Insurance underwriter or financial development fund: what role for reserve pooling in Latin America?

Includes bibliography

Prevention and insurance of conflict and terrorism: issues and evidence for Latin America

Includes bibliography

As decisões de investimento e a instabilidade financeira

Initially, the text handles the theories of ancient classical and changes with the emerging of the debates of the schools of economic of Keynes and Kalecki. Over the years, from 1930 onwards, investment theories were debated and modified by various schools of economic thought. One of the debates that stands out in this work are the theories of Minsky that will bring new reformulations to Keynesian theory and a greater focus on psychological factors as determinants of investment decisions. Through financial instability hypothesis Minsky explains how the decisions to invest and the access to credit cause instability to financial system. Finally the work will show how access to credit is material when companies decide to invest and how these investments are often handled due to information asymmetries in the market. The financial institutions seek to maximize their profits while dribbling moral hazard and adverse selection, and thus the government needs to intervene once in a while as a regulator to maintain the solvency of the system

A property rights approach to strategy

This article is about how resources can be conceptualized as bundles of attributes for which one can assign economic property rights. Strategic considerations are deliberately incorporated into the analysis through the assessment of the activities of capture and protection of property rights, along with the examination of the institutional environment. These basic elements combine in order to design an approach to strategy. In developing this approach, the authors identify four key questions for structuring the strategy formulation process of the firm. The analytical framework is illustrated through a particular case: the collection of royalties on the genetically modified (GM) technology in soybean seeds.

Compensation, Incentives and Risk: Economic Theory and Russian Practise

Mr. Pechersky set out to examine a specific feature of the employer-employee relationship in Russian business organisations. He wanted to study to what extent the so-called "moral hazard" is being solved (if it is being solved at all), whether there is a relationship between pay and performance, and whether there is a correlation between economic theory and Russian reality. Finally, he set out to construct a model of the Russian economy that better reflects the way it actually functions than do certain other well-known models (for example models of incentive compensation, the Shapiro-Stiglitz model etc.). His report was presented to the RSS in the form of a series of manuscripts in English and Russian, and on disc, with many tables and graphs. He begins by pointing out the different examples of randomness that exist in the relationship between employee and employer. Firstly, results are frequently affected by circumstances outside the employee's control that have nothing to do with how intelligently, honestly, and diligently the employee has worked. When rewards are based on results, uncontrollable randomness in the employee's output induces randomness in their incomes. A second source of randomness involves the outside events that are beyond the control of the employee that may affect his or her ability to perform as contracted. A third source of randomness arises when the performance itself (rather than the result) is measured, and the performance evaluation procedures include random or subjective elements. Mr. Pechersky's study shows that in Russia the third source of randomness plays an important role. Moreover, he points out that employer-employee relationships in Russia are sometimes opposite to those in the West. Drawing on game theory, he characterises the Western system as follows. The two players are the principal and the agent, who are usually representative individuals. The principal hires an agent to perform a task, and the agent acquires an information advantage concerning his actions or the outside world at some point in the game, i.e. it is assumed that the employee is better informed. In Russia, on the other hand, incentive contracts are typically negotiated in situations in which the employer has the information advantage concerning outcome. Mr. Pechersky schematises it thus. Compensation (the wage) is W and consists of a base amount, plus a portion that varies with the outcome, x. So W = a + bx, where b is used to measure the intensity of the incentives provided to the employee. This means that one contract will be said to provide stronger incentives than another if it specifies a higher value for b. This is the incentive contract as it operates in the West. The key feature distinguishing the Russian example is that x is observed by the employer but is not observed by the employee. So the employer promises to pay in accordance with an incentive scheme, but since the outcome is not observable by the employee the contract cannot be enforced, and the question arises: is there any incentive for the employer to fulfil his or her promises? Mr. Pechersky considers two simple models of employer-employee relationships displaying the above type of information symmetry. In a static framework the obtained result is somewhat surprising: at the Nash equilibrium the employer pays nothing, even though his objective function contains a quadratic term reflecting negative consequences for the employer if the actual level of compensation deviates from the expectations of the employee. This can lead, for example, to labour turnover, or the expenses resulting from a bad reputation. In a dynamic framework, the conclusion can be formulated as follows: the higher the discount factor, the higher the incentive for the employer to be honest in his/her relationships with the employee. If the discount factor is taken to be a parameter reflecting the degree of (un)certainty (the higher the degree of uncertainty is, the lower is the discount factor), we can conclude that the answer to the formulated question depends on the stability of the political, social and economic situation in a country. Mr. Pechersky believes that the strength of a market system with private property lies not just in its providing the information needed to compute an efficient allocation of resources in an efficient manner. At least equally important is the manner in which it accepts individually self-interested behaviour, but then channels this behaviour in desired directions. People do not have to be cajoled, artificially induced, or forced to do their parts in a well-functioning market system. Instead, they are simply left to pursue their own objectives as they see fit. Under the right circumstances, people are led by Adam Smith's "invisible hand" of impersonal market forces to take the actions needed to achieve an efficient, co-ordinated pattern of choices. The problem is that, as Mr. Pechersky sees it, there is no reason to believe that the circumstances in Russia are right, and the invisible hand is doing its work properly. Political instability, social tension and other circumstances prevent it from doing so. Mr. Pechersky believes that the discount factor plays a crucial role in employer-employee relationships. Such relationships can be considered satisfactory from a normative point of view, only in those cases where the discount factor is sufficiently large. Unfortunately, in modern Russia the evidence points to the typical discount factor being relatively small. This fact can be explained as a manifestation of aversion to risk of economic agents. Mr. Pechersky hopes that when political stabilisation occurs, the discount factors of economic agents will increase, and the agent's behaviour will be explicable in terms of more traditional models.

