Hedging commodity price risks in Papua New Guinea

This paper shows that market-based financial instruments are better suited to manage external price risk for a country that is a price taker in world commodity markets. This is especially the case for mineral and energy price risks where financial instruments (such as commodity swaps) exist for hedging export earnings over long periods. For agricultural export earnings, short-term hedging tools, such as options and futures, could be used effectively. The authors design specific financial strategies that Papua New Guinea could use, and demonstrate the gains to be made from active risk management. The authors concludes that the lessons learned are not unique. Many developing countries are heavily dependent on primary commodities for foreign exchange, and their economic development has suffered from the resulting risks and instabilities. With increasing awareness of these risks and with technical assistance - strategic advice and assistance in institution building and skills training - developing countries can learn to use financial instruments to improve their economic management.Banks&Banking Reform,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research

A production function-based policy simulation model of perennial commodity markets

In modeling the supply of perennial crops, many researchers have used the vintage-capital production approach, most recently formulated by Akiyama and Trivedi. Implementing this approach requires reliable time-series data on production, total area planted, new planted area, yields, real producer prices, and credit availability. For many producers, these data are not available, and many producers of perennial crops face substantially changed incentive structures in countries undergoing structural adjustment. So, the authors developed an alternative method for modeling perennial crop subsectors. It takes into account past investment decisions and other dynamics of supply response, captures all important features of the market, should be consistent with economic theory, should require minimal data, and should not rely on time-series data or econometric estimates. This production function-based model uses a Cobb-Douglas production function. The model is based on partial equilibrium and does not take into account the impact on individual subsectors on such aggregate variables as wages and interest rates. The authors apply the model to the coffee sector in Nigeria, which is undergoing major reform, but the model can be applied - with only minor modifications - to other types of crops, in other countries. The model results show the following. Policy variables greatly influence the growth and development of the sector. A 10 percent increase in the price of coffee, for example, would increase demand for labor 19 percent and that for fertilizer 29 percent and would expand the area of coffee investment 17 percent. The sector would substantially benefit from greater labor efficiency, lower real interest rates, and a reduction in the real value of the cordoba against the U.S. dollar. Nicaragua could increase its production and exports substantially by the end of the decade, if there were a favorable economic climate - especially in terms of international prices and investment incentives.Economic Theory&Research,Crops&Crop Management Systems,Banks&Banking Reform,Consumption,Environmental Economics&Policies

Measuring welfare changes from commodity price stabilization in small open economies

The authors extend the widely used Newbery and Stiglitz (1981) approach to measuring welfare changes from commodity price stabilization to a general equilibrium setting. They derive the welfare changes in terms of net consumer and producer surplus, rather than in terms of producer income as in the Newbery and Stiglitz approach. The authors present formulas for measuring the welfare changes for domestic price stabilization achieved through profitable storage (as assumed by Newbery and Stiglitz) and for stabilization through a variable tariff scheme. These formulas differ significantly, so it is inappropriate to use the Newbery and Stiglitz formula to justify the use of domestic price controls such as a variable levy. In recent years, governments in many developing countries have liberalized their trade policies in the pursuit of improved economic performance. But this has exposed their economies to variations in international prices and raised questions about the desirability of domestic price stabilization programs. A popular mechanism for this purpose is a variable import levy scheme. The authors'analysis confirms that domestic welfare is lower under trade policies that stabilize domestic prices, as such policies serve only to shift the price uncertainty from producers and consumers to the government budget - while incurring the social costs of the distortionary tariffs and subsidies. The authors focus on a comparison of the welfare effects of price stabilization under a variable tariff scheme and storage, but suggest a better option: to use financial instruments for hedging against commodity price risks. This requires that there be no capital controls - one of the main reasons private insurance is seldom undertaken in developing countries.Economic Theory&Research,Insurance&Risk Mitigation,Markets and Market Access,Access to Markets,Environmental Economics&Policies

The effects of option hedging on the costs of domestic price stabilization schemes

