the trick is to live is the estate tax social security for the rich because estate tax liability usually depends on how long one lives it implicitly provides annuity income in the absence of annuity markets lump sum estate taxation may be used to achieve the first best solution for individuals with a sufficiently strong bequest motive calculations of the annuity embedded in the u s estate tax show that people with 10 million of assets may be effectively receiving more than 100 000 a year financed at actuarially fair rates by their tax payments according to my calibrations the insurance effect reduces the marginal cost of funds mcf for the estate tax by as much as 30 percent and the resulting mcf is within the range of estimates for the mcf for the income tax

can the stock market success of montreal s ipos be predicted by the prospectus content in this paper we investigated if it is possible for investors to objectively estimate the probability of success of newly public companies using the information contained in offering prospectuses analysing prospectuses of small firms that went public on the montreal stock exchange revealed that the age of the firm at the time of the ipo the percentage of voting rights sold by managers the sales growth potential and the subscription price of newly quoted firms could be good predictors of long term performance on the stock market however it is relatively difficult to link any information contained in the issuing prospectus to short term performance the findings of this study should help authorities to define more stringent criteria to accept new public offerings and make the small cap market more attractive to investors and new growing companies

contours of development abstract new ventures seem to suffer more difficulties and business failures than do established firms also there is a pattern to the mortality with most newly founded businesses lasting only a few years explanations of high failure rates in new ventures have often centered on poor management or have postulated that firms chose inappropriate strategies for their markets and economic environments the present article conceives of new venture mortality as similar in nature to patterns of development that we observe for instance in human embryos or in the formation of new species that is development is an inherently hazardous process some of the specific hazards of development are 1 1 generic entry barriers it is generally not possible for a new firm or product to successfully enter an already crowded stable market where competitors are strong it is more feasible instead to enter a new or growing market or to enter with a substitute product that is clearly superior to those existing or to exploit an unnoticed market opening or to develop competitive strengths secretly without overtly challenging others in the industry 2 2 density of developmental hurdles any new entity must clear a sequence of important hurdles on its way to maturity such as establishing a well ordered office a functional sales channel etc failure at any one hurdle is potentially fatal and a mathematical analysis shows that the likelihood of passing even 10 hurdles in a row is about one in three the earliest hurdles tend to be the most difficult and to crowd more densely than later hurdles particularly troublesome are phase changes where a company first starts business or becomes one thing rather than another within a short period of time 3 3 amplification of maturational error any complex system that grows rapidly and is unable to predict the future perfectly is going to accumulate structural errors that become very difficult to remedy this is a natural and inevitable developmental process as the system grows in complexity and the flaw itself becomes a pillar of the system if an imitator or competitor arrives soon afterward and spots the error he or she will easily be able to retool and redesign a better system whereas the first firm is stuck with old habits tools dies and production methods 4 4 sequence and control in development every embryonic organism has a design template outlined in its dna that is carefully followed both the developing fetus itself and the mother have monitoring and control mechanisms that trigger an abortion if the development process goes awry new ventures lack such mechanisms they are more susceptible to developmental deviance likely to differ from the model successful corporation of their type 5 5 smallness and the asymmetry of luck small things are more subject to the whims of fate than big things amount of resources is the key because new ventures typically start off with scarce resources a bad bounce can sink the company and the probability of at least one such bad bounce is high 6 6 costs of organizing like all of the larger brained mammals a new company such as a medical supply firm must learn through experience much of what it means to be mature costs associated with learning arrive just when the firm is most vulnerable and distracted by other challenges in one sense the message of this article is good news in that managers of failed enterprises need not assume all the blame after all if most new businesses do poorly then failure is the average or typical case and it makes little sense to say that the average manager is poor the bad news is that if our perspective is correct managers of new ventures have less scope to influence the success of their enterprises than is commonly believed the managerial recommendations that emerge are that new ventures are more likely to succeed to the extent that they have sponsorship or capital have managers with a range of experience in previous ventures are given extra assistance of shelter or can ensure a high probability of passing all of the hurdles faced by a new venture

