a model of cognitive and operational memory of organizations in changing worlds this work analyzes and models the nature and dynamics of organizational memory as such an essential ingredient of organizational capabilities that determine strategic choices in different competitive environments there are two sides to it namely a cognitive side involving the beliefs and interpretative frameworks by which the organization categorizes the states of the world and its own internal states and an operational one including routines and procedures that store the knowledge of how to do things we formalize both types of memory by means of evolving systems of condition action rules and investigate their performance in different environments characterized by varying degrees of complexity and non stationarity broadly speaking in simple and stable environments memory does not matter provided it satisfies some minimal requirements in more complex and gradually changing ones having more memory provides an advantage however there is some critical level of environmental instability above which forgetfulness is evolutionary superior from the point of view of long term performance moreover above some modest complexity threshold stable and robust cognitive categorizations and routinized behaviour emerge

a hidden markov model of credit quality abstract this paper presents a hidden markov model of credit quality dynamics and highlights the use of filtering based estimation methods for models of this kind we suppose that the markov chain governing the true credit quality evolution is hidden in noisy or incomplete observations represented by posted credit ratings parameters of the model namely credit transition probabilities are estimated using the em algorithm filtering methods provide recursive updates of optimal estimates so the model is self calibrating the estimation procedure is illustrated with an application to a data set of standard poor s credit ratings

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

understanding corporate coherence theory and evidence abstract multiproduct firms are perceived to be coherent in their scope yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory this paper shows that as u s manufacturing firms grow more diverse they maintain a constant level of coherence between neighboring activities this finding runs counter to the idea that firms with many activities are generally more incoherent a framework is then presented which appeals to the nature of enterprise learning path dependencies and the nature of the selection environment to explain the ubiquity of coherent diversifiers

costly and bounded rationality in individual and team decision making the savage paradigm of rational decision making under uncertainty has become the dominant model of human behavior in mainstream economics and game theory however under the rubric of bounded rationality this model has been criticized as inadequate form both normative and descriptive viewpoints this paper sketches the historical roots and some current development of this movement distinguishing between attempts to extend the savage paradigm costly rationality and the need for more radical departures truly bounded rationality copyright 2000 by oxford university press

asset specificity and economic organization abstract this paper examines the optimization problem of firm and market organization in which both production cost and transaction cost differences are expressed as a function of asset specificity in general markets enjoy advantages by aggregating the demands of many buyers thereby realizing economies of scale or scope such production cost savings need to be assessed in relation to the transaction cost advantages that internal organization sometimes enjoys over markets in adapting to changed circumstances as it turns out both production cost economies and the transaction cost differences between firm and market organization vary systematically with the characteristics of the investments this paper employs a unified framework to assess the choice of organization form the condition of asset specificity is featured

the division of labor and voluntary production el objetivo de este trabajo es el de revisar algunas caracteriticas organizacionales de la produccion voluntaria tales como las del codigo abierto de las profesiones y de las comunidades cientificas para hacer esto el trabajo considera la produccion como division del trabajo en lugar de considerarla como una funcion de produccion el hallazgo consiste en que la produccion voluntaria exhibe 1 la contribucion de esfuerzo en lugar de la de productos 2 la auto seleccion en la contribucion del esfuerzo 3 una redundante division del trabajo caracterizada por un aprender haciendo social 4 una coordinacion jerarquia formal e informal

banker judgement versus formal forecasting models the case of country risk assessment abstract the allocation of credit to less developed countries depends upon lenders judgements of country risk research in psychology suggests that human judgement may be prone to bias this paper uses the institutional investor country credit ratings as indicators of banker judgement in terms of their ability to predict the emergence of arrears on external debt service it is shown that bankers are overly pessimistic about the creditworthiness of less developed countries multivariate statistical models have a higher overall predictive accuracy although they may arguably be outperformed by banker judgement when allowance is made for the differential costs of type i and type ii errors

