bank spread with uncertain deposit level and risk aversion abstract this paper derives a model of the banking firm under uncertainty and risk aversion the selection of the bank s optimal spread between loan and deposit rates is emphasized the model s results provide some implications for bank asset quality capital regulation and deposit insurance for example it is shown that increases in the level of equity capital tend to increase the bank s spread under dara this implies an improvement in bank asset quality on the other hand as the deposit supply function becomes more volatile the bank s spread narrows which implies a decline in the quality of the bank s assets

rural nonfarm employment and incomes in latin america overview and policy implications abstract rural nonfarm employment rnfe and incomes rnfi are crucial to latin american rural households the 11 rural household income studies in this volume reviewed in this paper use 1990s data and show that rnfi averages 40 of rural incomes rnfi and rnfe have grown quickly over the past three decades the review of evidence provided some surprising departures from traditional images of nonfarm activities of latin american rural households in terms of shares of rural incomes 1 nonfarm wage incomes exceed self employment incomes 2 rnfi far exceeds farm wage incomes 3 local rnfi far exceeds migration incomes 4 service sector rnfi far exceeds manufactures rnfi these findings suggest the need for more development program attention to wage employment in the service sector versus the traditional focus on small enterprise manufactures moreover poor households and zones tend to have higher shares in their incomes but lower absolute levels of rnfi as compared to richer households and zones the rnfe of the poor tend to be the low paid nonfarm equivalent of semi subsistence farming raising the capacity of the poor to participate in the better paid types of rnfe is crucial via employment skills training education infrastructure credit finally rnfe has grown fastest and been most poverty alleviating where there are dynamic growth motors in particular in the agricultural sector but also in tourism links to urban areas mining and forestry this means that developing rnf jobs cannot be done at the expense of programs promoting agricultural development

the pricing of deposit insurance considering bankruptcy costs and closure policies the paper aims to study the pricing issue of deposit insurance with explicit consideration of bankruptcy costs and closure policies full coverage from deposit insurance is imposed by many regulators to stabilize the banking system in the current financial crisis despite of the potential moral hazard problems we argue that bankruptcy cost is an important factor in pricing deposit insurance especially when the insured institution is insolvent applying the isomorphic relationship between deposit insurance and put option we first derive a closed form solution for the pricing model with bankruptcy costs and closure policies then we modify the barrier option approach to price the deposit insurance in which the bankruptcy cost is set as a function of asset return volatility and more realistic closure policies considering possible forbearance can be accounted for the properties of the models are supported by numerical simulations and are consistent with the risk based pricing scheme

rural infrastructure transactions costs and market participation in kenya abstract we develop a conceptual framework for quantifying fixed transactions costs facing semisubsistence households using household survey data from a sample of 324 kenyan maize farmers we jointly estimate household supply and demand schedules and transactions costs econometric results indicate that on average the ad valorem tax equivalent of fixed transactions costs for households in our sample is 15 additional analysis indicates that economic isolation is positively associated with the size of transactions costs to the best of our knowledge ours are the first empirical estimates of the magnitude of fixed transactions costs for agricultural households in developing countries

compensatory inter vivos gifts parents transfer motives are important for understanding e g macroeconomics income re distribution savings and public finance using data from six biennial waves of the health and retirement study 1992 2002 we estimate censored regression models with nested multilevel error components first we interpret our findings that inter vivos transfers from parents to children are gifts rather than temporary help to overcome liquidity constraints second inter vivos gifts are compensatory in the sense that lifetime poorer children will receive higher transfers than their lifetime richer siblings third inter vivos gifts do not however make up the entire difference in lifetime incomes copyright 2009 john wiley sons ltd

the timing and division of parental transfers to children abstract we find parents divide various assets differently among children inter vivos transfers cash gifts and co residence are made preferentially to poorer children in contrast transfers made at death insurance benefits and wills are awarded to children irrespective of income differences

risk shifting incentives of depository institutions a new perspective on federal deposit insurance reform abstract we characterize the risk shifting incentives of a depository institution as arising fundamentally from the existence of limited liability and the associated convex payoff to equity holders this risk incentive feature is unchanged by deposits being insured and hence excessive risk taking by depository institutions is not solely attributable to the flat rate insurance premium consequently the incentive problem cannot be resolved through a risk based insurance premium contrary to the prevailing view we propose a solution that eliminates risk shifting through an optimal tax structure and specify a corresponding insurance premium that is revenue neutral from the social planner s regulator s standpoint the solution is derived in the context of a social objective function that trades off the benefits of liquidity services by banks and the unique informational role of bank loans with the costs of investment distortions engendered by risk shifting

