The Valuation Impact of Financial Advisors: An Empirical Analysis of REIT Mergers and Acquisitions

This paper analyzes the effect of financial advisor-monitors on the valuation of real estate investment trust (REIT) mergers. Advisor choice determinants and the effect of advisors on transaction value are examined using a sample of REIT mergers for the 1981 to 2001 period. A two-stage target firm pricing model is estimated: the first stage (logit) estimates the probability of advisor use and the second stage analyzes the effect of advisors on target firm valuation. The results indicate that financial advisor monitoring, possibly by reducing information asymmetries, has significant positive effects on the value of REIT acquisitions.

Generalized empirical likelihood estimators and tests under partial weak and strong identification

The purpose of this paper is to describe the performance of generalized empirical likelihood (GEL) methods for time series instrumental variable models specified by nonlinear moment restrictions as in Stock and Wright (2000, Econometrica 68, 1055–1096) when identification may be weak. The paper makes two main contributions. First, we show that all GEL estimators are first-order equivalent under weak identification. The GEL estimator under weak identification is inconsistent and has a nonstandard asymptotic distribution. Second, the paper proposes new GEL test statistics, which have chi-square asymptotic null distributions independent of the strength or weakness of identification. Consequently, unlike those for Wald and likelihood ratio statistics, the size of tests formed from these statistics is not distorted by the strength or weakness of identification. Modified versions of the statistics are presented for tests of hypotheses on parameter subvectors when the parameters not under test are strongly identified. Monte Carlo results for the linear instrumental variable regression model suggest that tests based on these statistics have very good size properties even in the presence of conditional heteroskedasticity. The tests have competitive power properties, especially for thick-tailed or asymmetric error distributions

The Legal Environment and the Choice of Default Resolution Alternatives: An Empirical Analysis

In addition to standard foreclosure, three other methods of resolution for mortgage defaults are available: bankruptcy protection, surrender of deed to the lender, and pre-foreclosure sale. This paper develops a model that specifies the choice of resolution method as a function of the state-specific legal environment and local area economic conditions. A large national data set is used to estimate a multinomial logit choice model for the 1987 to 1991 period. The results indicate that the choice of default resolution alternative is sensitive to the legal environment. The results imply that selected legal reforms will tend to improve the efficiency of the default resolution process.

Shrinking the Malaria Map: A Prospectus on Malaria Elimination

\ud Thirty-nine countries across the world are making progress toward malaria elimination. Some are committed to nationwide elimination, while others are pursuing spatially progressive elimination within their borders. Influential donor and multilateral organizations are supporting their goals of achieving malaria-free status. With elimination back on the global agenda, countries face a myriad of questions. Should they change their programs to eliminate rather than control malaria? What tools are available? What policies need to be put into place? How will they benefit from elimination? Unfortunately, answers to these questions, and resources for agencies and country program managers considering or pursuing elimination, are scarce. The 39 eliminating countries are all positioned along the endemic margins of the disease, yet they naturally experience a variety of country characteristics and epidemiologies that make their malaria situations different from one another. The Malaria Elimination Group (MEG) and this Prospectus recognize\ud that there is no single solution, strategy, or time line that will be appropriate for every country, and each is encouraged to initiate a comprehensive evaluation of its readiness and strategy for elimination. The Prospectus is designed to guide countries in conducting these assessments. The Prospectus provides detailed and informed discussion on the practical means of achieving and sustaining zero transmission. It is designed as a road map, providing direction and options from which to choose an appropriate path. As on all maps, the destination is clearly marked, but the possible routes to reach it are numerous. The Prospectus is divided into two sections: Section 1 Eliminating Malaria comprises four chapters covering the strategic components important to the periods before, during, and after an elimination program. Section 2 Tools for the Job, comprises six chapters that outline basic information about how interventions in an elimination program will be different from those in a control setting. Chapter 1, Making the Decision, evaluates the issues that a country should consider when deciding whether or not to eliminate malaria. The chapter begins with a discussion about the quantitative and qualitative benefits that a country could expect from eliminating malaria and then recommends a thorough feasibility assessment. The feasibility assessment is based on three major components: operational, technical, and financial feasibility. Cross-border and regional collaboration is a key subject in this chapter. Chapter 2, Getting to Zero, describes changes that programs must consider when moving from sustained control to an elimination goal. The key strategic issues that must be addressed are considered, including supply chains, surveillance systems, intersectoral collaboration, political will, and legislative framework. Cross-border collaboration is again a key component in Getting to Zero. Chapter 3, Holding the Line, provides recommendations on how to conduct an assessment of two key factors that will affect preventing the reemergence of malaria once transmission is interrupted: outbreak risk and importation risk. The chapter emphasizes the need for a strong surveillance system in order to prevent and, if necessary, respond to imported cases. Chapter 4, Financing Elimination, reviews the cost-effectiveness of elimination as compared with sustained control and then presents the costs of selected elimination programs as examples. It evaluates four innovative financing mechanisms that must support elimination, emphasizing the need for predictable and stable financing. Case studies from Swaziland and two provinces in China are provided. Chapter 5, Understanding Malaria, considers malaria from the point of view of elimination and provides a concise overview of the current burden of the disease, malaria transmission, and the available interventions that can be used in an elimination program. Chapter 6, Learning from History, extracts important lessons from the Global Malaria Eradication Program and analyzes some elimination efforts that were successful and some that were unsuccessful. The chapter also reviews how the malaria map has been shrinking since 1900. xiv A Prosp ectus on Mala ria Elimi natio n\ud Chapter 7, Measuring Malaria for Elimination, provides a precise language for discussing malaria and gives the elimination discussion a quantitative structure. The chapter also describes the role of epidemiological theory and mathematical modeling in defining and updating an elimination agenda for malaria. Chapter 8, Killing the Parasite, outlines the importance of case detection and management in an elimination setting. Options for diagnosis, the hidden challenge of Plasmodium vivax in an elimination setting, and the impact of immunity are all discussed. Chapter 9, Suppressing the Vector, explores vector control, a necessary element of any malaria program. It considers optimal methods available to interrupt transmission and discusses potential changes, such as insecticide resistance, that may affect elimination efforts. Chapter 10, Identifying the Gaps — What We Need to Know, reviews the gaps in our understanding of what is required for elimination. The chapter outlines a short-term research agenda with a focus on the operational needs that countries are facing today. The Prospectus reviews the operational, technical, and financial feasibility for those working on the front lines and considers whether, when, and how to eliminate malaria. A companion document, A Guide on Malaria Elimination for Policy Makers, is provided for those countries or agencies whose responsibility is primarily to make the policy decisions on whether to pursue or support a malaria elimination strategy. The Guide is available at www.malaria eliminationgroup.org

