the effect of ambiguity aversion on insurance and self protection in this article we derive a set of simple conditions such that ambiguity aversion always raises the demand for self insurance and the insurance coverage but decreases the demand for self protection we also characterise the optimal insurance design under ambiguity aversion and exhibit a case in which the straight deductible contract is optimal as in the expected utility model

market structure and price adjustment in the u s wholesale gasoline markets abstract the issue of sticky prices in u s wholesale gasoline market is re examined allowing for the effect of market structure due to increased market concentration caused by mergers acquisitions and joint ventures which started in the late 1990s in the u s oil industry i investigate the effects of market structure on the pattern of price adjustment based on the notion that increased market concentration leads to downward price stickiness and asymmetric short run price adjustment in the transmission of crude price changes to wholesale gasoline price i find that market concentration has an insignificant asymmetric effect on the speed of price adjustment but a significant asymmetric effect on short run price adjustments in the response of wholesale gasoline prices to crude price shocks in three u s wholesale markets furthermore the signs on the coefficients of market concentration effects on price dynamics in the models support the assertion that increased market concentration leads to downward price stickiness in only one of the three markets examined overall the results indicate that market structure does not have a strong effect on the dynamics of price adjustment

unobserved heterogeneity in stochastic cost frontier models this paper applies a number of stochastic cost frontier models to a panel data set and compares their ability to distinguish unobserved heterogeneity from inefficiency variation among firms the main focus is on greene s 2005 panel data model that incorporates firm specific effects in a stochastic frontier framework in cases where the unobserved heterogeneity is correlated with explanatory variables while the random effects estimators can be biased the fixed effects model may overestimate inefficiency in line with mundlak a simple method is proposed to include such correlations in random effects specification the sample includes 36 swiss nursing homes operating from 1993 to 2001 the results suggest that the proposed specification can avoid the inconsistency problem while keeping the inefficiency estimates unaffected

efficiency heterogeneity and cost function analysis empirical evidence from pathology services in the national health service in england pathology services are increasingly recognized as key to effective healthcare delivery underpinning diagnosis long term disease management and research to the extent that pathology services affect a patient s treatment pathway significant healthcare costs are influenced directly by the performance of these services given pressures on the uk department of health to make efficiency savings and that little is known about the efficiency of pathology laboratories this area offers unlocked potential for efficiency gains we adopt a time varying inefficiency model with laboratory specific time paths for inefficiency to identify potential savings in pathology services based on a panel of 57 english laboratories over a 5 year period we apply a range of approaches to account for observable and unobservable heterogeneity between laboratories we find potential efficiency savings of 13 in pathology services in this sample which implies the potential for an annual saving of 390m in pathology across the nh

can the trade off theory explain debt structure we examine the optimal mixture and priority structure of bank and market debt using a tradeoff model where banks have the unique ability to renegotiate outside formal bankruptcy flexible bank debt offers a superior tradeoff between tax shields and bankruptcy costs ease of renegotiation limits bank debt capacity however optimal debt structure hinges upon which party has bargaining power in private workouts weak firms have high bank debt capacity and utilize bank debt exclusively strong firms lever up to their lower bank debt capacity augment with market debt and place the bank senior therefore the tradeoff theory offers an explanation for i why young small firms use bank debt exclusively ii why large mature firms employ mixed debt financing and iii why bank debt is senior the tradeoff theory also generates predictions consistent with international evidence in countries where the bankruptcy regime entails soft tough enforcement of contractual priority bank debt capacity is low high implying greater less reliance on market debt

uncertain dynamics correlation effects and robust investment decisions abstract we analyze a firm s investment problem when the dynamics of project value and investment cost are uncertain we provide an explicit solution using a robust method for an ambiguity averse firm taking this into account ambiguity aversion regarding a common risk factor impacts differently than ambiguity aversion regarding investment cost residual risk correlation between project value and investment cost matters ambiguity aversion regarding common risk can decrease the investment probability only if correlation is positive ambiguity aversion regarding residual risk always increases the investment probability when only project value is risky volatility can monotonically decrease the investment threshold this does not hold with the multiple prior method

on the distinction between structure and conduct adjustment costs concentration and price behavior the effect of concentration on the speed of price adjustment is studied and shown to be ambiguous when adjustment costs are convex the result relies on making a distinction between the structure of an industry and the conduct of firms within it copyright 1989 by blackwell publishing ltd

labour use efficiency in swedish social insurance offices this paper considers the estimation of frontier production functions in panel data models it proposes a multi stage method to obtain estimates of 1 the parameters of a flexible input requirement function and 2 technical inefficiency decomposed into time invariant firm specific time varying and the residual components the proposed method is used to analyse labour use efficiency of swedish local social insurance offices on the basis of a large panel of observations during the time period 1974 84 empirical results show 1 substantial variations in labour use efficiency among these offices with the mean efficiencies declining over time 2 presence of economies of scale thereby meaning that most of the offices were of suboptimal size