customer and retailer rebates under risk aversion abstract in a supply chain setting we analyze a manufacturer s customer and retailer rebates which are sales incentives offered to the end buyers and retailers respectively the performance of both rebates is influenced by the retailer s objective and response to the promotion due to his intermediary position in the channel earlier studies investigating rebates in distribution channels have traditionally assumed that the retailer is risk neutral with the objective of maximizing expected profits in our paper we consider a risk averse retailer we formally model risk aversion by adopting the conditional value at risk cvar decision criterion using a stochastic and effective price dependent demand we analyze the manufacturer s rebate amount decisions and the retailer s joint inventory and pricing decisions in a game theoretical framework we provide several structural properties of the objective functions and show monotonicity of the retailer s decisions in the degree of risk aversion for the case of retailer rebates we characterize the unique equilibrium and for the case of customer rebates we prove the existence of an equilibrium using numerical examples we provide further insights on the impact of risk aversion for example given an exogenous wholesale price we observe a threshold value on the retailer s risk aversion parameter below above which the manufacturer is better off with retailer rebates customer rebates implying that the manufacturer s preferred rebate type can be different depending on whether the retailer is risk neutral or sufficiently risk averse

on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

optimal inventory and hedging decisions with cvar consideration abstract we consider a newsvendor who makes an ordering decision to meet stochastic demand and buys a put option written on the demand to hedge against the risk of low demand to maximize his expected utility which is measured by the conditional value at risk cvar the put option is fairly priced with specifications for the strike price and the strike quantity with the consideration of lost sale penalty cost we derive structural results on the optimal ordering and hedging polices we show that the newsvendor will not order more than that without the option contract when the strike quantity is pre determined and low and he will order more when the strike quantity is a decision variable moreover the optimal strike quantity is less than or equal to the optimal order quantity in the risk neutral setting and interestingly there are cases in which the optimal hedging ratio first increases then keeps constant as the newsvendor becomes less risk averse we also show that the value of the put option increases as the newsvendor becomes more risk averse and demand becomes more uncertain furthermore the effect of risk aversion on the value of the option highly depends on the magnitudes of the system parameters

the causal effect of income on health evidence from german reunification we investigate whether there was a causal effect of income changes on the health satisfaction of east and west germans in the years following reunification our data source is the german socio economic panel gsoep between 1984 and 2002 and we fit a recently proposed fixed effects ordinal estimator to our health measures and use a causal decomposition technique to account for panel attrition we find evidence of a significant positive effect of income changes on health satisfaction but the quantitative size of this effect is small this is the case with respect to current income and a measure of permanent income

selection effects in the united kingdom individual annuities market this paper explores adverse selection in the voluntary and compulsory individual annuity markets in the united kingdom two empirical regularities support standard models of adverse selection first annuitants are longer lived than non annuitants these mortality differences are more pronounced in the voluntary than in the compulsory annuity market we estimate that the amount of adverse selection in the compulsory market is about one half of that in the voluntary market second the pricing of different types of annuity products within each annuity market is consistent with individuals selecting products based in part on private information about their mortality prospects the aging of populations in many developed nations has generated substantial interest in the way households finance consumption in their retirement years annuities insurance products that provide a payment stream for as long as the insured individual is alive offer one way to spread an accumulated stock of resources over a retirement period of uncertain length theoretical research beginning with yaari 1965 suggests substantial utility gains from annuitisation in the presence of stochastic length of life public policy discussions have also generated substantial current interest in the operation of annuity markets the decline in long term interest rates in the united kingdom since the early 1990s has coincided with a decline in annuity payouts relative to annuity premia this has sparked a debate

high compensation creates a ratchet effect consider a firm which pays a credit constrained worker for his effort over two periods the more the firm pays in one period the wealthier is the worker in the following period and so the more he must then be paid for a given effort we describe the profit maximising contract under these conditions showing how this wealth ratchet effect can raise wages over time and cause the firm to fire older workers

differential mortality and the progressivity of social security abstract there is a well established negative correlation between earnings and mortality risk using a calibrated general equilibrium macroeconomic model this paper examines how this correlation interacts with the welfare implications of social security s benefit earnings rule my primary findings suggest that the welfare ranking of alternative benefit earnings rules is somewhat sensitive to differential mortality due to their relatively high mortality risk households with unfavorable earnings histories heavily discount the expected utility from old age consumption and therefore do not put much weight on better work retirement consumption smoothing because of this reason social security s benefit earnings rule warrants less redistribution in the presence of differential mortality compared to when mortality risk is uncorrelated to earnings i find that this result continues to hold when household level labor supply distortions are ignored and also when an alternative maximin welfare criterion is considered but not when accidental bequests from the deceased are redistributed to the survivors

