Casinos, Lotteries, and Markets

Gambling activities of casinos, lotteries and other forms are becoming increasingly acceptable to society. Also, the media and the public are increasingly referring to economically essential market-risk management activities like trading in derivatives as gambling. This paper attempts to distinguish between these two types of activities and maintains that unlike gambling in casinos and lotteries, the market-risk management activities add value to the economy and are essential to the efficient working of production and distribution functions of the economy

The Economics of corruption in developing countries

Official corruption, unfortunately, is endemic in the developing world. One factor in the spread of this illegal activity has been the propensity of developing-country governments to intervene heavily in their economies, often in the attempt to guide, direct, and control economic activity in order to promote the desired pace and style of economic development. Such regulatory efforts, though now on the wane in much of the developing world, continue to generate opportunities in many countries for bureaucrats in control of scarce resources to allocate them on a non-market basis, to further their own economic, political, and social prospects

The Economics of Corruption in Developing Countries

Official corruption, unfortunately, is endemic in the developing world. One factor in the spread of this illegal activity has been the propensity of developing-country governments to intervene heavily in their economies, often in the attempt to guide, direct, and control economic activity in order to promote the desired pace and style of economic development. Such regulatory efforts, though now on the wane in much of the developing world, continue to generate opportunities in many countries for bureaucrats in control of scarce resources to allocate them on a non-market basis, to further their own economic, political, and social prospects

Replacement decisions with multiple stochastic values and depreciation

YesWe develop an analytical real-option solution to the after-tax optimal timing boundary for a replaceable asset whose operating cost and salvage value deteriorate stochastically. We construct a general replacement model, from which seven other particular models can be derived, along with deterministic versions. We show that the presence of salvage value and tax depreciation significantly lowers the operating cost threshold that justifies (and thus hastens) replacement. Although operating cost volatility increases defer replacement, increases in the salvage value volatility hasten replacement, albeit modestly, while increases in the correlation between costs and salvage value defer replacement. Reducing the tax rate or depreciation lifetime, or allowing an investment tax credit, yield mixed results. These results are also compared with those of less complete models, and deterministic versions, showing that failure to consider several stochastic variables and taxation in the replacement process may lead to sub-optimal decisions

Rescaling-contraction with a lower cost technology when revenue declines

YesA mature oil field rescaled contraction describes a switch to a technological alternative more appropriate for the depleted state of an underlying resource. Off-shore oil rigs are an illustration, since the original technological scale designed for very large output flows becomes inappropriate as the operational efficiency declines later in life and facing a dwindling output flow, so a more appropriate extraction technology becomes economic. A real option representation is formulated on a stochastic oil price and deteriorating output volume. We consider investment/divestment decisions both separately, and jointly, which have different implications for government policies and also option values. The resulting model yields analytical (or semi-analytical) results indicating that immediate switching to the lower cost technology could sometimes be hastened as the price volatility increases, depending on the current revenue, if divestment and switching are considered jointly. However, greater volatility could also promote hysteresis

Baryon-Pion Couplings from Large-N QCD

We derive a set of consistency conditions for the pion-baryon coupling constants in the large-N limit of QCD. The consistency conditions have a unique solution which are precisely the values for the pion-baryon coupling constants in the Skyrme model. We also prove that non-relativistic $SU(2N_f)$ spin-flavor symmetry (where $N_f$ is the number of light flavors) is a symmetry of the baryon-pion couplings in the large-N limit of QCD. The symmetry breaking corrections to the pion-baryon couplings vanish to first order in $1/N$. Consistency conditions for other couplings, such as the magnetic moments are also derived.Comment: (12 pages, 2 figs, uses harvmac and uufiles), UCSD/PTH 93-1

Investment decisions with finite-lived collars

YesThe duration of most collar arrangements provided by governments to encourage early investment in infrastructure, renewable energy facilities, or other projects with social objectives are finite, not perpetual. We extend the previous literature on collar-style arrangements by providing an analytical solution for the idle and active values, as well as the investment triggers, for projects where collars are either finite-lived or retractable. What is the difference between these types of arrangements with their perpetual counterpart? Lots, including different vega signs, and substantially different values for different current price levels. Often, finite and retractable collars justify earlier investment timing than perpetual collars. In general, we demonstrate that the finite-lived and retractable versions have a significant impact on optimal behavior, relative to the perpetual case. An important consideration when negotiating the floors, ceilings, and duration (or signalling the expected duration) of a finite or a retractable collar is the current price level of the output and its expected volatility over the life of the contract.Carried out within the funding with COMPETE reference n. POCI-01-0145-FEDER-006683 (Artur Rodrigues) and POCI-01-0145-FEDER-006890 (Paulo J. Pereira), FCT/MEC’s (Fundação para a Ciência e a Tecnologia, I.P.) financial support through national funding and by ERDF through the Operational Programme on Competitiveness and Internationalization - COMPETE 2020 under the PT2020 Partnership Agreement

Early Environmental Correlates of Maternal Emotion Talk

The primary goal of this study was to examine contextual, child, and maternal factors that are associated with mothers’ early emotion talk in an ethnically diverse, low-income sample

Sequential investments with stage-specific risks and drifts

YesWe provide a generalized analytical methodology for evaluating a real sequential investment opportunity, which does not rely on a multivariate distribution function, but which allows for stage-specific risks and drifts. This model may be a useful capital budgeting and valuation tool for exploration and development projects, where risks change over the stages. We construct a stage threshold pattern whereby the final stage threshold exceeds the early stage threshold due to drift differentials between the project values at the various stages, value volatility differences, and correlation differentials, implying a rich menu of parameter values that may be suitable for a variety of projects. Governments seeking to motivate early final stage investments might lower final stage project volatility or specify project value decline over time, unless prospective owners are willing to pay the real option value (ROV) for concessions. In contrast, concession owners, more interested in ROV than thresholds that motivate early investments, may welcome final stage value escalation, or guarantees that reduce the correlation between project value and construction cost

The effects of an uncertain abandonment value on the investment decision

YesUsing a three-factor stochastic real option model framework, this paper examines the effects of abandonment on the investment decision. Abandonment is classified according to whether the opportunity arises for an active operating asset post-investment, or for holding the project opportunity pre-investment. Separate analytical models are developed for the alternative forms of abandonment optionality. Numerical sensitivity analysis shows that the presence of a post-investment abandonment opportunity makes the investment opportunity appear to be more attractive because of the abandonment option value, but not by a considerable amount. Also, in contrast to the standard real option finding, an abandonment value volatility increase produces a project value threshold fall owing to the increase in the abandonment option value