Lack of Critical Slowing Down Suggests that Financial Meltdowns Are Not Critical Transitions, yet Rising Variability Could Signal Systemic Risk

Complex systems inspired analysis suggests a hypothesis that financial meltdowns are abrupt critical transitions that occur when the system reaches a tipping point. Theoretical and empirical studies on climatic and ecological dynamical systems have shown that approach to tipping points is preceded by a generic phenomenon called critical slowing down, i.e. an increasingly slow response of the system to perturbations. Therefore, it has been suggested that critical slowing down may be used as an early warning signal of imminent critical transitions. Whether financial markets exhibit critical slowing down prior to meltdowns remains unclear. Here, our analysis reveals that three major US (Dow Jones Index, S&P 500 and NASDAQ) and two European markets (DAX and FTSE) did not exhibit critical slowing down prior to major financial crashes over the last century. However, all markets showed strong trends of rising variability, quantified by time series variance and spectral function at low frequencies, prior to crashes. These results suggest that financial crashes are not critical transitions that occur in the vicinity of a tipping point. Using a simple model, we argue that financial crashes are likely to be stochastic transitions which can occur even when the system is far away from the tipping point. Specifically, we show that a gradually increasing strength of stochastic perturbations may have caused to abrupt transitions in the financial markets. Broadly, our results highlight the importance of stochastically driven abrupt transitions in real world scenarios. Our study offers rising variability as a precursor of financial meltdowns albeit with a limitation that they may signal false alarms.

Resale in Auctions with Financial Constraints

This paper analyzes auctions where bidders face nancial constraints that may force them to resell part of the property of the good (or subcontract part of a project) at a resale market. First we show that the ine¢ cient speculative equilibria of second- price auctions (Garratt and Tröger, 2006) generalizes to situations with partial resale where only the high value bidder is nancially constrained. However, when all players face nancial constraints the ine¢ cient speculative equilibria disappear. Therefore, for auctioning big facilities or contracts where all bidders are nancially constrained and there is a resale market, the second price auction remains a simple and appropriate mechanism to achieve an e¢ cient allocation.

The Annual Economic Survey of Federal Gulf Shrimp Permit Holders: Report on the Design, Implementation, and Descriptive Results for 2006

