default correlation an empirical investigation of a subprime lender in recent years subprime lending has grown substantially as an important sector of the credit markets this paper is concerned with the risk management of subprime loan portfolios and the importance of default correlation in measuring that risk using a large portfolio of residential subprime loans from an anonymous subprime lender we show that default correlation is substantial for this lender in particular the significance of default correlation increases as the internal credit rating declines our results suggest that lenders and regulators would be well served investing in the understanding of default correlation in subprime portfolios

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

comments on credit ratings and the bis capital adequacy reform agenda the new basel capital accord basel committee on banking supervision 1999 has the objective of making capital requirements appropriately sensitive to the degree of risk in bank activities this is important because the original capital accord 1998 has been widely criticized for the lack of risk sensitivity of the capital charges assessed against various types of loans many observers believe this has resulted in regulatory arbitrage on the part of banks to the detriment of the quality of the assets banks hold on their books the basel committee has proposed a standardized approach for determining risk based capital using external ratings and two other approaches based on internal models for dealing with credit risk 1 altman et al 2002 examines in detail whether the goal of appropriate risk sensitivity is met by the proposed risk weights of the standardized approach the main conclusion of the altman et al paper and the underlying issues can be seen in fig 1 which plots the proposed risk weights and the historical corporate bond losses by rating as the authors note ratings aaa through a have experienced virtually no defaults but are assigned weights of 20 aaa and aa and 50 a percent more problematic the proposed risk weights for baa and ba rated loans are both 100 even though the loss experience for ba is 10 times higher than for baa finally the b and below rated loans have risk weights only half again as large as baa rated loans while the historical loss experience has been 55 times greater thus the basel proposal fails to capture the relative risks of the various ratings altman et al journal of banking finance 26 2002 923 928

skills in the city this paper documents the allocation of skills across cities and estimates the impact of agglomeration on the hedonic prices of worker skills we find that large cities are more skilled than are small cities but only to a modest degree we also show that the increase in productivity associated with agglomeration as measured by the urban wage premium is larger for workers with stronger cognitive and people skills in contrast motor skills and physical strength are not rewarded to a greater degree in large cities urbanization thus enhances thinking and social interaction rather than physical abilities these results are robust to a variety of estimation strategies including using nlsy variables that control for worker quality and a worker msa fixed effect specification

patterns of research productivity in the business ethics literature insights from analyses of bibliometric distributions in any academic discipline published articles in respective journals represent production units of scientific knowledge and bibliometric distributions reflect the patterns in such outputs across authors or producers closely following the analysis approach used for similar studies in the economics and finance literature we present the first study to examine whether there exists an empirical regularity in the bibliometric patterns of research productivity in the business ethics literature our results present strong evidence that there indeed exists a distinct empirical regularity it is the so called generalized lotka s law of scientific productivity pattern the number of authors publishing n papers is about 1 n c of those publishing one paper we discuss the likely processes that underlie the productivity pattern postulated by the generalized lotka s law we find that the value of the exponent c is equal to about 2 6 for the comprehensive bibliometric data across the two leading business ethics journals the observed research productivity pattern in the business ethics area a relatively young discipline is interestingly very consistent with those found in much older related business disciplines like economics accounting and finance we discuss the general implications of our findings

are rich people smarter abstract we formulate a general stochastic process of wealth accumulation by capital investment and analyze the conditions required to ensure convergence to the empirically observed pareto wealth distribution while homogeneous investment talent leads to the pareto distribution under very general conditions even a mild degree of differential investment talent results in a non pareto wealth distribution this finding suggests that chance rather than differential investment talent is the dominant factor in the process of wealth accumulation by financial investment our findings conform with market efficiency and may have implications regarding the origins the economic significance and the social desirability of wealth inequality at the high wealth range

metropolitan evolution sectoral economic change and the city size distribution metropolitan evolution is conceptualised from a broad long term perspective that focuses on demographic and sectoral economic variables emphasis is placed on understanding these changes from a process oriented approach that considers its general relevance rather than its outcomes or microanalytic details a selective review of the literature provides a significant perspective and background on the stages model that is applied to the study of metropolitan change this is then related to the pareto city size distribution by considering the interurban population distribution coefficient and its expected performance over the various phases of metropolitan evolution a hypothetical interurban manufacturing employment distribution coefficient analogous to the pareto population coefficient is also considered and is related to the process of metropolitan and interurban sectoral economic change the relationship between metropolitan change and national urban size distribution is viewed as a significant compone