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

analyzing the impact of credit migration in a portfolio setting abstract credit migration is an essential component of credit portfolio modeling in this paper we outline a framework for gauging the effects of credit migration on portfolio risk measurements for a typical loan portfolio we find credit migration can explain as much as 51 of volatility and 35 of economic capital we compare through the cycle migration effects implied by agency rating transitions with point in time migration implied by edf expected default frequency transitions and find that migration of point in time credit quality accounts for a greater fraction of total portfolio risk when compared with through the cycle dynamics in a stylized analytic setting we show that when controlling for pd term structure effects higher likelihood of moving away from the current credit state does not necessarily imply greater risk finally we review methods for generating high frequency transition matrices needed for analyzing instruments with cash flows or contingencies whose frequencies are asynchronous to an available transition matrix we further demonstrate that the naive application of such methods can result in material deviations to portfolio analytics

measurement estimation and comparison of credit migration matrices abstract credit migration matrices are cardinal inputs to many risk management applications their accurate estimation is therefore critical we explore two approaches cohort and two variants of duration one imposing the other relaxing time homogeneity and the resulting differences both statistically through matrix norms and economically using a credit portfolio model we propose a new metric for comparing these matrices based on singular values and apply it to credit rating histories of s p rated us firms from 1981 2002 we show that the migration matrices have been increasing in size since the mid 1990s with 2002 being the largest in the sense of being the most dynamic we develop a testing procedure using bootstrap techniques to assess statistically the differences between migration matrices as represented by our metric we demonstrate that it can matter substantially which estimation method is chosen economic credit risk capital differences implied by different estimation techniques can be as large as differences between economic regimes recession vs expansion ignoring the efficiency gain inherent in the duration methods by using the cohort method instead is more damaging than imposing a possibly false assumption of time homogeneity

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

on the nature of technologies knowledge procedures artifacts and production inputs in the most general terms a technology can be seen as a human constructed means for achieving a particular end such as the movement of goods and people the transmission of information or the cure of a disease these means most often entail procedures regarding how to achieve the ends concerned particular bits of knowledge artifacts and of course specific physical inputs necessary to yield the desired outcomes in fact the procedures and the underlying knowledge they draw upon the physical and intangible inputs implicated and the performance characteristics of outputs are different but complementary aspects of what technology is these things are the object of this short essay copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the implications of corporate bond ratings drift examination of the ratings of over 7000 bonds issued in the 1970 88 period reveals that some 40 to 80 of bonds initially rated bb and above can be expected to experience at least one rating change in the 1 0 years following issuance a rated bonds appear to be more stable than aaarated bonds bb rated bonds the highest junk bond category are the least stable furthermore bonds initially rated a and above have a greater tendency to be downgraded than to be upgraded among the investment grades only bonds initially rated bbb tend to be upgraded more than they are downgraded as for bonds originally rated non investment grade junk there does not appear to be a tendency toward either upgrades or downgrades in the sample period

the kinetics of capital formation and economic organisation we examine the inseparability of capital formation and economic organisation in capitalist economic systems capital possesses a complex multilevel micro meso macro structure that is always in the process of transformation levels of the capital structure are interdependent and interactive correspondingly economic organisation at these various levels is not an independent entity in itself it occurs as a by product and structural aspect of capital formation rather than the transaction our focal unit of analysis is a production notion the capital combination that emanates from the kinetic organisation of material by human agency we consider the behaviour of entrepreneurs as causal agents in specifying and appraising potential capital combinations reorganising production and scrapping capital entrepreneurs combinatorial actions often change existing materials to serve functions for which they were not originally designed thereby changing capital structures and the shape and boundaries of economic organisation at different levels of economic complexity capital is created in a dynamic knowledge generation process that depends on entrepreneurs perceptions of gaps in the capital structure copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the importance and subtlety of credit rating migration abstract bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies if deemed warranted changes in ratings are assigned after the review a change in a rating reflects the agency s assessment that the company s credit quality has improved upgrade or deteriorated downgrade a coincident effect in some proximity to the date of the rating change is a change in the price of the issue this article reports on an in depth investigation of the expected ratings changes drift over time our analysis compares rating changes from the two major agencies moody s and s p over the period 1970 1996 for the first time results from several studies which have documented and analyzed these data patterns are contrasted depending upon which study one uses the results and implications can be very different we expect that the findings will have implications for such diverse practitioners as bond investors who concentrate on any or all segments of the corporate bond market eg high yield bond and crossover investors mark to market analysts and traders in the new and growing market for credit risk derivatives and for the many analysts who properly view that credit quality assessment involves the entire spectrum of possible outcomes not just default a follow up study will analyze in greater depth two critical characteristics of the rating drift phenomenon these are unexpected as well as expected rating migration patterns and also the implied impact on the price of the fixed income instrument

risk perception and the financial system i examine how a country s financial system influences assessments of firm level risk consistent with theories of financial intermediation i find that firms located in a country with a bank oriented financial system are perceived as posing a lower credit risk and correspondingly are assigned higher credit ratings than otherwise similar firms in a market oriented setting even after considering elements of a country s legal infrastructure that relate to creditor protection and insolvency proceedings the financial system remains an important determinant of credit rating assignment the results are robust to the inclusion of several firm level controls including financial performance industry ownership concentration political connections and the ease with which the firm s assets can be monitored