inter vivos transfers and intended bequests abstract empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior however these two models are unable to explain the strong tendency for inter vivos transfers to be negatively related to the income of the recipient while bequests bear no relationship to income this paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone in particular the model developed here predicts differing behavior with respect to inter vivos transfers and bequests due to liquidity constraints and uncertainty about the recipient s permanent income the empirical work uses data from the health and retirement study and the asset and health dynamics study the patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well off children while bequests are divided equally across children further the results support the predictions of the model in that differences in inter vivos transfers arise from differences in current income while differences in bequests result when indicators of the children s permanent incomes differ

deposit insurance regulation and moral hazard in the thrift industry evidence from the 1930 s this paper compares risk taking of insured and uninsured thrifts operating under strict and less strict regulatory regimes during the 1930 s analysis of balance sheet data indicates that while newly insured thrifts undertook less risk than their uninsured counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively permissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively premissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts given the current system of deposit insurance the results suggest that effective regulation and supervision will play a key role in maintaining thrift stability in the 1990s copyright 1992 by american economic association

capital regulation and deposit insurance abstract a model of deposit insurance in which the bank closure rule can systematically deviate from the economic insolvency condition used in earlier models is developed simulation of that model for plausible parameter values suggests that the failure to close banks on a timely basis has a profound effect in increasing the insurer s liability the implications of these results for capital regulation are discussed

considerations of cost trade offs in insurance solvency surveillance policy abstract we propose a process for identifying potentially insolvent insurers on a cost effective basis a loss cost function is developed such that the effectiveness of monitoring is maximized relative to a cost constraint the loss cost function is supported by a model that provides a rank ordering of financial institutions according to their probability of insolvency when tested against a full sample of property liability insurance companies the procedure provides information critical to maximizing the effectiveness of regulatory resources available for solvency surveillance and performs well as a predictor of insolvency likewise the rank ordering of insurers overcomes an estimation problem critical to establishing risk adjusted guaranty assessments

the economics of workout lending lenders are forced to consider a workout loan when a borrower loses access to financial markets and must seek loans from existing creditors to continue servicing outstanding loans a model of the loan decision is developed that distinguishes socially useful from socially wasteful workout loans the analysis is extended to examine two collective action problems that may arise when many lenders have claims on a troubled borrower the paper concludes with a consideration of the implications of the model for the establishment of prudential lending limits and of policies to stimulate new lending to troubled debtor countries copyright 1989 by ohio state university press

targeting public investments by agro ecological zone to achieve growth and poverty alleviation goals in rural india abstract this paper shows that improved technology and rural infrastructure have made important contributions to agricultural growth and poverty reduction in india however these effects have varied widely across agro ecological zones in the past the government has devoted more resources to irrigated areas and this has led to significant production growth and poverty reduction in those areas however as investments in irrigated areas continue to increase their marginal returns diminish and it is now in many of the rainfed areas including some of lower agricultural potential where the marginal returns from additional government investments in technology and infrastructure are largest

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

returns to investment in less favored areas in developing countries a synthesis of evidence and implications for africa abstract a large proportion of world s population lives in marginal or less favored areas these areas are of home to the poorest segment of the population particularly in rural areas in the past government has targeted their resources mostly to the high potential or irrigated areas these investments have generated rapid growth in agricultural production for example the so called green revolution in south and southeast asia in the 1970s and 1980s which in turn has helped to alleviate rural and urban poverty however as investments continue to increase in these favored areas their marginal returns have begun to decline and environmental problems are emerging evidence shows that it is in the marginal areas or less favored areas where many investments may have higher returns today these investments may have even larger impacts on poverty reduction and environmental protection as poor people are increasingly concentrated in the marginal areas where natural resources have already been severely degraded this study synthesizes some recent studies from india and china on the relative returns to investments in favored and less favored areas and presents some preliminary evidence from uganda and offers some policy implications for africa on how governments and international donors can reprioritize their investment portfolio in order to achieve multiple goals of growth poverty reduction and environmental protection

