Bayesian Resolution of an Information Paradox in the Theory of Investment

1. IntroductionCash flow has always been somewhat of a puzzle in the literature on the determinants of investment. In a strictly neoclassical world, cash flow does not belong in an investment equation, and yet empirical studies dating back over 40 years almost invariably find that cash flow and investment are positively related.1 A variety of hypotheses have been put forward to account for this empirical regularity including the existence of transaction costs, agency problems, and asymmetric information.2 This paper provides tests of the latter two hypotheses using a sample of 560 U.S. companies over the period 1977 to 1996.Under the asymmetric information (AI) hypothesis firms with attractive investment opportunities may be unable to finance them because of inadequate internal cash flows and because the cost of external funds is too high due to the capital market's ignorance of the firm's investment opportunities.3 Thus, only firms with large cash flows can finance their attractive investment opportunities, and the puzzle of the relationship between cash flow and investment is resolved. To test this hypothesis, we need to identify those firms that may be subject to AI The very nature of AI makes it difficult if not impossible to cleanly identify firms in this situation. If a researcher can identify a firm with attractive investment opportunities and cash constraints, why can the market not do so? Previous studies have used size, level of dividends, age, concentration of share ownership, and extent of cross-shareholdings to identify firms that are possibly subject to AI problems.4 Although the capital market may have difficulty judging the investment opportunities of small firms, this in itself need not imply that the firm has attractive investment opportunities or that its cash flows are inadequate to finance them, if it does. Similar criticisms can be lodged against the other characteristics used to identify firms subject to AI problems. One of this article's contributions is to use a characteristic of firms that better identifies whether they suffer from AI problems.The AI hypothesis assumes that the firm's managers seek to maximize their shareholders' wealth but are prevented by a shortage of cash from undertaking investments with expected returns above the firm's cost of capital. Any firm caught in this predicament should, therefore, have a return on its investment, r, that is greater than its cost of capital, i. Our procedure for identifying firms subject to such cash constraints is thus to estimate the ratio r/i for each firm over our sample period and to categorize any firm for which this r/i > 1 as possibly cash constrained.6The agency hypothesis links investment to cash flows by assuming that managers obtain financial and psychological gains from managing a large and growing firm and thus invest beyond the point that maximizes shareholder wealth.7 When this occurs, a company's returns on investment will be less than its cost of capital. Accordingly we identify firms for which r/i Both the AI and MD hypotheses treat cash flow as a measure of financial constraints. It is possible, however, that current cash flows merely proxy for the profitability of future sales. Thus, in testing for the importance of cash flows as a source of capital it is necessary to control for the investment opportunities of firms (Chirinko and Schaller 1995, p. 528). Many studies have used Tobin's q as such a control. Tobin's q reflects the average return on a company's capital, but what is relevant for investment is the marginal return on capital. What is needed, therefore, is an estimate of marginal q. The existing literature has continued to use measures of average q, even though the conditions under which it equals marginal q are quite stringent (e.g., constant returns to scale, perfect competition in all product markets). …

One of the problems which has plagued thouse attempting to predict the behavior of capital marcets is the absence of a body of positive of microeconomic theory dealing with conditions of risk/ Althuogh many usefull insights can be obtaine from the traditional model of investment under conditions of certainty, the pervasive influense of risk in finansial transactions has forced those working in this area to adobt models of price behavior which are little more than assertions. A typical classroom explanation of the determinationof capital asset prices, for example, usually begins with a carefull and relatively rigorous description of the process through which individuals preferences and phisical relationship to determine an equilibrium pure interest rate. This is generally followed by the assertion that somehow a market risk-premium is also determined, with the prices of asset adjusting accordingly to account for differences of their risk.