duration models for credit rating migration evidence from the financial crisis we introduce a specific duration model to analyze the prediction of the credit rating migration we consider hazard rate processes based on multi state autoregressive conditional duration models to take account of the economic context we model the conditional mean of the duration between two ratings by means of a latent process to this purpose a dynamic ordered probit model is developed to describe the directions taken by the ratings in the presence of multiple states as an illustration we study the migration of credit rating during periods before and after the financial crisis jel c14 c41 g24

estimating expected and unexpected losses for agricultural mortgage portfolios the financial crisis that began in 2008 placed renewed emphasis and responsibility on financial institutions to assess financial risks and provide evidence of adequate capital to accommodate those risks financial regulators in the united states are now requiring financial institutions with mortgage portfolios to show they have set aside sufficient capital reserves to meet expected and unexpected losses caused by credit defaults various methods exist to estimate the loss risk of agricultural loan portfolios and those methods were used to estimate the economic capital necessary to cover loan losses for a financial institution combining estimates of probability of delinquency probability of loss loss given default and exposure at default from various models one year ahead expected loss estimates were derived value at risk and expected shortfall estimates were obtained from loss distributions to arrive at unexpected loss estimates previous empirical studies reported in the literature often only measured the probability of default but the other components are essential to determine the necessary economic capital to meet expected and unexpected loan losses results show that measures of liquidity solvency profitability and controls for unobserved heterogeneity are important when modeling delinquency while measures of leverage state level economic output and controls for unobserved heterogeneity are important when modeling loss given default predicted portfolio expected losses were greatest for the regression model combination that included the loss given default linear regression static variable models and least for the regression model combination using static and time varying variables these results should prove useful in determining and assessing capital reserve requirements for financial institutions with mortgage portfolios

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

a coupled markov chain approach to credit risk modeling we propose a markov chain model for credit rating changes we do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process the parameters of the model are estimated by a maximum likelihood approach using historical rating transitions and heuristic global optimization techniques we benchmark the model against a glmm model in the context of bond portfolio risk management the proposed model yields stronger dependencies and higher risks than the glmm model as a result the risk optimal portfolios are more conservative than the decisions resulting from the benchmark model

can web courses replace the classroom in principles of microeconomics the proliferation of economics courses offered partly or completely online arnold katz and william e becker 1999 raises important questions about the effects of the new technologies on student learning do students enrolled in online courses learn more or less than students taught face to face can we identify any student characteristics such as gender race act scores or grade averages that are associated with better outcomes in one technology or another how would the online or face to face students fare if they had taken the course using the alternative technology this paper addresses these questions using student data from our principles of microeconomics courses at michigan state university

structure learning and the speed of innovating a two phase model of collective innovation using agent based modeling continual increase in the complexity of technologies and innovations has resulted in actors i e individuals or organizations becoming more dependent on other actor s knowledge and skills to complement their own skills in the innovation process as a result networks have become more and more prominent in affecting the innovation process conceptualizing innovation as a search and learning process that results in a successful product we introduce a two phase model of collective innovation that accounts for the deliberateness of the innovation process using agent based modeling we explore how interaction structure among a group of actors affects the speed at which the group can collectively innovate in addition we present results from counterfactual simulations to highlight the importance of deliberate search and changing realized connections in modeling collective innovation process moreover we discuss the effects of the structure under different mechanisms of learning and different levels of actor s learning capabilities copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the probability of bankruptcy a comparison of empirical predictions and theoretical models abstract the last decade has witnessed the development of many empirical models to predict corporate bankruptcy and of several bankruptcy theories this paper reviews and integrates these two strands of research and finds a substantial amount of overlap however the overlap is not perfect the paper presents a new theory of bankruptcy that appears to fit the data better the paper also suggests directions for future empirical and theoretical research

virtual classrooms how online college courses affect student success online college courses are a rapidly expanding feature of higher education yet little research identifies their effects relative to traditional in person classes using an instrumental variables approach we find that taking a course online instead of in person reduces student success and progress in college grades are lower both for the course taken online and in future courses students are less likely to remain enrolled at the university these estimates are local average treatment effects for students with access to both online and in person options for other students online classes may be the only option for accessing college level courses

