application of real options analysis for pharmaceutical r d project valuation empirical results from a survey real options analysis was often recommended as an emerging valuation technique for high risk investment projects former inter sectoral surveys have drawn an ambivalent picture of real options usage in general in addition there is a lack of sector specific investigations in the following article the results of an in depth analysis of collected empirical data regarding the application of this new tool in the pharmaceutical sector is presented by capturing the internal view from the pharmaceutical companies themselves and the external view from the health care departments of financial service firms r d stage specific modi of application reasons for reluctance in the employment of real options and their assumed future prospects are elucidated

relaxations of approximate linear programs for the real option management of commodity storage the real option management of commodity conversion assets gives rise to intractable markov decision processes mdps in part because of the use of high dimensional models of commodity forward curve evolution as commonly done in practice focusing on commodity storage we identify a deficiency of approximate linear programming alp which we address by developing a novel approach to derive relaxations of approximate linear programs we apply our approach to obtain a class of tractable alp relaxations also subsuming an existing method we provide theoretical support for the use of these alp relaxations rather than their associated approximate linear programs applied to existing natural gas storage instances our alp relaxations significantly outperform their corresponding approximate linear programs our best alp relaxation is both near optimal and competitive with albeit slower than state of the art methods for computing heuristic policies and lower bounds on the value of commodity storage but is m

collective bargaining in the public sector the effect of legal structure on dispute costs and wages this paper examines the impact of collective bargaining legislation on dispute costs and wages using a panel of canadian public sector contracts the authors results suggest that policymakers designing collective bargaining legislation face a trade off between reducing dispute costs and increasing wages dispute costs are lower under compulsory arbitration than under the right to strike or when no collective bargaining legislation exists hence a switch to compulsory arbitration could potentially make both the union and the employer better off by reducing dispute costs however the authors find that wages are higher under compulsory arbitration than under other legal structures copyright 1991 by american economic association

valuing oil properties integrating option pricing and decision analysis approaches there are two major competing procedures for evaluating risky projects where managerial flexibility plays an important role one is decision analytic based on stochastic dynamic programming and the other is option pricing theory or contingent claims analysis based on the no arbitrage theory of financial markets in this paper we show how these two approaches can be profitably integrated to evaluate oil properties we develop and analyze a model of an oil property either a developed property or a proven but undeveloped reserve where production rates and oil prices both vary stochastically over time and at any time the decision maker may terminate production or accelerate production by drilling additional wells the decision maker is assumed to be risk averse and can hedge price risks by trading oil futures contracts we also describe extensions of this model that incorporate additional uncertainties and options discuss its use in exploration decisions and in evaluating a portfolio of properties rather than a single property and briefly describe other potential applications of this integrated methodology

developmental financial institutions as technology policy instruments implications for innovation and entrepreneurship in emerging economies abstract developmental financial institutions dfis in emerging economies regularly assess new technology platforms to support their investments in new ventures established firms and technology institutions tis their financing decisions are guided by national priorities such as achieving technological self reliance by providing attractive financing options and related support dfis are well placed to consciously channel finance into designated priority technology areas to better understand dfi roles we conducted multiple interviews with participants affiliated with dfis firms and tis in india from data gathered from these interviews and secondary data on dfis in emerging economies we develop a preliminary framework to suggest that dfis when proactive in making technology assessments form an important link between developing a firm s absorptive capacity and building a nation s innovative capacity also dfi financing facilitates new venture creation in the context of underdeveloped capital markets prevalent in emerging economies to illustrate these roles we consider technology support programs of dfis in india and their role in the information technology it industry

habit formation from correlation aversion making plans about how much to consume and how much to invest in risky assets over an uncertain lifetime is a fundamental economic challenge the leading models of this planning problem use either additive or habit forming preferences for the most part these models assume an individual is either correlation neutral or correlation seeking in consumption respectively in this paper we introduce two habit forming correlation averse preference models with these preferences we find closed form solutions to the classic consumption and portfolio planning problem our solutions recommend that a correlation averse decision maker follow a habit in their consumption plans while such habits traditionally have been associated with correlation seeking preferences our model leads to consumption habits from correlation averse preferences

oil prices brownian motion or mean reversion a study using a one year ahead density forecast criterion abstract for oil related investment appraisal an accurate description of the evolving uncertainty in the oil price is essential for example when using real option theory to value an investment a density function for the future price of oil is central to the option valuation the literature on oil pricing offers two views the arbitrage pricing theory literature for oil suggests geometric brownian motion and mean reversion models empirically driven literature suggests arma garch models in addition to reflecting the volatility of the market the density function of future prices should also incorporate the uncertainty due to price jumps a common occurrence in the oil market in this study the accuracy of density forecasts for up to a year ahead is the major criterion for a comparison of a range of models of oil price behaviour both those proposed in the literature and following from data analysis the kullbach leibler information criterion is used to measure the accuracy of density forecasts using two crude oil price series brent and west texas intermediate wti representing the us market we demonstrate that accurate density forecasts are achievable for up to nearly two years ahead using a mixture of two gaussians innovation processes with garch and no mean reversion

buy now and price later supply contracts with time consistent mean variance financial hedging abstract we consider a two stage supply chain comprising one risk neutral manufacturer he and one risk averse retailer she where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer the retailer then sells the final products to the market at a stochastic clearance price we investigate a flexible price contract that allows the manufacturer to determine the product wholesale price and the retailer to determine the order quantity based on the future spot price of consumption commodities compared with the simple wholesale price contract a win win situation can be achieved under the flexible price contract when the manufacturer s postponed processing cost is lower than a threshold however under this flexible price contract the retailer may suffer from the commodity price volatility even if she does not procure the commodities directly we further investigate how the risk averse retailer conducts mean variance financial hedging by purchasing consumption commodity futures contracts we formulate the problem using a dynamic programming model and derive a closed form time consistent financial hedging policy through numerical experiments we show that the commodity price risk from the manufacturer to the retailer is effectively mitigated with the hedging and the benefits of the flexible price contract are maintained