sticky prices inventories and market power in wholesale gasoline markets a model with costly adjustment of production and costly inventories implies that wholesale gasoline prices will respond with a lag to crude oil cost shocks unlike explanations that rely upon menu costs imperfect information or long term buyer seller relationships this model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract we test and confirm this implication examining wholesale price responses in 188 gasoline markets we also find that firms with market power adjust prices more slowly than do competitive firms consistent with the model

irreversible investment and knightian uncertainty when firms make a decision about irreversible investment they may not have complete confidence about their perceived probability measure describing future uncertainty they may think other probability measures perturbed from the original one are also possible such uncertainty characterized by not a single probability measure but a set of probability measures is called knightian uncertainty the effect of knightian uncertainty on the value of irreversible investment opportunity is shown to be drastically different from that of traditional uncertainty in the form of risk specifically an increase in knightian uncertainty decreases the value of investment opportunity while an increase in risk increases it

cross country comparisons of technical efficiency of health production a demonstration of pitfalls it has been proposed that cross country comparisons of the technical efficiency of health production estimated using data envelopment analysis dea have useful applications for policy makers in theory such an analysis utilizes measures of the socioeconomic determinants of health relevant to all social policy not just health policy using oecd and who data this article critically analyses a number of outstanding theoretical questions regarding the use of dea in this setting it concludes that until such questions are addressed the resultant implications for policy will be based on misleading information

the effect of uncertainty on investment timing in a real options model abstract this paper examines the effect of uncertainty on investment timing in a canonical real options model we show that the critical value of a project that triggers the exercise of the investment option exhibits a u shaped pattern against the volatility of the project this is due to the two countervailing risk and return factors in effect we further show that such a u shaped pattern is inherited by the expected time to exercise the investment option thus for relatively safe projects greater uncertainty shortens the expected exercise time and thus enhances investment this is in sharp contrast to the negative investment uncertainty relationship commonly found in the extant literature finally we show that the positive investment uncertainty relationship is more likely for high growth projects than for low growth projects

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

model misspecification and underdiversification in this paper we study intertemporal portfolio choice when an investor accounts explicitly for model misspecification we develop a framework that allows for ambiguity about not just the joint distribution of returns for all stocks in the portfolio but also for different levels of ambiguity for the marginal distribution of returns for any subset of these stocks we find that when the overall ambiguity about the joint distribution of returns is high then small differences in ambiguity for the marginal return distribution will result in a portfolio that is significantly underdiversified relative to the standard mean variance portfolio

risk uncertainty and option exercise many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty motivated by experimental evidence such as the ellsberg paradox we follow knight 1921 and distinguish risk from uncertainty to capture this distinction we adopt the multiple priors utility model we show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs consequently ambiguity may accelerate or delay option exercise we apply our results to investment and exit problems and show that the myopic npv rule can be optimal for an agent having an extremely high degree of ambiguity aversion

price transmission and local market power empirical evidence from the austrian gasoline market we analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics speed and asymmetry of price transmission using data for a large number of indiv

uncertainty and the trade off between scale and flexibility in investment abstract this paper analyzes the behavior of a firm that chooses both the scale and timing of its investment sensitivity analysis shows that greater demand volatility is associated with the firm investing in larger increments less frequently this is in contrast to the conventional wisdom which is that greater volatility leads to investment in smaller increments more frequently overall the reduced frequency dominates the greater scale so that the long run average rate of investment is a decreasing function of demand volatility the timing and scale of investment are most sensitive to volatility when there are substantial investment economies of scale

measuring performance in primary care econometric analysis and dea we use data from the health service indicators database to compare different methods of measuring the performance of english family health services authorities fhsas in providing primary care a variety of regression and data envelopment analysis methods are compared as summary efficiency measures of individual fhsa performance the correlation of the rankings of fhsas across dea and regression methods across two years of data and across three different specifications of the technology of primary care are examined efficiency scores are highly correlated within variants of the two methods and across years for a given method inter method correlations are smaller and correlations across different specifications of the primary care production process are negligible and sometime negative

investment and market power abstract this paper argues that the degree of market power within an industry is an important determinant of interindustry differences in investment behavior a neoclassical investment model is analyzed to show that market power is positively associated with capital stock flexibility the intuition for the result is that firms adjust their stocks and investment plans quickly in response to new conditions so as to capture the rents asssociated with their market power

hedging the value of waiting abstract we analyze the optimal hedging policy of a firm that has flexibility in the timing of investment conventional wisdom suggests that hedging adds value by alleviating the under investment problem associated with capital market frictions however our model shows that hedging also adds value by allowing investment to be delayed in circumstances where the same frictions would cause it to commence prematurely thus hedging can have the paradoxical effect of reducing investment we also show that greater timing flexibility increases the optimal quantity of hedging but has a non monotonic effect on the additional value created by hedging these results may help explain the empirical findings that investment rates do not differ between hedgers and non hedgers and that hedging propensities do not depend on standard measures of growth opportunities