urban development in the united states 1690 1990 the united states transformed itself from a rural to an urban society over the last three cen turies after a century of unremarkable growth the pace of urbanization was historically un precedented between the nineteenth and the early twentieth centuries in the twentieth century the urban population continued to increase but in a much more dispersed manner as the sub urban population increased throughout these developments cities also exhibited considerable variation in their population sizes this paper finds that the pace and pattern of u s urban development are explained by changes in regional comparative advantage and in economies in transportation and local public goods which in turn were determined by the changes in the economic structures of cities this paper also finds that cities varied considerably in size because the larger cities reduced market transaction costs associated with coordinating greater geograph ic division of labor

firm size distributions an overview of steady state distributions resulting from firm dynamics models abstract empirical firm size distributions are the cumulated result of underlying firm dynamics involving entry of new firms and growth decline and exits of incumbent firms in this paper we give an overview of firm size distributions that result as steady states from models differing in the way these firm dynamics are modelled in the process we i derive common results and explain seemingly contradictory results ii propose new functional forms to describe firm size distributions iii give insight in the interrelationships between the distributions in terms of underlying firm dynamics iv give possible firm dynamical interpretations of the parameters of the distributions and v analyse to which extent the steady state approach is able to explain the shape of firm size distributions that are encountered in practice

economic growth in a cross section of cities abstract we examine the relationship between urban characteristics in 1960 and urban growth between 1960 and 1990 income and population growth move together and both types of growth are 1 positively related to initial schooling 2 negatively related to initial unemployment and 3 negatively related to the initial share of employment in manufacturing racial composition and segregation are uncorrelated with urban growth across all cities but in cities with large nonwhite communities segregation is positively correlated with population growth government expenditures except for sanitation are uncorrelated with growth government debt is positively correlated with later growth

inventory pooling under heavy tailed demand risk pooling has been studied extensively in the operations management literature as the basic driver behind strategies such as transshipment manufacturing flexibility component commonality and drop shipping this paper explores the benefit of risk pooling in the context of inventory management using the canonical model first studied in eppen eppen gd 1979 effects of centralization on expected costs in a multi location newsboy problem management sci 25 5 498 501 specifically we consider a single period multilocation newsvendor model where n different locations face independent and identically distributed demands and linear holding and backorder costs we show that eppen s celebrated result i e that the expected cost savings from centralized inventory management scale with the square root of the number of locations depends critically on the light tailed nature of the demand uncertainty in particular we establish that the benefit from pooling relative to the decentralized case in term

a new approach to the economic inequality based upon the permanent income hypothesis abstract we propose a new inequality measure based upon the permanent income hypothesis tracing its historical changes in japan we compare it with some traditional inequality measures for the income distribution

decomposing interregional differentials in productivities an empirical analysis for japanese data abstract we propose a method for decomposing interregional differentials in productivities based on the lifecycle permanent income hypothesis we also conduct an empirical analysis using japanese prefectural data and examine the effectiveness of this method

policy implications of the federal reserve study of credit risk models at major us banking institutions abstract the current regulatory capital standard for banks the basle accord is a lose lose proposition regulators cannot conclude that a bank with a nominally high regulatory capital ratio has a correspondingly low probability of insolvency on the other hand because the accord often levies a capital charge out of proportion to the true economic risk of a position banks must engage in regulatory capital arbitrage or exit their low risk business lines since such arbitrage is costly the capital regulations keep banks from maximizing the value of the financial firm regulators need to answer three questions 1 what are the goals of prudential regulation and supervision 2 how should bank soundness be defined and quantified 3 at what level should a minimum soundness standard be set in order to meet the perhaps conflicting goals of prudential regulation and supervision possible answers to these questions are attempted then the paper analyzes the two leading proposals for rationalizing the accord a modified basle or ratings based approach and a full models approach

a theory of limited liquidity and large investors causing spikes in stock market volatility and trading volume we survey a theory of the economic underpinnings of the fat tailed distributions of a number of financial variables such as returns and trading volumes our theory posits that they have a common origin in the strategic trading behavior of very large financial institutions in a relatively illiquid market we show how the fat tailed distribution of fund sizes can indeed generate extreme returns and volumes even in the absence of fundamental news moreover we are able to replicate the individually different empirical values of the power law exponents foreachdistribution largeinvestorsmoderatetheirtradestoreducetheirpriceimpact coupled with a concave price impact function this leads to volumes being more fat tailed than returns but less fat tailed than fund sizes the trades of large institutions offer a unified explanation for apparently disconnected empirical regularities that are otherwise a challenge for economic theory jel g12 g14 g23

