Desired Allocation Research Articles

Contracting on the Stock Price and Forward-Looking Performance Measures

We examine the use of earnings, forward-looking performance measures, and stock prices in managerial compensation. When the firm's owner and its manager have identical time preferences, the stock price is not useful for motivating the manager, as it is a noisy aggregation of a forward-looking measure and future earnings. In contrast, when the owner and the manager have conflicting time preferences, the noisy stock price is useful for contracting. If the manager has no access to banking and cannot trade the firm's shares, the timeliness of the stock price dominates the extra risk imposed by its noise. At the same time, forward-looking performance measures (such as customer satisfaction) can induce a desirable allocation of management effort between the short-term and long-term more efficiently than the stock price can. Forward-looking performance measures and the stock price are thus not direct substitutes in rewarding farsighted effort.

Currency Competition: A Partial Vindication of Hayek

This paper establishes the existence of equilibria for environments in which outside money is issued competitively. Such equilibria are typically believed not to exist because of a classic overissue problem: if money is valued in equilibrium, an issuer produces money until its value is driven to zero. By backward induction, money cannot have value in the first place. However, for any given finite amount of money outstanding, a monetary economy typically has two equilibria. In one, money has value; in the other, money is not valued because no one expects it to be valued. This paper takes this latter equilibrium seriously and shows that trigger strategies eliminate the overissue problem if agents have beliefs of the following type: if an issuer produces money beyond some threshold amount, then the issuer's money has no value. This result is very general, applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite. The paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping-generations environment. The results depend on the environment considered, but two general conclusions arise. First, it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist. Second, with competitive issuance, a licensing agency can always improve on pure laissez-faire and achieve the efficient allocation in the long run.

Currency competition: A partial vindication of Hayek

This paper establishes the existence of equilibria for environments in which outside money is issued competitively. Such equilibria are typically believed not to exist because of a classic overissue problem: if money is valued in equilibrium, an issuer produces money until its value is driven to zero. By backward induction, money cannot have value in the first place. This paper shows that overissuance is not a problem if agents believe that if an issuer produces more than some threshold number of notes, then only those notes issued up to the threshold will be valued; additional notes will be worthless. This result is very general, applying to any monetary economy in which equilibria with and without valued money exist if the money supply is finite. The paper also compares the allocation achieved by a monopolist to that achieved with competitive issuance in both a search and an overlapping-generations environment. The results depend on the environment considered, but two general conclusions arise. First, it is ambiguous whether competitive issuers can achieve a more desirable allocation than a monopolist. Second, with competitive issuance, a licensing agency can always improve on pure laissez-faire and achieve the efficient allocation in the long run.

Asymptotic theorems of sequential estimation-adjusted urn models

The Generalized Pólya Urn (GPU) is a popular urn model which is widely used in many disciplines. In particular, it is extensively used in treatment allocation schemes in clinical trials. In this paper, we propose a sequential estimation-adjusted urn model (a nonhomogeneous GPU) which has a wide spectrum of applications. Because the proposed urn model depends on sequential estimations of unknown parameters, the derivation of asymptotic properties is mathematically intricate and the corresponding results are unavailable in the literature. We overcome these hurdles and establish the strong consistency and asymptotic normality for both the patient allocation and the estimators of unknown parameters, under some widely satisfied conditions. These properties are important for statistical inferences and they are also useful for the understanding of the urn limiting process. A superior feature of our proposed model is its capability to yield limiting treatment proportions according to any desired allocation target. The applicability of our model is illustrated with a number of examples.

Core and Satellite

This is the second part of the author9s article on core and satellite portfolio structure and focuses on implementation. Key issues include the choice of a core equity strategy, the desired allocation to active risk, and the satellite strategies used to pursue active returns. The author proposes a framework for integrating investment and investor-specific tax considerations into the allocation across equity risk, interest rate risk, and active risk. Four different types of satellite strategies are considered. They vary in their mix of active risk and equity beta. For each strategy, the framework allows for the calculation of an “information ratio hurdle.” This is the minimum gross information ratio the investor must expect from an active manager in order to justify an allocation to a satellite strategy. The required information ratio seems to be lowest for market-neutral strategies and highest for those satellites that mix a small amount of active risk with a high equity beta. <b>TOPICS:</b>Portfolio theory, security analysis and valuation, risk management, performance measurement