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

an extension of the internal rate of return to stochastic cash flows the internal rate of return irr is a venerable technique for evaluating deterministic cash flow streams part of the difficulty in extending this measure to stochastic cash flows is the lack of coherent methods for accounting for multiple or nonexistent internal rates of return in deterministic streams recently such a coherent theory has been developed and we examine its implications for stochastic cash flows we devise an extension of the deterministic irr which we call the stochastic rate of return on mean investment it has significant computational and conceptual advantages over the stochastic internal rate for instance in the deterministic case the standard result is that under proper conditions a cash flow stream is acceptable in the sense of positive present value if its internal rate exceeds the interest rate we show that a stochastic cash flow stream is acceptable in the sense of positive certainty equivalent expected value if the rate of return on mean investment has a suitably defined certainty equivalent exceeding the risk free interest rate

electricity trading and negative prices storage vs disposal electricity cannot yet be stored on a large scale but technological advances leading to cheaper and more efficient industrial batteries make grid level storage of electricity surpluses a natural choice because electricity prices can be negative it is unclear how the presence of negative prices might affect the storage policy structure known to be optimal when prices are only nonnegative or even how important it is to consider negative prices when managing an industrial battery for fast storage a storage facility that can both be fully emptied and filled up in one decision period we show analytically that negative prices can substantially alter the optimal storage policy structure e g all else being equal it can be optimal to empty an almost empty storage facility and fill up an almost full one for more typical slow grid level electricity storage we numerically establish that ignoring negative prices could result in a considerable loss of value when negative prices occur more than 5 of the t

project options valuation with net present value and decision tree analysis real options analysis roa has been developed to correctly value projects with inherent flexibility including the possibility to abandon defer expand contract or switch to a different project roa allows computing the correct discount rate using the replicating portfolio technique or risk neutral probability method we propose an alternative approach for valuing real options based on the certainty equivalent version of the net present value formula which eliminates the need to identify market priced twin securities in addition our approach can be extended to the case of multinomial trees a useful tool for modeling uncertainty in projects we introduce within decision tree analysis dta a method to derive the different discount rates that prevail at different chance nodes we illustrate the valuation method with an application presented in a scenario approach to capacity planning eppen g d martin r k schrage l e 1989 a scenario approach to capacity planning operations research 37 4 in which the authors state that for the capacity configuration investment decision studied at general motors there is no scientific way to determine the appropriate discount rate based on estimated demand our method allows deriving the scientifically correct discount rates a major result of the analysis is that the discount rates are endogenously derived from the project structure and its behavior in light of prevailing market conditions instead of being exogenously imposed c 2006 elsevier b v all rights reserved

valuing interdependent multi stage it investments a real options approach in this paper we use the market asset disclaimer assumption and develop a binomial lattice based real options model to include cash flow interdependencies between multi stage information technology it investments using a simple two stage it investment problem with interdependent cash flows we apply the binomial lattice based real options model to obtain combined valuation of the two stage it investment in addition to investment valuation our experience with the two stage it investment valuation suggests that the binomial lattice based real options model provides a powerful decision aid tool for appropriate timing delaying and abandoning of the second stage it investment

on the value of flexibility in r d projects in this paper we consider whether an increase in uncertainty increases the value of a research and development rd and if it decreases the passive value the value of flexibility i e the project option value increases

real options approach to renewable energy investments in mongolia developing nations are seeking alternative energy for electricity and one attractive alternative is renewable energy this research analyzes changing investment environment for renewable energy with real options approach and explores its potential in developing economies through studying the case of mongolia under coal price uncertainty to evaluate comparative attractiveness of either continuing to use coal based infrastructures or switching to renewable energy we formulate social revenue functions for the two environments assuming that renewable energy has lower external costs and coal prices follow geometric brownian motion gbm or geometric mean reverting gmr processes we find the optimal trigger coal prices for switching technologies with some scenarios in electricity price and externality characterize when renewable energy investments become attractive in contrast to conventional wisdom we identify some situations where the value of having more decision opportunities does not exceed that of a now or never decision for switching technologies and welfare losses are incurred the optimal trigger prices are higher in gbm than in gmr and our result raises the possible risks for waiting to switch energy to avoid welfare losses in mongolia the government should increase electricity prices or switch to renewable energy earlier especially when people pay more for the removal of externalities

valuation of project portfolios an endogenously discounted method abstract real options analysis roa has been developed to value assets in which managerial flexibilities create significant value the methodology is ideal for the valuation of projects in which frequent adjustments e g investment deferral project scope changes etc are necessary in response to the realization of market and technological uncertainties however roa has no practical application when valuing portfolios of multiple concurrent projects sharing resources as the size of the problem grows exponentially with the number of projects and the length of the time horizon in this paper an extension of roa suitable for the valuation of project portfolios with substantial technological uncertainty e g r d portfolios is proposed the method exploits the distributed decision making strategy encountered in most organizations to decompose the portfolio valuation problem into a decision making sub problem and a set of single project valuation sub problems that can be sequentially solved discrete event simulation is used for the first sub problem while a tailored roa based strategy is used for the set of valuation sub problems a case study from the pharmaceutical industry is used to compare the decision tree analysis dta method and the proposed method

final offer arbitration with uncertainty averse parties abstract final offer arbitration foa is a widely used binding dispute resolution mechanism where an impartial arbitrator is constrained to choose one of the two final offers proposed by two disputing parties we build an equilibrium model of foa with players averse to arbitral uncertainty to study three important issues the role of foa in incentivizing negotiated settlements the convergence of final offers and the normative effect of diversity of arbitrator opinion we show that increase in arbitral uncertainty increases the likelihood of negotiated agreements and make the final offers converge to each other risk aversion is not necessary for convergence of offers precision and mean of arbitral uncertainty matter differently and can be controlled separately moreover as also argued by the industry practitioners carefully selected level of diversity of opinion in the arbitrator roster increases the welfare of negotiating parties

