deposit guarantee evaluation and incentives analysis in a mutual guarantee system abstract this paper analyzes how the deposit guarantee value affects the risk incentives in a mutual guarantee system we liken the guarantee s value to that of a european style contingent claims portfolio the main feature emerging from our model is that a mutual guarantee system would give banks an adverse incentive to increase riskiness to mitigate this incentive we introduce a regulatory provision modelled using a path dependent contingent claim by comparing the mutual guarantee system with a non mutual one we show that the former is less expensive but implies higher adverse incentives for the banks especially for undercapitalized institutions

the political morphology of drainage how gully formation links to state formation in the choke mountains of ethiopia to understand why soil erosion is persistent despite three decades of massive investments in soil conservation this paper explores how drainage and soil conservation change a hill slope in the choke mountains by paying close attention to the practices that reshape the hill we account for the active roles of people and material flows in shaping their identities forms and power relations social relations can be read in the landscape as their material outcomes are literally scoured into the hill slope such a material reading of ethiopia s developmental state reveals three issues first drainage and soil conservation practices are configured by particular historical regimes of land distribution and rent appropriation second the power of the ethiopian government s model of the developmental state derives from the exploitation of this configuration by a new coalition of landholders and government officials government officials mobilize landholders to construct terraces in exchange for government support in conflicts over land and input distribution when the terraces create obstructions that can trigger flooding landowners convert them into drains and divert drainage flows to plots sharecropped by landless families consequently the yearly mobilization for terrace construction does not halt soil erosion but further aggravates it this continues because the performance of this yearly ritual affirms the authority of landholders and government agents third landless families which fail to live up to the model of the farmer interested in soil conservation have created a competing trader model with its own institutions the denial of their non farmer identities by landholders and officials fuels generational conflicts over drainage which deepen the fractures in the hill and pose a challenge to government authority land degradation thus embodies both the powers and the limits of the developmental state

resource degradation and adoption of land conservation technologies in the ethiopian highlands a case study in andit tid north shewa abstract this paper reports results from a study of resource degradation and conservation behavior of peasant households in a degraded part of the ethiopian highlands peasant households choice of conservation technologies is modeled as a two stage process recognition of the erosion problem and adoption and level of use of control practices an ordinal logit model is used to explain parcel level perception of the threat of the erosion problem and the extent of use of conservation practices results show the importance of perception of the threat of soil erosion household land and farm characteristics perception of technology specific attributes and land quality differentials in shaping conservation decisions of peasants furthermore where poverty is widespread and appropriate support policies are lacking results indicate that population pressure per se is unable to encourage sustainable land use the challenge of breaking the poverty environment trap and initiating sustainable intensification thus require policy incentives and technologies that confer short term benefits to the poor while conserving the resource base

land degradation drought and food security in a less favoured area in the ethiopian highlands a bio economic model with market imperfections abstract this paper presents a bio economic model of andit tid a severely degraded crop livestock farming system with high population density and good market access in the highlands of ethiopia land degradation population growth stagnant technology and drought threaten food security in the area drought or weather risk appears to have increased in recent years the bio economic model is used to analyse the combined effects of land degradation population growth market imperfections and increased risk of drought on household production welfare and food security we find that the indirect effects of drought on household welfare through the impact on crop and livestock prices are larger than the direct production effects of drought provision and adoption of credit for fertiliser although risky in itself may lead to increased grain production and improved household welfare and food security provision of credit may have a negative effect on conservation incentives but this effect may be mitigated by linking a conservation requirement to the provision of credit for fertiliser

tenure security and land related investment evidence from ethiopia the authors use a large data set from ethiopia that differentiates tenure security and transferability to explore determinants of different types of land related investment and its possible impact on productivity while they find some support for endogeneity of investment in trees this is not the case for terraces transfer rights are unambiguously investment enhancing the large productivity effect of terracing implies that even where households undertake investments to increase their tenure security this may not be socially efficient in ethiopia government action to increase tenure security and transferability of land rights can significantly enhance rural investment and productivity

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

federal financial guarantees and the occasional market pricing of default risk evidence from insured deposits abstract this paper develops a two date state preference model which demonstrates that investors valuation of third party guaranteed debt depends on the financial condition of the guarantor as the solvency ratio of the guarantor declines investors demand higher promised rates on the firm s debt securities and price the firm risk variables more sensitively the empirical results are derived from sample data of fslic guaranteed obligations from the late 1980s evidence shows differences in the market s perception of fsllc s insolvency between 1987 and 1988 the market response to a decline in the financial condition of the guarantor affected the value of insured cds raising cd rates in relation to the treasury curve and firm risk pricing of insured deposits emerged

measuring banks liquidity risk an option pricing approach abstract this paper proposes a new approach to evaluating banks liquidity needs which is not only well grounded theoretically but is also easy to apply practically within the framework of a global game with imperfect information we first establish a boundary condition for bank runs and show that there exists a unique nash equilibrium for bank runs using the option pricing approach we then obtain a closed form formula for the value of bank equity with both run risk and insolvency risk finally a bank s optimal liquidity ratio is derived by maximizing the value of bank equity using data on chinese listed banks we show that the deviation of the actual liquidity ratio from the optimal liquidity ratio in a bank represents a robust proxy for its liquidity risk an increased liquidity shortfall leads to worsening liquidity problems and this is particularly pronounced when the liquidity shortfall is high

