream geometry, discharge, importance of road, and budget availability. To minimize exposure to tort liability, local agencies using low water stream crossings should consider adopting reasonable selection and design criteria and certainly provide adequate warning of these structures to road users. The design recommendations included in this report for LWSCs provide guidelines and suggestions for local agency reference. Several design examples of design calculations are included in Appendix E.

Interstate Highway Map Indicating Vertical Clearance, May 15, 2011

The State of Iowa [STATE] and the Iowa Department of Transportation [IDOT] hereby is claim any warranty of any kind, express or implied, in reference to the information contained herein. The STATE and the IDOT neither assume nor authorize any person to assume for the STATE or the IDOT any liability in connection with the information contained herein, and there are no oral agreements or warranties regarding the information contained herein. Each and every person is hereby notified that the vertical clearances specified herein are subject to change due to resurfacing, surface buckling, weather conditions, or any other event. It is the responsibility of each and every vehicle operator to ascertain whether sufficient ACTUAL vertical clearance exists to move his vehicle or motor vehicle between the roadway and the underpasses and bridges listed herein. The May 15 date on this map reflects the end of the update schedule for the previous calendar year. Any vertical clearance restrictions which could or may change AFTER this date will not be reflected on this map. For the latest information on vertical clearance restrictions call the Office of Motor Carrier Services in Ankeny, (515) 237-3264 or visit http://www.iowadot.gov/mvd/omcs.

Predictors of onset of cannabis and other drug use in male young adults: results from a longitudinal study.

BACKGROUND: The use of cannabis and other illegal drugs is particularly prevalent in male young adults and is associated with severe health problems. This longitudinal study explored variables associated with the onset of cannabis use and the onset of illegal drug use other than cannabis separately in male young adults, including demographics, religion and religiosity, health, social context, substance use, and personality. Furthermore, we explored how far the gateway hypothesis and the common liability to addiction model are in line with the resulting prediction models. METHODS: The data were gathered within the Cohort Study on Substance Use Risk Factors (C-SURF). Young men aged around 20 years provided demographic, social, health, substance use, and personality-related data at baseline. Onset of cannabis and other drug use were assessed at 15-months follow-up. Samples of 2,774 and 4,254 individuals who indicated at baseline that they have not used cannabis and other drugs, respectively, in their life and who provided follow-up data were used for the prediction models. Hierarchical logistic stepwise regressions were conducted, in order to identify predictors of the late onset of cannabis and other drug use separately. RESULTS: Not providing for oneself, having siblings, depressiveness, parental divorce, lower parental knowledge of peers and the whereabouts, peer pressure, very low nicotine dependence, and sensation seeking were positively associated with the onset of cannabis use. Practising religion was negatively associated with the onset of cannabis use. Onset of drug use other than cannabis showed a positive association with depressiveness, antisocial personality disorder, lower parental knowledge of peers and the whereabouts, psychiatric problems of peers, problematic cannabis use, and sensation seeking. CONCLUSIONS: Consideration of the predictor variables identified within this study may help to identify young male adults for whom preventive measures for cannabis or other drug use are most appropriate. The results provide evidence for both the gateway hypothesis and the common liability to addiction model and point to further variables like depressiveness or practising of religion that might influence the onset of drug use.

On the problematic of reserving and stochastic loss models

Abstract Traditionally, the common reserving methods used by the non-life actuaries are based on the assumption that future claims are going to behave in the same way as they did in the past. There are two main sources of variability in the processus of development of the claims: the variability of the speed with which the claims are settled and the variability between the severity of the claims from different accident years. High changes in these processes will generate distortions in the estimation of the claims reserves. The main objective of this thesis is to provide an indicator which firstly identifies and quantifies these two influences and secondly to determine which model is adequate for a specific situation. Two stochastic models were analysed and the predictive distributions of the future claims were obtained. The main advantage of the stochastic models is that they provide measures of variability of the reserves estimates. The first model (PDM) combines one conjugate family Dirichlet - Multinomial with the Poisson distribution. The second model (NBDM) improves the first one by combining two conjugate families Poisson -Gamma (for distribution of the ultimate amounts) and Dirichlet Multinomial (for distribution of the incremental claims payments). It was found that the second model allows to find the speed variability in the reporting process and development of the claims severity as function of two above mentioned distributions' parameters. These are the shape parameter of the Gamma distribution and the Dirichlet parameter. Depending on the relation between them we can decide on the adequacy of the claims reserve estimation method. The parameters have been estimated by the Methods of Moments and Maximum Likelihood. The results were tested using chosen simulation data and then using real data originating from the three lines of business: Property/Casualty, General Liability, and Accident Insurance. These data include different developments and specificities. The outcome of the thesis shows that when the Dirichlet parameter is greater than the shape parameter of the Gamma, resulting in a model with positive correlation between the past and future claims payments, suggests the Chain-Ladder method as appropriate for the claims reserve estimation. In terms of claims reserves, if the cumulated payments are high the positive correlation will imply high expectations for the future payments resulting in high claims reserves estimates. The negative correlation appears when the Dirichlet parameter is lower than the shape parameter of the Gamma, meaning low expected future payments for the same high observed cumulated payments. This corresponds to the situation when claims are reported rapidly and fewer claims remain expected subsequently. The extreme case appears in the situation when all claims are reported at the same time leading to expectations for the future payments of zero or equal to the aggregated amount of the ultimate paid claims. For this latter case, the Chain-Ladder is not recommended.