Say on Pay: ein Überblick über Gestaltungsoptionen, ökonomische Konsequenzen und Erkenntnisse aus Empirie und Laborexperimenten

Unter dem Stichwort Say on Pay (SoP) haben in den letzen Jahren die meisten Länder der EU und die USA den Aktionären Abstimmungsrechte im Zusammenhang mit der Vergütung des Top-Managements eingeräumt. Zwischen den einzelnen Ländern bestehen jedoch erhebliche Unterschiede hinsichtlich der konkreten Ausgestaltung des SoP. Dieser Beitrag diskutiert die Wirkungen unterschiedlicher Gestaltungsoptionen des SoP auf die Anreizgestaltung und den Nutzen des Managements und der Aktionäre im Rahmen eines einfachen linearen Agency Modells. Dabei erweisen sich das vorvertragliche bindende SoP und das bedingt verpflichtende, nachvertragliche bindende SoP gegenüber den anderen untersuchten Varianten als überlegen. Während das konsultative SoP an seiner mangelnden Durchsetzbarkeit leidet, bietet das nachvertragliche bindende SoP Anreize für opportunistisches Verhalten auf Seiten der Aktionäre und führt deshalb zu Wohlfahrtsverlusten. In Ergänzung der Modellanalyse wird ein Überblick über die wichtigsten empirischen und experimentellen Studien zum Thema SoP gegeben und deren Inhalt im Lichte der Modellergebnisse diskutiert. Most countries of the European Union as well as the US recently introduced shareholder votes on the remuneration of executives, also referred to as “Say on Pay” (SoP). Interestingly, legislators in different jurisdictions opted for quite dissimilar voting right regimes. We provide an overview of the main regulatory approaches and discuss the potential impact of variations in SoP design on the structure of compensation contracts and the utility of shareholders and executives. We find that pre-contractual SoP and conditional post-contractual SoP with binding consequences are in the best interest of shareholders. By contrast, advisory SoP typically suffers from lacking enforceability. We also find that post-contractual SoP with binding consequences results in efficiency losses because it fuels moral hazard on the part of shareholders. We complement the theoretical analysis with a discussion of recent empirical and experimental studies on Say on Pay.

On Voters' Attitudes Towards Unemployment Insurance Subsidies across Regions: A Canadian Simulation

The Canadian unemployment insurance program is designed to reflect the varying risk of joblessness across regions. Regions that are considered low-risk areas subsidize higher risk ones. A region's risk is typically proxied by its relative unemployment rate. We use a dynamic, heterogeneous-agent model calibrated to Canada to analyze voters preferences between a uniformly generous unemployment insurance and the current system with asymmetric generosity. We find that Canada's unusual unemployment insurance system is surprisingly close to what voters would choose in spite of the possibilities of moral hazard and self-insurance through asset build-up.

The Optimal Response to Default: Renegotiation or Extended Maturity?