power laws in economics an introduction paul samuelson 1969 was once asked by a physicist for a law in economics that was both nontrivial and true this is a difficult challenge as many roughly true results are in the end rather trivial for example demand curves slope down while many nontrivial results in economics in fact require too much sophistication and rationality on the part of the agents to actually hold true in practice 1 samuelson answered the law of comparative advantage the story does not say whether the physicist was satisfied the law of comparative advantage is a qualitative law and not a quantitative one as is the rule in physics indeed many of the insights of economics seem to be qualitative with many fewer reliable

annual redistribution and lifetime redistribution abstract i propose a method to evaluate the degree of income redistribution throughout a person s life time an international comparison of life time redistribution in the united states the united kingdom and japan has been attempted this comparison clearly shows the differences in the degree of redistribution in each of the countries

an analytic approach to credit risk of large corporate bond and loan portfolios abstract we derive an analytic approximation to the credit loss distribution of large portfolios by letting the number of exposures tend to infinity defaults and rating migrations for individual exposures are driven by a factor model in order to capture co movements in changing credit quality the limiting credit loss distribution obeys the empirical stylized facts of skewness and heavy tails we show how portfolio features like the degree of systematic risk credit quality and term to maturity affect the distributional shape of portfolio credit losses using empirical data it appears that the basle 8 rule corresponds to quantiles with confidence levels exceeding 98 the limit law s relevance for credit risk management is investigated further by checking its applicability to portfolios with a finite number of exposures relatively homogeneous portfolios of 300 exposures can be well approximated by the limit law a minimum of 800 exposures is required if portfolios are relatively heterogeneous realistic loan portfolios often contain thousands of exposures implying that our analytic approach can be a fast and accurate alternative to the standard monte carlo simulation techniques adopted in much of the literature

loss given default of residential mortgages in a low ltv regime role of foreclosure auction process and housing market cycles abstract using loan level foreclosure auction data we study the loss given default lgd of defaulted residential mortgages originated in korea a low ltv regime we find that senior mortgages generate very low loss rates 5 10 while losses of subordinated claims are in 30 50 range we document the effects of housing market cycles on loss severity by showing that collateral characteristics that are overvalued during the boom increase loss severity during the market downturn we also investigate how a broad set of time of origination and post origination information on loan collateral and borrower characteristics and foreclosure auction process influence the lgd of residential mortgages

patterns of technological competence accumulation a proposition for empirical measurement this article develops a typology that describes and measures different types of technological competence accumulation the notion of accumulation comprises not only the state but also the change in competence and hence it complies with the criticism of the static approaches to competence management the typology of competence accumulation enables a comparison of firm profiles that lead to identification of four groups of firm behavior across the telecommunications industry the relationship between the firm and the industry level is established on the condition that each firm s competence level depends on the firms mutual relationships with other firms in the same industry known as red queen evolution the four groups of firm behaviour are therefore not considered as groups of independent firms that are similar by coincidence but as patterns of behavior within the telecommunications industry which allows for a discussion of more general implications for management of technology copyright 2005 oxford university press

gibrat s law for all cities two empirical regularities concerning the size distribution of cities have repeatedly been established zipf s law holds the upper tail is pareto and city growth is proportionate census 2000 data are used covering the entire size distribution not just the upper tail the nontruncated distribution is shown to be lognormal rather than pareto this provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution an equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed the driving force is a random productivity process of local economies and the perfect mobility of workers

securitization and bank performance theory suggests that securitization provides financial institutions with an opportunity to lower the cost of funding improve credit risk management and increase profitability in practice however it might lead to adverse consequences through a number of indirect channels therefore the net impact of securitization on bank performance is ambiguous this study aims to evaluate whether banks improve their performance through the use of the securitization market by applying a propensity score matching approach in other words we build a counterfactual group of banks to assess what would have happened to the securitizing banks had they not securitized using us commercial banking data from 2001 to 2008 we first test these hypotheses using univariate analysis and find that securitizing banks are on average more profitable institutions with higher credit risk exposure and higher cost of funding however the propensity score matching analysis does not provide evidence of significant causal effects of securitization on the performance of banks therefore securitization does not seem to outperform alternative funding risk management and profitability improvement techniques used by banks that have ex ante similar characteristics to those securitizing our evidence raises important questions about the motives for banks increasing securitization activities and consequent implications for the banking system