the value of postsecondary credentials in the labor market an experimental study we study employers perceptions of the value of postsecondary degrees using a field experiment we randomly assign the sector and selectivity of institutions to fictitious resumes and apply to real vacancy postings for business and health jobs on a large online job board we find that a business bachelor s degree from a for profit online institution is 22 percent less likely to receive a callback than one from a nonselective public institution in applications to health jobs we find that for profit credentials receive fewer callbacks unless the job requires an external quality indicator such as an occupational license jel i23 i26 j24 j44 j63 m51

can online learning bend the higher education cost curve we examine whether online learning technologies have led to lower prices in higher education using data from the integrated postsecondary education data system we show that online education is concentrated in large for profit chains and less selective public institutions we find that colleges with a higher share of online students charge lower tuition prices we present evidence of declining real and relative prices for full time undergraduate online education from 2006 to 2013 although the pattern of results suggests some hope that online technology can bend the cost curve in higher education the impact of online learning on education quality remains uncertain

the slow pace of rapid technological change gradualism and punctuation in technological change discussions of technological change have offered sharply contrasting perspectives of technological change as gradual or incremental and the image of technological change as being rapid even discontinuous these alternative perspectives are bridged using the punctuated equilibrium framework of evolutionary biology using this framework it is argued that the critical event is not a transformation of the technology but speciation the application of existing technology to a new domain of application as a result of the distinct selection criteria and the degree of resource abundance in the new domain a new technological form may emerge the new technological form may be able to penetrate other niches and in particular may precipitate a process of creative destruction and out compete prior technologies this framework is applied to an historical study of wireless communication from the early experimental efforts of hertz to the modern development of wireless telephony

how to get what you want when you do not know what you want a model of incentives organizational structure and learning in this paper we present a model of the interplay among learning managerial intervention and the allocation of decision rights in the context of a generalized agency problem within this context actors face not only conflicting interests but also diverging cognitive visions of the right course of action we assume that a principal may obtain the implementation of desired organizational policies by means of appropriate design of the allocation of decisions or by means of costly intervention through authority or incentives and we analyze their consequences for organizational control and learning we show that the structure of allocation of decision rights is very powerful in terms of control but when the principal is uncertain about the course of action organizational structure and managerial intervention complement each other in nontrivial ways and must be carefully tuned we also show that there is a general advantage in maximizing the partitioning decision rights because it allows both higher control and higher levels of learning

can r d expenditure avoid corporate bankruptcy comparison between japanese machinery and electric equipment industries using dea discriminant analysis abstract this study compares data envelopment analysis discriminant analysis dea da with altman s financial ratio analysis to identify the position of dea da in financial performance analysis then this study applies dea da to examine whether research and development r d expenditure influences the financial performance of japanese machinery industry and electric equipment industry the investigation of dea da identifies that the r d expenditure makes a positive impact on the financial performance of japanese machinery industry but it yields a negative impact on japanese electric equipment industry the result implies that the influence of r d expenditure on financial performance including the avoidance of bankruptcy depends upon the type of a manufacturing industry a rationale regarding why such a discrepancy has occurred between the two japanese manufacturing industries is because the life cycle of electric equipments is shorter than that of the machinery products furthermore the electric equipment industry faces more fierce competition than the machinery industry this study suggests that the japanese electric equipment industry needs r d expenditure for competition in its global market however it is a high risk and high return investment in contrast the japanese machinery is a technologically mature industry where the r d expenditure influences positively its financial performance in this sense the r d expenditure is a low risk and necessary investment

division of labor organizational coordination and market mechanisms in collective problem solving abstract this paper builds upon a view of economic organizations as problem solving arrangements and presents a simple model of adaptive problem solving driven by trial and error learning and collective selection institutional structures and in particular their degree of decentralization determine which solutions are tried out and undergo selection it is shown that if the design problem at hand is complex in terms of interdependencies between the elements of the system then a decentralized institutional structure is unlikely ever to generate optimal solutions and therefore no selection process can ever select them we also show that nearly decomposable structures have in general a selective advantage in terms of speed in reaching good locally optimal solutions

the division of labor coordination costs and knowledge this paper considers specialization and the division of labor a more extensive division of labor raises productivity because returns to the time spent on tasks are usually greater to workers who concentrate on a narrower range of skills the traditional discussion of the division of labor emphasizes the limitations to specialization imposed by the extent of the market we claim that the degree of specialization is more often determined by other considerations especially emphasized are various costs of coordinating specialized workers who perform complementary tasks and the amount of general knowledge available