This paper reinforces the argument of Harding and Sirmans (2002) that the observed preference of lenders for extended maturity rather than renegotiation of the principle in the case of loan default is due to the superior incentive properties of the former. Specifically, borrowers have a greater incentive to avoid default under extended maturity because it reduces the likelihood that they will be able to escape paying off the full loan balance. Thus, although extended maturity leaves open the possibility of foreclosure, it will be preferred to renegotiation as long as the dead weight loss from foreclosure is not too large.

¿Es la pobreza un determinante crucial de participación económica de niños, niñas y adolescentes? : Una exploración con datos de algunas regiones de Argentina

De acuerdo con los modelos teóricos más usados para el estudio del trabajo infantil, uno de los principales determinantes de su nivel es la pobreza del hogar en el que residen los niños. Más concretamente, Basu y Van (1998) plantean a nivel teórico el llamado por ellos ?luxury axiom? (la), según el cual los hogares están comandados por padres altruistas y pobres que recurren al trabajo infantil como un medio de escapar de la pobreza. Según este mismo esquema teórico y si la economía está en una situación de equilibrio múltiple, puede que la aplicación efectiva de las leyes que prohíben el trabajo infantil provoque un empeoramiento del bienestar de los hogares y aumente la pobreza. Para que esto se dé, es necesario también que el otro axioma del modelo de Basu y Van (1998), el ?complementary axiom?, no se verifique en la realidad. Con datos provenientes de la Encuesta de Actividades de Niños, Niñas y Adolescentes (EANNA) realizada en la Argentina en 2004, se exploran empíricamente estas hipótesis. En primer lugar, se trata de examinar en qué medida el ingreso familiar estaría actuando como un determinante de la participación económica de niños entre 5 y 17 años. Luego se procede a analizar la cuestión simulando una situación de política pública que reduzca en un porcentaje dado la participación económica de niños, niñas y adolescentes y observando su impacto sobre las tasas de pobreza de las distintas regiones de la Argentina. También se analizan hipótesis específicas, como, por ejemplo, la endogeneidad del ingreso familiar total que estaría recibiendo los efectos de un moral hazard en la conducta de los adultos

¿Es la pobreza un determinante crucial de participación económica de niños, niñas y adolescentes? : Una exploración con datos de algunas regiones de Argentina

De acuerdo con los modelos teóricos más usados para el estudio del trabajo infantil, uno de los principales determinantes de su nivel es la pobreza del hogar en el que residen los niños. Más concretamente, Basu y Van (1998) plantean a nivel teórico el llamado por ellos ?luxury axiom? (la), según el cual los hogares están comandados por padres altruistas y pobres que recurren al trabajo infantil como un medio de escapar de la pobreza. Según este mismo esquema teórico y si la economía está en una situación de equilibrio múltiple, puede que la aplicación efectiva de las leyes que prohíben el trabajo infantil provoque un empeoramiento del bienestar de los hogares y aumente la pobreza. Para que esto se dé, es necesario también que el otro axioma del modelo de Basu y Van (1998), el ?complementary axiom?, no se verifique en la realidad. Con datos provenientes de la Encuesta de Actividades de Niños, Niñas y Adolescentes (EANNA) realizada en la Argentina en 2004, se exploran empíricamente estas hipótesis. En primer lugar, se trata de examinar en qué medida el ingreso familiar estaría actuando como un determinante de la participación económica de niños entre 5 y 17 años. Luego se procede a analizar la cuestión simulando una situación de política pública que reduzca en un porcentaje dado la participación económica de niños, niñas y adolescentes y observando su impacto sobre las tasas de pobreza de las distintas regiones de la Argentina. También se analizan hipótesis específicas, como, por ejemplo, la endogeneidad del ingreso familiar total que estaría recibiendo los efectos de un moral hazard en la conducta de los adultos

¿Es la pobreza un determinante crucial de participación económica de niños, niñas y adolescentes? : Una exploración con datos de algunas regiones de Argentina