central place theory and city size distribution this paper proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process it does so by formalizing central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law central place theory describes the way in which a hierarchical city system with difierent layers of cities serving difierently sized market areas is formed from a uniformly populated space the force driving the city size difierences in this model is the heterogeneity in economies of scale across goods the city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying which is a general class that encompasses many well known commonly used distributions this model is also consistent with a power law for flrms and a number average size rule which is the log linear relationship between the number and average size of the cities in which an industry is located

on the economic geography of international migration we exploit the bilateral and skill dimensions from recent data sets of international migration to test for the existence of zipf s and gibrat s laws in the context of aggregate and high skilled international immigration and emigration using graphical parametric and non parametric analysis the top tails of the distributions of aggregate and high skilled immigrants and emigrants adhere to a pareto distribution with an exponent of unity i e zipf s law holds we find some evidence in favour of gibrat s law holding for immigration stocks i e that the growth in stocks is independent of their initial values and stronger evidence that immigration densities are diverging over time conversely emigrant stocks are converging in the sense that countries with smaller emigrant stocks are growing faster than their larger sovereign counterparts lastly high skilled immigration and emigration stocks expressed in levels or as densities all exhibit signs of convergence we conclude by discussing some competing mechanisms that could be driving the observed patterns including differing fertility rates reductions in emigration restrictions migrant sorting and selective immigration policies immigrant networks and persisting wage differentials

an operational risk profile the experience of british firms this study provides an analysis of 163 operational loss events experienced by a variety of british firms over the period 1999 2008 10 different hypotheses are tested to examine the distribution of loss severity and frequency with respect to business line event type and corporate entity type we also test hypotheses on the relation between loss severity and the decline in the market value of the announcing firm and whether or not the decline in market value is greater if the loss results from internal fraud the results indicate that loss severity does not depend on firm size that the decline in market value bears no stable relation to the loss amount and that they decline in market value relative to the loss amount is positively related to firm size

beijing or shanghai the strategic location choice of large mnes host country headquarters in china we argue that a multinational enterprise s mne s location choice for its host country headquarters hchq in the geographic space of the host country is determined by the interplay between the strategic roles of hchq in the organizational space of the mne and the institutional space external and internal to the mne we focus on the location choice between beijing and shanghai we test our arguments using data for a sample of fortune global 500 corporations in china 1979 2005 this study contributes to international business ib research by reinvigorating research on hchq we also complement economic geography research on subnational agglomeration by using an ib perspective with a focus on the institutional idiosyncrasies of cities

non performing loans moral hazard and regulation of the chinese commercial banking system abstract non performing loans npls represent a major obstacle to the development of banking sector one of the key objectives of the banking sector reforms in china has therefore been to reduce the high level of npls to do so chinese regulatory authorities have injected significant capital into the banking system and scrutinized npls since 2003 this paper examines the impact of npls on bank behavior in china using a threshold panel regression model and a dataset covering 60 city commercial banks 16 state owned banks and joint stock banks and 11 rural commercial banks during 2006 2012 we test whether lending decisions of chinese banks exhibit moral hazard the results support the moral hazard hypothesis suggesting that an increase in the npls ratio raises riskier lending potentially causing further deterioration of the loan quality and financial system instability policy implications of findings are evaluated

spatial growth and industry age between 1970 and 2000 employment growth across u s counties exhibited very different patterns in manufacturing and services whereas manufacturing employment growth was negatively related to initial manufacturing employment across the entire distribution of counties service employment growth was positively related to initial service employment for intermediate sized counties this paper presents a theory to rationalize these facts local sectoral growth is driven by technological diffusion across space and depends on the age of the sector the theory correctly predicts the relation between county employment growth and initial county employment in manufacturing at the turn of the 20th century

a guide to choosing absolute bank capital requirements resampling implementation of a stress scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk estimates are presented for stress scenarios of varying severity and implications of different time horizons are analyzed results for a numeraire portfolio are quite sensitive to such variations although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks the arguments and results are also relevant for bankers making capital structure decisions

