Climate change

At the Copenhagen conference our leaders failed to agree on a course of firm action against climate change. We present three articles on the post-Copenhagen world. In the first of them, Richard Chandler, Jonathan Rougier and Mat Collins describe statistical work that still needs to be done.     

On the Measurements of Board Composition: Poor Consistency and a Serious Mismatch of Theory and Operationalization

Over two dozen operationalizations of board composition can be identified from the empirical literature. A structural equations confirmatory factor analysis (LISREL 8.03) suggests that these operationalizations do not constitute a single construct of board independence. Instead, analyses strongly indicate three separate constructs. Common operationalizations of board composition, then, are neither tenable surrogates for one another nor are they interchangeable. Implications for empirical aggregation of studies, theory/measurement convergence, and the current corporate governance public policy debate are discussed.     

Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment

Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of hidden information and hidden action problems in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers to former clients of a major South African lender along three dimensions: (i) an initial “offer interest rate” featured on a direct mail solicitation; (ii) a “contract interest rate” that was revealed only after a borrower agreed to the initial offer rate; and (ii) a dynamic repayment incentive that was also a surprise and extended preferential pricing on future loans to borrowers who remained in good standing. These three randomizations, combined with complete knowledge of the lender's information set, permit identification of specific types of private information problems. Our setup distinguishes hidden information effects from selection on the offer rate (via unobservable risk and anticipated effort), from hidden action effects (via moral hazard in effort) induced by actual contract terms. We find strong evidence of moral hazard and weaker evidence of hidden information problems. A rough estimate suggests that perhaps 13% to 21% of default is due to moral hazard. Asymmetric information thus may help explain the prevalence of credit constraints even in a market that specializes in financing high‐risk borrowers.     

Consumption Over the Life Cycle

This paper estimates a structural model of optimal life‐cycle consumption expenditures in the presence of realistic labor income uncertainty. We employ synthetic cohort techniques and Consumer Expenditure Survey data to construct average age‐profiles of consumption and income over the working lives of typical households across different education and occupation groups. The model fits the profiles quite well. In addition to providing reasonable estimates of the discount rate and risk aversion, we find that consumer behavior changes strikingly over the life cycle. Young consumers behave as buffer‐stock agents. Around age 40, the typical household starts accumulating liquid assets for retirement and its behavior mimics more closely that of a certainty equivalent consumer. Our methodology provides a natural decomposition of saving and wealth into its precautionary and life‐cycle components.     

Ackoff's Fables revisited: stories to inform operational research practice

This paper considers Ackoff's Fables, a set of short stories published by Ackoff in 1978 as guides to creative problem solving. The paper argues that storytelling of this kind contributes usefully to management and MS/OR education, before addressing how such Fables might be interpreted. It is demonstrated, using one of Ackoff's Fables, The Smart Jackass, for illustrative purposes, that interpretation of even apparently straightforward stories such as these is not unambiguous. The Fables can be interpreted in a multitude of different and sometimes contradictory ways, and the truths they might contain are not self-evident. Yet, as the basis for discussion, they still have much to offer as educational tools. The paper concludes with a discussion of literal truth in stories, and presents a classification of story types according to their relationship to literal truth.     

Environmental Tobacco Smoke: Exposure-Response Relationships in Epidemiologic Studies

Demonstration of a dose-response relationship for environmental tobacco smoke (ETS) is an important indication of causality. Central to the analysis and interpretation of dose-response relations as described in epidemiological studies is the relationship between dose and exposure. It must be recognized that in studies of ETS we have only surrogate measures of dose, and these surrogate measures (based on exposure) are imperfect. The question-based measures of ETS exposure generally have not been standardized, may have limited validity and reliability, and cannot comprehensively describe total ETS exposure, exposure to individual ETS components, nor doses of biologically relevant agents at target sites. Nevertheless, useful data have been yielded in epidemiologic studies linking ETS exposure to increased respiratory infection and symptoms, reduced lung growth in children, and increased lung cancer in nonsmoking adults. The more consistent exposure-response data for studies on acute health in children may reflect the greater difficulty in measuring exposure in studies of chronic health in adults.     

Residential Building Codes,Affordability, and Health Protection: A Risk-Tradeoff Approach

Residential building codes intended to promote health and safety may produce unintended countervailing risks by adding to the cost of construction. Higher construction costs increase the price of new homes and may increase health and safety risks through income and stock effects. The income effect arises because households that purchase a new home have less income remaining for spending on other goods that contribute to health and safety. The stock effect arises because suppression of new-home construction leads to slower replacement of less safe housing units. These countervailing risks are not presently considered in code debates. We demonstrate the feasibility of estimating the approximate magnitude of countervailing risks by combining the income effect with three relatively well understood and significant home-health risks. We estimate that a code change that increases the nationwide cost of constructing and maintaining homes by $150 (0.1% of the average cost to build a single-family home) would induce offsetting risks yielding between 2 and 60 premature fatalities or, including morbidity effects, between 20 and 800 lost quality-adjusted life years (both discounted at 3%) each year the code provision remains in effect. To provide a net health benefit, the code change would need to reduce risk by at least this amount. Future research should refine these estimates, incorporate quantitative uncertainty analysis, and apply a full risk-tradeoff approach to real-world case studies of proposed code changes.     

Parsons as a Symbolic Interactionist: A Comparison of Action and Interaction Theory1

Action theory's substantive image of social organization, theory building strategy, and methodological tenets are compared with those of interactionism. Despite polemics to the contrary, action and interaction concepts denote a similar image of social organization and personality. As is argued, the principle difference between the two perspectives revolves around the issue of the most appropriate theory building and methodological strategy. The ontological implications of this fact are examined and found not to justify the continued partitioning of social theory into antagonistic metaphysical camps.     

Effect of family structure on life satisfaction: australian evidence

How do family arrangements affect subjective well-being? We investigate this issue using data pooled from the IsssA and HILDA, both large, representative national samples of Australia (pooled n=38 447). Our regression analysis of cross-sectional and panel data examines how large are the differences in life satisfaction according to marital status and cohabitation. We find that women and men in formal marriages experience higher levels of life satisfaction than do people in other family arrangements. Moreover, both multiple tests in the cross-section, and tests controlling for prior happiness in the panel analysis, suggest that this is a causal relationship. Aggregating up the levels of life satisfaction generated by different marriage and cohabitation arrangements across a lifetime, suggests that a life-long marriage is the most satisfying. Early divorce followed by an enduring second marriage is little worse (because little time is spent outside the married state). But divorce without remarriage, or long lasting cohabitation without formal marriage, reduce the lifetime sum of subjective well-being by 4–12% for both women and men.     

Child maltreatment in families experiencing domestic violence

This study examined the association between physical domestic violence (PDV) and reported child maltreatment in a cohort of children at risk for maltreatment. Participants were 219 6- to 7-year-old children and their caregivers. PDV was measured by combining caregivers' self-reports and children's reports, while child maltreatment was based on state Division of Social Services Central Registry records. Among 219 child-caregiver pairs studied, 42 (19.2%) had at least one maltreatment report in the 2 years following the interviews. PDV consistently predicted child maltreatment, with adjusted odds ratios ranging from 2.96 to 3.46. In addition, we investigated interactions between PDV and other predictors of child maltreatment. Among Aid to Families with Dependent Children (AFDC) participants, PDV was highly associated with child maltreatment. However, this pattern was not observed among subjects who did not have AFDC. There is an increased incidence of child maltreatment reports in families experiencing PDV. AFDC participation intensified the probability of child maltreatment in the presence of PDV. Findings also suggest that in households experiencing PDV, social supports may protect children from maltreatment.