Large Risks,Limited Liability,and Dynamic Moral Hazard

We study a continuous‐time principal–agent model in which a risk‐neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal contract, investment takes place only if a long enough period of time elapses with no losses occurring. Then, if good performance continues, the agent is paid. As soon as a loss occurs, payments to the agent are suspended, and so is investment if further losses occur. Accumulated bad performance leads to downsizing. We derive explicit formulae for the dynamics of firm size and its asymptotic growth rate, and we provide conditions under which firm size eventually goes to zero or grows without bounds.     

Societal Risk Perception Among African Villagers Without Access to the Media

The impact of the media on people's risk perception was assessed by comparing risk ratings obtained from African villagers without access to the media with risk ratings obtained from African city-dwellers with access to the media and risk ratings obtained from French participants. The overall mean risk judgment observed among the Togolese villagers was lower than the mean rating observed among the Togolese city-dwellers, and lower than the mean rating observed among the French. The linear association observed between the Togolese villagers' ratings and the Togolese city-dweller ratings and the French ratings was moderate. The impact of the media on risk perception was estimated to be an increase of about 15% of the overall mean ratings, and to about 31% of the variance of the mean ratings. This impact was independent of educational level.     

THE LENDER OF LAST RESORT: A TWENTY‐FIRST CENTURY APPROACH

The classical Bagehot conception of a Lender of Last Resort (LOLR) that lends to illiquid banks has been criticized on two grounds: On the one hand, the distinction between insolvency and illiquidity is not clear‐cut; on the other, a fully collateralized repo market allows central banks to provide the adequate aggregate amount of liquidity and leave to the banks the responsibility of lending uncollateralized. The object of this paper is to analyze these issues rigorously by providing a framework in which liquidity shocks cannot be distinguished from solvency ones and then asking whether there is a need for a LOLR and how it should operate in the absence of systemic threats. Determining the optimal LOLR policy requires a careful modeling of the structure of the interbank market and of the closure policy. In our setup, the results depend upon the existence of moral hazard. If the main source of moral hazard is the banks' lack of incentives to screen loans, then the LOLR may have to intervene to improve the efficiency of an unsecured interbank market in crisis periods; if instead the main source of moral hazard is loan monitoring, then the interbank market should be secured and the LOLR should never intervene. (JEL: E58, 628)     

The Differentiation of Social Demands in Europe. The Social Basis of the European Models of Capitalism

This paper tests the impact of various determinants of the preference for two key elements of the European social models: redistribution and trade unions, using individual data from the first round of the European Social Survey. The basic hypothesis is that the main determinant of an individual’s support for these elements of the European models is the social position of the individual in terms of income, status and risks attached to their labour market insertion. The paper also considers the relative importance of less ‘materialist’ influences such as religion or other cultural determinants. The estimations show that ‘materialist’ determinants are by far the most important influences on individual preferences, contrary to what most social theories of modernisation contend.

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A Note on the Dimensionality of Quality of Life Scales: An Illustration with the Satisfaction with Life Scale (SWLS)

A case is made that measures used in quality of life and happiness research will be essentially unidimensional: inherently tapping minor dimensions. This is illustrated using Diener’s Satisfaction with Life Scale (SWLS). It is shown that the SWLS does not meet the standard of strict unidimensionality, but that the interpretation of the total scale score is not compromised because the additional dimensions are relatively minor. In the context of the example, a multi-step strategy is described that allows researchers to test for essential unidimensionality. Throughout the article, essential unidimensionality is contrasted with the received view of strict unidimensionality and confirmatory factor analysis methods.

Usability of car stereo

Automotive sound systems vary widely in terms of functions and way of use between different brands and models what can bring difficulties and lack of consistency to the user. This study aimed to analyze the usability of car stereo commonly found in the market. Four products were analyzed by task analysis and after use reports and the results indicate serious usability issues with respect to the form of operation, organization, clarity and quality of information, visibility and readability, among others.