credit risk in the leasing industry abstract this paper is devoted to the credit risk modeling issues of retail lease portfolios using a re sampling method i estimate the probability density function of losses and var measures in a portfolio of 46 732 leases issued between 1990 and 2000 by a major european financial institution my results show that physical collaterals play a major role in reducing the credit risk associated with lease portfolios however because of insufficient recognition of such collaterals under the new regulatory capital framework basel ii significant differences are observed between the estimated capital requirements and those calculated in accordance with the various basel ii approaches

capital and risk new evidence on implications of large operational losses operational risk is currently receiving significant media attention as financial scandals have appeared regularly and multiple events have exceeded one billion dollars in impact regulators have also been devoting attention to this risk and are finalizing proposals that would require banks to hold capital for potential operational losses this paper uses newly available loss data to model operational risk at internationally active banks our results suggest that the amount of capital held for operational risk will often exceed capital held for market risk and that the largest banks could choose to allocate several billion dollars in capital to operational risk

determinants of banks risk exposure to new account fraud evidence from germany abstract this paper studies empirically the determinants of new account fraud risk within two dimensions the probability of fraud and the expected and unexpected monetary loss per account due to fraud by fraud risk we mean the risk that a bank fails to enforce a debt because the identity of the person incurring the debt cannot be ascertained using a unique and rich data set of account applicants provided by a german internet only bank we find that fraud risk is highly sensitive to demographic and socio economic variables like nationality gender marital status age occupation and urbanisation for example foreigners are 22 25 times more likely to commit account fraud than germans and men are 2 5 times more risky than women

gale nikaido debreu and milgrom shannon communal interactions with endogenous community structures abstract this paper examines nash jurisdictional stability in a model with a continuum of agents whose characteristics are distributed over a unidimensional interval communal benefits and costs of each individual depend on her identity and the composition of the community which she belongs to since the framework is too general to yield an existence of nash equilibrium we introduce the essentiality of membership in one of the communities for all individuals we highlight the border indifference property bip when all individuals located on a border between two adjacent jurisdictions are indifferent about joining either of them and show that bip is a necessary condition for yielding a nash equilibrium we invoke the celebrated gale nikaido debreu lemma to guarantee the existence of a partition that satisfies bip we then proceed to demonstrate that bip is not sufficient to yield a nash equilibrium the equilibrium existence under bip is rescued when we use the milgrom shannon monotone comparative statics conditions

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

pareto and piketty the macroeconomics of top income and wealth inequality abstract since the early 2000s research by thomas piketty emmanuel saez and their coauthors has revolutionized our understanding of income and wealth inequality in this paper i highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally one of the key links between data and theory is the pareto distribution the paper describes simple mechanisms that give rise to pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries for example it is in this context that the role of the famous r g expression is best understood

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

u s banking sector operational losses and the macroeconomic environment using supervisory data from large u s bank holding companies bhcs we find that bhcs incur more operational losses in adverse macroeconomic conditions driven significantly by the higher frequency and severity of tail events among different operational risk types we find that losses from bhcs failure to meet obligations to clients or from the design of their products are particularly countercyclical we also show that larger and more leveraged bhcs have a higher macroeconomic sensitivity of operational risk overall our findings provide new evidence regarding u s banking organizations exposure to macroeconomic shocks with implications for risk management practices and supervisory policy

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

evaluating credit risk models over the past decade commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital these eaorts have been recognized and encouraged by bank regulators recently banks have extended these eaorts into the field of credit risk modeling however an important question for both banks and their regulators is evaluating the accuracy of a model s forecasts of credit losses especially given the small number of available forecasts due to their typically long planning horizons using a panel data approach we propose evaluation methods for credit risk models based on cross sectional simulation specifically models are evaluated not only on their forecasts over time but also on their forecasts at a given point in time for simulated credit portfolios once the forecasts corresponding to these portfolios are generated they can be evaluated using various statistical methods 2000 elsevier science b v all rights reserved

a microfoundation for normalized ces production functions with factor augmenting technical change based on a tractable endogeneous technology choice framework we provide a microfoundation for aggregate normalized constant elasticity of substitution ces production functions with non neutral factor augmenting technical change in this framework firms are allowed to choose unit productivities of capital and labor optimally from a technology menu constructed under the assumption that unit factor productivities ufps are independently weibull distributed the weibull distribution itself is also microfounded here based on extreme value theory it is found to be an accurate and robust approximation of the true ufp distribution if technologies consist of a large number of complementary components

institutional investors and stock market volatility statement of responsibility on t p reads xavier gabaix parameswaran gopikrishnan vasiliki plerou h eugene stanley