Optimality, Variability, Power

We provide a theoretical template for the comparison of response-adaptive randomization procedures for clinical trials. Using a Taylor expansion of the noncentrality parameter of the usual chi-squared test for binary responses, we show explicitly the relationship among the target allocation proportion, the bias of the randomization procedure from that target, and the variability induced by the randomization procedure. We also generalize this relationship for more than two treatments under various multivariate alternatives. This formulation allows us to directly evaluate and compare different response-adaptive randomization procedures and different target allocations in terms of power and expected treatment failure rate without relying on simulation. For K = 2 treatments, we compare four response-adaptive randomization procedures and three target allocations based on multiple objective optimality criteria. We conclude that the drop-the-loser rule and the doubly adaptive biased coin design are clearly superior to sequential maximum likelihood estimation or the randomized play-the-winner rule in terms of decreased variability, but the latter is preferable because it can target any desired allocation. We discuss how the template developed in this article is useful in the design and evaluation of clinical trials using response-adaptive randomization.

Shifting the burden: the private sector's response to the AIDS epidemic in Africa.

As the economic burden of human immunodeficiency virus/acquired immunodeficiency syndrome (HIV/AIDS) increases in sub-Saharan Africa, allocation of the burden among levels and sectors of society is changing. The private sector has more scope to avoid the economic burden of AIDS than governments, households, or nongovernmental organizations, and the burden is being systematically shifted away from the private sector. Common practices that transfer the burden to households and government include pre-employment screening, reductions in employee benefits, restructured employment contracts, outsourcing of low skilled jobs, selective retrenchments, and changes in production technologies. Between 1997 and 1999 more than two-thirds of large South African employers reduced the level of health care benefits or increased employee contributions. Most firms also have replaced defined-benefit retirement funds, which expose the firm to large annual costs but provide long-term support for families, with defined-contribution funds, which eliminate risks to the firm but provide little for families of younger workers who die of AIDS. Contracting out previously permanent jobs is also shielding firms from benefit and turnover costs, effectively shifting the responsibility to care for affected workers and their families to households, nongovernmental organizations, and the government. Many of these changes are responses to globalization that would have occurred in the absence of AIDS, but they are devastating for the households of employees with HIV/AIDS. We argue that the shift in the economic burden of AIDS is a predictable response by business to which a deliberate public policy response is needed. Countries should make explicit decisions about each sector's responsibilities if a socially desirable allocation is to be achieved.

Aggregating Spending Preferences: An Empirical Analysis of Party Preferences in Norwegian Local Governments

To understand the role of political parties in public budgetmaking, we need separate data about spending preferences andbudgetary outcomes. In this paper we employ such data todiscriminate between different models of how competing partypreferences are transformed into policy outcomes. In the firststep of the analysis data on politicians' spending preferencesare used to estimate the desired allocation of each party. Inthe second step the desired allocations are used as inputs ina separate analysis of the decision-making process inNorwegian local councils.

A multiple criteria decision making framework for regional aquaculture development

Aquaculture development is considered as a viable source for providing high quality cheap protein, particularly, for developing countries where protein shortage already exists. However, complexities in such development planning can be difficult without the aid of modern decision-aids such as multiple criteria decision making (MCDM) models. MCDM models are already in use in the business and manufacturing sectors. However, their use in agriculture is limited and their use in aquaculture is almost nonexistent. This paper presents a MCDM framework for the planning of regional aquaculture development. The MCDM model seeks a desirable allocation of resources and activity levels that strikes an acceptable balance among the various development goals under consideration subject to resource constraints, market constraints, and pollution constraints. To accommodate different decision situations, three different MCDM solution techniques are implemented, namely, multiple objective programming (MOP), compromise programming (CP), and weighted goal programming (WGP). The applicability of the framework is demonstrated through applying it to a case study from northern Egypt where aquaculture is a viable industry for supplying cheap and good quality protein, balancing the foreign exchange deficits, and creating employment opportunities.