This technical memorandum documents the design, implementation, data preparation, and descriptive results for the 2006 Annual Economic Survey of Federal Gulf Shrimp Permit Holders. The data collection was designed by the NOAA Fisheries Southeast Fisheries Science Center Social Science Research Group to track the financial and economic status and performance by vessels holding a federal moratorium permit for harvesting shrimp in the Gulf of Mexico. A two page, self-administered mail survey collected total annual costs broken out into seven categories and auxiliary economic data. In May 2007, 580 vessels were randomly selected, stratified by state, from a preliminary population of 1,709 vessels with federal permits to shrimp in offshore waters of the Gulf of Mexico. The survey was implemented during the rest of 2007. After many reminder and verification phone calls, 509 surveys were deemed complete, for an ineligibility-adjusted response rate of 90.7%. The linking of each individual vessel’s cost data to its revenue data from a different data collection was imperfect, and hence the final number of observations used in the analyses is 484. Based on various measures and tests of validity throughout the technical memorandum, the quality of the data is high. The results are presented in a standardized table format, linking vessel characteristics and operations to simple balance sheet, cash flow, and income statements. In the text, results are discussed for the total fleet, the Gulf shrimp fleet, the active Gulf shrimp fleet, and the inactive Gulf shrimp fleet. Additional results for shrimp vessels grouped by state, by vessel characteristics, by landings volume, and by ownership structure are available in the appendices. The general conclusion of this report is that the financial and economic situation is bleak for the average vessels in most of the categories that were evaluated. With few exceptions, cash flow for the average vessel is positive while the net revenue from operations and the “profit” are negative. With negative net revenue from operations, the economic return for average shrimp vessels is less than zero. Only with the help of government payments does the average owner just about break even. In the short-term, this will discourage any new investments in the industry. The financial situation in 2006, especially if it endures over multiple years, also is economically unsustainable for the average established business. Vessels in the active and inactive Gulf shrimp fleet are, on average, 69 feet long, weigh 105 gross tons, are powered by 505 hp motor(s), and are 23 years old. Three-quarters of the vessels have steel hulls and 59% use a freezer for refrigeration. The average market value of these vessels was $175,149 in 2006, about a hundred-thousand dollars less than the average original purchase price. The outstanding loans averaged $91,955, leading to an average owner equity of $83,194. Based on the sample, 85% of the federally permitted Gulf shrimp fleet was actively shrimping in 2006. Of these 386 active Gulf shrimp vessels, just under half (46%) were owner-operated. On average, these vessels burned 52,931 gallons of fuel, landed 101,268 pounds of shrimp, and received $2.47 per pound of shrimp. Non-shrimp landings added less than 1% to cash flow, indicating that the federal Gulf shrimp fishery is very specialized. The average total cash outflow was $243,415 of which $108,775 was due to fuel expenses alone. The expenses for hired crew and captains were on average $54,866 which indicates the importance of the industry as a source of wage income. The resulting average net cash flow is $16,225 but has a large standard deviation. For the population of active Gulf shrimp vessels we can state with 95% certainty that the average net cash flow was between $9,500 and $23,000 in 2006. The median net cash flow was $11,843. Based on the income statement for active Gulf shrimp vessels, the average fixed costs accounted for just under a quarter of operating expenses (23.1%), labor costs for just over a quarter (25.3%), and the non-labor variable costs for just over half (51.6%). The fuel costs alone accounted for 42.9% of total operating expenses in 2006. It should be noted that the labor cost category in the income statement includes both the actual cash payments to hired labor and an estimate of the opportunity cost of owner-operators’ time spent as captain. The average labor contribution (as captain) of an owner-operator is estimated at about $19,800. The average net revenue from operations is negative $7,429, and is statistically different and less than zero in spite of a large standard deviation. The economic return to Gulf shrimping is negative 4%. Including non-operating activities, foremost an average government payment of $13,662, leads to an average loss before taxes of $907 for the vessel owners. The confidence interval of this value straddles zero, so we cannot reject, with 95% certainty, that the population average is zero. The average inactive Gulf shrimp vessel is generally of a smaller scale than the average active vessel. Inactive vessels are physically smaller, are valued much lower, and are less dependent on loans. Fixed costs account for nearly three quarters of the total operating expenses of $11,926, and only 6% of these vessels have hull insurance. With an average net cash flow of negative $7,537, the inactive Gulf shrimp fleet has a major liquidity problem. On average, net revenue from operations is negative $11,396, which amounts to a negative 15% economic return, and owners lose $9,381 on their vessels before taxes. To sustain such losses and especially to survive the negative cash flow, many of the owners must be subsidizing their shrimp vessels with the help of other income or wealth sources or are drawing down their equity. Active Gulf shrimp vessels in all states but Texas exhibited negative returns. The Alabama and Mississippi fleets have the highest assets (vessel values), on average, yet they generate zero cash flow and negative $32,224 net revenue from operations. Due to their high (loan) leverage ratio the negative 11% economic return is amplified into a negative 21% return on equity. In contrast, for Texas vessels, which actually have the highest leverage ratio among the states, a 1% economic return is amplified into a 13% return on equity. From a financial perspective, the average Florida and Louisiana vessels conform roughly to the overall average of the active Gulf shrimp fleet. It should be noted that these results are averages and hence hide the variation that clearly exists within all fleets and all categories. Although the financial situation for the average vessel is bleak, some vessels are profitable. (PDF contains 101 pages)

Financial x-ray

An over view of the financial x-ray service. JL

Report on Knowledge Exchange workshop Price of keeping knowledge: financial streams for digital preservation