monetary policy synchronization in the asean 5 region an exchange rate perspective in light of the long standing vision of economic and monetary integration in the asean association of southeast asian nations region and the importance of coordinating monetary policies to achieve it the objective of this article is to assess the monetary policy synchronization among the founding members of the asean that is indonesia malaysia the philippines singapore and thailand due to the importance of exchange rate movements to monetary policies we approach this issue from a currency exchange rate perspective specifically multivariate trend cycle decomposition is employed to investigate common trends and common cycles among the exchange rates of these countries during the period 1976 2012 our analysis reveals that the real exchange rates of malaysia the philippines singapore and thailand share common cycles in the short term and have common trends in the long term but the indonesian currency does not share these relationships thus our results augur well for the synchronization of mo

deposit insurance reform what are the issues and what needs to be fixed abstract the current problems in the commercial banking industry have led to widespread calls for reform of the deposit insurance contract on the grounds that it promotes moral hazard we review the empirical evidence for the significance of moral hazard as an important cause of the present crisis we then evaluate various reform proposals grouped into two broad classes proposals that seek to impose greater discipline on bank stockholders and proposals to increase the disciplinary role of bank debtholders finally we identify some issues that have received inadequate attention in the literature on bank regulation

valuation of insurers contingent capital with counterparty risk and price endogeneity this study develops a structural framework to value insurers contingent capital with counterparty risk cr and overcomes the problem of price endogeneity pe in the valuation model our results on the focal contingent capital instrument catastrophe equity put option cateput indicate that prices can be significantly overestimated without considering cr and be significantly underestimated without considering pe this study also examines how cateputs affect the buyer s probability of default pd our results show that buying a cateput lowers the pd for high risk insurers but not necessarily so for low risk insurers however without taking cr and pe into account one may significantly overestimate the credit enhancement provided by the cateputs

tenure security human capital and soil conservation in an overlapping generation rural economy we develop an overlapping generation model of rural agricultural households to examine whether tenure security and subsistence needs influence the choice between unexploited topsoil and investment in children s human capital as the mode of transfer of wealth a unique dataset from bangladesh finds that tenure security is associated with greater topsoil conservation and lower human capital investment therefore there exists a tradeoff between these two modes of transfer we suggest that increased public expenditure on schooling which substitutes private expenditure may lower the pressure on land and soil resources

capital standard forbearance and deposit insurance pricing under garch abstract we propose a multiperiod deposit insurance pricing model that simultaneously incorporates the capital standard and the possibility of forbearance the model employs the recently developed garch option pricing technique in determining the deposit insurance value our model offers two distinctive advantages first it explicitly considers the implications of the strict enforcement on capital standard as stipulated in fdic improvement act of 1991 second the use of the garch model allows us to capture many robust features exhibited by financial asset returns by the garch option pricing theory the value of a contingent claim is a function of the asset risk premium this unique feature is found to be prominent in determining the bank s deposit insurance value we also examine the effects of capital forbearance and moral hazard behavior in this multiperiod deposit insurance setting

bank risk dynamics and distance to default we adapt structural models of default risk to take into account the special nature of bank assets the usual assumption of log normally distributed asset values is not appropriate for banks typical bank assets are risky debt claims which implies that they embed a short put option on the borrowers assets leading to a concave payoff this has important consequences for banks risk dynamics and distance to default estimation due to the payoff non linearity bank asset volatility rises following negative shocks to borrower asset values as a result standard structural models in which the asset volatility is assumed to be constant can severely understate banks default risk in good times when asset values are high bank equity payoffs resemble a mezzanine claim rather than a call option bank equity return volatility is therefore much more sensitive to big negative shocks to asset values than in standard structural models

food aid impacts in rural kenya assessing the potential role of food aid in economic development requires that analytical attention be given to both household production and consumption consequences of food aid projects effects of a food for work ffw project in rural kenya are assessed using a peasant household firm model which incorporates a linear programming model and an almost ideal demand system the results indicate that program participants have net returns 52 percent higher than nonparticipants most of which is due to induced effects of capital formation on own farm production greater capital formation increases the opportunity cost of participants time encouraging a transition over time from ffw activities to greater own farm production ffw increases food demand employment and marketable surplus