Objective / Scope LNG has proven its worth, to meet energy demands throughout the globe at scale, whilst providing the cleanest fossil fuel. To complement the emerging trend of energy transition all over the globe, LNG provides a robust solution for a potential future. This paper will describe the current state and outlook of the LNG market, rethinking of LNG contracts and the major drivers that could favor a Floating LNG facility as a market driver compared to land-based facilities. Methods, Procedures, Process With recent events which include the oil price slump, LNG supply glut and the ongoing COVID 19 pandemic, the imbalance in the LNG market is predicted to run with low market price that could last up to four more years. On one hand, low market price is putting a lot of pressure on suppliers but on the flip side, this can be a game changer for the consumers. Consumers can potentially exploit buyers' market by making the investments much stronger to strive towards a clean future. Conventionally LNG producers have been land-based until facilities like Golar LNG made historical success. The focus of the Floating LNG industry is now directed towards small and mid-scale production. With a constant demand from stakeholders to get facilities up and running in a short development schedule, Floating LNG can provide some compelling benefits when combined with the concept of an economic time chartering investment rather than a CAPEX investment. This leads to a shortened execution time from discovery to market and avoids the extensive and time-consuming permitting and land use issues that are typical of onshore projects. The main drivers / challenges for a Floating LNG Facility investment are · Location, associated country regulatory restrictions · Source of gas · Market demand · Technology based on capacity · Project financing Floating LNG can not only provide economic benefits for first use but could also provide a commercial route to easy re-deployment to new gas sources, wherever necessary and possible. The paper will include: · Reflection on the LNG market of the recent past · Impact of COVID 19 on LNG market globally and the projected trends by various analysts · Overview of LNG contract types · Technical and commercial Drivers of Floating LNG which will potentially influence the market Results, Observations, Conclusions The take-away from this paper is a deeper understanding of the following: · Current LNG market and outlook · Reimagine LNG Contracts · Re-explore Floating LNG drivers Novel / Additive Information While the COVID 19 has created one of the reasons for the major impact on the market, this paper will present more interesting facts on many other contributing reasons for the present market downturn. This will in turn give an in-depth understanding for reimagining the major three drivers of Floating LNG, potentially leading to a WIN-WIN solution. This will help to sustain a constant cash flow amongst both sellers and buyers.

The total expanse of hunting territories in Yakutia covers approximately 241 million hectares, providing substantial potential for hunting activities, which are a vital component of both the region’s cultural heritage and economic framework. The fur-bearing mammal fauna in Yakutia includes species such as sable (Martes zibellina), fox (Vulpes vulpes), brown bear (Ursus arctos), wolf (Canis lupus), muskrat (Ondatra zibethicus), squirrel (Sciurus vulgaris), white hare (Lepus timidus), ermine (Mustela erminea), Siberian weasel (Mustela sibiricus), arctic fox (Vulpes lagopus), wolverine (Gulo gulo), lynx (Lynx lynx), American mink (Neogale vison). This study used data derived from winter route surveys, questionnaires completed by hunting service providers and state inspectors, and records related to hunting and commercial animal production. Among the species studied, the sable holds particular significance. The consistent level of sable harvesting, alongside an observed increase in its population, suggests the effectiveness of conservation measures implemented to protect this valuable species. The muskrat ranks second in terms of harvest volume and exhibits a notably low seizure rate of 1–2%. Despite a 62% increase in squirrel populations over the past decade, squirrels remain economically unviable targets due to their low market prices. According to winter route surveys, populations of all fur-bearing animals in Yakutia are gradually increasing. However, this trend is accompanied by a rise in predator populations, raising ecological concerns and requiring prompt regulatory actions, including population control. The underexploited potential of fur-bearing animals in Yakutia stems from low market prices, limited consumer demand, underdeveloped processing and marketing infrastructure, and insufficient information and training for hunters. Addressing these challenges requires a comprehensive government strategy involving financial support for hunting, advancement of innovative processing and marketing technologies, hunter training programs, and initiatives promoting locally sourced fur products. This integrated approach would ensure the sustainable, efficient use of Yakutia’s natural resources and the long-term viability of its hunting industry.

discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms. A question that has received much attention in economic theory is how the number of competitors and market outcomes are related. Despite the existence of work showing the contrary (see, e.g. Satterthwaite (1979), Rosenthal (1980)), the prediction that emerges from a market where firms interact in a Cournot fashion has come to dominate economic thought, namely, that an increase in the number of competitors leads to larger aggregate production, lower market price and improved market performance measured in terms of some social welfare criterion (Ruffin, 1971). This paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant, increasing or nonmonotonic in the number of firms. We present an economy with two types of consumers: consumers who search for prices at no cost (fully-informed), and consumers who must pay a fixed search cost for each price quotation they observe (less-informed).1 All buyers have the same willingness to pay for the good and buy either a single unit or nothing at all. On the supply side of the market, there are N firms producing a homogeneous good at constant marginal cost. We analyse a one-shot simultaneous move game: firms set prices and consumers decide how many prices to search for at the same moment in time. Our model is essentially an oligopolistic version of Burdett and Judd (1983) where some consumers search costlessly. In this model, consumers search using a fixed-sample-size search strategy, i.e. they choose the number of prices to observe before receiving any offer. Nonsequential search is appealing when consumers find it more advantageous to gather price information quickly (Morgan and Manning, 1985). This occurs when the search outcome is observed with delay and delay is costly. For instance, an MBA graduate looking for a job 1. The presence in the model of consumers who search costlessly captures the fact that some people have a