Casual observation leads to the conclusion that stabilization funds tend to be short-lived. While it may be that some funds have failed due to poor management or unwarranted political interventions, the stochastic components of commodity prices can generate insurmountable difficulties for even the most expert managers. Price-band schemes contain an element of information feed-back and offer transparent rules -- attributes which make such schemes preferable to many alternative mechanisms -- but the benefits to producers tend to be, on average, quite small. Similar average benefits can be generated with very small import taxes or producer subsidies. Nevertheless, such schemes can have large single-year effects. The simulation results demonstrate that, if adopted, such funds should be hedged unless the government is not at all adverse to the fund's financial failure. Still, hedged or unhedged, such funds will, with eventual certainty, generate large levels of debt as a statistically"rare"sequence of events must eventually occur. By hedging, the funds are more likely to survive in the short-run.Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research,Insurance&Risk Mitigation

Managing financial risks in Papua New Guinea : an optimal external debt portfolio

This report shows that Papua New Guinea's assets and liabilities may be poorly balanced for debt servicing. Thus, it could benefit substantially from active risk management, especially through better selection of the financial instruments in its debt portfolio. The authors present a model and estimate of an optiomal debt portfolio that allows for the use of commodity-linked bonds and conventional debt denominated in different currencies. They judge the hedging effectiveness of this portfolio by how much the variance of expected real import is reduced. The results indicate that commodity-linked bonds could play an important role in the country's risk management strategy. They also show that the country's external debt structure is not well balanced to hedge the foreign exchange risk from the existing composition of non-U.S. dollar-denominated liabilities. The debt portfolio contains an excess of Japanese yen - and Deutschemark - denominated liabilities, while liabilities denominated in British pounds are substantially underrepresented.Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,Settlement of Investment Disputes,Strategic Debt Management

Factors Affecting Trade in Mexican Imports of Poultry Meat from the United States

U.S. exports of poultry to Mexico have increased steadily since NAFTA came into force in January 1994. The Mexican poultry industry has become increasingly concerned about these exports, arguing that it cannot compete with U.S. products. The Mexicans argue that U.S. poultry exports to Mexico are duty free under NAFTA (as of January 1, 2003). The Mexican industry also argues that U.S. poultry benefits from low-priced feed resulting from U.S. Government farm programs. We analyzed the impact of tariffs and U.S. feed grain programs on U.S. exports of poultry, and find that other factors appear to be more important in explaining trade. Specifically, Mexican preferences for dark meat provide large price incentives for U.S. exporters, while Mexican Government policies in support of its grain sector penalize poultry producers in Mexico.International Relations/Trade,

Outcomes Based Assessment of Universities

This study summarizes recent and continuing research conducted by the Center for College Affordability and Productivity (CCAP) on the metrics used for measuring college performance. Unlike other rankings, this study does not concentrate on the inputs of college education such as endowment size, number of faculty, or the educational preparation of students as measured by SAT scores, etc. Instead, it focuses on the outputs, namely the success of students after graduation. Using the names of entrants in Marquis Publishing's 2008 edition of Who's Who in America as our standard for measuring high levels of success, we collected the names of over 5,200 individuals, along with their educational background.This is more than a 5 percent sampling of all names listed in this standard reference work. From this sample, we then calculated which colleges produced the most successful graduates. The results thus far have been both fascinating and surprising.We have found that while going to top ranked schools as measured by standard college rankings does correlate with success, it is a weaker relationship than many may have previously believed. The study reveals that the "industry standard," U.S. News & World Report (USNWR) rankings, on the whole, is only weakly related to graduate success. This suggests that the characteristics contributing to the value of a student's education differ substantially from what is typically assumed. The goal of this study is not to serve as a definitive source for ranking and comparing colleges. Rather, the research presented herein will hopefully serve as both an impetus and road ma

Rent: Same-Sex Prostitution in Modern Britain, 1885-1957

Rent: Same-Sex Prostitution in Modern Britain, 1885-1957 chronicles the concept of “rent boys” and the men who purchased their services. This dissertation demonstrates how queer identity in Britain, until contemporary times, was largely regulated by class, in which middle-and-upper-class queer men often perceived of working-class bodies as fetishized consumer goods. The “rent boy” was an upper-class queer fantasy, and working-class men sometimes used this fantasy for their own agenda while others intentionally dismantled the “rent boy” trope, refusing to submit to upper-class expectations. This work also explains how the “rent boy” fantasy was eventually relegated to the periphery of queer life during the mid-century movement for decriminalization. The movement was controlled by queer elites who ostracized economic-based and public forms of sex and emphasized the bourgeois sexual mores of their heterosexual counterparts. Sex between adult men in private was decriminalized, but working-class men selling sex suffered harsher laws and more strictly enforced penalties under this new, ostensibly “progressive” legislation