discounted utility and present value a close relation we introduce a new type of preference condition for intertemporal choice which requires present values to be independent of various other variables the new conditions are more concise and more transparent than traditional ones they are directly related to applications because present values are widely used tools in intertemporal choice our conditions give more general behavioral axiomatizations which facilitate normative debates and empirical tests of time inconsistencies and related phenomena like other preference conditions our conditions can be tested qualitatively unlike other preference conditions our conditions can also be directly tested quantitatively and we can verify the required independence of present values from predictors in regressions we show how similar types of preference conditions imposing independence conditions between directly observable quantities can be developed for decision contexts other than intertemporal choice and can simplify behavioral axiomatizations there o

migration externalities in chinese cities we analyse the impact of internal migration in china on natives labour market outcomes we find evidence of a large positive correlation of the city share of migrants with natives wages using different sets of control variables and instruments suggests that the effect is causal the large total migrant impact 10 when one moves from the first to the third quartile of the migrant variable distribution arises from gains due to complementarity with natives in the production function 6 4 and from gains due to agglomeration economies 3 3 finally we find some evidence of a stronger effect for skilled natives than for unskilled as expected from theory overall our findings support large nominal wage gains that can be expected from further migration and urbanisation in china

options in the real world lessons learned in evaluating oil and gas investments many firms in the oil and gas business have long used decision analysis techniques to evaluate exploration and development opportunities and have looked at recent development in option pricing theory as potentially offering improvements over the decision analysis approach unfortunately it is difficult to discern the benefits of the options approach from the literature on the topic most of the published examples greatly oversimplify the kinds of projects encountered in practice and comparisons are typically made to traditional discounted cash flow analysis which unlike the option pricing and decision analytic approaches does not explicitly consider the uncertainty in project cash flows in this paper we provide a tutorial introduction to option pricing methods focusing on how they relate to and can be integrated with decision analysis methods and describe some lessons learned in using these methods to evaluate some real oil and gas investments

final offer arbitration in final offer arbitration the two parties to a dispute submit final offers to an arbitrator the arbitrator then chooses as the binding solution that offer which is closest to his own view of the appropriate outcome because the disputants are imperfectly informed about the arbitrator s preferences final offer arbitration can be modeled as a game of imperfect information interesting questions arise concerning the nature of the optimal strategies and how they are affected by different characteristics of the arbitrator and the disputants we provide conditions for an equilibrium to exist in a final offer arbitration game when there are k issues the probability function is not specified and the disputants are either risk averse or risk neutral furthermore the players may have differing beliefs about the arbitrator s probability function we demonstrate that increased risk aversion by one of the parties will result in both players choosing positions farther away from the more risk averse party we also discover the affect of bias as well as the effect of increased sensitivity by the arbitrator on the positions taken by the players

the slave trade and the origins of mistrust in africa in a recent study nunn 2008 examines the long term impacts of africa s slave trade he finds that the slave trade which occurred over a period of more than 400 years had a significant negative effect on long term economic development although the article arguably identifies a negative causal relationship between the slave trade and income today the analysis is unable to establish the exact causal mechanisms underlying this reduced form relationship in this article we examine one of the channels through which the slave trade may affect economic development today combining contemporary individual level survey data with historical data on slave shipments by ethnic group we ask whether the slave trade caused a culture of mistrust to develop within africa initially slaves were captured primarily through state organized raids and warfare but as the trade progressed the environment of ubiquitous insecurity caused individuals to turn on others including friends and family members and to kidnap trick and sell each other into slavery sigismund wilhelm koelle 1854 p e h hair 1965 charles piot 1996 we hypothesize that in this environment a culture of mistrust may have evolved which may persist to this day we show that current differences in trust levels within africa can be traced back to the transatlantic and indian ocean slave trades combining contemporary individual level survey data with historical data on slave shipments by ethnic group we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today evidence from a variety of identification strategies suggests that the relationship is causal examining causal mechanisms we show that most of the impact of the slave trade is through factors that are internal to the individual such as cultural norms beliefs and values jel j15 n57 z13

malaria suitability urbanization and persistence evidence from china over more than 2000 years abstract we show that the climatic potential for plasmodium falciparum malaria transmission constituted a locational fundamental that influenced the spatial distribution of urbanization since the early start of the southward expansion of the han chinese around 200 bce this effect is still detectable in today s distribution of urbanization and economic activity even though the risk of malaria falciparum has been successfully eliminated we do not find any indication of convergence between high and low malaria potential regions after eradication our identification strategy relies on a climate based measure of plasmodium falciparum malaria transmission intensity which is fitted to experimental data on mosquito and parasite development from laboratory studies this measure is exogenous with respect to human population densities

the legacies of forced freedom china s treaty ports abstract this paper investigates the long run development of china s treaty ports from the mid eighteenth century until today focusing on a sample of prefectures on the coast or on the yangtze river i document the dynamic development paths of treaty ports and their neighbors in alternate phases of closedness and openness i also provide suggestive evidence on migration and sector wise growth to understand the advantage of treaty ports in the long run

real option analysis in a replicating portfolio perspective in the last decades a vast body of literature has arisen on real option analysis roa the use of di erent approaches and the often implicit adoption of major assumptions may cause confusion on what roa precisely entails or in which situations it may be applied we assess the eld of real option analysis by explicitly linking roa to the basic principles of option pricing theory and the replicating portfolio concept from this perspective we explain how real options adjust to the varying risk pro les of a project a feature not available in other valuation methods we also clarify how non market risks can be dealt with in roa we show that a combination of option pricing and decision tree analysis enables us to treat a broad range of investment problems in a manner that is consistent with pricing theory

final offer arbitration and risk aversion in bargaining negotiations are often conducted under the stipulation that an impasse is to be resolved using final offer arbitration foa in fact foa frequently is not needed in major league baseball for instance more than 80 of the salary negotiations that could go to arbitration instead reach a bargained agreement we show that the risk aversion of at least one side explains this phenomenon we then model pay negotiation in baseball by applying a bargaining solution with a variable disagreement outcome representing foa studying the existence of pure nash equilibrium initial offers and their effects on the player s eventual pay and considering the nash solution as a special case

