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.

Social networks and occupational choice: the endogenous formation of attitudes and beliefs about tax compliance

The paper analyses the emergence of group-specific attitudes and beliefs about tax compliance when individuals interact in a social network. It develops a model in which taxpayers possess a range of individual characteristics – including attitude to risk, potential for success in self-employment, and the weight attached to the social custom for honesty – and make an occupational choice based on these characteristics. Occupations differ in the possibility for evading tax. The social network determines which taxpayers are linked, and information about auditing and compliance is transmitted at meetings between linked taxpayers. Using agent-based simulations, the analysis demonstrates how attitudes and beliefs endogenously emerge that differ across sub-groups of the population. Compliance behaviour is different across occupational groups, and this is reinforced by the development of group-specific attitudes and beliefs. Taxpayers self-select into occupations according to the degree of risk aversion, the subjective probability of audit is sustained above the objective probability, and the weight attached to the social custom differs across occupations. These factors combine to lead to compliance levels that differ across occupations.

Revenue-neutral tax policy under price uncertainty

The firm's response to revenue-neutral taxation is investigated under price uncertainty. Revenue-neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant. Nonincreasing absolute risk aversion is sufficient to sign the firm's response: a reduction in the marginal rate causes the firm to contract output. Implications are established for the equilibrium level of treasury receipts.

The treatment of child anxiety disorders via guided parent-delivered cognitive-behavioural therapy: a randomised controlled trial

Background Promising evidence has emerged of clinical gains using guided self-help cognitive-behavioural therapy (CBT) for child anxiety and by involving parents in treatment; however, the efficacy of guided parent-delivered CBT has not been systematically evaluated in UK primary and secondary settings. Aims To evaluate the efficacy of low-intensity guided parent-delivered CBT treatments for children with anxiety disorders. Method A total of 194 children presenting with a current anxiety disorder, whose primary carer did not meet criteria for a current anxiety disorder, were randomly allocated to full guided parent-delivered CBT (four face-to-face and four telephone sessions) or brief guided parent-delivered CBT (two face-to-face and two telephone sessions), or a wait-list control group (trial registration: ISRCTN92977593). Presence and severity of child primary anxiety disorder (Anxiety Disorders Interview Schedule for DSM-IV, child/parent versions), improvement in child presentation of anxiety (Clinical Global Impression-Improvement scale), and change in child anxiety symptoms (Spence Children’s Anxiety Scale, child/parent version and Child Anxiety Impact scale, parent version) were assessed at post-treatment and for those in the two active treatment groups, 6 months post-treatment. Results Full guided parent-delivered CBT produced superior diagnostic outcomes compared with wait-list at post-treatment, whereas brief guided parent-delivered CBT did not: at post-treatment, 25 (50%) of those in the full guided CBT group had recovered from their primary diagnosis, compared with 16 (25%) of those on the wait-list (relative risk (RR) 1.85, 95% CI 1.14-2.99); and in the brief guided CBT group, 18 participants (39%) had recovered from their primary diagnosis post-treatment (RR = 1.56, 95% CI 0.89-2.74). Level of therapist training and experience was unrelated to child outcome. Conclusions Full guided parent-delivered CBT is an effective and inexpensive first-line

An experiment on spatial competition with endogenous pricing

Hotelling's (1929) principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far. We report results from experimental spatial duopolies designed to address this issue. The levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion. The observed prices are consistent with collusion attempts. Our main findings are robust to variations in three experimental conditions: automated vs. human market sharing rule for ties, individual vs. collective decision making, and even vs. odd number of locations.

Improving the health forecasting alert system for cold weather and heat-waves in England: a proof-of-concept using temperature-mortality relationships

Objectives In this study a prototype of a new health forecasting alert system is developed, which is aligned to the approach used in the Met Office’s (MO) National Severe Weather Warning Service (NSWWS). This is in order to improve information available to responders in the health and social care system by linking temperatures more directly to risks of mortality, and developing a system more coherent with other weather alerts. The prototype is compared to the current system in the Cold Weather and Heatwave plans via a case-study approach to verify its potential advantages and shortcomings. Method The prototype health forecasting alert system introduces an “impact vs likelihood matrix” for the health impacts of hot and cold temperatures which is similar to those used operationally for other weather hazards as part of the NSWWS. The impact axis of this matrix is based on existing epidemiological evidence, which shows an increasing relative risk of death at extremes of outdoor temperature beyond a threshold which can be identified epidemiologically. The likelihood axis is based on a probability measure associated with the temperature forecast. The new method is tested for two case studies (one during summer 2013, one during winter 2013), and compared to the performance of the current alert system. Conclusions The prototype shows some clear improvements over the current alert system. It allows for a much greater degree of flexibility, provides more detailed regional information about the health risks associated with periods of extreme temperatures, and is more coherent with other weather alerts which may make it easier for front line responders to use. It will require validation and engagement with stakeholders before it can be considered for use.