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

a bio economic analysis of the benefits of conservation agriculture the case of smallholder farmers in adami tulu district ethiopia this study analyses the potential impact of conservation agriculture ca and its binding constraints for adoption in smallholder farming systems in a drought prone district of central ethiopia we develop a dynamic household bio economic model by taking into account the existing farming system resource constraints and market imperfections climate induced production risk is introduced into the model by estimating a weather specific production function using data generated from a crop simulation model it is found that the full package of ca which consists of minimum tillage mulching and crop diversification does not appear to be in the best interest of smallholder farmers however loosely defined ca practises such as sole maize production with conservation tillage and maize bean intercropping with conventional tillage which are not currently practised in the study area are likely to be adopted by the farmers the results further demonstrate that time preference risk aversion limited credit and market access are key constraints to ca uptake however merely addressing these constraints may be insufficient incentives for smallholder farmers to fully adopt ca practises it is important to identify conditions under which the full package ca can be effectively adopted before it is widely promoted

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

how does the stock market view bank regulatory capital forbearance policies during the subprime crisis the fdic has shown once again laxity in resolving and closing insolvent institutions ronn and verma 1986 call the tolerance level below which a bank closure is triggered the regulatory policy parameter we derive a model in which we make this parameter stochastic and bank specific to infer the stock market view of the regulatory capital forbearance value for 565 u s listed banks during 1990 to 2012 the countercyclical forbearance fraction in capital most substantial in recessions could represent 17 on average of the market valuation of bank equity and could go as high as 100

capital market integration in the pacific basin region an impulse response analysis abstract we examine the extent of capital market integration in a group of pacific basin countries following the deregulation of their markets and explore whether the financial influence of japan in the region has overtaken that of the us looking at long run comovements of real interest rates through the use of cointegration and using impulse response analysis to examine the speed of adjustment of real interest rates to long run equilibrium following a shock in one of the markets which is another indicator of the degree of capital market integration we find that these countries are closely linked with world financial markets and more so with japan than with us

regulatory arbitrage in cross border banking mergers within the eu expanding the cross country footprint of an organization s profit making activities changes the geographic pattern of its exposure to loss in ways that are hard for regulators and supervisors to observe this paper tests and confirms the hypothesis that differences in the size and character of safety net benefits available to banks in individual eu countries help to account for cross border merger activity our results suggest that central bankers need to develop statistical procedures for assessing the consequences of differences in supervisory strength and weakness in partner countries we believe that the methods used here can help in this task

policy instruments for sustainable land management the case of highland smallholders in ethiopia degradation of land continues to pose a threat to future food production potential in many developing economies various approaches mainly based on command and control policies have been tried with limited success in the past to encourage adoption of erosion control practices by farm households high transactions costs and negative distributional impacts on the welfare of the poor limit the usefulness of standards and taxes for soil and water conservation one innovative approach is the use of interlinked contracts which create positive incentives for land conservation this study analyses the social efficiency of such policies for erosion control in the ethiopian highlands using a non separable farm household model incentive contracts linked with conservation seem to be promising approaches for sustainable resource use in poor rural economies this may suggest that conservation programs should give greater consideration to better fine tuning and mix of policies that help achieve both economic and environmental objectives

links between rural poverty and the environment in developing countries asset categories and investment poverty abstract this paper presents a framework for analyzing the links between poverty and the environment in rural areas of developing countries it introduces the concept of investment poverty and relates it to other measures of poverty in analysis of these links the notion of poverty is examined in the context of categories of assets and categories of environment change with particular focus on farm household income generation and investment strategies as determinants of the links the strength and direction of the poverty environment links are shown to differ even invert depending on the composition of the assets held by the rural poor and the types of environmental problems they face policy strategies need to focus on conditioning variables that affect market development community wealth infrastructure household asset distribution and the affordability and appropriateness of natural resource conservation technologies

three paradigms for the role of capitalization requirements in insured financial institutions standard models for deposit insurance strike analogies to more familiar financial contracts and conceive of risk as exogenous the oldest model of deposit insurance likens it to passively underwriting casualty insurance a more sophisticated but still bilateral model likens deposit insurance to writing a passive put option on the enterprise whose funding is insured delays in acknowledging the wreck of the s l industry and its federal insurer fslic discredit these models as guides to managing a deposit insurance fund deposit insurance is better interpreted as a trilateral performance bond that enhances the credit of an insured institution this interpretation endogenizes risk emphasizes incentive conflict and underscores the need to optimize loss control activity the bonding model clarifies that a subset of the monitoring and disciplinary activities traditionally undertaken by government officials can usefully be privatized

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

soil and water conservation technology adoption and labour allocation evidence from ethiopia abstract soil and water conservation swc technologies are viewed as part of a solution to increase the resilience of the agriculture sector to climate change research has shown that swc technologies are effective at controlling erosion and increasing yields but are labour intensive however the quantification of their labour impacts remains an important research gap in this paper i estimate the labour impacts of adopting swc technologies in ethiopia using an endogenous switching regression model esrm i find that adopting swc technologies increases plot level adult labour by 35 impacts on child labour depend on the number of adults in the household specifically estimated impacts range from 29 for the full sample to 78 for the sub sample of households with fewer than three adults i also find some evidence of negative self selection in the case of child labour which suggests that adopters have a comparative advantage since they are able to adopt the technology with smaller impacts on child labour as a result of unobservable characteristics the estimated labour impacts also provide a plausible explanation for why farmers may not adopt swc technologies despite their economic profitability ultimately the paper argues that understanding the heterogeneity and magnitude of the labour impacts is an important part of understanding potential trade offs of adopting swc technologies given the estimated labour impacts policies that relax the household s labour constraints could be an effective mechanism to spur the adoption of labour intensive environmentally agricultural practices while minimizing potential negative effects