Background: The use of spices is as old as humanity itself, with spice production and trade often having influenced global politics and altering and modeling the very basics of our culture. Methods: This study offers the first documentation of the market value of spice taxa and associated spice recipes, based on interviews and group discussions with 120 participants (12.50% women and 87.50% men), using both semi-structured and open-ended questionnaires. Results: A total of 15 spice mixtures were reported in which 26 spice taxa were used in various proportion, and the prices of each spice taxon were found different in different markets. The highest price per kg was asked for Syzygium aromaticum in Masala Mandi market (PKR 2200, US$ 14.1), while the lowest price per kg was for Allium cepa in Chuk market (PKR 75, US$ 0.4). The prices of each one spice mixtures at each market vary from each other. There was a clear-cut difference between the composition and in prices. Laki gate market was the most expensive market where 10 spice mixtures out of 15 had the highest market value. Chuk market was most inexpensive because 11 spice mixtures out of 15 had their lowest market price. The Biryani masala recipe is known to be the heaviest recipe with the highest number of spice taxa (14) followed by Qeema and Machli masala recipes with 11 spice taxa each. Rosh masala was the simplest spices mixture comprising only 5 species out of 26 spice taxa. The market-to-market comparison showed strong correlation between Tanchi and Masala Mandi markets (r = 0.97) and Laki Gate and Masala Mandi markets (r = 0.95). Spice mixtures to spice mixtures correlations showed strong correlation between Kabuli Pulao and Qeema masala recipes (r = 0.99) and Haleem and Garam masala recipes and Achar gosht and Haleem masala recipes (r = 0.98) each. Conclusion: The study highlighted the consistent strong correlation between various markets i.e., Tanchi and Masala Mandi markets and spice mixture to spice mixture e.g., Kabuli Pulao and Qeema masala recipes. The study provides a base line for the sustainable use of recipes, and young researchers. Keywords: Spice taxa, spice mixtures composition, market value, correlation of markets, correlation of spice recipes, Bannu, Pakistan.

During the past few years the economic environment of the natural gas producing industry has undergone substantial changes. The most spectacular change has been the increase in the price offered for gas, paralleled by steadily increasing industry expectations of higher gas prices in the future. At the same time, there have been substantial increases in royalty, taxes and capital and operating costs. The cumulative effect of all these changes from 1969 to the present on the attractiveness of investment in developing a marginal Milk River gas reservoir is traced. The economic attractiveness of the example project is shown to have slowly increased from 1969 until early 1974, at which point the introduction of new royalty and tax proposals reduced the attractiveness of the development almost to the level it had been in 1969. Only in the last few months has the industry's profit expectations substantially recovered, so that the example project has again become an attractive investment opportunity. Introduction This paper win examine how the economic attractiveness of an investment in developing an example marginal Milk River gas development project in southeastern Alberta has changed over the period from 1969 to the present. By marginal gas, we mean gas whose physical existence is known, as to both location and depth, but whose development and production is expected to yield only the minimum acceptable rate of return for private investor capital. We have assumed that a private investor would be indifferent to investing in a marginal gas project. he changing economic environment of the past several years has influenced the attractiveness of all potential gas development projects. We have decided to examine a marginal gas project because the effect of changes in the economic parameters is shown dramatically by moving the project into either the "attractive for development" category or the "unattractive for development" category, thus increasing or decreasing reserves, in the sense of economically recoverable gas. The primary reason for our choice of the Milk River as the marginal gas reservoir was that it is probably the largest known such reservoir in Alberta, in terms of both area and gas in place. As such, it has come under close scrutiny during recent years when it has appeared that it might be on the verge of becoming economic. A considerable volume of data has been built up concerning trends in the anticipated costs of its development and concerning the reservoir characteristics. This data has been utilized in this paper. In 1969 and earlier, most Milk River gas was not attractive to develop. The major drawbacks to development were the low deliverability per well, caused by the low permeability of the shaley reservoir sand, and low gas prices. These drawbacks were sufficient to outweigh the advantages of relatively low cost exploration and development. Exploration and development costs both benefited from the shallowness and "blanket" nature of the reservoir. Development costs were also aided by the sweet and dry gas. by the gentle surface terrain and by the field's proximity to major transmission pipelines.