a generalization of pratt arrow measure to nonexpected utility preferences and inseparable probability and utility the pratt arrow measure of local risk aversion is generalized for then dimensional state preference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities unobservable stochastic prior wealth and or smooth nonexpected utility preferences local risk aversion is measured by the matrix of derivatives of the decision maker s risk neutral probabilities without reference to true subjective probabilities or riskless wealth positions and comparative risk aversion is measured without requiring agreement on true probabilities risk neutral probabilities and their derivatives are shown to be sufficient statistics for approximately optimal investment and financing decisions in complete markets for contingent claims

generalised soft binomial american real option pricing model fuzzy stochastic approach abstract the stochastic discrete binomial models and continuous models are usually applied in option valuation valuation of the real american options is solved usually by the numerical procedures therefore binomial model is suitable approach for appraising the options of american type however there is not in several situations especially in real option methodology application at to disposal input data of required quality two aspects of input data uncertainty should be distinguished risk stochastic and vagueness fuzzy traditionally input data are in a form of real crisp numbers or crisp stochastic distribution function therefore hybrid models combination of risk and vagueness could be useful approach in option valuation generalised hybrid fuzzy stochastic binomial american real option model under fuzzy numbers t numbers and decomposition principle is proposed and described input data up index down index growth rate initial underlying asset price exercise price and risk free rate are in a form of fuzzy numbers and result possibility expected option value is also determined vaguely as a fuzzy set illustrative example of equity valuation as an american real call option is presented

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

optimal commodity trading with a capacitated storage asset this paper considers the so called warehouse problem with both space and injection withdrawal capacity limits this is a foundational problem in the merchant management of assets for the storage of commodities such as energy sources and natural resources when the commodity spot price evolves according to an exogenous markov process this work shows that the optimal inventory trading policy of a risk neutral merchant is characterized by two stage and spot price dependent basestock targets under some assumptions these targets are monotone in the spot price and partition the available inventory and spot price space in each stage into three regions where it is respectively optimal to buy and inject do nothing and withdraw and sell in some cases of practical importance one can easily compute the optimal basestock targets the structure of the optimal policy is nontrivial because in each stage the merchant s qualification of high selling and low buying commodity prices in general depends on the merchant s inventory availability this is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations a computational analysis based on natural gas data shows that mismanaging this interface can yield significant value losses moreover adapting the merchant s optimal trading policy to the spot price stochastic evolution has substantial value this value can be almost entirely generated by reacting to the unfolding of price uncertainty that is by sequentially reoptimizing a model that ignores this source of uncertainty

formal and informal institutional legacies and inward foreign direct investment into firms evidence from china this paper explores the influence of informal institutional legacy on contemporary foreign direct investment fdi this study is situated in the context of china s treaty port era 1842 1943 hypotheses are posited and tested related to how the treaty port policies and overseas chinese communities of cities established during that period created formal and informal institutional legacies that positively influence the likelihood and volume of contemporary inward fdi firms receive this research suggests that despite and because of the cultural revolution s traumatic shock informal institutions helped formal institutions morph into informal rules and thus created a lingering legacy effect drawing on a longitudinal sample of chinese firms data and historical materials that provide information about treaty ports and overseas chinese communities this study finds supporting evidence that informal institutional legacy is important for contemporary fdi and brings history back into the international business literature this study provides practical implications by suggesting that given the increasing turbulence and uncertainties in emerging markets and transnational economies building and maintaining connections with transnational community actors of these countries could take advantage of the informal institutions to mitigate risks and sustain international business activities international investors could also benefit by investing in locales with rich transnational community connections

valuation of storage at a liquefied natural gas terminal the valuation of the real option to store liquefied natural gas lng at the downstream terminal of an lng value chain is an important problem in practice because the exact valuation of this real option is computationally intractable we develop a novel and tractable heuristic model for its strategic valuation that integrates models of lng shipping natural gas price evolution and inventory control and sale into the wholesale natural gas market we incorporate real and estimated data to quantify the value of this real option and its dependence on the throughput of an lng chain the type of price variability the type of inventory control policy employed and the level of stochastic variability in both the shipping model and the natural gas price model used in addition we develop an imperfect information dual upper bound to assess the effectiveness of our heuristic and find that our method is near optimal our approach also has potential relevance to value the real option to store other commodities in facilities located downstream from a commodity production or transportation stage such as petroleum and agricultural products chemicals and metals or the real option to store the input used in the production of a commodity such as electricity

risk aversion indivisible timing options and gambling in this paper we model the behavior of a risk averse agent who seeks to maximize expected utility and who has an indivisible asset and a timing option over when to sell this asset our main contribution is to show that contrary to intuition optimal behavior for such a risk averse agent can include risk increasing gambles for example a manager with a choice over when to disinvest from a project a private homeowner with a property to sell or an employee with a grant of american style stock options may be better off taking positions in other assets with zero sharpe ratio that are uncorrelated with the underlying project house or stock price risk the results have wider implications for the modeling and interpretation of portfolio optimization problems involving american style timing decisions

equilibrium strategies for final offer arbitration there is no median convergence final offer arbitration is a procedure for settling disputes between two parties in which an arbitrator chooses the final offer of the party closest to what he considers a fair settlement this procedure is modeled as a two person zero sum game of imperfect information in which the parties are assumed to know the probability distribution of the arbitrator s fair settlements and to make bids in an infinite strategy space that maximize their expected payoffs necessary and sufficient conditions for there to be local and global equilibria in pure strategies are derived and necessary conditions for mixed strategies in a particular case are found such equilibria when they exist in pure strategies represent bids which are symmetric about the median and for most common distributions are separated from one another by two or more standard deviations this finding suggests that final offer arbitration may not accomplish its avowed purpose of inducing the two parties to converge on what they perceive to be t

history institutions and economic performance the legacy of colonial land tenure systems in india we analyze the colonial land revenue institutions set up by the british in india and show that differences in historical property rights institutions lead to sustained differences in economic outcomes areas in which proprietary rights in land were historically given to landlords have significantly lower agricultural investments and productivity in the post independence period than areas in which these rights were given to the cultivators these areas also have significantly lower investments in health and education these differences are not driven by omitted variables or endogeneity problems they probably arise because differences in historical institutions lead to very different policy choices

risk aversion in inventory management traditional inventory models focus on risk neutral decision makers i e characterizing replenishment strategies that maximize expected total profit or equivalently minimize expected total cost over a planning horizon in this paper we propose a framework for incorporating risk aversion in multiperiod inventory models as well as multiperiod models that coordinate inventory and pricing strategies we show that the structure of the optimal policy for a decision maker with exponential utility functions is almost identical to the structure of the optimal risk neutral inventory and pricing policies these structural results are extended to models in which the decision maker has access to a partially complete financial market and can hedge its operational risk through trading financial securities computational results demonstrate that the optimal policy is relatively insensitive to small changes in the decision maker s level of risk aversion