federal deposit insurance regulatory policy and optimal bank capital this paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the fdic essentially the fdic sells two products insurance and regulation to span the product space it must and does set two prices we argue that the need to establish regulatory disincentives to bank risk taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value i e the value of their right to continue in business stands at the center of these disincentives and in front of the fdic s insurance reserves just as a book shouldn t be judged by its cover a government agency shouldn t be judged by the words behind its initials with the fdic federal deposit insurance corporation the agency s name describes only part of its formal operations the fdic is quasi governmental has a regional structure and sells deposit insurance however the initials fail to convey the fdic s critical place in the governmental regulatory structure as the sole federal overseer of the approximately 8900 state chartered commercial banks that have chosen not to belong the federal reserve system reflecting the federal reserve s membership problem the number of these banks is growing year by year besides selling deposit insurance at bargain explicit rates the fdic performs four regulatory functions 1 entry regulation it passes on new banks applications for deposit insurance and on branch and merger proposals as well thereby protecting the value of existing bank charters 2 examination two thirds of fdic employees are concerned with inspecting bank records and supervising managerial activity 3 regulation of deposit rates and conditions for withdrawal by tradition fdic policies on these matters conform entirely with regulations applicable to federal reserve member banks and 4 disposition of failed banks when an insured bank fails the fdic usually chooses not to liquidate it 2

incorporating equity market information into supervisory monitoring models we examine whether equity market variables such as stock returns and equity based default probabilities are useful to u s bank supervisors for assessing the condition of domestic bank holding companies we develop a model of supervisory ratings that combines supervisory and equity market information we find that the model s forecasts anticipate supervisory rating changes by up to four quarters relative to simply using supervisory variables the inclusion of equity market variables in the model does not improve forecast accuracy however we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models

separability in farm household economics an experiment with linear programming abstract the assumption of separability between farm household production and consumption facilitates analysis but entails several important restrictions the implications of assuming separability are discussed here in relation to the modelling of a representative tongan farm household econometric estimation of household demand is coupled with a linear programming lp model of farm household production when analysing consumer demand separable farm household economics is undoubtedly preferable to ignoring the production consumption linkages entirely however the restrictions which must be imposed on the production side of the separable model are such that a realistic lp solution is unlikely to be obtained this is likely to be a major deterrent to adopting the separable approach for studies in which the main focus is on production rather than consumption

cointegration how short is the long run abstract when testing for cointegration and faced with short sample periods it is common for researchers to turn to more frequently sampled observations that is to move from annual to quarterly or monthly data in order to increase the number of observations we argue that such a gain in the degrees of freedom is more apparent than real essentially cointegration is a long run concept and hence requires long spans of data to give tests for cointegration much power rather than merely large numbers of observations using monte carlo simulations we demonstrate this for four popular tests for cointegration

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

how can african agriculture adapt to climate change a counterfactual analysis from ethiopia we analyze the impact of different adaptation strategies on crop net revenues in the nile basin of ethiopia we estimate a multinomial endogenous switching regression model of climate change adaptation and crop net revenues and implement a counterfactual analysis households data are combined with spatial climate data we find that adaptation to climate change based upon a portfolio of strategies significantly increases farm net revenues changing crop varieties has a positive and significant impact on net revenues when coupled with water conservation strategies or soil conservation strategies but not when implemented in isolation jel q54 q56

market based risk adjusted examination schedules for depository institutions abstract among deposit insurance reforms considered by economists and policymakers have been prompt resolution of problem institutions risk adjusted deposit insurance premiums and risk adjusted capital requirements some economists have further suggested that risk adjusted deposit insurance premiums or capital ratios be calculated by applying option pricing models to stock market data alternatively the option methodology could be used to establish a risk based examination schedule whereby riskier banks would be examined on a more frequent basis such an examination schedule would be consistent with prompt resolution strategies since it would relate the frequency of examination and closeness of supervision to banks riskness this paper demonstrates how a risk adjusted examination schedule could be derived the paper also considers alternatives to the assumptions regarding examination policies made in standard applications of the option model which may not be valid for the sample periods previously used it discusses potential resulting biases and ways to mitigate their effects

the causal relationships between equity indices on world exchanges the engle and granger cointegration analysis and granger causality tests are applied to monthly time series of nine major stock market indices over the period january 1982 to february 1991 to examine for causal linkages the empirical results indicate that there is adequate evidence to refute the notion of informationally efficient stock markets