End-of-life practices in seven Brazilian pediatric intensive care units

Objective: To evaluate the incidence of life support limitation and medical practices in the last 48 hrs of life of children in seven Brazilian pediatric intensive care units (PICUs). Design. Cross-sectional multicenter retrospective study based on medical chart review. Setting: Seven PICUs belonging to university and tertiary hospitals located in three Brazilian regions: two in Porto Alegre (southern region), two in Sao Paulo (southeastern region), and three in Salvador (northeastern region). Patients. Medical records of all children who died in seven PICUs from January 2003 to December 2004. Deaths in the first 24 hrs of admission to the PICU and brain death were excluded. Interventions: Two pediatric intensive care residents from each PICU were trained to fill out a standard protocol (K = 0.9) to record demographic data and all medical management provided in the last 48 hrs of life (inotropes, sedatives, mechanical ventilation, full resuscitation maneuvers or not). Student`s t-test, analysis of variance, chi-square test, and relative risk were used for comparison of data. Measurements and Main Results. Five hundred and sixty-one deaths were identified; 97 records were excluded (61 because of brain death and 36 due to <24 hrs in the PICU). Thirty-six medical charts could not be found. Cardiopulmonary resuscitation was performed in 242 children (57%) with a significant difference between the southeastern and northeastern regions (p =.0003). Older age (p = .025) and longer PICU stay (p = .001) were associated with do-not-resuscitate orders. In just 52.5% of the patients with life support limitation, the decision was clearly recorded in the medical chart. No ventilatory support was provided in 14 cases. Inotropic drug infusions were maintained or increased in 66% of patients with do-not-resuscitate orders. Conclusions. The incidence of life support limitation has increased among Brazilian PICUs but with significant regional differences. Do-not-resuscitate orders are still the most common practice, with scarce initiatives for withdrawing or withholding life support measures.

Methods for Equivalence and Noninferiority Testing

Classical hypothesis testing focuses on testing whether treatments have differential effects on outcome. However, sometimes clinicians may be more interested in determining whether treatments are equivalent or whether one has noninferior outcomes. We review the hypotheses for these noninferiority and equivalence research questions, consider power and sample size issues, and discuss how to perform such a test for both binary and survival outcomes. The methods are illustrated on 2 recent studies in hematopoietic cell transplantation.

Influence of hepatitis G virus (GB virus C) on the prognosis of HIV-infected women

This study was undertaken to evaluate the prevalence of GB virus C (GBV-C) viraemia and anti-E2 antibody, and to assess the effect of co-infection with GBV-C and HIV during a 10-year follow-up of a cohort of 248 HIV-infected women. Laboratory variables (mean and median CD4 counts, and HIV and GBV-C viral loads) and clinical parameters were investigated. At baseline, 115 women had past exposure to GBV-C: 57 (23%) were GBV-C RNA positive and 58 (23%) were anti-E2 positive. There was no statistical difference between the groups (GBV-C RNA + /anti-E2 -, GBV-C RNA - /anti-E2 + and GBV-C RNA - /anti-E2 -) regarding baseline CD4 counts or HIV viral loads (P = 0.360 and 0.713, respectively). Relative risk of death for the GBV-C RNA + /anti-E2 - group was 63% lower than that for the GBV-C RNA - /anti-E2 - group. Multivariate analysis demonstrated that only HIV loads >= 100,000 copies/mL and AIDS-defining illness during follow-up were associated with shorter survival after AIDS development. It is likely that antiretroviral therapy (ART) use in our cohort blurred a putative protective effect related to the presence of GBV-C RNA.