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

colonialism and modern income islands as natural experiments abstract using a new database of islands throughout the atlantic pacific and indian oceans we find a robust positive relationship between the number of years spent as a european colony and current gdp per capita we argue that the nature of discovery and colonization of islands provides random variation in the length and type of colonial experience we instrument for length of colonization using variation in prevailing wind patterns we argue that wind speed and direction had a significant effect on historical colonial rule but do not have a direct effect on gdp today the data also suggest that years as a colony after 1700 are more beneficial than earlier years we also find a discernable pecking order among the colonial powers with years under u s british french and dutch rule having more beneficial effects than spanish or portuguese rule our finding of a strong connection between modern income and years of colonization is conditional on being colonized at all since each of the islands in our da

a real options evaluation model for the diffusion prospects of new renewable power generation technologies this study presents a policy planning model that integrates learning curve information on renewable power generation technologies into a dynamic programming formulation featuring real options analysis the model recursively evaluates a set of investment alternatives on a year by year basis thereby taking into account that the flexibility to delay an irreversible investment expenditure can profoundly affect the diffusion prospects of renewable power generation technologies price uncertainty is introduced through stochastic processes for the average wholesale price of electricity and for input fuel prices demand for electricity is assumed to be increasingly price sensitive as the electricity market deregulation proceeds reflecting new options of consumers to react to electricity price changes such as time of use pricing unbundled electricity services and choice of supplier the empirical analysis is based on data for the turkish electricity supply industry apart from general implications for policy making it provides some interesting insights about the impact of uncertainty and technical change on the diffusion of various emerging renewable energy technologies

a model for valuing new technologies under a pull incentives environment abstract investment in innovation and research development r d projects is one of the key strategies that firms need to implement to enhance growth increase profitability and create value on the other hand r d projects are characterized by significant levels of risk due to limited information and uncertainty over both the investment costs and the expected returns in order to encourage the development of high risk but relevant r d projects some risks can be mitigated by other project stakeholders through the use of pull incentives such as a minimum guaranteed demand in this article we propose an adaptation of a real option model for valuing r d projects where we incorporate a pull incentive for the final product using a market sales function that decreases in time and is strictly positive over the product s life cycle we apply this model to the case of the development of a power line communication modem plc for smart grids in the brazilian electricity market where a power utility firm agreed to bear part of the development risk by means of a minimum guaranteed demand and solve using monte carlo simulation the results suggest that this guarantee has significant impact on the project value which is not captured by traditional valuation methods or even real option methods that do not incorporate this concept

arbitration procedures with multiple arbitrators abstract we consider two final offer arbitration procedures in the case where there is more than one arbitrator two players labeled 1 and 2 and interpreted here as labor and management respectively are in dispute about an increase in the wage rate they submit final offers to a referee there are n arbitrators each of the arbitrators has her own assessment and selects the offer which is closest to her assessment after that each arbitrator informs the referee about her decision the referee counts the votes and declares the player obtaining the most votes to be the winner under the second arbitration scheme the referee takes into account only the assessments which lie between the players offers the game is modeled as a zero sum game the nash equilibrium in this arbitration game is derived

factor endowments inequality and paths of development among new world economies whereas traditional explanations of differences in long run paths of development across the americas generally point to the significance of differences in national heritage or religion we highlight the relevance of stark contrasts in the degree of inequality in wealth human capital and political power in accounting for how fundamental economic institutions evolved over time we argue moreover that the roots of these disparities in the extent of inequality lay in differences in the initial factor endowments dating back to the era of european colonization we document through comparative studies of suffrage public land and schooling policies systematic patterns by which societies in the americas that began with more extreme inequality or heterogeneity in the population were more likely to develop institutional structures that greatly advantaged members of elite classes and disadvantaging the bulk of the population by providing them with more political influence and access to economic opportunities the clear implication is that institutions should not be presumed to be exogenous economists need to learn more about where they come from to understand their relation to economic development our findings not only contribute to our knowledge of why extreme differences in the extent of inequality across new world economies have persisted for centuries but also to the study of processes of long run economic growth past and present

a comparison of conventional final offer and combined arbitration for dispute resolution two widely used forms of arbitration are conventional arbitration in which the arbitrator makes an unconstrained settlement choice and final offer arbitration in which the arbitrator must choose between disputants final offers under an innovative as yet unused approach called combined arbitration if the arbitrator s notion of a fair settlement lies between the disputants final offers final offer arbitration rules are used otherwise conventional arbitration rules are used theoretically by combining the risks that the two standard forms of arbitration pose for disputants who do not voluntarily settle combined arbitration should generate convergent final offers the results of this controlled laboratory study show however that dispute rates are highest in combined arbitration and lowest in conventional arbitration these results challenge the theoretical predictions for combined arbitration as well as claims that final offer arbitration should reduce disputes compared to conventional arbitration the results are however consistent with a simple theory of disputant optimism