The study aimed at exploring the impact of financial leverage on investment decision to identify the contradictions in theories like Fisher Separation Theorem (1930), MMIrrelevance Theory (1958), and Theory of Investment (1969). A sample of 30 chemical sector companies was taken. Panel regression was applied to check the impact of financial leverage, liquidity, cash flows, profitability, firm size and growth on firm investment decision. Results revealed that financial leverage had a significant negative effect on investment decision, while liquidity, profitability, cash flows and firm size had a positive significant effect on firm investment. The findings imply that investment decision should not be treated separately by finance managers and investors as excessive level of leverage has a drastic effect on investment opportunities.

Discriminatory pricing rule or pay-as-bid pricing rule has been proposed to replace the uniform pricing rule in the deregulated electricity markets, with the expectation that it would lower market prices and reduce price volatility. Using a multi-agent approach, where each adaptive agent represents a generator who develops bid prices based on Q-learning algorithm, the pay-as-bid auction and the uniform price auction are compared. The experimental results show that the pay-as-bid auction indeed results in lower market prices and price volatility, as expected. Also the experimental results show that the demand-side response has less effect on the reduction of market prices in the pay-as-bid auction, because bidders in the pay-as-bid auction bid as close to the market prices as possible and this makes the aggregate supply curve more flattened than that in the uniform price auction.

:The history of the electric utility industry provides the occasion for testing competing explanations of the emergence and persistence of the corporate form. This industry, characterized by capital intensity, intense competition, and attractive investment opportunities — along with rapid technological change as well as legal and regulatory changes — provides lessons for newer industries with network externalities. Drawing on the work of institutional economics and business history, I examine the evolution of the electric power industry in the US to test competing explanations of choices of finance and technology.

Lignin valorization for the production of renewable chemicals: State-of-the-art review and future prospects

The modern portfolio theory pioneered by Markowitz (1952) is widely used in practice and taught in MBA texts. DeMiguel, Garlappi and Uppal (2007), however, show that, due to estimation errors, existing theory-based portfolio strategies are not as good as we once thought, and the estimation window needed for them to beat the naive $1/N$ strategy (that invests equally across N risky assets) is 'around 3000 months for a portfolio with 25 assets and about 6000 months for a portfolio with 50 assets.' In this paper, we modify the modern portfolio theory to account for estimation errors, so that the theory becomes more relevant in practice to yield positive gains over the naive 1/N strategy under realistic estimation windows. In particular, we provide new portfolio strategies that not only perform as well as the 1/N strategy in an exact one-factor model that favors the 1/N, but also outperform it substantially in a one-factor model with mispricing, in multi-factor models with and without mispricing, and in models calibrated from real data without any factor structures. We also find that the usual maximum likelihood (ML) estimator of the true portfolio rule can have Sharpe ratios higher than the 1/N in many cases, and hence, if one is concerned only about Sharpe ratios, the ML estimator is not as bad as one might have once believed.