soil erosion and smallholders conservation decisions in the highlands of ethiopia abstract soil erosion is one of the most serious environmental problems in ethiopia coupled with growing populations falling per capita food production and worsening poverty loss of productive land due to land degradation undermines rural livelihoods and national food security despite their awareness of the erosion problem peasants investments in land have been limited we use an applied nonseparable model to simulate conservation decisions pervasive market imperfections poverty and high rates of time preference seem to undermine erosion control investments lack of technologies which provide quick returns to subsistence constrained peasants also seem to deter such investments lower private incentives to internalize the intertemporal land degradation externality may require public intervention

between ostrom and nordhaus the research landscape of sustainability economics abstract we survey the emerging research area of sustainability economics through a quantitative full text analysis of peer reviewed journal publications from 1987 to 2013 to identify relevant contributions we draw on existing definitions of sustainability economics for a keyword based identification strategy a combined focus on a the human nature relationship b the long term uncertain future c normative orientation towards sustainability and d economic analysis our analysis of a random subsample of 343 relevant papers reveals that i sustainability economics is a rapidly developing research area ii while theoretical contributions shaped the area in earlier years applied work now constitutes the largest share of contributions iii the research landscape can be clustered into eleven research clusters these range from participatory governance of social ecological systems associated with the work of elinor ostrom to questions of intertemporal allocation and distribution applied to climate economics associated with the work of william nordhaus iv the research area is broad in scope and heterogeneous and there is relatively little interaction between important clusters v relevant contributions are published in more than 100 journals ten journals publish half of all contributions led by ecological economics and 40 appear in non economics journals underscoring the importance of interdisciplinary dialogue

the economic relevance of sustainable agroforestry practices an empirical analysis from tanzania abstract this paper investigates the economic relevance of sustainable behavior of agroforestry practices for smallholders using the example of firewood exploitation in rural tanzania three questions are addressed 1 to what extent do households behave sustainably regarding firewood extraction from agroforestry 2 which factors determine the likelihood of households practicing sustainable agroforestry 3 are sustainably behaving households better off in terms of income compared to households practicing unsustainable agroforestry the analysis is based on cross sectional data of 314 households a sustainability indicator shows that the share of sustainable households varies between 14 and 41 depending on the underlying wood growth rate the results of the logistic regression indicate that property rights regarding the ownership of agricultural land and environmental awareness increase the likelihood of sustainable firewood extraction empirical evidence from the quantile regression reveals that poorest households generate higher income if they extract firewood unsustainably the opposite is true for households of upper income percentiles thus the poor are likely to increase environmental degradation to generate more income causing a downward spiral of the poverty environment trap resulting in income losses in the long run households with a per capita income of 524 tzs or more manage their tree stocks sustainably

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

tenure insecurity and investment in soil conservation evidence from malawi tenure insecurity can have important consequences for the conservation of natural resources this paper focuses on two main sources of tenure insecurity informal short term tenancy contracts and customary gender biased inheritance practices using a large plot level dataset from malawi the analysis employs a linear probability model with household fixed effects and finds that both sources of insecurity have a negative effect on soil conservation investments these findings suggest that future land reforms should deal with the informality of the land rental market and address the gap between users and owners of land created by existing customary practices

the managerial regulatory and financial determinants of bank merger premiums this paper analyzes the managerial regulatory and financial determinants of us bank merger premiums we use both individual acquirer and target bank characteristics we also examine state regulation of acquirer and target banks from a geographically dispersed population allowing us specifically to test the effect of a varied state regulatory menu the study finds merger premiums to be related to the characteristics of both acquirer and target banks and the regulatory environments in both acquirer and target bank states we also find evidence that the separation of ownership and control in acquirer and target banks has a significant effect on merger premiums in the last decade the pace of mergers in the us banking industry has been impressive this growth in the number of bank mergers has largely been due to the changing economic and regulatory environment with the reduction in the severity of enforcing strict antitrust guidelines by the reagan administration and more importantly the gradual removal of geographical restrictions by individual states on bank expansion the environment for bank mergers has never been so conducive since the regulatory restrictions are likely to be further relaxed with an increasing number of states permitting interstate banking in the early 1990s the number and dollar value of bank mergers is certain to accelerate accordingly it is important to improve our understanding of bank mergers this paper examines the financial regulatory and managerial determinants of bank merger premiums in examining the financial determinants of the merger premiums we include the financial characteristics of the target banks and the franchise value of its banking market because bank mergers are carefully regulated by state laws we also analyze the regulation in the banks states we examine the state regulation of acquirer and target banks

default probability estimation via pair copula constructions abstract in this paper we present a novel approach for firm default probability estimation the methodology is based on multivariate contingent claim analysis and pair copula constructions for each considered firm balance sheet data are used to assess the asset value and to compute its default probability the asset pricing function is expressed via a pair copula construction and it is approximated via monte carlo simulations the methodology is illustrated through an application to the analysis of both operative and defaulted firms