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

annual inequality and lifetime inequality an estimator of inequality in lifetime incomes is derived it can be computed for a population from the distribution of incomes in one year as a result the estimates are as easily calculated as measurements of annual inequality but can be used as measurements of lifetime inequality estimates from this measure and two others have been computed for selected years since 1947 the results are compared by their implications for the level and trend of inequality in the united states

internal ratings systems implied credit risk and the consistency of banks risk classification policies abstract this paper aims at improving our understanding of internal risk rating systems irs at large banks of the way in which they are implemented and at verifying if irs produce consistent estimates of banks loan portfolio credit risk an important property of our work is that the size of our data set allows us to derive measures of credit risk without making any assumptions about correlations between loans by applying carey s carey mark 1998 credit risk in private debt portfolios journal of finance liii 4 1363 1387 non parametric monte carlo re sampling method we find substantial differences between the implied loss distributions of two banks with equal regulatory risk profiles both expected losses and the credit loss rates at a wide range of loss distribution percentiles vary considerably such variation will translate into different levels of required economic capital our results also confirm the quantitative importance of size for portfolio credit risk for common parameter values we find that tail risk can be reduced by up to 40 by doubling portfolio size our analysis makes clear that not only the formal design of a rating system but also the way in which it is implemented e g a rating grade composition the degree of homogeneity within rating classes can be quantitatively important for the shape of credit loss distributions and thus for banks required capital structure the evidence of differences between lenders also hints at the presence of differentiated market equilibria that are more complex than might otherwise be supposed different lending or risk management styles may emerge and banks strike their own balance between risk taking and the cost of monitoring that risk

the effect of information and communication technologies on urban structure this paper examines the effects of information and communication technologies ict on urban structure improvements in ict may lead to changes in urban structure for example because they reduce the costs of communicating ideas from a distance hence they may weaken local agglomeration forces and thus provide incentives for economic activity to relocate to smaller urban centres we use international data on city size distributions in different countries and on country level characteristics to test the effect of ict we find robust evidence that increases in the number of telephone lines per capita encourage the spatial dispersion of population in that they lead to a more concentrated distribution of city sizes so far the evidence on internet usage is more speculative although it goes in the same direction we argue that the internet is likely to have similar or even larger effects on urban structures once its use has spread more thoroughly through different economies

bank capital requirements for securitized loan pools abstract this paper analyzes the riskiness of credit enhancements offered on securitized pools of commercial and industrial loans it develops a technique for allocating capital to such credit enhancements based on setting the expected value of the credit losses in excess of allocated capital equal to the expected value of losses beyond required capital on the original loan pool the resulting capital allocations are compared with those derived from a more general bank wide capital decision rule as well as newly published agency proposals regarding capital for credit enhancements

an analysis and critique of the bis proposal on capital adequacy and ratings abstract this paper examines two specific aspects of stage 1 of the bank for international settlement s bis s proposed reforms to the 8 risk based capital ratio we argue that relying on traditional agency ratings could produce cyclically lagging rather leading capital requirements resulting in an enhanced rather than reduced degree of instability in the banking and financial system despite this possible shortcoming we believe that sensible risk based weighting of capital requirements is a step in the right direction the current risk based bucketing proposal which is tied to external agency ratings or possibly to internal bank ratings however lacks a sufficient degree of granularity in particular lumping a and bbb investment grade corporate borrowers together with bb and b below investment grade borrowers severely misprices risk within that bucket and calls at a minimum for that bucket to be split into two we examine the default loss experience on corporate bonds for the period 1981 1999 and propose a revised weighting system which more closely resembles the actual loss experience on credit assets

the zipf s law and the effects of free trade the case of guatemala abstract the aim of this study is to investigate the impacts of trade policy changes on the order of the size of cities and economic growth of guatemala between 1921 and 2002 the pareto coefficient was estimated and an index was used to measure the degree of urban concentration finally a model of the impact of trade liberalization on economic growth was estimated the main results obtained showed a slight growth in inequality and divergence although the urban concentration index showed a gradual decline since 1964 the golden age of the cacm by the year 2002 it was found that the urban concentration has an inverse relationship with the commercial opening and positive economic growth during the period from 1921 to 1964 it was concluded that major cities reduced their growth and that small and medium sized cities grew at a faster rate than big cities driven by the growth of international trade

