CDS as Insurance: Leaky Lifeboats in Stormy Seas

In this paper we update the traditional insurance economics framework to incorporate key features of the credit default swap (CDS) market. First, we allow for insurer insolvency, with asymmetric information as to its probability. We find that stable insurers become less stable because they are forced to compete on price. When insurer type is known, increased competition among insurers can create instability for the same reason. Second, we allow the insured party to have heterogeneous motivations for purchasing CDS. For example, some may own the underlying asset and purchase CDS for risk management, while others buy these contracts purely for speculation. We show that speculators will choose to contract with less stable insurers, resulting in higher counterparty risk in this market relative to that of traditional insurance; however, a regulatory policy that disallows speculative trading can, perversely, cause market counterparty risk to increase. Third, we relax the standard assumption of contract exclusivity, which does not apply to the CDS market, by allowing the insured to purchase contracts from many insurers. In contrast to the traditional insurance model, we show that separation of risk type among insured parties can be achieved through insurer choice. We use our model to shed light on the debate over Central Counterparties (CCP). We show that requiring CDS contracts to be negotiated through CCPs can push stable insurers out of the market, mitigating the benefi t of risk pooling.credit default swaps; insurance; counterparty risk; banking; regulation

Will electricity deregulation push inflation lower?

Deregulation of electricity generation will offer consumers many advantages, including dramatically lower energy costs. From a macroeconomic viewpoint, electricity purchases are interesting because they are a major component of consumers’ budgets (and thus of the CPI) and a large factor of production for many companies. This raises the possibility that electricity deregulation could create a substantial shock to the overall price trend, comparable to other recent energy shocks. The benefits to consumers and producers identified in this article strongly support legislative efforts to increase competition in one of the last strongholds of regulated profits.Electric utilities ; Inflation (Finance)

An investigation of the role of background music in IVWs for learning

Empirical evidence is needed to corroborate the intuitions of gamers and game developers in understanding the benefits of Immersive Virtual Worlds (IVWs) as a learning environment and the role that music plays within these environments. We report an investigation to determine if background music of the genre typically found in computer‐based role‐playing games has an effect on learning in a computer‐animated history lesson about the Macquarie Lighthouse within an IVW. In Experiment 1, music stimuli were created from four different computer game soundtracks. Seventy‐two undergraduate students watched the presentation and completed a survey including biographical details, questions on the historical material presented and questions relating to their perceived level of immersion. While the tempo and pitch of the music was unrelated to learning, music conditions resulted in a higher number of accurately remembered facts than the no music condition. One soundtrack showed a statistically significant improvement in memorisation of facts over other music conditions. Also an interaction between the levels of perceived immersion and ability to accurately remember facts was observed. Experiment 2, involving 48 undergraduate students, further investigated the effect of music, sense of immersion and how different display systems affect memory for facts

Amenities, local conditions and fiscal determinants of factor growth in rural America

This paper examines how amenities, asset indicators, and fiscal factors influence the growth in factors of production from 1972 to 1999 in the 466 non-metropolitan labor market areas in the continental United States. In developing our model of non-metropolitan factor markets, we combine the emphasis of Brown et al. (2003) on the affect of taxes and public expenditure policy on labor and capital formation with the emphasis of Beeson et al. (2001) on the importance of climate and natural features on localized population growth. We develop our own measure of capital stock in non-metropolitan areas using data from the Census of Manufacturing for 1967, 1972, 1977, 1982, 1987, and 1992. Results indicate that local taxes discourage both employment growth and manufacturing capital formation, but that local public infrastructure investment and the level of local entrepreneurship encourages employment growth. Amenities such as a favorable climate and the presence of surface water encourage the growth of employment, and greater local wealth, as measured by dividend, interest, and rent income, encourages the formation of manufacturing capital stock. Results fail to support an “export base” approach for rural economies where greater manufacturing capital stock encourages greater employment in a region.Rural areas ; Rural development

Nebraska Business and Consumer Confidence Indexes: December 11, 2018

Nebraska consumer and business confidence remained positive during November 2018. The Business Confidence Index – Nebraska (BCI-N) stood at 107.2 in November 2018, well above the neutral value of 100, although down from the sky-high level of 117.3 achieved during October. The Consumer Confidence Index – Nebraska (CCI-N) stood at 106.4 in November, down slightly from 108.3 in October, but still well above the neutral value. When asked about the most important issue facing their business, 28 percent of respondents chose the availability and quality of labor while 24 mentioned customer demand and 9 percent mentioned the cost of goods and services or taxes. November was the second consecutive month that labor availability was the top issue in the business survey. Almost half of responding households listed a cost factor as their top financial concern, with 49 percent choosing taxes, health care costs, major expenses (furniture, appliances, automobiles) or the general cost of living. Twenty-three percent reported that their primary financial issue was either saving or paying off debt while 12 percent choose their level of wages or household income

Nebraska Business and Consumer Confidence Indexes: June 7, 2019

Consumer confidence rebounded in Nebraska during May 2019 and business confidence also improved. The Consumer Confidence Index – Nebraska (CCI-N) rose to 105.3 in May, above the neutral value of 100 and well above the April value of 95.6. The Business Confidence Index – Nebraska (BCI-N) rose 113.2 in May, well above the neutral level and up from 107.8 in April. When asked about the most important issue facing their business, 30 percent of respondents chose customer demand while 21 mentioned the quality and availability of labor and 18 percent mentioned competition from other businesses. Fifty-two percent of responding households listed a cost factor as their top financial concern, including taxes, health care costs, the general cost of living and major expenses (furniture, appliances, automobiles). An elevated 19 percent of households listed taxes as their top concern. Twenty-six percent reported that their primary financial issue was either saving or paying off debt

Nebraska Business and Consumer Confidence Indexes: April 6, 2018

Nebraska consumer and business confidence rose during March 2018. The Consumer Confidence Index – Nebraska (CCI-N) rose to 106.8 in March from a value of 101.6 in February. The Business Confidence Index – Nebraska (BCI-N) rose to 110.4 in March from 107.4 In February. Both March values are well above the neutral level of 100.0 suggesting that business and consumer confidence are strong. When asked about the most important issue facing their business, customer demand was mentioned by 35 percent of respondents, while the availability and quality of labor was mentioned as the most important issue by 23 percent. Another 13 percent cited a need to improve businesses practices or competition from other businesses, especially on-line competitors. Households reported a variety of financial concerns with 52 percent choosing the cost of living including taxes, health care costs, major expenses (furniture, appliances, automobiles) and the general cost of living. Twenty percent reported that their primary financial issue was either paying off debt or saving and 12 percent indicated that their level of wages or income was their top concern