PROCEEDINGS OF THE 2000 MIDYEAR COUNCIL MEETING

The Midyear Council Meeting of The Paleontological Society (PS) was called to order by President Peter R. Crane on 31 March 2000 at ca. 9:15 AM in the Cooper Room of the US National Museum of Natural History. Attending were Council members Karl W. Flessa, Patricia H. Kelley, Thomas W. Kammer, Carl W. Stock, William I. Ausich, Nigel C. Hughes, Kate Lyons, Ann F. “Nancy” Budd, Scott L. Wing, Douglas H. Erwin, Mary L. Droser, Dale A. Springer, Russell H. “Tim” White, and Donald G. Mikulic. Susan Kidwell, Tammy Dickinson, and Joanne Kluessendorf were also present for parts of the meeting. Minutes of the 1999 Incoming Council Meeting were approved by acclamation. Peter Crane presented his President's Report, thanked Carl Stock for his work as Secretary, particularly for trying to straighten out the PS committees, and thanked Tom Kammer for his continued good work as Treasurer. He also welcomed the new Special Publications Editor, Tim White, to the Council, and thanked him for his willingness to serve in that position. Crane noted that at the previous AAAS meeting he had given a presentation as part of a symposium on evolution. This symposium was part of an effort by several societies to produce two booklets that are intended to improve public understanding of evolution. Lastly, he suggested that voting on financial decisions should he held until near the end of the meeting. Tom Kammer presented his Treasurer's Report. The Society is in sound fiscal shape. We have now reached the desired allocation of financial resources, as 39% of our investments are in SP at the end of 1999 they were …

Regional economic impacts of fish resources utilization from the Barents Sea: Trade-offs between economic rent, employment and income

A multi-objective programming model has been developed to investigate the trade-offs among regional employment, regional income, and economic rent of the North Norwegian cod fisheries in the Barents Sea, where all vessels are regulated by an individual quota system. Fishery managers are confronted with the problem on how best to allocate the total allowable catch (TAC) among four vessel groups. It is apparent that depending on how fishery managers view the importance of each objective, the desirable allocation of TAC will differ. Therefore, the trade-offs information can be very useful to fishery managers indicating the relative “expensiveness” of trading one objective with another. Decision maps are generated depicting how the trade-offs between two objectives are affected by the third objective. Compromise solutions taking into account all three objectives will allocate the TAC to satisfy the maximum capacity of both the factory trawlers and the small-scale vessels with the remaining TAC distributed to the coastal fleet and fresh fish trawlers.

Can continuation of GSE status for the farm credit system be justified?

This article reviews the development and future of the Farm Credit System (FCS) as a government sponsored source of credit for American agriculture. While agriculture is now a minor sector of the U.S. economy, and there is considerable competition for the FCS from other lenders suggesting no further need for GSE status, it still may be possible to argue that there is some ongoing need. Although credit market imperfections are no longer as clear cut as in the past, they may still act as an impediment to a desirable allocation of capital. Consequently, refocusing the FCS may provide a relatively efficient form of government intervention that can enhance capital flows in rural areas.

Experimental Design for Estimating Area under the Curve by Trapezoidal Approximation in Destructive Sampling

This paper proposes a simple procedure for selecting sampling time points and sample allocation which reduce the mean square error or area under the curve (AUC) approximated by the trapezoidal approximation. It can generate desirable time points and allocation through an iterative scheme. The methodology is applicable to AUC estimation as well as other functional forms of serial plasma concentrations. The appropriate application of this procedure can lead to more efficient pharmacokinetic study designs.

Queue allocation of indivisible goods

A model with a finite number of indivisible goods (houses) and the same number of individuals is considered. The allocation of houses among the individuals according to a queue order is analysed. First an allocation mechanism is constructed where it is a dominant strategy for the individuals to truthfully report their preferences. Second it is demonstrated that in order to obtain the desired allocation, the individuals must not in general report their complete ranking of the houses, but only their maximal elements in recursively defined choice sets. Financial support from Jan Wallander's Foundation for Research in the Social Sciences is gratefully acknowledged.

The influence of central government's policy on production and the inventory in a spatial oligopoly

This paper presents a basic dynamic model for production and inventory control. These are influenced by central government investment policy in production and communal services, including warehouses, in underdeveloped spatial units which need State support in order to achieve a planned level of development and a higher quality of life. A spatial oligopoly exists where the private initiatives of some firms and inhabitants in each of the spatial units (which could also be the regions) are additionally encouraged or discouraged by State investment. The goal of this investment policy is to achieve the desired allocation of activities and population growth among the spatial units. The main results in our paper give all answer about how to allocate investment resources from the budget among the competing spatial units on the time horizon, in accordance with the given objective of achieving central government's desired allocation pattern. It also provides sensitivity results about the influences of fluctuations in investments on the objective function. To the authors' knowledge this is the first paper in the existing literature to upgrade descriptive studies with a mathematical model which uses a dynamic systems approach to study the behaviour of interdependent firms in a spatial oligopoly influenced by central government decisions.