the dynamics of inequality the past forty years have seen a rapid rise in top income inequality in the united states while there is a large number of existing theories of the pareto tail of the long run income distributions almost none of these address the fast rise in top inequality observed in the data we show that standard theories which build on a random growth mechanism generate transition dynamics that are too slow relative to those observed in the data we then suggest two parsimonious deviations from the canonical model that can explain such changes scale dependence that may arise from changes in skill prices and type dependence that is the presence of some high growth types these deviations are consistent with theories in which the increase in top income inequality is driven by the rise of superstar entrepreneurs or managers

a schumpeterian model of top income inequality top income inequality rose sharply in the united states over the last 40 years but increased only slightly in france and japan why we explore a model in which heterogeneous entrepreneurs broadly

market forces and ceo pay shocks to ceo demand induced by ipo waves i develop a simple competitive equilibrium model and derive the prediction that ceo pay size elasticity increases when more firms compete for an inelastic supply of managers using industry level ipo waves as a proxy for increased competition for ceos i find that pay size elasticity increases by 6 with a one standard deviation increase in ipo activity this effect is stronger in specialized industries in addition increased ipo activity leads to a greater likelihood of executive transitions between firms these findings indicate that market forces play a key role in the determination of ceo pay received august 6 2015 editorial decision september 24 2016 by editor francesca cornelli

credit risk in private debt portfolios default loss severity and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds the chance of very large portfolio losses is estimated and some determinants of such losses are analyzed results show ex ante riskier classes of private debt perform better on average than public debt both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution private placements are similar to corporate loans in that both are monitored private debt the results are thus relevant to management and securitization of private debt portfolios generally more than half of nonfinancial corporate debt finance is iss ued privately and decisions of the financial intermediaries that invest in such debt depend importantly on its credit risk regulators of such institutions are similarly attentive to portfolio credit risk and it is an important consideration in the design of securitizations of pools of private debt in spite of its importance little is known empirically about private debt credit risk especially ex ante risk as a function of portfolio characteristics many studies have examined the loan portfolio performance of banks thrifts and insurance companies but the ex ante risk characteristics of the portfo

credit ratings and the bis capital adequacy reform agenda abstract in this paper we have revised and updated our earlier study in order to analyze the most recent second draft of the bis s proposed reforms of bank capital requirements we conduct monte carlo experiments using data on defaults and severity rates on publicly traded us corporate bonds over the 1981 1999 period analyzing the whole period and various sub periods it is clear that the most recent draft of the bis proposed reforms seriously overestimates the relative riskiness of high quality debt relative to low quality debt in the so called standardized model as a result the most recent proposal still contains inherent risk shifting taking incentives for banks

reforming bank capital requirements implications of basel ii for latin american countries the controversial proposal to overhaul the international accord regarding the regulation of bank capital was completed in 2004 and the thirteen basel committee member countries are set to implement the new accord known as basel ii by 2007 we develop a basel ii decision tree to guide policymakers facing the issue of whether to adopt the new accord we also estimate credit risk in banks across three latin american countries using a homogeneous methodology our findings suggest that latin america falls between the two main basel ii alternatives non g10 countries may thus wish to recalibrate basel ii s internal ratings based irb approach alternatively we propose an intermediate centralized ratings based crb approach we argue that the crb approach may be made compatible with basel ii by developing an integrated policy for provisions and capital we perceive a danger that basel ii may be adopted too quickly or inappropriately and may then represent the end of a standard rather than the establishment of a new one we suggest that a basel ii compatible crb approach with homogeneous definitions would enhance true comparability

a note on the size distribution of cities over time abstract the pareto law of income distribution is applied to the analysis of city size structures particular concern is focused on the pareto coefficient as a measure of interurban concentration and on how this varies through time within a nation on the basis of evidence from 12 nations it is argued that over time a nation tends to display a u shaped pattern in the degree of interurban concentration and that the higher a nation s overall level of development the more advanced it will be in the sequence of concentration consideration is given to the possibility of supporting these conclusions through cross sectional analysis among nations the various bases for the proposed temporal pattern of concentration within a nation are then explored

from gibrat s law to zipf s law through cointegration abstract this article investigates the role of cointegration in the context of urban growth processes it proposes the use of cointegration tests to distinguish between two versions of gibrat s law a standard formalization with growth shocks that are iid across time and cities and an alternative one with shocks that are only iid over time it then shows that city size distributions converge to zipf s law under the standard version of gibrat s law in contrast they are perfectly preserved under the alternative formalization an empirical application to french data provides support for non cointegrated city growth and thus for the standard formalization