Papel do estudo hemodinâmico hepático na avaliação de pacientes com cirrose

O objetivo deste estudo foi avaliar o comportamento do gradiente de pressão venosa hepática (GPVH) em pacientes com cirrose. Foram estudados 83 pacientes portadores de hepatopatia crônica, com média de idade de 52,9 ± 10,1 anos, sendo 71,1% do sexo masculino. Todos realizaram estudo hemodinâmico hepático, sendo determinado o GPVH. Nestes doentes o GPVH foi analisado segundo distintas variáveis clínicas, enfatizando seu papel na avaliação da probabilidade de sangramento a partir de um nível discriminativo. Os pacientes foram seguidos em média por 16,6 ± 16,02 meses e divididos em grupos conforme o desfecho: óbito, realização de cirurgia de “shunt” porto-cava, de transplante hepático e ressangramento por ruptura de varizes de esôfago durante o seguimento, tendo sido realizadas comparações entre as médias do GPVH nos diferentes desfechos. O nível de significância estatística adotado de foi 0,05. Com os dados obtidos foram possíveis os seguintes resultados: - A média do GPVH nos pacientes com hepatopatia crônica foi de 15,26 ± 6,46 mmHg. - Não houve diferença estatística entre as médias do GPVH nos hepatopatas crônicos de etiologia alcoólica e não alcoólica. - O risco relativo para sangramento por varizes de esôfago foi maior nos pacientes com GPVH acima de 10 e 12mmHg, embora tenha havido sangramento em doentes com níveis inferiores a estes. - A média do GPVH foi significativamente maior nos pacientes que apresentaram sangramento durante o seguimento em relação àqueles que estiveram livres desta complicação. - A média do GPVH no grupo de pacientes que sangraram, que foram a óbito, que realizaram “shunt” porto-cava e que foram a transplante hepático foi significativamente maior do que aquela observada nos pacientes que evoluíram sem complicações. - Não foi identificado um nível crítico discriminativo do GPVH que estivesse relacionado ao prognóstico. - A determinação do GPVH, ressalvada uma complicação de seriedade, mostrou-se um método seguro. Dos resultados aqui observados, conclui-se que a determinação do GPVH é útil em predizer qual população de cirróticos está mais suscetível ao sangramento digestivo por ruptura de varizes, bem como em auxiliar na avaliação do prognóstico dos mesmos.

Optimal performance fee and flow of funds in asset management contracts

This paper investigates the importance of ow of funds as an implicit incentive in the asset management industry. We build a two-period bi- nomial moral hazard model to explain the trade-o¤s between ow, per- formance and fees where e¤ort depends on the combination of implicit ( ow of funds) and explicit (performance fee) incentives. Two cases are considered. With full commitment, the investor s relevant trade-o¤ is to give up expected return in the second period vis-à-vis to induce e¤ort in the rst period. The more concerned the investor is with today s pay- o¤, the more willing he will be to give up expected return in the second period by penalizing negative excess return in the rst period. Without full commitment, the investor learns some symmetric and imperfect infor- mation about the ability of the manager to obtain positive excess return. In this case, observed returns reveal ability as well as e¤ort choices. We show that powerful implicit incentives may explain the ow-performance relationship with a numerical solution. Besides, risk aversion explains the complementarity between performance fee and ow of funds.

Non-monotone insurance contracts and their empirical consequences

The goal of this paper is to show the possibility of a non-monotone relation between coverage ans risk which has been considered in the literature of insurance models since the work of Rothschild and Stiglitz (1976). We present an insurance model where the insured agents have heterogeneity in risk aversion and in lenience (a prevention cost parameter). Risk aversion is described by a continuous parameter which is correlated with lenience and for the sake of simplicity, we assume perfect correlation. In the case of positive correlation, the more risk averse agent has higher cosr of prevention leading to a higher demand for coverage. Equivalently, the single crossing property (SCP) is valid and iplies a positive correlation between overage and risk in equilibrium. On the other hand, if the correlation between risk aversion and lenience is negative, not only may the SCP be broken, but also the monotonocity of contracts, i.e., the prediction that high (low) risk averse types choose full (partial) insurance. In both cases riskiness is monotonic in risk aversion, but in the last case there are some coverage levels associated with two different risks (low and high), which implies that the ex-ante (with respect to the risk aversion distribution) correlation between coverage and riskiness may have every sign (even though the ex-post correlation is always positive). Moreover, using another instrument (a proxy for riskiness), we give a testable implication to desentangle single crossing ans non single croosing under an ex-post zero correlation result: the monotonicity of coverage as a function os riskiness. Since by controlling for risk aversion (no asymmetric information), coverage is monotone function of riskiness, this also fives a test for asymmetric information. Finally, we relate this theoretical results to empirical tests in the recent literature, specially the Dionne, Gouruéroux and Vanasse (2001) work. In particular, they found an empirical evidence that seems to be compatible with asymmetric information and non single crossing in our framework. More generally, we build a hidden information model showing how omitted variables (asymmetric information) can bias the sign of the correlation of equilibrium variables conditioning on all observable variables. We show that this may be the case when the omitted variables have a non-monotonic relation with the observable ones. Moreover, because this non-dimensional does not capture this deature. Hence, our main results is to point out the importance of the SPC in testing predictions of the hidden information models.