devaluating projects and the investment uncertainty relationship abstract sarkar 2000 on the investment uncertainty relationship in a real options model journal of economic dynamics and control 24 219 225 analyzes the investment uncertainty relationship in a real options model demonstrating that the widely accepted conclusion that uncertainty harms investment can be reversed wong 2006 the effect of uncertainty on investment timing in a real options model journal of economic dynamics and control forthcoming confirms this point showing that more uncertainty can reduce the expected time to exercise the investment option this paper deals with such an issue and attempts to integrate both sarkar s and wong s analysis for risk neutral investors we show that uncertainty can favor investment only if projects devaluate over time this conclusion does not hold in a capm framework where we demonstrate that the relationship uncertainty investment can be positive a even when the investment threshold increases with uncertainty and b in the case of projects negatively correlated with the market portfolio

vertical and horizontal scope economies in the regulated us electricity power industry this paper investigates vertical economies between generation and distribution of electric power and horizontal economies between different types of power generation in the u s electric utility industry our quadratic cost function model includes three generation output measures hydro nuclear and fossil fuels which allows us to analyze the effect that generation mix has on vertical economies our results provide sample mean estimates of vertical economies of 8 1 and horizontal economies of 5 4 an extensive sensitivity analysis is used to show how the scope measures vary across alternative model specifications and firm types

the use and usefulness of performance measures in the public sector the paper focuses on the empirical evidence on the use and usefulness of performance measures in the public sector it begins with consideration of the features of the public sector which make the use of performance measures complex the issues of multiple principals and multiple tasks it discusses the form that performance measures may take the use made of these measures and the responses that individuals may make to them empirical examples from the fields of education and health with a focus on the usa and uk are examined there is clear evidence of responses to such measures some of these responses improve efficiency but others do not and fall into the category of gaming generally there has been little assessment of whether performance measures bring about improvements in service the paper ends with consideration of how such measures should be used and what measures are useful to collect

the measurement and sources of technical inefficiency in the indonesian weaving industry production function models are estimated with a time series of cross section data on indonesian weaving establishments the sources of technical inefficiency are investigated three firm attributes are identified as being potentially related to firm efhciency tbey are firm ownership age and size the importance of these attributes as sources of inefficiency in the indonesian weaving industry is investigated and the implications of the find ings discussed

impact of input substitution and output transformation on data envelopment analysis decisions abstractdata envelopment analysis dea can aid managerial decision making because it offers an opportunity to measure organizational performance in a holistic manner aggregating data from partial indicators into a single comprehensive measure however there are some methodological hazards associated with the use of dea that are especially relevant to managerial decisions but which have been largely ignored in the literature herein we identify and show the impact of a ubiquitous methodological hazard in dea modelling the economic assumptions regarding input substitutions and output transformations

alpha robust mean variance reinsurance investment strategy abstract inspired by the maxmin expected utility we propose a new class of mean variance criterion called maxmin mean variance criterion and apply it to the reinsurance investment problem our model allows the insurer to have different levels of ambiguity aversion rather than only consider the extremely ambiguity averse attitude as in the literature the insurer can purchase proportional reinsurance and also invest the surplus in a financial market consisting of a risk free asset and a risky asset whose dynamics is correlated with the insurance surplus closed form equilibrium reinsurance investment strategy is derived by solving the extended hamilton jacobi bellman equation our results show that the equilibrium reinsurance strategy is always more conservative if the insurer is more ambiguity averse when the dependence between insurance and financial risks are weak the equilibrium investment strategy is also more conservative if the insurer is more ambiguity averse however in order to diversify the portfolio a more ambiguity averse insurer may adopt a more aggressive investment strategy if the insurance market is very ambiguous for an ambiguity neutral insurer the investment strategy is identical to the non robust investment strategy

robust reinsurance contracts with uncertainty about jump risk abstract we investigate robust reinsurance contracts in two reinsurance modes namely proportional reinsurance and excess loss reinsurance in a continuous time principal agent framework insurance claims follow the classic cramer lundberg process the reinsurer principal is concerned about potential ambiguity in the claim intensity but the insurer agent is not the reinsurer designs a robust reinsurance contract that maximizes the penalty based multiple priors utility of terminal wealth subject to the insurer s incentive compatibility constraint we derive the analytical expressions of the robust reinsurance contacts our results show that the reinsurer dynamically decreases the reinsurance price which makes the demand for reinsurance increase over time however the reinsurer s ambiguity aversion increases the price of reinsurance which decreases demand moreover the price of excess loss reinsurance is greater than that of proportional reinsurance finally when the insurer s risk aversion is low or the reinsurer s risk aversion is high both the insurer and the reinsurer prefer the proportional reinsurance contract