Adversarial Brokerage in Residential Real Estate Transactions: The Impact of Separate Buyer Representation

Although substantial research effort has been directed to the examination of optimal search and pricing behavior under traditional brokerage arrangements, market outcomes under conditions of undisclosed subagency and buyer representation have not been fully explored. This study applies the legal and economic theory of agency to real estate markets with cooperating brokers. The existence of cooperating brokers acting as subagents of the seller with the buyer’s full knowledge does not change the buyer’s and seller’s net payoffs relative to the single-agent case. However, when the buyer mistakenly believes that the cooperating broker/subagent is acting as his agent in negotiations, there may be informational gains that result in a higher selling price and a higher payoff to the seller at the expense of the buyer. The analysis indicates that buyer brokers may be a potential solution to this agency problem. When both parties to a real estate transaction have separate representation, their net payoffs are shown to be higher and the sales price lower than under traditional brokerage arrangements. The result is dependent on several factors, including: market conditions, relative bargaining power of the parties, method of broker compensation, and disclosure of the status of the buyer broker.

Combined effect of enterprise risk management and diversification on property and casualty insurer performance, The

Includes bibliographical references (pages 24-27).Published as: Journal of Risk and Insurance, vol. 85, no. 2, June 2018, pp. 513–543. https://doi.org/10.1111/jori.12166.In a well‐designed enterprise risk management (ERM) program, the firm integrates risk management into the strategic planning process, addressing strategic, financial, operational, and hazard risks under a single overarching process. This is particularly important to large financial firms, such as property and casualty (P&C) insurers, which face a diverse set of risks. Using a sample of P&C insurers with S&P ERM quality ratings from 2006 to 2013, we find that the quality of a firm's ERM is a significant determinant of P&C insurer performance and that, for firms with high‐quality ERM programs, product line diversification has a significant positive effect on performance

Life insurer cost of equity with asymmetric risk factors

Includes bibliographical references (pages 17-19).Published as: The Finanicial Review, vol. 50, no. 3, July 2015, pp. 435-457, https://doi.org/10.1111/fire.12073.This study presents an improved model for estimating life insurer cost of capital with the inclusion of upside and downside risk factors and controlling for life insurer characteristics. Although various asymmetric measures of market risk have been shown to be priced factors for the broader equity market, life insurer realized equity returns include a much larger premium for bearing downside risk, even after controlling for firm characteristics and other measures of risk. Cross‐sectional regression analysis finds a positive (negative) premium for downside (upside) betas, conditional on down and up markets, respectively. Coskewness and cokurtosis are also priced factors

Alleviating adverse selection in labor markets: The wage/pension decision as a signal of worker quality

Adverse selection problems exist in labor contracting when employers are unable to identify worker quality at the outset of the employment relationship. Worker quality, in this context, is the combination of effort and ability that results in particular levels of labor output. Graphical analysis is employed to show that a separating equilibrium of the type identified in the insurance literature is possible in a single period context, wherein low quality workers are given an all cash wage commensurate with their quality and high quality workers are able to signal their type by accepting a smaller cash wage plus a deferred pension benefit subject to a vesting requirement that in total is equivalent to their marginal product. However, the long-term context of labor contracting creates multi-period incentive problems which undermine the single period equilibrium outcomes. In a multi-period context, the equilibrium outcome is shown to be a pooled wage/pension first period contract (wherein all starting workers are offered the same contract) and an experience rated second period contract based on information gains in the earlier work period. As in the single period context, the willingness of the high quality workers to accept compensation in the form of deferred pension benefits signals their quality level. Empirical tests matching 1989 IRS Form 5500 pension data with Compustat financial information on plan sponsors confirm a strongly positive relationship between pension generosity and productivity for defined contribution plans. The theoretical and empirical model provide a partial explanation for the nature and variety of wage/pension contracts in existence across and within both firms and industries

Negligence, Ignorance and the Demand for Liability Insurance

This paper considers whether lack of information regarding risk exposures can lead to a demand for negligence liability insurance. We find that, under the uniform negligence rule, such as the “reasonable person” standard used to determine negligence in the U.S. and other countries, the value of information is positive and any demand for liability insurance must come from informed individuals. The necessary and sufficient condition is that good risks find it less costly to be negligent and purchase insurance.