market based risk adjusted examination schedules for depository institutions abstract among deposit insurance reforms considered by economists and policymakers have been prompt resolution of problem institutions risk adjusted deposit insurance premiums and risk adjusted capital requirements some economists have further suggested that risk adjusted deposit insurance premiums or capital ratios be calculated by applying option pricing models to stock market data alternatively the option methodology could be used to establish a risk based examination schedule whereby riskier banks would be examined on a more frequent basis such an examination schedule would be consistent with prompt resolution strategies since it would relate the frequency of examination and closeness of supervision to banks riskness this paper demonstrates how a risk adjusted examination schedule could be derived the paper also considers alternatives to the assumptions regarding examination policies made in standard applications of the option model which may not be valid for the sample periods previously used it discusses potential resulting biases and ways to mitigate their effects

bank capital regulation in a barrier option framework abstract the barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank the regulator insurer of a bank owns a down and in call option on the bank assets which can be balanced against the expected coverage cost raising the regulatory barrier critical asset level triggering bank closure leads to a transfer of wealth from stockholders to the insurer and reduces stockholder incentives to increase asset risk empirical tests on a sample of 152 one bank holding companies show that regulatory barriers are priced in the stock market and are inversely related to tier 1 leverage ratios

evidence on youth employment earnings and parental transfers in the national longitudinal survey of youth 1997 the employment behavior of youths under age 16 has been neglected in the literature this paper uses data from the new national longitudinal survey of youth 1997 nlsy97 to examine the employment and earning behavior of youths aged 12 16 as well as the cash transfers received from their parents nearly half the youths 47 percent earned income in 1996 as youths age the amount of money they control increases as earnings grow faster than allowances results also suggest that a negative relationship exists both between youth employment and parental allowances and between earnings and parental allowances for youths aged 14 16

creating an enabling environment policy conditions for less favored areas abstract within the rural areas those with a low productive potential usually home to poor agricultural households with limited access to assets are often the core of rural poverty and under constant threat of resource degradation there is ample evidence that neither trickle down effects in high potential areas nor structural adjustment measures have generated much poverty reduction in these less favored areas lfas often due a lack of attention to the development of factor and commodity markets sustainable and pro poor development of lfas therefore poses formidable challenges and requires special measures to achieve an enabling institutional and policy environment it needs to be based on viable sources of growth that imply considerable investments in physical and human capital and appropriate technology recognize positive externalities and add equity and natural resource management concerns in a context of heterogeneity to establish policy conditions that favor such development the role of and experience with major policy interventions incentives and institutions relevant to lfas is reviewed and an attempt is made to generalize these findings to this effect the different interventions are grouped into three broad categories viz price and market policies public services and investment and institutions and governance while countries should adopt the relevant market and trade policies the case is made for greater awareness of the adverse impact these policies can have in lfas and on their poor and complementary policies and investments need to be put in place to buffer or offset adverse outcomes key complementary interventions include public investments in infrastructure human capital and technology to enhance the competitiveness of lfas and policies to improve their market access there is also need for appropriate phasing of policy and market reforms to give people time to adjust and effective safety nets to cushion loss of livelihood options

deregulation and bank financial policy the standard view that banks can value maximize by exploiting non risk rated deposit insurance ignores the potential loss of a valuable bank charter due to insolvency recognition of this effect changes the bank s optimal financial policy and can induce extreme risk averting as well as risk taking behavior however as the value of the bank charter falls the risk taking strategy is more apt to dominate therefore current deregulation of the banking industry by easing entry and devaluing charters holds the potential for increases in the incidence of insolvency unless offsetting policies are instituted

a framework for assessing credit risk in depository institutions toward regulatory reform abstract this paper develops and illustrates a new method for evaluating the credit risk borne by depository institutions that may prove to be an important element in a regulatory mechanism sensitive to risk in our framework depository institutions are forced to bear the costs of their risk exposure and hence to internalize this cost when extending loans using various loan portfolios and alternative macroeconomic scenarios we present numerical calculations demonstrating the ability of our framework to capture variations in risk exposure and highlighting the significance of portfolio concentrations these calculations are based on an important new source of information that permits an econometric analysis of loan losses by industry

correlated default risks and bank regulations bank regulatory design relies critically on bank risk modeling traditionally the bank s aggregate value is assumed to obey an exogenously specified process e g a lognormal diffusion we demonstrate that this assumption is generally invalid given the truncated and correlated payoff structure of individual bank loans instead the bank s aggregate terminal payoff is significantly left fat tailed this skewness remains even when the bank holds an infinitely large number of loans in its portfolio unless they are uncorrelated by ignoring skewness in bank payoffs deposit insurance premia and capital requirements have traditionally been significantly mis calculated

the implied reserves of the bank insurance fund abstract option models of deposit insurance pricing view assessment rates as put option premiums however such models ignore the risk of guaranty fund default this paper attempts to link risk based premiums with guaranty fund reserves in a partial equilibrium setting by employing a methodology based on options with credit risk the value of full insurance per coverage period is expressed as a standard options premium and is decomposed into two parts the explicit part is due to the available assets reserves of the guaranty fund while the implicit part comes from federal support contingent on the adequacy of reserves at the end of the coverage period implied reserves are derived under an exogenous insurance coverage rate as a policy parameter the method is illustrated on a sample of 40 large bank holding companies and an extension to the case of several insured banks is provided