In contrast to cost modeling activities, the pricing of services must be simple and transparent. Calculating and thus knowing price structures, would not only help identify the level of detail required for cost modeling of individual instititutions, but also help develop a ”public” market for services as well as clarify the division of task and the modeling of funding and revenue streams for data preservation of public institutions. This workshop has built on the results from the workshop ”The Costs and Benefits of Keeping Knowledge” which took place 11 June 2012 in Copenhagen. This expert workshop aimed at: •Identifying ways for data repositories to abstract from their complicated cost structures and arrive at one transparent pricing structure which can be aligned with available and plausible funding schemes. Those repositories will probably need a stable institutional funding stream for data management and preservation. Are there any estimates for this, absolute or as percentage of overall cost? Part of the revenue will probably have to come through data management fees upon ingest. How could that be priced? Per dataset, per GB or as a percentage of research cost? Will it be necessary to charge access prices, as they contradict the open science paradigm? •What are the price components for pricing individual services, which prices are currently being paid e.g. to commercial providers? What are the description and conditions of the service(s) delivered and guaranteed? •What types of risks are inherent in these pricing schemes? •How can services and prices be defined in an all-inclusive and simple manner, so as to enable researchers to apply for specific amount when asking for funding of data-intensive projects?Please

Assessment of post-harvest losses in Nigeria fishery: the Kainji Lake model

The paper provides a description of a methodology used for quantitative assessment of post harvest losses in the Kainji Lake Fishery (Nigeria). The sample population was made up of 314 fisherfolk, 115 processors, 125 fish buyers and 111 fish sellers. For the determination of handling losses, 24,839 fishes weighing 2,389.31 kg belonging to 43 species were examined of which 10% by number and 9% by weight deteriorated at checking and 4% by number and 3% by weight at landing. Processing losses recorded 22% by number and 16% by weight deteriorated prior to and during smoking with the traditional 'Banda' kiln. During marketing, 16% of fish sold had deteriorated and 6% by weight of fish bought also deteriorated, mainly due to insect infestation during storage. Based on the 1995 yield estimate for Kainji Lake fishery, approximately 1000 tons of fish estimated at 80 million Naira were lost during handling alone. This figure would be much higher if the level of losses during processing and marketing are included. This assessment technique is recommended for use in obtaining quantifiable data on post harvest losses from other water bodies in Nigeria

A preliminary investigation into the post harvest losses of fish in Shiroro Lake area

The findings are presented of a study conducted to assess the post harvest losses in Shiroro Lake, Nigeria. The major objectives were to identify and quantify the types of losses, to provide recommendations that would enhance formulation of policy guidelines for utilization and exploitation of the declining fishery resources of the lake

Post harvest losses in the fisheries of Kainji Lake

An assessment is given of the post-harvest losses in the Lake Kainji fisheries of Nigeria. The study focussed on quantifiable information on post-harvest technology and post-harvest losses from fisherfolk, fish processors and fish traders operating within the Kainji Lake basin. The information was obtained from questionnaires sent to a total of 665 respondents, comprising 317 fishermen, 115 fish processors, 125 fish buyers, and 111 fish sellers in 45 fishing villages and collection centres within the lake basin. Considering the total catch from gillnets, longlines, traps and cast nets estimated at 14,000 in 1995 about 1,000 t of fish was either discarded or lost value due to spoilage during handling by fisherfolk. Assuming an average prices of 80 Naira/kg of fish, the loss to the economy amounted to 80 million Naira annually. Appropriate recommendations are made to significantly reduce post-harvest losses in the Kainji Lake fishery. (PDF contains 91 pages)

Adaptation of coastal communities in the Philippines to the impacts climate change