The private memory of aggregate shocks

We study constrained efficient aggregate risk sharing and its consequence for the behavior of macro-aggregates in a dynamic Mirrlees’s (1971) setting. Privately observed idiosyncratic productivity shocks are assumed to be independent of i.i.d. publicly observed aggregate shocks. Yet, private allocations display memory with respect to past aggregate shocks, when idosyncratic shocks are also i.i.d.. Under a mild restriction on the nature of optimal allocations the result extends to more persistent idiosyncratic shocks, for all but the limit at which idiosyncratic risk disappears, and the model collapses to a pure heterogeneity repeated Mirrlees economy identical to Werning [2007]. When preferences are iso-elastic we show that an allocation is memoryless only if it displays a strong form of separability with respect to aggregate shocks. Separability characterizes the pure heterogeneity limit as well as the general case with log preferences. With less than full persistence and risk aversion different from unity both memory and non-separability characterize optimal allocations. Exploiting the fact that non-separability is associated with state-varying labor wedges, we apply a business cycle accounting procedure (e.g. Chari et al. [2007]) to the aggregate data generated by the model. We show that, whenever risk aversion is great than one our model produces efficient counter-cyclical labor wedges.

Alocação dinâmica ótima com momentos de ordem superior para a estratégia de carry trade

O objetivo do presente trabalho é verificar se, ao levar-se em consideração momentos de ordem superior (assimetria e curtose) na alocação de uma carteira de carry trade, há ganhos em relação à alocação tradicional que prioriza somente os dois primeiros momentos (média e variância). A hipótese da pesquisa é que moedas de carry trade apresentam retornos com distribuição não-Normal, e os momentos de ordem superior desta têm uma dinâmica, a qual pode ser modelada através de um modelo da família GARCH, neste caso IC-GARCHSK. Este modelo consiste em uma equação para cada momento condicional dos componentes independentes, explicitamente: o retorno, a variância, a assimetria, e a curtose. Outra hipótese é que um investidor com uma função utilidade do tipo CARA (constant absolute risk aversion), pode tê-la aproximada por uma expansão de Taylor de 4ª ordem. A estratégia do trabalho é modelar a dinâmica dos momentos da série dos logartimos neperianos dos retornos diários de algumas moedas de carry trade através do modelo IC-GARCHSK, e estimar a alocação ótima da carteira dinamicamente, de tal forma que se maximize a função utilidade do investidor. Os resultados mostram que há ganhos sim, ao levar-se em consideração os momentos de ordem superior, uma vez que o custo de oportunidade desta foi menor que o de uma carteira construída somente utilizando como critérios média e variância.

Contratos de performance sob risco e na ausência de incentivo

Este trabalho mostra que a solução ótima do contrato de remuneração do empregado não é de salário fixo quando sua utilidade reserva é uma função de um fator que pode variar. A remuneração ótima do empregado incluirá um bônus que será também uma função do mesmo fator que modifica sua utilidade reserva, mesmo que tal fator não dependa do seu esforço e que o agente seja avesso ao risco. Esse resultado contrasta com a teoria clássica segundo a qual só se deveria alocar risco ao funcionário quando tal contrato fosse necessário para prover os incentivos para um esforço maior do agente. Outra conclusão desse trabalho é que existe um limite para o tamanho do risco que o funcionário assume no contrato ótimo, ou seja, o valor do bônus é uma função crescente da diferença dos valores da utilidade reserva nos diferentes cenários possíveis até certo ponto apenas e a partir de determinado valor para essa diferença, a magnitude do bônus se mantém estável.