channel bargaining with risk averse retailer abstract we first consider a supply chain with one manufacturer and one retailer where there is only one product with stochastic demand the retailer is risk averse with conditional value at risk cvar as her risk measure and the manufacturer is a risk neutral agent we model the problem as a nash bargaining problem where the manufacturer and the retailer negotiate about the wholesale price and order quantity we show that there exists a nash bargaining equilibrium for the wholesale price and order quantity with equal and unequal bargaining power we also find that even for the equal bargaining power between the two agents the retailer s bargaining power for the supply chain profit increases as she becomes more risk averse we then extend the model to the case where demand is endogenous and can be manipulated by setting the retail price we show that there exists a nash bargaining equilibrium for the wholesale price retail price and the order quantity under equal bargaining power

exploring the health wealth nexus the causal links between health and economic resources have long concerned social scientists we use four waves of data from the panel study of income dynamics psid to analyze the impact of wealth upon an individual s health status the difficulty in approaching this task that has bedeviled previous studies is that wealth may be endogenous a priori it is just as likely that changes in health affect wealth as vice versa we argue that inheritance is a suitable instrument for the change in wealth and implement a straightforward instrumental variables strategy to deal with this problem our results suggest that the causal relationship running from wealth to health may not be as strong as first appears in the data wealth exerts a positive and statistically significant effect on health status but it is very small in magnitude instrumental variables estimation leaves the point estimate approximately the same but renders it insignificantly different from zero and even when the point estimate is increased by twice its standard error s e the quantitative effect is small we conclude that the wealth health connection is not driven by short run changes in wealth

racial disparities in life insurance coverage we evaluate the extent to which there are racial disparities in life insurance coverage using multiple years of the survey of income and program participation between 2001 and 2010 we find that african americans hold significantly more life insurance after controlling for other factors especially employer sponsored and whole life insurance we demonstrate that our findings diverge from prior work because we examine all households instead of focusing exclusively on married and cohabitating households the findings on life insurance coverage and composition imply that earnings shocks due to mortality are not a contributing factor to racial disparities in wealth

on the long run evolution of inheritance france 1820 2050 this paper attempts to document and account for the long run evolution of inheritance we find that in a country like france the annual flow of inheritance was about 20 25 of national income between 1820 and 1910 down to less than 5 in 1950 and back up to about 15 by 2010 a simple theoretical model of wealth accumulation growth and inheritance can fully account for the observed u shaped pattern and levels using this model we find that under plausible assumptions the annual bequest flow might reach about 20 25 of national income by 2050 this corresponds to a capitalized bequest share in total wealth accumulation well above 100 our findings illustrate the fact that when the growth rate g is small and when the rate of return to private wealth r is permanently and substantially larger than the growth rate say r 4 5 vs g 1 2 which was the case in the 19th century and early 20th century and is likely to happen again in the 21st century then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality contrarily to a widely spread view modern economic growth did not kill inheritance

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

technical note a risk averse newsvendor model under the cvar criterion the classical risk neutral newsvendor problem is to decide the order quantity that maximizes the one period expected profit in this note we consider a risk averse newsvendor with stochastic price dependent demand we adopt conditional value at risk cvar a risk measure commonly used in finance as the decision criterion the aim of our study is to investigate the optimal pricing and ordering decisions in such a setting for both additive and multiplicative demand models we provide sufficient conditions for the uniqueness and existence of the optimal policy comparative statics show the monotonicity properties and other characteristics of the optimal pricing and ordering decisions we also compare our results with those of the newsvendor with a risk neutral attitude and a general utility function