Discrete-time optimal regulator with closed-loop poles in a prescribed region

This paper is concerned with the problem of designing discrete-time optimal control systems with closed-loop poles in a prescribed region of stability. First, by utilizing the property of the Riccati equation with Q being zero, we develop a method for allocating poles in a disc with centre at the origin of the complex plane and with radius less than 1. Secondly, we deal with pole placement in a disc which is in the unit disc and also contacts the point 1 + j0 of the complex plane. To this end, a bilinear transformation and continuous-time regulator results are employed. In each case, the radius of the disc can be specified as a design parameter, and the weighting matrices of the performance index are obtained to fulfil the desired pole allocations. The design procedures are also illustrated by numerical examples.

An Economic Approach to Influence Activities in Organizations

Members of organizations spend considerable time, effort, and ingenuity attempting to influence decision makers. Such influence activities may bring benefits to the organization, but they also involve real costs. This essay offers an economic rationale for such influence activity as representing rational, self-interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization's structure and policies should respond to the incentives for attempting influence. It is posited that information valuable for the organization's decision making is directly available only to members of the organization who have some personal stake in the decisions. These individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits. This can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization's members from more productive activities. The organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort. It can limit access to decision makers and participation in decision making; it can alter its decision-making criteria to favor those performing well in productive activities; and it can provide direct financial incentives to encourage the desired allocation of effort. It is shown that an efficiently designed organization will use such financial incentives only as a last resort. Instead, it will always first alter its decision-participation policies and decisionmaking criteria.

A Network Approach To Least-Cost Daily Transfers Of Forest Fire Control Resources

AbstractMost Canadian forest fire control agencies have adequate levels of manpower, equipment, and aircraft to handle all but the worst fire situations. These resources are usually allocated to regions in proportion to average historic fire loads; butat any one time it is not uncommon for a region to have far more fire activity than it can handle, while neighbouring regions’ resources remain almost idle. The result can be large, expensive fires. Positioning, on a daily basis, of under-utilized detection and initial attack resources into regions expecting high fire occurrence would significantly improve the effectiveness of existing fire control methods. This paper describes a network formulation and corresponding “out-of-kilter” solution for identifying least-cost resource transfer options, given current and desired resource allocations and transfer costs. The procedure is illustrated with a hypothetical example that identifies the leaist-cost transfer plan for a fleet of N detection aircraft located at ...

On Optimal Economic Growth with Changing Technology and Tastes: Characterization and Stability Results

In this paper, we consider a framework of optimal growth, in which technology and tastes are changing over time. The model is an aggregative one, and follows closely those studied by Brock [1971] and Brock and Gale [1969]. In this framework, we address two important issues in the area of optimal intertemporal allocation of resources. First, we provide of weakly maximal and optimal programs. (Weak-maximality and Optimality are defined, following the approach of Brock [1970] and Gale [1967] respectively, in Section 2). Second, we provide stability of weaklymaximal and optimal programs. Price characterizations are of importance since they imply that socially desirable allocations can be attained by decentralized maximizing decision making of firms and consumers,2 (the decentralization being accomplished through a pricesystem), provided an appropriate on asymptotic behavior of input-values3 is satisfied. In the literature, it is this additional condition which has not been precisely characterized in a model with changing technology and tastes. To find this condition, we have found it useful to draw on the results obtained in the theory of efficient allocation of resources, which deals with a similar problem of price characterization of efficient programs. For weakly-maximal programs the appropriate is that the reciprocal of the input-values should not be summable (Theorem 3.1). For optimal programs, the input-values should be uniformly bounded (Theorems 4.1 and 4.2). The results of Brock [1971], and Benveniste and Gale [1975] are particularly important in obtaining these results. It should be noted that criteria for the existence of optimal programs in various particular cases of our framework have been given by Mirrlees [1967], Phelps [1966], and Inagaki [1970]. A unified elegant treatment of this question is given in Brock and Gale [1969]. Consequently, we do not address this issue in our paper. The asymptotic stability properties of weakly-maximal and optimal programs

Formulation and implementation of a pricing policy for municipal parking

The efficient allocation of a municipally-owned resource, like automobile parking space, requires a long-term policy that recognizes the social, technical, economic and political realities of the system. This paper develops such a policy, and reviews the progress in implementing it in a medium size city over a 3 yr period. An analysis of the interim results finds a significant increase in revenue to the City, some progress toward a socially desirable allocation of space and evidence that further progress is continuing. Much of the success in implementing the recommended policy was attributed to the small number of links in the chain of decision-makers and to having essentially the same group of people involved with the project over an extended period of time. With an understandable, well-developed and logical policy to follow, rational decisionmaking could proceed in small steps, thereby building consensus by reducing uncertainty about the ultimate impact of the recommended course of action. This type of policy formulation and implementation is analogous to programmed learning.