Switching costs and adverse selection in the market for credit cards: new evidence

To explain persistence of credit card interest rates at relatively high levels, Calem and Mester (AER, 1995) argued that informational barriers create switching costs for high-balance customers. As evidence, using data from the 1989 Survey of Consumer Finances, they showed that these households were more likely to be rejected when applying for new credit. In this paper, they revisit the question using the 1998 and 2001 SCF. Further, they use new information on card interest rates to test for pricing effects consistent with information-based switching costs. The authors find that informational barriers to competition persist, although their role may have declined. ; Also issued as Payment Cards Center Discussion Paper No. 05-09Credit cards

A note on Turán type and mean inequalities for the Kummer function

AbstractTurán-type inequalities for combinations of Kummer functions involving Φ(a±ν,c±ν,x) and Φ(a,c±ν,x) have been recently investigated in [Á. Baricz, Functional inequalities involving Bessel and modified Bessel functions of the first kind, Expo. Math. 26 (3) (2008) 279–293; M.E.H. Ismail, A. Laforgia, Monotonicity properties of determinants of special functions, Constr. Approx. 26 (2007) 1–9]. In the current paper, we resolve the corresponding Turán-type and closely related mean inequalities for the additional case involving Φ(a±ν,c,x). The application to modeling credit risk is also summarized

Acute consequences of a unilateral VIIIth nerve transection on vestibulo-ocular and optokinetic reflexes in Xenopus laevis tadpoles

Loss of peripheral vestibular function provokes severe impairments of gaze and posture stabilization in humans and animals. However, relatively little is known about the extent of the instantaneous deficits. This is mostly due to the fact that in humans a spontaneous loss often goes unnoticed initially and targeted lesions in animals are performed under deep anesthesia, which prevents immediate evaluation of behavioral deficits. Here, we use isolated preparations of Xenopus laevis tadpoles with functionally intact vestibulo-ocular (VOR) and optokinetic reflexes (OKR) to evaluate the acute consequences of unilateral VIIIth nerve sections. Such in vitro preparations allow lesions to be performed in the absence of anesthetics with the advantage to instantly evaluate behavioral deficits. Eye movements, evoked by horizontal sinusoidal head/table rotation in darkness and in light, became reduced by 30% immediately after the lesion and were diminished by 50% at 1.5 h postlesion. In contrast, the sinusoidal horizontal OKR, evoked by large-field visual scene motion, remained unaltered instantaneously but was reduced by more than 50% from 1.5 h postlesion onwards. The further impairment of the VOR beyond the instantaneous effect, along with the delayed decrease of OKR performance, suggests that the immediate impact of the sensory loss is superseded by secondary consequences. These potentially involve homeostatic neuronal plasticity among shared VOR-OKR neuronal elements that are triggered by the ongoing asymmetric activity. Provided that this assumption is correct, a rehabilitative reduction of the vestibular asymmetry might restrict the extent of the secondary detrimental effect evoked by the principal peripheral impairment

Alligators as West Nile Virus Amplifiers

Recent evidence suggests that American alligators (Alligator mississippiensis) may be capable of transmitting West Nile virus (WNV) to other alligators. We experimentally exposed 24 juvenile alligators to WNV parenterally or orally. All became infected, and all but three sustained viremia titers \u3e5.0 log10 PFU/mL (a threshold considered infectious for Culex quinquefasciatus mosquitoes) for 1 to 8 days. Noninoculated tankmates also became infected. The viremia profiles and multiple routes of infection suggest alligators may play an important role in WNV transmission in areas with high population densities of juvenile alligators

Laboratory and tentative interstellar detection of trans-methyl formate using the publicly available Green Bank Telescope PRIMOS survey

The rotational spectrum of the higher-energy trans conformational isomer of methyl formate has been assigned for the first time using several pulsed-jet Fourier transform microwave spectrometers in the 6-60 GHz frequency range. This species has also been sought toward the Sagittarius B2(N) molecular cloud using the publicly available PRIMOS survey from the Green Bank Telescope. We detect seven absorption features in the survey that coincide with laboratory transitions of trans-methyl formate, from which we derive a column density of 3.1 (+2.6, -1.2) \times 10^13 cm-2 and a rotational temperature of 7.6 \pm 1.5 K. This excitation temperature is significantly lower than that of the more stable cis conformer in the same source but is consistent with that of other complex molecular species recently detected in Sgr B2(N). The difference in the rotational temperatures of the two conformers suggests that they have different spatial distributions in this source. As the abundance of trans-methyl formate is far higher than would be expected if the cis and trans conformers are in thermodynamic equilibrium, processes that could preferentially form trans-methyl formate in this region are discussed. We also discuss measurements that could be performed to make this detection more certain. This manuscript demonstrates how publicly available broadband radio astronomical surveys of chemically rich molecular clouds can be used in conjunction with laboratory rotational spectroscopy to search for new molecules in the interstellar medium.Comment: 40 pages, 7 figures, 4 tables; accepted for publication in Ap

Scope for Credit Risk Diversification

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic risk and the nature of exposure or firm heterogeneity. We derive fat-tailed correlated loss distributions arising from Gaussian risk factors and explore the potential for risk diversification. Where possible the results are generalised to non-Gaussian distributions. The theoretical results indicate that if the firm parameters are heterogeneous but come from a common distribution, for sufficiently large portfolios there is no scope for further risk reduction through active portfolio management. However, if the firm parameters come from different distributions, then further risk reduction is possible by changing the portfolio weights. In either case, neglecting parameter heterogeneity can lead to underestimation of expected losses. But, once expected losses are controlled for, neglecting parameter heterogeneity can lead to overestimation of risk, whether measured by unexpected loss or value-at-risk

The Role of Industry, Geography and Firm Heterogeneity in Credit Risk Diversification

In theory the potential for credit risk diversification for banks could be substantial. Portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. We propose a model for exploring these dimensions of credit risk diversification: across industry sectors and across different countries or regions. We find that full firm-level parameter heterogeneity matters a great deal for capturing differences in simulated credit loss distributions. Imposing homogeneity results in overly skewed and fat-tailed loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity greatly reduces shock sensitivity. Allowing for regional parameter heterogeneity seems to better approximate the loss distributions generated by the fully heterogeneous model than allowing just for industry heterogeneity. The regional model also exhibits less shock sensitivity

Alligators as West Nile Virus Amplifiers

Juvenile alligators may help transmit West Nile virus in some areas

Agency Problems and Risk Taking at Banks

Abstract The moral hazard problem associated with deposit insurance generates the potential for excessive risk taking on the part of bank owners. The banking literature identifies franchise value --a firm's profit-generating potential --as one force mitigating that risk taking. We argue that in the presence of owner/manager agency problems, managerial risk aversion may also offset the excessive risk taking that stems from moral hazard. Empirical models of bank risk tend to focus either on the disciplinary role of franchise value or on owner/manager agency problems. We estimate a unified model and find that both franchise value and ownership structure affect risk at banks. More important, we identify an interesting interaction effect: The relationship between ownership structure and risk is significant only at low franchise value banks --those where moral hazard problems are most severe and where conflicts between owner and manager risk preferences are therefore strongest. Risk is lower at banks with no insider holdings, but among other banks, there is no relationship between the level of insider holdings and risk. This suggests that the owner/manager agency problem affects the choice of risk for only a small number of banks --those with low franchise value and no insider holdings. Most of these banks increase their insider holdings within a year, and these changes in ownership structure are associated with increased risk. This suggests that owner/manager agency problems are quickly addressed.