nursing home residents make a difference the overestimation of saving rates at older ages while life cycle theory makes the clear prediction that people dissave at old age this prediction is not at all borne out by the data from many countries various suggestions have been made to explain this discrepancy this paper sheds more light on the effect of the exclusion of institutionalized individuals in estimating saving rates over old age a conceptual aspect often mentioned but never investigated particularly this group is expected to decumulate wealth since nursing home expenses net of private and public insurance exceed disposable income on average this paper uses data from the u s and germany to show that there is an increasing overestimation of saving rates from age 75 on if institutionalized households are not included the effect on aggregate saving rates caused by the exclusion of the nursing home population becomes even more important in the face of population aging specifically this paper quantifies this effect using the health and retirement study hrs for the usa the overestimation of the mean median saving rates is 3 3 percentage points 4 3pp at age 80 5 4pp 9 4pp at age 90 and even more for age 90 based on the german income and expenditure survey evs the overestimation of the german mean saving rate increases to almost 6pp at age 90 this strong overestimation is based on the fact that nursing home residents strongly reduced their wealth holdings referring to the usa the median single nursing home resident reduces wealth holdings by 90 over a two year period the mean single nursing home r esident diminishes total net wealth by 19 the dissaving is less strong for couples

robust inventory decision under distribution uncertainty a cvar based optimization approach abstract we study the robust inventory decision making problem faced by risk averse managers with incomplete demand information in a newsvendor setting three basic models are developed expected profit maximization cvar based profit maximization and a combination of the two each model is robustly formulated under the assumption of ellipsoid discrete distribution and again under the box discrete distribution each robust model can be mathematically transformed into a second order cone program for ellipsoid uncertainty or into a general convex optimization problem for box uncertainty both transformed problems can be optimally solved directly we offer propositions with proof to show the equivalence of the transformed problems with the original ones numerical examples are given to validate the proposed approach we find that the performances under both ellipsoid and box uncertain distributions are robust finally sensitivity analysis with respect to risk averse levels and trade off coefficients is conducted to validate the proposed models and solution approaches

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

mortality health status and wealth in this paper we use the two waves of the british retirement survey 1988 1989 and 1994 to quantify the relationship between socioeconomic status and health outcomes we find that even after conditioning on the initial health status wealth rankings are important determinants of mortality and the evolution of the health indicator in the survey for men aged 65 moving from the 40th percentile to the 60th percentile in the wealth distribution increases the probability of survival by between 1 0 and 1 9 percentage points depending on the measure of wealth used a similar effect is found for women of between 1 1 and 1 3 percentage points in the process of estimating these effects we control for nonrandom attrition from our sample

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

differential mortality and wealth accumulation the issue of asset accumulation and decumulation is central to the life cycle theory of consumer behavior and to many policy questions one of the main implications of the life cycle model is that assets are decumulated in the last part of life most empirical studies in this area use cross sectional data of estimate mean or median wealth age profiles the use of cross sections to estimate the age profile of assets is full of pitfalls for example if wealth and mortality are related in that poorer individuals die younger one overestimates the last part of the wealth age profile when using cross sectional data because means or other measures of location are taken over a population which becomes richer as it ages this paper examines the effect of differential mortality on cross sectional estimates of wealth age profiles our approach is to quantify the dependence of mortality rates on wealth and use these estimates to correct wealth age profiles for sample selection due to differential mortality we estimate mortality rates as a function of wealth and age for a sample of married couples drawn from the survey of income and program participation sipp our results show that accounting for differential mortality produces wealth profiles with significantly more dissaving among the elderly

the aftermarket performance of small firm initial public offerings abstract the dream of many entrepreneurs is to some day take his or her growing small firm public and to thereby become the ceo of a publicly traded corporation currently entrepreneurs are continuing to utilize initial public offerings ipos as a viable source of venture financing ipos also represent a viable mechanism for harvesting venture capital and entrepreneurial investments the touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds return to the public equity market negotiate mergers without depleting cash the potential for enhanced personal wealth and so forth investors in small firm public equity issues are often motivated by the potential for discovering another apple computer or perhaps an ibm at the ground floor this study empirically examines the aftermarket returns of small publicly held firms that have issued initial public offerings aftermarket returns refers to stock returns immediately after a stock begins trading the study specifically examines two questions first is there a positive risk return relationship for small firm aftermarket returns where higher firm risk will generate higher aftermarket return second will aftermarket returns show on industry effect where certain industries will automatically generate higher returns answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and will also affect the decisions of investors interested in financing small public corporations the research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives utilizing corporate stock if the true aftermarket performance of their stock is taken into consideration likewise investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms a positive risk return relationship where age was a proxy measure of risk did not exist this was true even though the initially quoted returns of these same younger firms may have been substantial on the other hand the aftermarket performance of older firms is typically favorable finally the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to carry their aftermarket stock performance while certain industries indicated significant positive initial returns aftermarket returns based on industry classification were generally not statistically significant investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues since the variance of their aftermarket market returns tends to be large