The Quedan and Rural Credit Guarantee Corporation (Quedancor) of the Philippine Department of Agriculture has the critical responsibility of providing and improving credit assistance to fishers, it also has the task of helping its beneficiaries meet the repayment obligations of their loans. One reason for defaults can be attributed to the devastating impact of natural calamities. Schemes in place are still insufficient to help safeguard lending programs and operations from non-repayment of loans due to production losses and damages to personal properties.(PDF contains 5 pages) Natural calamities include the uncertainties and vagaries of weather and climate that bring about typhoons, floods, and drought; earthquakes; volcanic eruption as well as pests and diseases that affect the productivity of fisheries. When natural calamities occur, small fishers are unable to pay their loans from Quedancor, moreover they have difficulty renewing their loan applications from Quedancor or accessing credit from other sources. Failure to access credit could disable them to continue venture on fishing activities and could eventually jeopardize the welfare of their entire household. The inability of creditors to pay their loans and meet their obligations also impair, to a large extent, the financial operation and viability of the lending institutions. Risk management schemes currently employed include price stabilization measures, targeted relief` to typhoons and drought victims, and crop insurance systems, to name a few. Some of these schemes are becoming very expensive to implement. Moreover, they fail to enable fishers regain sufficient resources so that they may continue production.

Financial analysis of small-scale fish farming enterprises to alleviate poverty in homestead

This paper focuses on the financial analysis involved in setting up of fish farming on a small-scale in a homestead. About 0.5 acres of land was used for the construction of pond which as a stock of Clarias spp/ Heterobranchus spp and Tilapia spp at the ratio of one to three for a period of 12 months. The land/land development cost is N26,500.00, pond construction cost, N35,700.00, equipment cost, N2,650.00 and stock/Input requirement cost N155,727.00 while the revenue from sales is N376,000.00. A cash flow analysis is also calculated for the fish farm, which is N155,423.00 for first year cash flow, and appropriate profit/mosses were calculated for five-year production cycle of N1,036,515.00 million. At the end appreciable profit is realized from the enterprises. This type of enterprises is viable for small-scale farmers to practices and adopted for financial support for their family

Financial equilibrium, voting procedures, and coalition structures in allocational mechanisms

This thesis is comprised of three chapters, each of which is concerned with properties of allocational mechanisms which include voting procedures as part of their operation. The theme of interaction between economic and political forces recurs in the three chapters, as described below.

Chapter One demonstrates existence of a non-controlling interest shareholders' equilibrium for a stylized one-period stock market economy with fewer securities than states of the world. The economy has two decision mechanisms: Owners vote to change firms' production plans across states, fixing shareholdings; and individuals trade shares and the current production / consumption good, fixing production plans. A shareholders' equilibrium is a production plan profile, and a shares / current good allocation stable for both mechanisms. In equilibrium, no (Kramer direction-restricted) plan revision is supported by a share-weighted majority, and there exists no Pareto superior reallocation.

Chapter Two addresses efficient management of stationary-site, fixed-budget, partisan voter registration drives. Sufficient conditions obtain for unique optimal registrar deployment within contested districts. Each census tract is assigned an expected net plurality return to registration investment index, computed from estimates of registration, partisanship, and turnout. Optimum registration intensity is a logarithmic transformation of a tract's index. These conditions are tested using a merged data set including both census variables and Los Angeles County Registrar data from several 1984 Assembly registration drives. Marginal registration spending benefits, registrar compensation, and the general campaign problem are also discussed.

The last chapter considers social decision procedures at a higher level of abstraction. Chapter Three analyzes the structure of decisive coalition families, given a quasitransitive-valued social decision procedure satisfying the universal domain and ITA axioms. By identifying those alternatives X* ⊆ X on which the Pareto principle fails, imposition in the social ranking is characterized. Every coaliton is weakly decisive for X* over X~X*, and weakly antidecisive for X~X* over X*; therefore, alternatives in X~X* are never socially ranked above X*. Repeated filtering of alternatives causing Pareto failure shows states in X^n*~X^((n+1))* are never socially ranked above X^((n+1))*. Limiting results of iterated application of the *-operator are also discussed.