Design of Investment Promotion Policies

Over the last 20 years, developing countries have experienced the massive shift of financing and the operation of infrastructure from the public to the private sector. The paper analyzes how the government agency should structure the investment promotion policy. I develop a sequential contracting model between the government, investors and infrastructure providers and derive several properties of the optimal policy. The policy leaves investors uncertain about the project type and prescribes different levels of government support, in the form of tax or price distortions. However, the optimal policy does not change the expectations of investors about distribution of project returns. I characterize how the optimal policy depends on the revenue generation preferences of the government and the profitability of infrastructure projects in the country

Information Effect of Entry Into Credit Ratings Market: The Case of Insurers\u27 Ratings

The paper analyzes the effect of competition between credit rating agencies (CRAs) on the information content of ratings. We show that a monopolistic CRA pools sellers into multiple rating classes and has partial market coverage. This provides an opportunity for market entry. The entrant designs a rating scale distinct from that of the incumbent. It targets higher-than-average companies in each rating grade of the incumbent\u27s rating scale and employs more stringent rating standards. We use Standard and Poor\u27s (S&P) entry into the market for insurance ratings previously covered by a monopolist, A.M. Best, to empirically test the impact of entry on the information content of ratings. The empirical analysis reveals that S&P required higher standards to assign a rating similar to the one assigned by A.M. Best and that higher-than-average quality insurers in each rating category of A.M. Best chose to receive a second rating from S&P

The impact of secondary mineral formation on Na-K-geothermometer readings: a case study for the Valley of Geysers hydrothermal system (Kronotsky State Nature Biosphere Reserve, Kamchatka)

The temperature in the Valley of Geysers (Kamchatka) geothermal reservoir calculated using the feldspar Na-K-geothermometer has been steadily increasing over the past 10 years on average from 165 to 235 °C, which is close to the temperature values of a hydrothermal explosion of the steam and water mixture. For the analysis of chemical geothermometers, TOUGHREACT-simulation was used, with the help of which the previously known Na-K feldspar geothermometer was reproduced on a single-element model and new formulas were obtained for three Na-K geothermometers: zeolite, smectite, and based on volcanic glass. Data of chemical analysis for the period 1968-2018, in which the chloride ion is considered as an inert tracer of geofiltration processes, indicates that after 2007 a significant inflow of infiltration water (its mass fraction is estimated from 5 to 15 %) into the Geyser reservoir. It is assumed that the Na-K increased values of the feldspar geothermometer are not the result of the temperature increase in the Geyser reservoir, but the effect of smectite water dilution

Rating standards for catastrophic risks and the insurers' capital structure *

Abstract We model the choice of capital structure, pricing and targeted rating of an insurance firm and present corroborating evidence by studying the effect of the rating standard change for catastrophic losses on the insurers' capital structure. Our model demonstrates that the optimal targeted rating and capital structure are obtained in a trade-off between benefits of targeting higher rating due to the ability to sell insurance at higher price and the cost of capital needed to sustain the rating. In addition, we derive the distribution of companies within the rating bin and provide results on how it depends on the insurers' volatility of liabilities, capital costs, and future growth opportunities. We provide empirical results consistent with the implications of the model in a data set covering US property-casualty insurance industry in [2000][2001][2002][2003][2004][2005][2006][2007][2008][2009]. We show that the adjustment of the rating standard introduced in the aftermath of hurricane Katrina in 2005 has a heterogeneous effect on insurers' capital structure and leads to increasing dispersion of firms with respect to insolvency risk. * We are grateful to Greg Nini and Neil Doherty for very useful discussions. The usual disclaimer applies

04-09 Competition among rating agencies and information disclosure ∗

The paper proposes an explanation for why a rating agency chooses to pool different credit risks in one rating class, and analyzes how information disclosure depends on the value of information to the market. We show that an optimal disclosure policy of a monopoly rating agency is to pool companies or issuers in multiple rating classes and to have partial market coverage. It provides an opportunity for market entry. We then describe the potential market and the strategy of the entrant. We find that entry of an identical rating agency results in asymmetric rating scales. It justifies why some companies obtain multiple ratings and suggests that similar ratings from different agencies may mean different credit risks. We use Standard and Poor’s entry in to the market for insurance ratings- a market that was previously covered by the monopolist agency the A.M. Best Company- to empirically test the qualitative predictions of the model regarding the impact of competition on the information content of ratings