investment in soil conservation in northern ethiopia the role of land tenure security and public programs abstract a double hurdle statistical analysis of 250 farms in the tigray region of ethiopia reveals different causal factors for soil conservation adoption versus intensity of use farmers reasons for adopting soil conservation measures vary sharply between stone terraces and soil bunds long term investments in stone terraces were associated with secure land tenure labour availability proximity to the farmstead and learning opportunities via the existence of local food for work ffw projects by contrast short term investments in soil bunds were strongly linked to insecure land tenure and the absence of local food for work projects public conservation campaigns on private plots reduced adoption of both stone terraces and soil bunds whereas capacity factors largely influenced the adoption decision expected returns carried more influence for the intensity of stone terrace adoption measured as metres of terrace per hectare more stone terracing was built where fertile but erodible silty soils in higher rainfall areas offered valuable yield benefits intensity of terracing was also greater in remote villages where limited off farm employment opportunities reduced construction costs these results highlight the importance of the right kind of public interventions direct public involvement in constructing soil conservation structures on private lands appears to undermine incentives for private conservation investments when done on public lands however public conservation activities may encourage private soil conservation by example secure land tenure rights clearly reinforce private incentives to make long term investments in soil conservation

systemic risk and bank size abstract in this paper we analyse firm level systemic risk for us and european banks from 2004 to 2012 we observe that common systemic risk indicators are primarily driven by firm size which implies an overriding concern for too big to fail institutions however smaller banks may still pose considerable systemic threats as exemplified by the northern rock debacle in 2007 by introducing a simple standardisation we obtain new risk measures that often prove to be superior predictors of financial distress during the 2007 2009 subprime crisis we conclude that the new measures could be a valuable addition to the existing indicators employed in basel iii to identify systemically important banks

a framework for assessing credit risk in depository institutions toward regulatory reform abstract this paper develops and illustrates a new method for evaluating the credit risk borne by depository institutions that may prove to be an important element in a regulatory mechanism sensitive to risk in our framework depository institutions are forced to bear the costs of their risk exposure and hence to internalize this cost when extending loans using various loan portfolios and alternative macroeconomic scenarios we present numerical calculations demonstrating the ability of our framework to capture variations in risk exposure and highlighting the significance of portfolio concentrations these calculations are based on an important new source of information that permits an econometric analysis of loan losses by industry

testing participation constraints in contract design for sustainable soil conservation in ethiopia abstract this paper focuses on contract design to improve the incentive structure of current coordination mechanisms related to sustainable land use management in the ethiopian highlands the main objective is to assess whether and if so under which terms and conditions rural households are willing to enter into contractual agreements to invest in soil conservation measures on their land participation constraints are tested under different soil erosion and institutional economic conditions in a choice experiment targeting 750 rural households we show that contracts provided by local government peasant associations offering additional credit land use security and extension services could be an effective means to increase the share of farmers implementing soil conservation measures however trust in contract terms and conditions appears to play an important role farmers living in the most erosion prone areas are most likely to participate while farmers taking soil conservation measures already are less likely to enter into a contractual agreement with the local government farmers not taking soil conservation measures will only do so if the contract price is lower than or equal to the income losses suffered from soil erosion

a simple approach to better deposit insurance pricing abstract we examine the ability of simple insurance pricing schedules to match premiums with the values derived from a contingent claim model of deposit insurance we use a quadratic loss function to compare a flat rate pricing system to alternative pricing schedules incorporating measures of risk a simple two bracket schedule that distinguishes between high and low capitalization is a substantial improvement a pricing schedule under which the rate paid by low capital banks depends on their degree of undercapitalization is better still in addition the gains from using market value measures of capital rather than book value are great

impact of oil price shocks on output inflation and the real exchange rate evidence from selected asean countries this article analyses the impact of oil price shocks on real output inflation and the real exchange rate in thailand malaysia singapore the philippines and indonesia asean 5 using a structural var model the cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run the impulse response functions reveal that oil price fluctuations do not impact the asean 5 economies in the long run and much of its effect is absorbed within five to six quarters the variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration we also identify a very unique pattern of response to oil price fluctuations between malaysia and singapore and between the philippines and thailand the pairs exhibit a high degree of similarity in their responses they do not share any commonalities across the group

on the optimality of a gcc monetary union structural var common trends and common cycles evidence this paper examines the suitability of the proposed monetary union among the members of the gulf cooperation council gcc to do so we identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric additionally we test for common trends and common business cycles among the gcc economies we find that while the transitory demand shocks are typically symmetric the permanent supply shocks are asymmetric furthermore we do not find synchronous long run and short run movements in output despite the progress that has been made in terms of integration our findings indicate that the conditions for forming a gcc monetary union have not as yet been met

optimal taxation in the presence of bailouts the termination of a representative financial firm due to excessive leverage may lead to substantial bankruptcy costs a government in the tradition of ramsey 1927 may be inclined to provide transfers to the firm so as to prevent its liquidation and the associated deadweight costs it is shown that the optimal taxation policy to finance such transfers exhibits procyclicality and history dependence even in a complete market these results are in contrast with pre existing literature on optimal fiscal policy and are driven by the endogeneity of the transfer payments that are required to salvage the financial firm