Along with the maturation of main oil exploration and production (E&P) areas in the world, the industry has started to seek for new investment opportunities that have been considered unattractive so far. Among such opportunities might be small oil fields, whose low resource base makes the development marginal in terms of value. Such discoveries remain risky due to lower benefit–cost ratios and geological uncertainty that cannot be reduced so that the downside risk is eliminated. Nevertheless, they still can be attractive investment opportunities if the decision making process captures available operational flexibilities and opportunities to gather additional information allowing to tune the development plan during the course of a project. This can allow to mitigate downside risks associated with the reservoir uncertainty. In order to capture additional flexibilities and account for a possibility to change the course of the project within the investment valuation, the decision maker demands more advanced tools than a static discounted cash flow (DCF) approach, traditionally used in the industry.In this study, we analyze an opportunity to phase the drilling strategy into two stages as a tool that allows to optimize the field development under technical, cost and market uncertainties. We demonstrate how the decision maker can use additional information generated during the initial stage of the project in order to improve the future development plan by optimizing the decision to drill optional production wells. Using an algorithm based on the least-squares Monte Carlo (LSM) approach, we consider the waiting option to expand the production. We identify additional value created by the staged development strategy for a small offshore oil field, applying the methodology developed in Fedorov et al. (2020) to the synthetic benchmark model Olympus. We also extend the modelling approach of Fedorov et al. (2020) by accounting for cost uncertainty within the LSM algorithm.The underlying reservoir model allows us to realistically account for the effect of the decision to postpone drilling of the optional wells, on the field production. Our findings in this paper confirm the results of Fedorov et al. (2020), where an analytical modelling approach was used to account for reservoir uncertainty and forecast oil field production. Based on the Olympus case, we show that in case of staged development, the decision maker is able to increase the investment value due to the flexibility to avoid drilling additional wells in case of unfavourable oil price and/or production scenarios. Our conclusion, therefore, is that the staged development has a potential to be applied when the technical uncertainty represents high risk for the project economy.

ABSTRACTOccupancy models have become increasingly popular for species monitoring and assessment, in part, because detection/non‐detection data are readily obtained using a variety of methods. Multispecies occupancy models (MSOMs) can yield more accurate parameter estimates than single‐species models (SSOMs) with less data through their hierarchical structure, making MSOMs an attractive option when species are hard to detect or when data collection is constrained, leading to sparse datasets. Such constraints may arise from limited sampling resources, but also occur in rare species monitoring or where preliminary results are desired to inform adaptive management. Further, experimental habitat treatments often impose spatial constraints on sampling based on the scale of their implementation. Whether a MSOM outperforms SSOMs depends on the volume of data, characteristics of the ecological community, research goals of a study and how these factors align with modeling assumptions. We performed a simulation study of hypothetical pollinator communities under varying sampling intensities for scenarios in which experimental habitat treatments produced different community‐level effects. We fit occupancy models to simulated datasets and assessed model performance. At lower sampling intensities (< 20 spatial replicates and < 4 temporal replicates), MSOM community‐level treatment effect estimates were biased. Even at twice this sampling intensity, SSOMs yielded more accurate species‐specific effect estimates in treatment effect scenarios with high variance. In some cases, MSOMs can pull species in the tails of distributions too far toward the community mean effect, which risks incorrect conclusions concerning whether treatments help or harm individual species. When quantifying species‐specific effects is the main objective, particularly for rarely observed species, SSOMs are more robust to outliers across a range of community response scenarios. Researchers can use this information to inform study design, guide simulation studies and decide whether the higher precision of MSOMs outweighs risks of improperly estimated effects for some species.

Bara district is one of the leading fish producing district of Nepal that lies in Madhesh Province in South- Central Nepal. Fish produced in Bara is marketed to distant markets along with the local market. However, the marketing system, actors in fish market and their benefits is studied too less. Thus, present study was carried out to understand and analyze the marketing system of fish produced in Bara district. The study was done by survey using questionnaire. A total of 76 farmers along with 30 traders were selected randomly for the survey. In present study area, mainly males (98.7%) were involved in fish farming with little involvement of females as entrepreneur. The major culture system followed is carp polyculture with some changes to produce huge volume of Chaddi. Chaddi fish includes the production and marketing of advanced fingerlings (30-50 g size) of Rohu and Mrigal. Different actors in fish marketing channel included farmer, wholesalers, and retailers. Altogether four different types of marketing channel were found in present study. Chaddi fish produced in study area is mainly exported to larger markets like Kathmandu, Pokhara, and Chitwan while local market is dominated by silver carp due to its comparatively lower price. Price of fish at different stages of market depends on size as well as fish species. The general trend was that, larger the fish higher price it fetches in market. Wholesalers get a profit of around 4-8% while retailers get about 9-16% profit, but due to dhalta system, the net profit is higher. According to dhalta system, farmers have to provide 30% more fish as compensation to traders as fish are weighed live. Traders were found to use different types of transportation media from pickup vans, motorbike as well as cycle. Some of the traders also use ice for the storage of surplus fish. Different constraints in fish marketing included low market price, dhalta system in trade, lack of structured market and storage facilities, transportation issue and Indian market dependence among which low market price is most prevalent problem.