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.     

On Recalling ANT

This paper explores one after the other the four difficulties of actor-network theory, that is the words 'actor', 'network' and 'theory'—without forgetting the hyphen. It tries to refocus the originality of what is more a method to deploy the actor's own world building activities than an alternative social theory. Finally, it sketches some of its remaining potential.     

Risk Target: An Interactive Context Factor in Risk Perception

The effect of specification of the target on risk evaluation was examined. A whole set of hazards, covering most of the domains, were considered: common individual hazards, outdoor activities, medical care, public transportation, energy production, pollutants, sex, deviance, and addictions. Three human targets were introduced: personal health risk (including personal risk of death), health risk for people in the country, and health risk for people in the world. The basic design was a between-subjects design. The first hypothesis was that risk judgments made in the "world" condition should be higher than risk judgments made in the "country" condition, and risk judgments made in this condition should be higher than risk judgments made in the "personal" condition. This is what was observed. The second hypothesis was that the target effect should differ as a function of the kind of hazards considered. This also is what was observed. In two domains--pollutants, and deviance, sex, and addictions--the target effect was important. It corresponded to about one-tenth of the response scale. In the four remaining domains, the target effect was unimportant or absent.     

Why are manufacturing SMEs cancelling their ISO 9001 certification? Research from Italy

We investigated why Italian manufacturing small and medium-sized enterprise (SMEs) cancelled ISO 9001 certification from the Italian database and the problems and difficulties that led to this. Eight such problems derived from a literature review and interviews with a Delphi panel of 20 experts were tested through an online questionnaire. The questionnaire was completed by 167 managers from Italian SMEs that have cancelled their ISO 9001 certification. Costs related to consultancy and certification body are no longer a difficulty for maintaining ISO 9001 and neither are misinterpretations with the external auditors or paperwork. Internal audits are considered a problem when they are not managed with the aim of measuring performances. Staff can represent a cost when just dedicated to administrative and bureaucratic activities. The more relevant difficulties were top management commitment, measurability of performances and customers’ current lack of interest in ISO 9001. Respondents’ comments also provided interesting suggestions for practitioners such as quality managers and quality consultants to avoid mistakes while maintaining ISO 9001 certification.     

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.

Joint projections of temperature and precipitation change from multiple climate models: a hierarchical Bayesian approach

Summary.  Posterior distributions for the joint projections of future temperature and precipitation trends and changes are derived by applying a Bayesian hierachical model to a rich data set of simulated climate from general circulation models. The simulations that are analysed here constitute the future projections on which the Intergovernmental Panel on Climate Change based its recent summary report on the future of our planet's climate, albeit without any sophisticated statistical handling of the data. Here we quantify the uncertainty that is represented by the variable results of the various models and their limited ability to represent the observed climate both at global and at regional scales. We do so in a Bayesian framework, by estimating posterior distributions of the climate change signals in terms of trends or differences between future and current periods, and we fully characterize the uncertain nature of a suite of other parameters, like biases, correlation terms and model-specific precisions. Besides presenting our results in terms of posterior distributions of the climate signals, we offer as an alternative representation of the uncertainties in climate change projections the use of the posterior predictive distribution of a new model's projections. The results from our analysis can find straightforward applications in impact studies, which necessitate not only best guesses but also a full representation of the uncertainty in climate change projections. For water resource and crop models, for example, it is vital to use joint projections of temperature and precipitation to represent the characteristics of future climate best, and our statistical analysis delivers just that.