optimal ordering quantities for multi products with stochastic demand return cvar model abstract multi product ordering problem with stochastic demand is often optimized by the expected cost reduction or the expected profit improvement in most of previous works moreover risk preference of decision maker is often ignored evidently this approach is impracticable when the corresponding volatility is larger based on the outstanding characteristics of conditional value at risk cvar as a risk measure the paper proposes an optimal order model for multi product with cvar constraints also the model is finally formulated as a linear programming problem the model is simulated for the case of a newsvendor to analyze to what degree it succeeds the solution in fact is bound consistent fully with the decision maker s intuition on return risk decision making finally results of return cvar model and the classical model are compared and shows that return cvar model is more flexible than the classical model

explaining the wealth holdings of different cohorts productivity growth and social security in this paper we explore the reasons why different generations accumulate different amounts of wealth we use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth the first one represents productivity differences across cohorts the aggregate level of gross national product per capita around the time the head of the household entered the labor market the second measure summarizes the changes in social security during the head of household s working life using panel data from the dutch socio economic panel we show that productivity growth can explain all the cohort effects present in income data while productivity growth and the generosity of social security can explain all the cohort effects present in household net worth we also find a limited offset of social security on wealth holdings

saving and pension reform in general equilibrium models in this paper we study saving and pension reform in the context ofgeneral equilibrium models we discuss some of the reasons for the existence of a social security system we highlight the key features of the us data that a general equilibrium model of saving and social security should match the life cycle profiles of savings con sumption and hours worked and the aggregate capital output ratio and saving rate we describe the structure of a general equilibrium model and discuss how its parameters are estimated or calibratedfrom the data we present the quantitative results from some policy experiments previously computed in the literature first in the context of stationary demographics and then with an ageing population and highlight the key policy prescrip tions that we learn from these experiments we conclude by providing some directions for future research

the impact of income shocks on health evidence from cohort data we study the eect of permanent income innovations on health for a prime aged population using information on more than half a million individuals sampled over a twenty five year period in three dierent cross sectional surveys we aggregate data by date of birth cohort to construct a synthetic cohort dataset with details of income expenditure socio demographic factors health outcomes and selected risk factors we then exploit structural and arguably exogenous changes in cohort incomes over the eighties and nineties to uncover causal eects of permanent income shocks on health we find that such income innovations have little eects on health but do aect health behaviour and mortality

loss averse newsvendor model with two ordering opportunities and market information updating abstract a fashion supply chain characterized by a long lead time and a short selling season is considered in this paper facing demand uncertainty the risk averse retailer has two opportunities to make order decisions before the demand is realized the risk aversion is modelled as a penalty to the decision maker the retailer if a target profit is not attained we derive the retailer s optimal ordering decisions and analyze the monotonicity behaviours of the critical market signal the optimal first stage order quantity and the optimal expected payoff with respect to the penalty coefficient we also examine the impact of demand forecast quality on the retailer s decisions and extend the study to the case where order cancellation is allowed

impact of risk aversion on optimal decisions in supply contracts abstract we introduce the concept of conditional value at risk as the evaluation criterion in a supply contract model we first derive the manufacturer s optimal decisions and then analyze the impact of risk aversion on the manufacturer s decisions we follow by conducting numerical experiments to observe how the manufacturer s risk attitude affects his decisions we obtain results that characterize the explicit relationship between the manufacturer s risk attitude and his optimal decisions we also show the dependence of the decision variables on the price and cost parameters which is seldom given in the literature