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

valuing risky projects option pricing theory and decision analysis in the academic literature and professional practice there are a number of alternative and apparently competing methods for valuing risky projects in this paper we compare and contrast three different approaches risk adjusted discount rate analysis option pricing analysis and decision analysis focusing on the last two we show that in contrast to some of the claims made in the real options literature when both option pricing and decision analysis methods are correctly applied they must give consistent results we also explore ways in which option pricing and decision analysis methods can be profitably integrated in particular we show how option pricing techniques can be used to simplify decision analysis when some risks can be hedged by trading and conversely how decision analysis techniques can be used to extend option pricing techniques to problems with incomplete securities markets

the long haul effects of interest arbitration the case of new york state s taylor law the authors examine debates about the effects of mandatory interest arbitration on police and firefighters in new york state under the taylor law from 1974 to 2007 comparing experience with interest arbitration in the first three years after the law was adopted with experiences from 1995 to 2007 the authors find that no strikes occurred under arbitration and that rates of dependence on arbitration declined considerably moreover the effectiveness of mediation prior to and during arbitration remained high the tripartite arbitration structure continued to foster discussion of options for resolution among arbitration panel members and wage increases awarded under arbitration matched those negotiated voluntarily by the parties econometric estimates of the effects of interest arbitration on wage changes in a national sample suggest wage increases differed little in states with arbitration from those without it the authors therefore propose a role for interest arbitration in national labor policy

implication of risk adjusted discount rates on cycle stock and safety stock in a multi period inventory model inventory management is a major area of study in the field of production management and applications often result in major efficiency gains and service level improvements economists believe that inventory levels play a pivotal role in the onset of economic recessions nevertheless financial theories have given only cursory attention to inventory factors the goal of this research is to apply tools of financial economics to address basic issues in inventory management a capital asset pricing model is developed and applied to determine lot size and reorder points from minimizing present value of total cost subject to risk adjusted discount rates

crude oil market efficiency and modeling insights from the multiscaling autocorrelation pattern abstract empirical research on market inefficiencies focuses on the detection of autocorrelations in price time series in the case of crude oil markets statistical support is claimed for weak efficiency over a wide range of time scales however the results are still controversial since theoretical arguments point to deviations from efficiency as prices tend to revert towards an equilibrium path this paper studies the efficiency of crude oil markets by using lagged detrended fluctuation analysis dfa to detect delay effects in price autocorrelations quantified in terms of a multiscaling hurst exponent i e autocorrelations are dependent of the time scale results based on spot price data for the period 1986 2009 indicate important deviations from efficiency associated to lagged autocorrelations so imposing the random walk for crude oil prices has pronounced costs for forecasting evidences in favor of price reversion to a continuously evolving mean underscores the importance of adequately incorporating delay effects and multiscaling behavior in the modeling of crude oil price dynamics

supply contracts with financial hedging we study the performance of a stylized supply chain where two firms a retailer and a producer compete in a stackelberg game the retailer purchases a single product from the producer and afterward sells it in the retail market at a stochastic clearance price the retailer however is budget constrained and is therefore limited in the number of units that he may purchase from the producer we also assume that the retailer s profit depends in part on the realized path or terminal value of some observable stochastic process we interpret this process as a financial process such as a foreign exchange rate or interest rate more generally the process can be interpreted as any relevant economic index we consider a variation the flexible contract of the traditional wholesale price contract that is offered by the producer to the retailer under this flexible contract at t 0 the producer offers a menu of wholesale prices to the retailer one for each realization of the financial process up to a future time the retailer then commits to purchasing at time a variable number of units with the specific quantity depending on the realization of the process up to time because of the retailer s budget constraint the supply chain might be more profitable if the retailer was able to shift some of the budget from states where the constraint is not binding to states where it is binding we therefore consider a variation of the flexible contract where we assume that the retailer is able to trade dynamically between zero and in the financial market we refer to this variation as the flexible contract with hedging we compare the decentralized competitive solution for the two contracts with the solutions obtained by a central planner we also compare the supply chain s performance across the two contracts we find for example that the producer always prefers the flexible contract with hedging to the flexible contract without hedging depending on model parameters however the retailer might or might not prefer the flexible contract with hedging

media bias in china this paper examines whether and how market competition affected the political bias of government owned newspapers in china from 1981 to 2011 we measure media bias based on coverage of government mouthpiece content propaganda relative to commercial content we first find that a reform that forced newspaper exits reduced competition affected media bias by increasing product specialization with some papers focusing on propaganda and others on commercial content second lower level governments produce less biased content and launch commercial newspapers earlier eroding higher level governments political goals third bottom up competition intensifies the politico economic tradeoff leading to product proliferation and less audience exposure to propaganda

valuing exploration and production projects by means of option pricing theory abstract this paper provides a general introduction to the valuation of investment projects with option pricing theory opt furthermore a specific application of opt to value exploration and production projects in the petroleum industry is shown to model the various nested options of such investments the discrete approach of the binomial model is preferred to the continuous model by black and scholes furthermore two kinds of binomial trees are used one tree represents the pre drilling period and the other represents the production phase of the reservoir due to the use of a multiplicative binomial process for the oil price trend unrealistic prices may occur to exclude them from the calculation an oil price band is introduced additionally uncertainty of all input parameters not only of the oil price is considered this is achieved by combining opt with the monte carlo simulation

compulsory arbitration arbitral risk and negotiated settlements a case study in bargaining under imperfect information the effect of conventional and final offer compulsory arbitration on negotiated settlements is characterized using nash s variable threats bargaining solution with particular attention to the interaction between arbitral risk and bargainers risk preferences when there is no arbitral risk both schemes are shown to have the same effect on negotiated settlements under very general conditions even when bargaining is over several issues whether or not there is arbitral risk negotiated settlements favour a bargainer more if his opponent is more risk averse on the other hand increases in arbitral risk need not improve the position of the less risk averse bargainer as a by product of the analysis kihlstrom roth and schmeidler s risk sensitivity results for the nash and raiffa kalai smorodinsky solutions are generalized from fixed threats to variable threats bargaining

can cultural norms reduce conflicts confucianism and peasant rebellions in qing china abstract can culture mitigate conflicts triggered by economic shocks in light of the extraordinary emphasis that confucianism places on subordination and pacifism we examine its role in possibly attenuating peasant rebellion within the historical context of china circa 1651 1910 our analysis finds that while crop failure triggers peasant rebellion its effect is significantly smaller in counties characterized by stronger confucian norms as proxied by confucian temples and chaste women this result remains robust after controlling for a long list of covariates and instrumenting confucian norms using ancient confucian sages 500 b c a d 550 to address concerns of measurement error and reverse causality