on the empirics of risk sharing across mena countries in this article we compute the potential welfare gains and the realized gains from risk sharing among middle east and north african mena countries including the oil rich gulf region and the resource scarce economies we find that the overall potential welfare gains across mena countries are positive for all countries under the assumption of full risk sharing the potential welfare gains among the six gulf cooperation council gcc countries are positive even though the magnitudes are smaller compared to those of the rest of the mena region we also quantify the extent of risk sharing for the mena region and show that it is significant for the mena region and its subgroups however we could not find any sign of inter temporal smoothing across the same groups decomposing the aggregate output shocks shows that the extent of risk sharing is significant when only positive output shocks exist across the resource scarce mena economies however we observe that gcc countries share output risks with each oth

a contingent claim analysis of a regulated depository institution abstract a model of financial intermediation to determine the market value of bank equity deposits and deposit insurance is developed the implicit equilibrium interest rate on deposits is derived and analyzed three types of risks are considered in the model interest rate risk financial risk and default risk the effect of different regulatory measures such as capital adequacy reserve and liquidity requirements deposit insurance and interest rate ceilings is analyzed and their impact on the bank behavior is also assessed moreover we investigate the interactions among these measures to determine which are dominant under alternative circumstances and which are redundant

deposit insurance and risk taking behavior in the credit union industry abstract this paper examines the relationship between deposit insurance and risk taking behavior within the credit union industry time series tests employing industry average financial ratios for federal and state credit unions did not support the increased risk taking hypothesis although federal credit union capital declined immediately following the adoption of deposit insurance this was most likely the result of reduced capital requirements not deposit insurance liquidity and loan delinquency ratios had a negative time trend coefficient implying a decline in risk taking behavior during the post insurance period cross sectional test results employing iowa state chartered credit union data indicated that insured credit unions were better capitalized and more liquid than their uninsured counterparts overall there was no evidence that the adoption of deposit insurance increased the risk taking behavior of credit unions

how good is the market at assessing bank fragility a horse race between different indicators abstract we explore for individual banks active in the east asian countries during the years 1996 1998 the performance of three sets of indicators of bank fragility that can be computed from publicly available information accounting data stock market prices and credit ratings we find significantly different patterns among the three groups of indicators in their ability of forecasting financial distress at a specific point in time and over time more specifically in the east asia crisis episode the information based on stock prices or on judgmental assessments of credit rating agencies did not outpace backward looking information contained in balance sheet data stock market based information though has responded more quickly to changing financial conditions than ratings of credit risk agencies overall the evidence supports the policy conclusion that where the information processing is quite costly as in most developing countries it is important to use simultaneously a plurality of indicators to assess bank fragility

on the path of integration in the gulf region it is examined whether the six countries comprising the gulf cooperation council gcc are sufficiently compatible to form a viable economic and financial block in the gulf region despite long and numerous governmental attempts since the mid 1980s and in spite of public pressures to expedite the process these countries have thus far failed to achieve full economic and financial integration empirical evidence suggests that this apparent failure is unlikely the outcome of economic or financial incompatibility among the countries in the region the results imply that more efforts should be directed at resolving possible sociopolitical differences that may have hampered real progress toward the emergence of a genuine and effective bloc in the gulf region

a study of credit risk of chinese listed companies zpp versus kmv abstractthe zero price probability zpp model is applied to evaluate the credit risk of listed companies in china and its performance is compared to that of the kealhofer mcquown vasicek kmv model the sample includes 34 financially distressed companies and a comparison group of 34 financially healthy companies the performances of zpp and kmv models are compared using various descriptive statistics and statistical tests the empirical analyses show that the zpp model is superior to the kmv model in terms of discriminatory power compared to the kmv model the zpp model performs much better in distinguishing between financially challenged and healthy firms among different specifications of the zpp model the naive constant variance zero price probability model outperforms those with generalized autoregressive conditional heteroskedasticity specifications this article is among the very first studies that provide evidence on the performance of the zpp model

the gulf co operation council a slow path to integration this paper assesses the progress towards the intra regional integration among the gcc countries we find that although there is limited trade integration in the region as a whole there are specific countries for example bahrain and oman that are significantly integrated with at least one trade partner from within the region the paper argues that the gcc region will have to create a consensus on the trade barriers on the imports from outside the region if progress towards the intra regional integration is to be increased

a note on the existence and characteristics of fair deposit insurance premia abstract this paper treats the fair deposit insurance premium as a fixed point of the value of insurance per dollar of deposits using the standard model of the value of deposit insurance and treating the premium as an up front cost to a bank it is shown that the fixed point premium exists and is unique under fairly general conditions it is shown that ignoring the premium as an up front cost may lead to underestimation of the fair premium in addition the fixed point model suggests that premium rates should vary with the ratio of deposits to total liabilities