estimating the distribution of total default losses on the spanish financial system abstract this paper quantifies the credit risk loss distribution of the spanish financial system by introducing a general monte carlo importance sampling is approach we start obtaining all the required information for the standard credit risk model then we quantify the loss distribution under the standard is method and allocate the total risk over the different institutions in the spanish financial system we extend the current is framework to deal with more general assumptions like random recoveries and market valuation we also study the variability of the risk measures over the business cycle and the possible variability due to the model parameters uncertainty our results show that this approach can be very useful for banking supervisors from a macroprudential point of view and that the risk allocation can vary considerably depending on the valuation model under analysis

intra industry information transfers associated with earnings releases abstract the impact that a firm s earnings releases have on the stock prices of other firms in its industry is examined for an identifiable sub set of firms the results are consistent with a significant information transfer occurring between the earnings release firm and the other firms in its industry this subset is identified by examining the impact of the release on the stock price of the announcing firm the magnitude of this impact is more significant for a sample of firms which have a larger percentage of their revenues in the same line of business as the earnings release firm vis a vis a sample with a lower percentage of their revenues from the same line of business alternative interpretations of the empirical results are also discussed the research findings have implications for information content and market efficiency research and for research on policy issues associated with disclosure regulation

risk based capital requirements for mortgage loans abstract we contribute to the debate over the reform of the basel accord by developing risk based capital requirements for mortgage loans held in portfolio by financial intermediaries our approach employs simulation of both economic variables that affect default incidence and conditional loss probability distributions results indicate that appropriate capital charges for credit risk vary substantially with loan characteristics and portfolio geographic diversification hence rules that offer little risk differentiation including the current basel i regime and standardized approach proposed in basel ii result in significant divergence between regulatory and economic capital these results highlight the incentive problems inherent in simplified methods of capital regulation

urban concentration agglomeration economies and the level of economic development there is a view among planners in the developing nations that the process of economic development invariably results in the concentration of population in one or two primal cities there is also however considerable disagreement over whether this apparent relationship is either necessary or desirable proponents on the one hand argue that concentrated urbanization strongly supports industrial development through the realization of scale and agglomeration economies 2 dissenters from this view feel that urban concentration creates serious social costs and results more from historical or political forces than economic ones in this case policies aimed at decentralizing growth can achieve social objectives without sacrificing economic efficiency despite these deliberations it is surprising that there has been little or no empirical study of urban concentration on either a longitudinal or cross national basis the major related work which exists is williamson s research on economic development and income inequality 3 williamson demonstrates that as economic growth begins inequality initially increases but then diminishes in the more advanced stages of development this coincides with hirschman s4 view that industrialization eventually spreads into more backward areas reduc

gaining ground poverty in the postwar united states official measures of poverty in the united states are compiled by the bureau of the census by comparing a household s income level to a prespecified threshold from a theoretical perspective it is more appropriate to evaluate the level of poverty using a consumption based measure of household welfare in this paper i evaluate the level of poverty using expenditure data from the consumer expenditure survey i find that consumption based poverty rates are much lower than those based on income the trend in the poverty rate in the united states is sensitive to the price index and equivalence scales used to adjust the poverty thresholds

the sec reversal of fasb statement no 19 an investigation of information effects it has become popular in recent years to assess the economic consequences of new financial reporting standards and disclosure requirements as reflected in stock price behavior while the motivation for such studies seems to be generally accepted there are serious problems both in designing studies to assess the capital market reaction to new accounting rules and in subsequently interpreting the results for policymaking the difficulties are largely due to the lack of tight models of how new financial accounting standards board fasb standards and securities and exchange commission sec releases should impact investor decisions within the context of efficient markets this generally leads the researchers to test for average abnormal stock returns upon the announcement of a new accounting rule across a sample of firms subject to the rule this empirical approach is exposed to two major dangers first the intrusion of confounding events can easily lead to rejection of the null hypothesis of no price response due to both the very general nature of the alternate hypothesis of average abnormal returns and the single event date

credit swap valuation this review of the pricing of credit swaps a form of derivative security that can be viewed as default insurance on loans or bonds begins with a description of the credit swap contract turns to pricing by reference to spreads over the risk free rate of par floating rate bonds of the same quality and then considers model based pricing the role of asset swap spreads as a reference for pricing credit swaps is also considered