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

parental altruism and inter vivos transfers theory and evidence this paper uses psid data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism specifically the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child s income results in the parents increasing their transfer to the child by one dollar this restriction on parental and child transfer income derivatives is derived for the standard altruism model augmented to include uncertainty and liquidity constraints these additional elements pin down the timing of inter vivos transfers the method used to estimate income transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism the findings strongly reject the altruism hypothesis redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents transfer to the child far less than the one dollar increas

agricultural trade liberalization price changes and environmental effects many analyses of agricultural trade liberalization have been undertaken but few have considered the effects on the environment for the developed countries reducing the degree of protection would result in less intensive production therefore environmental stress would be reduced a reduction of trade barriers in industrial countries would result in higher world prices and in a somewhat lower world price variability assuming initially no policy changes for developing countries the question is how the liberalization would affect the environment higher prices in developing countries increase the level of production by intensifying production particularly in the commercial sector and by an area expansion both result in negative environmental effects these could be partly offset by an increase in hired labor in the commercial sector which might reduce pressure at the frontier and on marginal lands as well as by the income effect these off setting effects may be small however the direction of the overall environmental effects cannot be determined unambiguously without empirical examination at the global level the beneficial economic effects of agricultural trade liberalization probably outweigh the expected negative environmental effects in developing countries but this cannot be unambiguously established without valuation

deposit insurance pricing and social welfare abstract recent literature has established that financial disruption has real costs which justify government intervention in the financial sector one form of government intervention is deposit insurance in this paper we determine the optimal pricing and subsidy of deposit insurance in a social welfare context the main conclusion is that optimal deposit insurance need not be actuarially fair in an economy with a real and a financial sector we consider the effects of taxation and social political weights of the sectors we analyze two policy tools government supervision and deposit insurance pricing

altruism and environmental risks to health of parents and their children abstract this paper tests an equilibrium condition from a model that incorporates 1 altruism of parents toward their young children and 2 household production of latent health risks the model demonstrates that an altruistic parent s marginal rate of substitution between an environmental health risk to herself and to her child is equal to the ratio of marginal risk reduction costs econometric estimates support this prediction based on data from a stated preference survey involving 488 parents of children aged 3 12 years this outcome implies that parents reallocate family resources to at least partly offset the effectiveness of public programs that aim to reduce their children s environmental risks

farm nonfarm linkages in rural sub saharan africa this paper is an accumulation over the past 25 years of a body of detailed work examining the structure of africa s rural nonfarm economy first it systematically reviews empirical evidence on the nature and magnitude of the african rural nonfarm economy it then explores differences across locality and size across countries and over time in an effort to assess likely patterns of growth a subsequent review of key production and consumption parameters allows an estimate of the magnitude of the agricultural growth multipliers in africa the paper concludes with a brief discussion of policies and programs that will be necessary if farm nonfarm growth linkages are to achieve their full potential

stock versus mutual ownership structures the risk implications this article provides empirical tests of the risk differences between two types of ownership structure in the property liability insurance industry empirical evidence is provided that suggests stock insurers have more risk than mutuals where the risk inherent in future cash flows is proxied by the variance of the loss ratio further evidence suggests that stock insurers write relatively more business than do mutuals in lines and states having higher risk copyright 1993 by university of chicago press

deposit insurance and risk taking behavior in the credit union industry abstract this paper examines the relationship between deposit insurance and risk taking behavior within the credit union industry time series tests employing industry average financial ratios for federal and state credit unions did not support the increased risk taking hypothesis although federal credit union capital declined immediately following the adoption of deposit insurance this was most likely the result of reduced capital requirements not deposit insurance liquidity and loan delinquency ratios had a negative time trend coefficient implying a decline in risk taking behavior during the post insurance period cross sectional test results employing iowa state chartered credit union data indicated that insured credit unions were better capitalized and more liquid than their uninsured counterparts overall there was no evidence that the adoption of deposit insurance increased the risk taking behavior of credit unions