a value based approach to option pricing the case of supply chain options chapter 6 explores the pricing issue for supply chain options in classical research this issue is generally considered in the stackelberg game framework such a pricing scheme however is usually unacceptable to the follower since the leader always captures all the surplus derived from the options being different from the existing literature this chapter develops a value based pricing scheme for supply chain options with two modeling scenarios including a single retailer and multiple retailers the intuition behind such a pricing scheme is to price the option based on the value inherent in the option right as shown in the research such a pricing scheme can assure that each of the contracting partners captures a share of the surplus derived from the options as a result the pricing schemes developed in this chapter are more objective and fair and consequently are more likely to be accepted by the contracting partners as compared with those that follow the stackelberg game approach

subjective mortality expectations and consumption and saving behaviours among the elderly life expectancy is an important factor that individuals have to take into account for saving and consumption choices the life cycle model of consumption and saving behaviour predicts that consumption growth should decrease with higher mortality rates the aim of this study is to test this hypothesis based on data about subjective longevity expectations from the health and retirement study merged with detailed consumption data from two waves of the consumption and activities mail survey this study finds that an increase in subjective mortality by 1 corresponds to an annual decrease in consumption of non durable goods of around 1 8 l esperance de vie est un facteur important dont les personnes doivent tenir compte dans leurs choix de consommation et d epargne le modele de comportement de consommation et d epargne au cours du cycle de vie predit que la croissance de la consommation devrait decroitre a mesure que le taux de mortalite augmente cette etude met au test cette hypothese a l aide de donnees sur l esperance de vie subjective tirees des resultats d une etude sur la sante et la retraite arrimes aux resultats de deux vagues d enquetes postales sur la consommation et les activites qui ont produit des donnees detaillees sur la consommation cette etude montre qu un accroissement de un pour cent dans l anticipation subjective de mortalite correspond a un declin d a peu pres 1 8 dans la consommation annuelle de biens non durables

a venture capital model of the development process for new ventures abstract for years researchers have hypothesized that new ventures develop in a fairly predictable chronological process by evolving through various functional and strategic developmental stages however cross comparable longitudinal data from large numbers of ventures are still not available to validate these stages of development hypotheses the study sought to determine whether venture capital firms which have extensive experience with the longitudinal development of new ventures operate in accord with a common theory about how this process operates these findings also represent a first step toward empirically validating various elements of stages of development theories the study analyzed the perceptions of the ceo or managing partner of 73 u s venture capital firms about key features of the development process for new businesses venture capital firms were asked whether they differentiated stages in the development process for each such stage information was elicited on what the stage was called distinguishing characteristics of ventures in that stage key developmental goals or benchmarks typically accomplished in that stage and the major risks involved sufficient consensus was found on these aspects of the development process for a venture capital model of this process to be constructed the model consists of five sequential stages 1 seed 2 start up 3 second stage 4 third stage and 5 exit stage strong consensus was found on distinguishing characteristics of ventures in early stages of development key developmental goals or benchmarks in various stages and major developmental risks associated with each stage consensus on developmental characteristics diminished somewhat in later stages presumably because of differential rates of development among investees as well as differing degrees of success in accomplishing earlier objectives nevertheless sufficient differences in functional characteristics remained to clearly distinguish later stage investees from early stage investees and to enable differentiations in maturity between third stage and exit stage investees the venture capital developmental model exhibits both similarities and differences from stages of development paradigms first the venture capital model is primarily strategic and market oriented in focus it gives lesser emphasis to the elements of organizational structure management style and management specialization than some stages of development theories although these elements are identified by venture capitalists as potential areas of risk should problems arise second like stages of development paradigms the venture capital model is universal and not venture specific venture capital firms appear to view all potentially feasible business concepts despite differences in product organizational complexity rate of development or ultimate size as passing through the same process sequence albeit at different speeds and with varying degrees of success third the model while reflecting the financial objectives of venture capital investors is primarily shaped by the naturally occurring functional development of investees it does not represent arbitrary requirements imposed on investees to segment the developmental process into steps that would not otherwise occur the development of venture capital investees is influenced by the strategic and financial objectives of venture capital firms thus the model does not necessarily mirror the strategic and dynamic elements of the development process for firms that are not intended by their founders to grow rapidly and then go public or be acquired by a larger corporation or for ventures that must depend upon internally generated funds or bank loans to finance development the venture capital model representing perceptions of 73 venture capital firms derived from longitudinal data for many hundreds of new ventures appears to empirically confirm the concept of an evolutionary progression through key functional and strategic steps which is a central element of most stages of development hypotheses the study did not go into sufficient depth however to provide detail on the influence of factors such as organizational structure and management styles and control systems on development these factors are central elements in several stages of development theories and are arguably of critical importance in the growth survival and financial success of new ventures

