Exploring the Trade-Off Between Surviving and Thriving: Heterogeneous Responses to Adversity and Disruptive Events Among Disadvantaged Black Youth

This article examines heterogeneity in adverse events and conditions and how low-income African American young adults respond. Although nearly all individuals in the sample report at least one instance of adversity, the nature and frequency of adversity varies, as do the responses. Some individuals see their lives and plans derailed; others engage in more protective strategies. For still others, adversity presents a difficult trade-off between surviving and thriving. We formalize this trade-off as an extension of a basic model of costly human capital investments. The model shows that a rational, fully informed individual facing this brutal trade-off, in an effort to survive the fallout of adversity, may optimally choose not to make high-return investments that promote thriving in the future. Improved policy design would recognize this type of trade-off

The Pricing of Insurer Demutualization Initial Public Offerings

This article examines the pricing of the initial public offerings (IPOs) that follow insurance company demutualizations. Insurers that convert from mutual to stock form typically cite the need for capital as a key motivation. Given that capital adequacy is a primary regulatory objective for insurers, one would expect that for a given number of shares to be sold, these firms would price their offerings to maximize proceeds. However, the vast literature on IPO pricing suggests various theories as to why it may be in the issuing firm's best interest to underprice its offering. By examining the initial and long-run stock returns for these conversion IPOs, the existence and degree of underpricing, as characterized by large initial returns, can be determined. It is observed that on average demutualization insurer IPOs post significantly higher first-day returns than nondemutualization insurer IPOs. These gains would accrue to the initial investors and to those policyholders who receive compensation in the form of shares in the newly created stock insurer. Attractive returns are sustained for both groups of insurers during the first few years after IPO. Copyright The Journal of Risk and Insurance, 2006.