financial institution structures in a developing two tier banking system an empirical perspective from eastern europe abstract an empirical analysis of the structure of hungarian financial institutions reveals them to be very profitable across all groupings although capital and liquidity ratios are on average low in comparison to west german standards the capital adequacy problems appear to be concentrated in the former affiliates of the central bank the thinness and underdevelopment of the hungarian securities market may hinder the capacity of the institutions to raise liquidity and capital ratios as well as inhibit the emergence of competitors seeking high levels of profitability

a note on soil depth failing markets and agricultural pricing abstract due to implementation of structural adjustment programs prices of agricultural products have increased in many developing countries from an environmental point of view it is an open question whether these price increases stimulate sustainable agriculture in the context of a simple model that includes labour intensive investments in soil conservation it is demonstrated that rising prices for agricultural outputs unambiguously increase soil conservation in the steady state with imperfect labour markets the reverse effect may occur giving rise to a conflict between agricultural reform programs and soil conservation

optimal bank interest margin under capital regulation and deposit insurance this paper examines the relationships among capital regulation deposit insurance and the optimal bank interest margin in a model where loan losses are the source of uncertainty changes in capital regulation or deposit insurance premiums have direct effects on the bank s interest margin an increase in bank capital requirement or in deposit insurance premiums results in a reduced interest margin under nonincreasing risk aversion comparative static analysis also explores the relation between asset quality and interest margin it is shown that a mean preserving spread of the distribution of loan losses results in a reduced margin

capital regulation and insured banks choice of individual loan default risks abstract how bankers choose the riskiness of their individual assets is an important question it is well known that fixed premium deposit insurance leads a bank to prefer a high variance asset portfolio but its effect on individual asset choice has not been carefully evaluated this paper demonstrates how bank examination procedures and capital adequacy standards can make the value of a bank s deposit insurance contract concave in individual asset risks insured bankers may therefore have a rational preference ceteris paribus for relatively safe individual loans even while they prefer risky portfolio returns the model s implications for loan securitization and the federal regulators new risk based capital standards are discussed

the effects of parent company business on occupational credit union behaviour 1986 the effects of parent company business on occupational credit union behaviour applied economics vol 18 no 12 pp 1311 1321

technology market policies and institutional reform for sustainable land use in southern mali to identify appropriate interventions that support sustainable land use a farm household modelling approach is applied to analyze micro economic supply reactions to various policy measures the modelling framework links agro technical and economic data and takes both production and consumption decisions into account allowing land use and production technology adjustments in accordance with farm household objectives different types of farm households are distinguished on the basis of their resource endowments savings coefficients and time discount rate actual and alternative sustainable cropping and livestock activities for different weather regimes are defined for southern mali the effects on sustainable land use and expected farm household welfare of adopting alternative technologies and modifying prices transaction costs access to credit and land taxes are demonstrated even with full information on sustainable technologies strong policy interventions are required to halt soil degradation structural policies proved to be more effective than price policies to reduce soil degradation while maintaining positive income effects when prices are determined endogenously structural policy loses some effectiveness as an incentive for sustainable land use due to the effect of additional supply on local cereal and meat prices

is the extended family altruistically linked direct tests using micro data this paper uses panel study of income dynamics data on parents and their adult children to test the standard altruism model this model predicts that within the extended family the distribution of consumption is independent of the distribution of resources the authors findings strongly reject this prediction copyright 1992 by american economic association

the federal deposit insurance fund that didn t put a bite on u s tax payers abstract unlike the federal savings and loan insurance corporation and the bank insurance fund the national credit union share insurance fund ncusif survived the 1980s without falling into a state of accounting insolvency this paper analyzes how differences in incentive structure constrain the attractiveness of interest rate speculation and other risk taking opportunities to managers and regulators of credit unions despite these better incentives robust present value calculations establish that ncusif fell into economic insolvency during the mid 1980s besides calculating the extent of this insolvency the paper also seeks to explain why after ncusif became insolvent it could rebuild its reserves without an explicit or implicit taxpayer bailout our explanation turns on cross industry coinsurance responsibilities and the shallowness of the fund s observed insolvency relative to industry net worth we identify forces in the decisionmaking environment tending to limit the depth and duration of unresolved insolvencies at individual credit unions managerial opportunities to benefit personally from taking risks that would flow through to ncusif are constrained by difficulties in converting a credit union to stockholder form and by the intensity of proactive monitoring of troubled credit unions by sister institutions and other private coinsurers we conjecture that expanded use of coinsurance and private monitoring could reduce taxpayer loss exposure elsewhere in government deposit insurance systems