a decision support system based on particle swarm optimization for multiperiod hedging in electricity markets this paper proposes a particle swarm optimization pso approach to support electricity producers for multiperiod optimal contract allocation the producer risk preference is stated by a utility function u expressing the tradeoff between the expectation and variance of the return variance estimation and expected return are based on a forecasted scenario interval determined by a price range forecasting model developed by the authors a certain confidence level alpha is associated to each forecasted scenario interval the proposed model makes use of contracts with physical spot and forward and financial options settlement pso performance was evaluated by comparing it with a genetic algorithm based approach this model can be used by producers in deregulated electricity markets but can easily be adapted to load serving entities and retailers moreover it can easily be adapted to the use of other type of contracts

compliance choice analysis for india s thermal power sector in the market based energy efficiency regime abstract india has recently introduced a market based scheme perform achieve and trade to realize emission reduction by enhancing energy efficiency in the case of thermal power plants investment in energy efficiency projects using clean coal and buying energy saving certificates are the available compliance options for complying with the scheme these options are associated with specific forms of cash flows that depend on the uncertain price of energy saving certificates and clean coal premium this paper uses a monte carlo based decision tree approach to find the optimal compliance options for an efficient and a less efficient thermal power plant the decision tree evaluates different sequences of compliance options in three consecutive pat cycles by using the discounted cash flows and their associated probabilities the study shows that investment in energy efficiency is optimal in the first pat cycle for the inefficient plant only the threshold certificate price for the efficient plant is substantially higher than the inefficient plant implying that the real efficiency improvement is likely to take place in the low efficiency plants the study also indicates that the investment in high efficiency plants is not optimal over a wide range of certificate prices and the incremental cost of clean coal

the needham puzzle why the industrial revolution did not originate in china one of the most intriguing issues for students of chinese history and comparative economic history is why did the industrial revolution not occur in china in the fourteenth century at that time almost every element that economists and historians usually considered to be a major contributing factor to the industrial revolution in late eighteenth century england also existed in china chinese civilization like the civilizations of mesopotamia egypt and india originated from agriculture the first unified empire qin was formed in 221 b c by 300 b c chinese society had developed into a form that had many characteristics of a market economy with most land privately owned a high degree of social division of labor fairly free movement of labor and well functioning factor and product markets this comparatively developed market economy probably created important attitudes toward profit and contributed to the swift diffusion of the best technology in the han dynasty 206 b c a d 220 the iron tipped plow moldboard and seed drill were widely used in the northern part of china where the main crops were millet and wheat the most significant improvements in chinese agriculture came with the population shift from the north to the rice growing areas south of the yangtze river that started at the beginning of the ninth century and especially after the introduction of a new variety known as champa rice from indochina at the beginning of the eleventh century 2 this variety characterized by better drought resistance and faster ripening enabled farmers to extend the agricultural frontier from the lowlands deltas basins and river valleys to the better watered hill areas and allowed production of two and even three crops a year 3

uncertainty and stepwise investment we analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points the presence of economies of scale gives rise to the following trade off lumpy investment has a lower total cost but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage our main question is how uncertainty in market development affects this trade off the answer is unambiguous and in contrast with a conventional real options intuition higher uncertainty makes the single stage investment more attractive relative to the more flexible stepwise investment strategy

power portfolio optimization in deregulated electricity markets with risk management in a deregulated electric power system multiple markets of different time scales exist with various power supply instruments a load serving entity lse has multiple choices from these instruments to meet its load obligations in view of the large amount of power involved the complex market structure the risks in such volatile markets the stringent constraints to be satisfied and the long time horizon a power portfolio optimization problem is of critical importance for an lse to serve its load maximize its profit and manage its risks in this paper a midterm power portfolio optimization problem with risk management is presented key instruments are considered risk terms based on semi variances of spot market transactions are introduced and penalties on load obligation violations are added to the objective function to improve algorithm convergence and constraint satisfaction to overcome the inseparability of the resulting problem a surrogate optimization framework is developed enabling a decomposition and coordination approach numerical testing results show that our method effectively provides decisions for various instruments to maximize profit and manage risks and it is computationally efficient

a real options based model and its application to china s overseas oil investment decisions abstract this paper applies real options theory to overseas oil investment by adding an investment environment factor to oil resource valuation a real options model is developed to illustrate how an investor country or oil company can evaluate and compare the critical value of oil resource investment in different countries under oil price exchange rate and investment environment uncertainties the aim is to establish a broad model that can be used by every oil investor country to value overseas oil resources the model developed here can match three key elements 1 deal with overseas investment the effects of investment environment and exchange rates 2 deal with oil investment oil price production decline rate and development cost etc 3 the comparability of the results from different countries different countries oil investment situation can be compared by using the option value index ovi china s overseas oil investment is taken as an example to explain the model by calculating each oil investee country s critical value per unit of oil reserves and examining the effect of different factors on the critical value the results show that the model developed here can provide useful advice for china s overseas oil investment program the research would probably also be helpful to other investor countries looking to invest in overseas oil resources

oil and energy price volatility it is commonly believed that since the 1973 oil crisis oil and energy prices have been more volatile than other commodity prices this study examines monthly producer prices for thousands of products over the period january 1945 through august 2005 the results show that crude oil refined petroleum and natural gas prices are more volatile than prices for about 95 of products sold by domestic producers relative to crude commodities however crude oil prices are currently more volatile than about 65 of other products and oil price volatility first exceeded the median for crude commodities following the 1986 drop in oil prices

information acquisition as an american option abstract many information acquisition activities can be postponed within a predefined time frame in uncertain situations the option to postpone the information acquisition to a later more favorable time may create value we discuss the value that comes from holding an option to acquire information in a time period and suggest a simulation based numerical approach to calculate the associated value we discuss that the value of information in a time period may be very different from the value of information in a single point in time this value is closely linked to the uncertainty of the decision outcomes over the time period