The Basis Risk of Catastrophic-Loss Index Securities

This paper analyzes the basis risk of catastrophic-loss (CAT) index derivatives, which securitize losses from catastrophic events such as hurricanes and earthquakes. We analyze the hedging effectiveness of these instruments for 255 insurers writing 93 percent of the insured residential property values in Florida, the state most severely affected by exposure to hurricanes. County-level losses are simulated for each insurer using a sophisticated model developed by Applied Insurance Research. We analyze basis risk by measuring the effectiveness of hedge portfolios, consisting of a short position each insurer's own catastrophic losses and a long position in CAT-index call spreads, in reducing insurer loss volatility, value-at-risk, and expected losses above specified thresholds. Two types of loss indices are used -- a statewide index based on insurance losses in four quadrants of the state. The principal finding is that firms in the three largest Florida market-share quartiles can hedge almost as effectively using the intra-state index contracts as they can using contracts that settle on their own losses. Hedging with the statewide contracts is effective only for insurers with the largest market shares and for smaller insurers that are highly diversified throughout the state. The results also support the agency-theoretic hypotheses that mutual insurers are more diversified than stocks and that unaffiliated single firms are more diversified than insurers that are members of groups.

Sizing solar systems for agriculture (1982)

"1975."Current research data indicate that active solar systems are not economical for livestock facilities if initial cost and heat production are the major considerations, But other economic factors, such as investment credit and tax incentives, may make systems feasible for some operations

The Incentive Effects of No Fault Automobile Insurance

This paper presents a theoretical and empirical analysis of the effects of no fault automobile insurance on accident rates. As a mechanism for compensating the victims of automobile accidents, no fault has several important advantages over the tort system. However, by restricting access to tort, no fault may weaken incentives for careful driving, leading to higher accident rates. We conduct an empirical analysis of automobile accident fatality rates in all U.S. states over the period 1982-1994, controlling for the potential endogeneity of no fault laws. The results support the hypothesis that no fault is significantly associated with higher fatal accident rates than tort.

Pricing Excess-of-loss Reinsurance Contracts Against Catastrophic Loss

This paper develops a pricing methodology and pricing estimates for the proposed Federal excess-of- loss (XOL) catastrophe reinsurance contracts. The contracts, proposed by the Clinton Administration, would provide per-occurrence excess-of-loss reinsurance coverage to private insurers and reinsurers, where both the coverage layer and the fixed payout of the contract are based on insurance industry losses, not company losses. In financial terms, the Federal government would be selling earthquake and hurricane catastrophe call options to the insurance industry to cover catastrophic losses in a loss layer above that currently available in the private reinsurance market. The contracts would be sold annually at auction, with a reservation price designed to avoid a government subsidy and ensure that the program would be self supporting in expected value. If a loss were to occur that resulted in payouts in excess of the premiums collected under the policies, the Federal government would use its ability to borrow at the risk-free rate to fund the losses. During periods when the accumulated premiums paid into the program exceed the losses paid, the buyers of the contracts implicitly would be lending money to the Treasury, reducing the costs of government debt. The expected interest on these "loans" offsets the expected financing (borrowing) costs of the program as long as the contracts are priced appropriately. By accessing the Federal government's superior ability to diversify risk inter-temporally, the contracts could be sold at a rate lower than would be required in conventional reinsurance markets, which would potentially require a high cost of capital due to the possibility that a major catastrophe could bankrupt some reinsurers. By pricing the contacts at least to break even, the program would provide for eventual private-market "crowding out" through catastrophe derivatives and other innovative catastrophic risk financing mechanisms. We develop prices for the contracts using two samples of catastrophe losses: (1) historical catastrophic loss experience over the period 1949-1994 as reported by Property Claim Services; and (2) simulated catastrophe losses based on an engineering simulation analysis conducted by Risk Management Solutions. We used maximum likelihood estimation techniques to fit frequency and severity probability distributions to the catastrophic loss data, and then used the distributions to estimate expected losses under the contracts. The reservation price would be determined by adding an administrative expense charge and a risk premium to the expected losses for the specified layer of coverage. We estimate the expected loss component of the government's reservation price for proposed XOL contracts covering the entire U.S., California, Florida, and the Southeast. We used a loss layer of $25-50 billion for illustrative purposes.