uncertain lifetime consumption and dissaving in retirement this paper asks whether the continued accumulation or mild dissaving observed among the retired can be explained by uncertain lifetime in the absence of annuities after an initial period influenced by borrowing constraints under constant relative risk aversion uncertain lifetime depresses consumption by a proportion increasing with age if the elasticity of intertemporal substitution in consumption is small illustrative computations based on actual income and survival data show that plausible elasticities are sufficiently small to give this effect the reduction in consumption is large enough to explain much of the lack of decumulation by the elderly

asset market participation and portfolio choice over the life cycle using error free data on life cycle portfolio allocations of a large sample of norwegian households we document a double adjustment as households age a rebalancing of the portfolio composition away from stocks as they approach retirement and stock market exit after retirement when structurally estimating an extended life cycle model the parameter combination that best fits the data is one with a relatively large risk aversion a small per period participation cost and a yearly probability of a large stock market loss in line with the frequency of stock market crashes in norway

decision bias in the newsvendor problem with a known demand distribution experimental evidence in the newsvendor problem a decision maker orders inventory before a one period selling season with stochastic demand if too much is ordered stock is left over at the end of the period whereas if too little is ordered sales are lost the expected profit maximizing order quantity is well known but little is known about how managers actually make these decisions we describe two experiments that investigate newsvendor decisions across different profit conditions results from these studies demonstrate that choices systematically deviate from those that maximize expected profit subjects order too few of high profit products and too many of low profit products these results are not consistent with risk aversion risk seeking preferences prospect theory preferences waste aversion stockout aversion or the consequences of underestimating opportunity costs two explanations are consistent with the data one subjects behave as if their utility function incorporates a preference to reduce ex post inventory error the absolute difference between the chosen quantity and realized demand two subjects suffer from the anchoring and insufficient adjustment bias feedback and training did not mitigate inventory order errors we suggest techniques to improve decision making

private pensions mortality risk and the decision to annuitize abstract this paper examines household decisions about whether or not to annuitize retirement resources a life cycle model of consumption implemented with the use of dynamic programming techniques is used to construct a utility based measure of annuity value for individuals and couples in the health and retirement survey variation in the calculated annuity equivalent wealth arises from differences in mortality risk marital status risk aversion and the presence of pre existing annuities such as social security i find that a one percentage point increase in the annuity equivalent wealth leads to nearly a one percentage point increase in the ex ante probability of annuitizing balances in defined contribution pension plans however because much of the variation in the expected annuity decision is left unexplained by the life cycle model other factors are also analyzed health status and an individual s time horizon for financial decision making are significant determinants of the decision there is no evidence that bequest motives are an important factor in making marginal annuity decisions

income and health in tanzania an instrumental variable approach there is a substantial debate over the direction of the causal relation between income and health this is important for our understanding of the health production process and for the policy debate over improving healthcare we instrument income with rainfall measurements by matching satellite information on timing and positioning of 21 rainfall stations to longitudinal data 1991 94 of over 4 000 individuals in 51 villages in tanzania a 10 increase in income reduces the number of illnesses by 0 02 we also find that a 10 increase in income implies an increase of about 0 1 vaccinations of children under six

the high scope perry preschool program cost benefit analysis using data from the age 40 followup this paper presents an updated cost benefit analysis of the high scope perry preschool program using data on individuals aged 40 children were randomly assigned to a treatment or control group program costs are compared against treatment impacts on educational resources earnings criminal activity and welfare receipt net present values are calculated for participants the general public and society the treatment group obtains significantly higher earnings for the general public higher tax revenues lower criminal justice system expenditures and lower welfare payments easily outweigh program costs they repay 12 90 for every 1 invested however program gains come mainly from reduced crime by males