Essays on the treatment of cash flows under stochastic interest rates

Abstract This paper shows how to calculate recursively the moments of the accumulated and discounted value of cash flows when the instantaneous rates of return follow a conditional ARMA process with normally distributed innovations. We investigate various moment based approaches to approximate the distribution of the accumulated value of cash flows and we assess their performance through stochastic Monte-Carlo simulations. We discuss the potential use in insurance and especially in the context of Asset-Liability Management of pension funds.

Signing on Very Low Volume Rurd Roads Iowa DOT Project HR-262, July, 1984

Research was undertaken to define an appropriate level of use of traffic control devices on rural secondary roads that carry very low traffic volumes. The goal of this research was to improve the safety and efficiency of travel on the rural secondary road system. This goal was to be accomplished by providing County Engineers with guidance concerning the cost-effective use of traffic control devices on very low volume rural roads. A further objective was to define the range of traffic volumes on the roads for which the recommendations would be appropriate. Little previous research has been directed toward roads that carry very low traffic volumes. Consequently, the factual input for this research was developed by conducting an inventory of the signs and markings actually in use on 2,069 miles of rural road in Iowa. Most of these roads carried 15 or fewer vehicles per day. Additional input was provided by a survey of the opinions of County Engineers and Supervisors in Iowa. Data from both the inventory and the opinion survey indicated a considerable lack of uniformity in the application of signs on very low volume rural roads. The number of warning signs installed varied from 0.24 per mile to 3.85 per mile in the 21 counties in which the inventory was carried out. The use of specific signs not only varied quite widely among counties but also indicated a lack of uniform application within counties. County officials generally favored varying the elaborateness of signing depending upon the type of surface and the volume of traffic on different roads. Less elaborate signing would be installed on an unpaved road than on a paved road. A concensus opinion was that roads carrying fewer than 25 vehicles per day should have fewer signs than roads carrying higher volumes. Although roads carrying 0 to 24 vehicles per day constituted over 24% of the total rural secondary system, they carried less than 3% of the total travel on that system. Virtually all of these roads are classified as area service roads and would thus be expected to carry only short trips primarily by local motorists. Consequently, it was concluded that the need for warning signs rarely can be demonstrated on unpaved rural roads with traffic volumes of fewer than 25 vehicles per day. It is recommended that each county designate a portion of its roads as an Area Service Level B system. All road segments with very low traffic volumes should be considered for inclusion in this system. Roads included in this system may receive a lesser level of maintenance and a reduced level of signing. The county is also afforded protection from liability arising from accidents occurring on roads designated as part of an Area Service Level B system. A uniform absence of warning signs on roads of this nature is not expected to have any discernible effect on the safety or quality of service on these very low volume roads. The resources conserved may be expended more effectively to upgrade maintenance and traffic control on roads carrying higher volumes where the beneficial effect on highway safety and service will be much more consequential.

Low Water Stream Crossing: Design and Construction Recommendations, Decemeber 2001

Most counties have bridges that are no longer adequate, and are faced with large capital expenditure for replacement structures of the same size. In this regard, low water stream crossings (LWSCs) can provide an acceptable, low cost alternative to bridges and culverts on low volume and reduced maintenance level roads. In addition to providing a low cost option for stream crossings, LWSCs have been designed to have the additional benefit of streambed stabilization. Considerable information on the current status of LWSCs in Iowa, along with insight of needs for design assistance, was gained from a survey of county engineers that was conducted as part of this research (Appendix A). Copies of responses and analysis are included in Appendix B. This document provides guidelines for the design of LWSCs. There are three common types of LWSCs: unvented ford, vented ford with pipes, and low water bridges. Selection among these depends on stream geometry, discharge, importance of road, and budget availability. To minimize exposure to tort liability, local agencies using low water stream crossings should consider adopting reasonable selection and design criteria and certainly provide adequate warning of these structures to road users. The design recommendations included in this report for LWSCs provide guidelines and suggestions for local agency reference. Several design examples of design calculations are included in Appendix E.