De acuerdo con los modelos teóricos más usados para el estudio del trabajo infantil, uno de los principales determinantes de su nivel es la pobreza del hogar en el que residen los niños. Más concretamente, Basu y Van (1998) plantean a nivel teórico el llamado por ellos ?luxury axiom? (la), según el cual los hogares están comandados por padres altruistas y pobres que recurren al trabajo infantil como un medio de escapar de la pobreza. Según este mismo esquema teórico y si la economía está en una situación de equilibrio múltiple, puede que la aplicación efectiva de las leyes que prohíben el trabajo infantil provoque un empeoramiento del bienestar de los hogares y aumente la pobreza. Para que esto se dé, es necesario también que el otro axioma del modelo de Basu y Van (1998), el ?complementary axiom?, no se verifique en la realidad. Con datos provenientes de la Encuesta de Actividades de Niños, Niñas y Adolescentes (EANNA) realizada en la Argentina en 2004, se exploran empíricamente estas hipótesis. En primer lugar, se trata de examinar en qué medida el ingreso familiar estaría actuando como un determinante de la participación económica de niños entre 5 y 17 años. Luego se procede a analizar la cuestión simulando una situación de política pública que reduzca en un porcentaje dado la participación económica de niños, niñas y adolescentes y observando su impacto sobre las tasas de pobreza de las distintas regiones de la Argentina. También se analizan hipótesis específicas, como, por ejemplo, la endogeneidad del ingreso familiar total que estaría recibiendo los efectos de un moral hazard en la conducta de los adultos

Bounding ATE with ITT

We propose the bounds on ATE using intention-to-treat (ITT) estimator when there are compliers/noncompliers in randomized trials. The bounds are given as ITTNACE, (2) noncompliers' average treatment effect (NACE) is nonnegative. We give an example of poverty impacts of health insurance, and effects of adverse selection and moral hazard of health insurance.

Innovative tools to address drought risk in grazing lands

Drought spells can impose severe impacts in most vulnerable farms. It is well known that uninsured exposure exacerbates income inequality in farming systems. However, high administrative costs of traditional insurance hinder small farmers? access to risk management tools. The existence of moral hazard and systemic risk prevents the implementation of traditional insurance programs to address drought risk in rural areas. Innovative technologies like satellite images are being used to derive vegetation index which are highly correlated with drought impacts. The implementation of this technology in agricultural insurance may help to overcome some of the limitations of traditional insurance. However, basis risk has been identified as one of the main problems that hinder the acceptance of index insurance. In this paper we focus on the analyses of basis risk under different contract options in the grazing lands of the Araucanía region. A vegetation index database is used to develop an actuarial insurance model and estimate risk premiums for moderate and severe drought coverage. Risk premium sharply increases with risk coverage. In contrast with previous findings in the literature, our results are not conclusive and show that lowering the coverage level does not necessarily imply a reduction in basis risk. Further analyses of the relation between contract design and basis risk is a promising area of research that may render an important social utility for most vulnerable farming systems.

Banking crises and government intervention

Intervention has taken different forms in different countries and periods of time. Moreover, recent episodes showed that in front of an imminent crisis, the promise of no interventions made by governments is barely credible. In this paper we address the problem of resolving banking crises from the government perspective, taking into account the fact that preventing banking crises is crucial for the government. In addition, we introduce the moral hazard problem, inherent in the banking system, and consider the interaction between regulation, policy measures and banks’ behavior. To the best of our knowledge, this is the first paper that compares different policy plans to resolve banking crises in an environment where insufficiently capitalized banks have incentives to take risk, and the government has to decide whether to provide public services or impede crises. We show that when individuals highly value public services then the best policy in terms of welfare is to apply the tax on early withdrawals, as the government can transfer those taxes to the whole population by investing in public services (although at some cost). Conversely, when individuals assign a low value to consuming public services, recapitalization is the dominant policy. Finally, when the probability of a crisis is sufficiently high, capital requirements should be used

Framing Banking Union in the Euro Area: Some empirical evidence. CEPS Working Document No. 389, 3 February 2014

Evidence shows that financial integration in the euro area is retrenching at a quicker pace than outside the union. Home bias persists: Governments compete on funding costs by supporting ‘their’ banks with massive state aids, which distorts the playing field and feeds the risk-aversion loop. This situation intensifies friction in credit markets, thus hampering the transmission of monetary policies and, potentially, economic growth. This paper discusses the theoretical foundations of a banking union in a common currency area and the legal and economic aspects of EU responses. As a result, two remedies are proposed to deal with moral hazard in a common currency area: a common (unlimited) financial backstop to a privately funded recapitalisation/resolution fund and a blanket prohibition on state aids.