a multi attribute comparative evaluation of relative risk for a sample of banks abstract this paper proposes a comparative analysis of five different attributes of commercial banks liabilities that may be thought of as either directly measuring the default risk or are perceived by the market as impacting upon that default risk two of these attributes are credit ratings assigned by moody s and standard and poor s to debt issues the third attribute that we consider is yield to maturity which is typically assumed to be positively related to default risk the fourth attribute that is proposed is the fair value risk adjusted deposit insurance premium derived from option theoretic modeling and estimated from the daily data on equity prices finally we propose a term structure adjusted difference in yield between the risky debt and default free government debt as a more precise and theoretically sound measure of the default risk premium and develop a methodology for eliciting it on a composite basis for a given bank from the market prices of its various bond issues this term structure adjusted risk premium provides an analytical approximation to the valuation of corporate bonds call features and sinking fund provisions in view of the ordinality of the credit ratings given by the investment agencies spearman s rank correlation coefficient is employed as an analytical tool the analysis

simulating soil fertility and poverty dynamics in uganda a bio economic multi agent systems approach declining soil fertility and increasing rural poverty are major problems facing sub saharan agriculture bio economic modeling has been used to analyze the complex interaction between ecological sustainability and rural poverty as well as to explore policy options promoting sustainable development this paper shows that these models can be further advanced by adopting an agent based modeling approach this gives a more realistic representation of diversity in socioeconomic and biophysical terms allows local interaction between households and can yield an ex ante assessment of the distributional consequences of policy intervention this paper describes the modeling approach and illustrates it with an empirical application to two village communities in the lake victoria crescent of uganda it is shown how the model system can be calibrated with and validated against empirical data the model is used to analyze the potential effect of short term credit mineral fertilizer and improved maize seed on poverty and sustainability simulation results suggest substantial reductions in poverty although the incidence of poverty would remain high and these innovations alone would have little effect on the long term ecological sustainability of the system

does deposit insurance improve financial intermediation evidence from the russian experiment this study examines how the introduction of deposit insurance affects depositors and banks using the deposit insurance scheme introduced into the russian banking system as a natural experiment the fundamental research question is whether the introduction of deposit insurance leads to a more effective banking system as evidenced by increased deposit taking and decreased reliance upon state owned banks as custodians of retail deposits we find that banks entering the new deposit insurance system increase both their level of retail deposits and their ratios of retail deposits to total assets relative to banks that do not enter the new deposit insurance system these results hold up in a multivariate panel data analysis that controls for bank and time random effects the longer a bank has been entered into the deposit insurance system the greater is its level of deposits and its ratio of deposits to assets moreover this effect is stronger for regional banks and for smaller banks we also find that implementation of the new deposit insurance system has the effect of leveling the playing field between state owned banks and privately owned banks finally we find strong evidence of moral hazard following implementation of deposit insurance in the form of increased bank risk taking financial risk and to a lesser degree operating risk increase following implementation

optimal management of soil quality stocks and long term consequences of land degradation for smallholder farmers in malawi while soil degradation has long term consequences static models which form the bulk of studies on this topic in africa do not account for the inter temporal dimensions of optimal resource management this paper used an inter temporal optimisation framework which considered soil in a time dependent resource extraction perspective we have demonstrated that soil degradation is causing an enormous reduction in productive value of smallholder land in malawi current user cost of soil quality among smallholder farmers which represents annual loss in productive value of land was estimated to be us 21 per hectare based on this value and land area under smallholder agriculture in malawi economic costs of soil degradation among smallholder farmers were estimated to amount to 14 of the agricultural gdp for malawi although smallholder farmers current practices are sub optimal to steady state solutions they are above static solutions this demonstrates that smallholder farmers have some private incentives to invest in the soil quality stock smallholder farmers internalise some of the dynamic costs of soil degradation under the current practices however a sensitivity analysis on a slightly higher discount rate indicates that ss solutions closely resemble the prevailing smallholder farming practices this suggests that smallholder farmers may be overexploiting soil quality stock because they have a high time preference that is they value the current consumption more than their future consumption and wellbeing high levels of poverty in malawi and serious lack of viable alternatives to subsistence farming may be influencing such behaviour promoting more viable land use alternatives than subsistence farming and formuling policies that help transform smallholder agriculture into a profitable enterprise will not only increase the cost of degrading the soil but also encourage farmers to invest in the soil quality stock

banks non traditional activities under regulatory changes impact on risk performance and capital adequacy using the big six canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018 we examine the impact of non interest income on canadian banks risk perfor

a model of an agricultural household in a multi crop economy the case of korea it is the purpose of this paper to describe one method of extending the empirical applicability of the theory of the farm household to multi crop economies by integrating the econometric and linear programming models already available in the literature section i introduces the subject in section ii the theoretical model is presented in section iii korean data are used to assess the quantitative significance of the approach by calculating and comparing household response to changes in input and output prices for two different specifications of the models first the household is analyzed from the consumption side on the assumption that farm profits are exogenous this corresponds to the standard approach in consumer demand theory and second results are presented for a model in which consumption and production responses are integrated in a theoretically consistent fashion and farm profits are allowed to reflect production responses to price changes the results from this and other studies that use an integrated approach to production and consumption decisions highlight the need to change perceptions concerning agricultural household response to economic incentives in developing countries and to revise the design of economic projects and policies accordingly