bargaining with random implementation an experimental study abstract we use a laboratory experiment to study bargaining with random implementation we modify the standard nash demand game so that incompatible demands do not necessarily lead to the disagreement outcome rather with exogenous probability q one bargainer receives his her demand with the other getting the remainder we use an asymmetric bargaining set favouring one bargainer and disagreement payoffs of zero and we vary q over several values our results mostly support game theory s directional predictions as with conventional arbitration we observe a strong chilling effect on bargaining for q near one extreme demands and low agreement rates increasing q reinforces the game s built in asymmetry giving the favoured player an increasingly large share of payoffs but also raising efficiency these effects are non uniform over sizable ranges increases in q have minimal effect but for some q small additional increases lead to sharp changes in results

project management under risk using the real options approach to evaluate flexibility in r d managerial flexibility has value in the context of uncertain r d projects as management can repeatedly gather information about uncertain project and market characteristics and based on this information change its course of action this value is now well accepted and referred to as real option value we introduce in addition to the familiar real option of abandonment the option of corrective action that management can take during the project the intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility however r d managers face uncertainty not only in payoffs but also from many other sources we identify five example types of r d uncertainty in market payoffs project budgets product performance market requirements and project schedules how do they influence the value from managerial flexibility we find that if uncertainty is resolved or costs revenues occurafter all decisions have been made more variability may smear out contingencies and thus reduce the value of flexibility in addition variability may reduce the probability of flexibility ever being exercised which also reduces its value this result runs counter to established option pricing theory intuition and contributes to a better risk management in r d projects our model builds intuition for r d managers as to when it is and when it is not worthwhile to delay commitments for example by postponing a design freeze thus maintaining flexibility in r d projects

stochastic analysis of a shale gas investment strategy for coping with production uncertainties abstract the soaring demand for natural gas and deteriorating environmental conditions in recent years have together created a significant incentive for china to develop shale gas exploration in this endeavor production capacity is a major uncertainty that substantially affects the net investment return we propose a markov decision process model to explore and determine the desirable investment strategy under such uncertainty our model has the advantage of being able to handle dynamic stochastic market states and it considers not only the value of the project itself net cash flow but also the social welfare environmental cost and financial subsidy our objective is to maximize the long run expected return of investment the methodology was applied to determine the investment strategy for a case study in china we found that the project is feasible only when the production capacity is larger than 8 55 billion cubic meters additional shale gas supply may generate higher sales revenue however the benefits may be neutralized by the decrease in price when domestic demand is inelastic to price we also found that financial subsidy is an effective incentive for shale gas investment because it significantly increases the expected return of investment

technical note equivalence of different profitability criteria with the net present value abstract net present value has long been regarded in academic circles as the best criterion for project appraisal however several alternative complementary methods remain popular with practitioners this paper demonstrates that if properly applied several of these standard criteria such as net final value internal rate of return benefit cost ratio profitability index equivalent annuity discounted payback period and average payback period lead to the same investment decision as net present value moreover the paper proves that when choosing between two mutually exclusive projects the application of these criteria to the difference project provides the same ranking as net present value therefore although net present value is regarded as a superior investment criterion any of these popular criteria properly applied serve as well

risk propensity and firm performance a study of the petroleum exploration industry this paper explores the differences in observed risk propensity among petroleum firms and their impact on firm performance in this work we 1 develop a decision theoretic model which measures a firm s risk propensity in the form of an implied utility function 2 investigate changes in corporate risk propensity with respect to changes in firm size and 3 examine the relationships between firms risk propensities and alternative dimensions of economic performance including ex post risk and return measures we also develop a new risk propensity measure the risk tolerance ratio rtr which controls for firm size and allows firms to be differentiated in terms of relative risk propensity the motivation for this work is managerial concerns regarding appropriate risk taking behavior and the effect of risky choice on firm performance this methodology has importance business strategy implications in that we are able to make strong inferences about causal relationships between ex ante risk taking and performance our findings are compelling in that corporate risk propensity seems to matter and that decisions about corporate risk policy have a significant impact on the petroleum firm s economic performance

final offer arbitration under incomplete information in recent years final offer arbitration foa has become an increasingly frequent means of resolving labor disputes in the private and public sectors the present paper models foa when each disputant has private information bearing on the true value of the case the model characterizes the disputants equilibrium offer behavior and examines arbitration performance the main conclusion is that foa outcomes are crudely responsive to the underlying merits of the case in its favor foa can be expected to be less costly to administer than arbitration procedures that attempt to extract perfect information

contingent portfolio programming for the management of risky projects methods for selecting a research and development r d project portfolio have attracted considerable interest among practitioners and academics this notwithstanding the industrial uptake of these methods has remained limited partly because of the difficulties of capturing relevant concerns in r d portfolio management motivated by these difficulties we develop contingent portfolio programming cpp which extends earlier approaches in that it i uses states of nature to capture exogenous uncertainties ii models resources through dynamic state variables and iii provides guidance for the selection of an optimal project portfolio that is compatible with the decision maker s risk attitude although cpp is presented here in the context of r d project portfolios it is applicable to a variety of investment problems where the dynamics and interactions of investment opportunities must be accounted for

investment decisions in the theory of finance some antinomies and inconsistencies abstract the net present value rule is a pillar of modern finance theory as known it is a capital budgeting rule finance theory prescribes the investor to compare the opportunity in hand with an asset of equivalent risk i e to discount cash flows with a risk adjusted rate of return this paper aims at showing that inconsistencies and antinomies arise when applying the above mentioned rule further it turns out that it is actually impossible to compare alternatives equivalent in risk and any decision maker cannot prevent herself to violate the above tenet

effects of multiple arbitrators on final offer arbitration settlements abstract we examine final offer arbitration foa in the case where there is more than one arbitrator the two disputants submit final offers to a referee and each of the arbitrators submits an assessment to the referee the referee then aggregates the arbitrator input and declares one of the disputants the winner three aggregation schemes are considered average assessment median assessment and majority vote in all cases the gap between final offers becomes smaller as the number of arbitrators is increased moreover average aggregation gives a slightly smaller gap than does median aggregation and median aggregation is shown to be equivalent to majority vote aggregation