Equity Requirements Research Articles

An Incentive Dynamic Programming Method for the Optimization of Scholarship Assignment

Scholarship assignment is an operations management problem confronting university administrators, which is traditionally solved based on administrators’ personal experiences. This paper proposes an incentive method inspired by dynamic programming to replace the traditional decision-making process in the scholarship assignment. The objective is to find the optimal scholarship assignment scheme with the highest equity while accounting for both the practical constraints and the equity requirement. Moreover, with the proposed method, the scholarship assignment avoids time- and energy-consuming application processes conducted by students. A solution algorithm is used to find feasible assignment schemes by iteratively solving a series of knapsack subproblems based on dynamic programming and adjusting the monetary value of a unit score. The optimal assignment scheme can then be screened out by applying the Gini coefficient for quantifying the equity of each feasible scheme. A numerical case is investigated to illustrate the applicability of the proposed method and solution algorithm. The results indicate that the proposed method is an efficient tool to assign scholarships to students with consideration of the equity.

Equity Is the Problem! A Proposal for Bank Capitalization by Eliminating Equity Capital Requirements and Replacing Them with Positive Book Equity Recourse Notes

This paper presents a system for bank capitalization and regulation which reduces procyclicality from money and finance, and thus should reduce the probability and severity of future recessions caused by banking crises. The core innovation is to replace the equity requirements of the current system with new requirements demanding substantial issuance of a new security, Positive Book Equity Recourse Notes (PBERN), that is related to Equity Recourse Notes (ERN) devised by Jeremey Bulow and Paul Klemperer in 2013. This system is designed to stabilize credit availability in the economy during periods of shock and support a higher output economy while minimizing moral hazard issues, costs to the government and bank cost of capital.

Is healthcare really equal for all? Assessing the horizontal and vertical equity in healthcare utilisation among older Ghanaians

BackgroundThere is a lack of focused research on the older population in Ghana and about issues pertaining to their access to healthcare services. Furthermore, information is lacking regarding the fairness in the access to these services. This study aimed to ascertain whether horizontal and vertical equity requirements were being met in the healthcare utilisation among older adults aged 50 years and above.MethodsThis study was based on a secondary cross-sectional data from the World Health Organization’s Study on global AGEing (SAGE) and adult health wave 1 conducted from 2007 to 2008 in Ghana. Data on 4304 older adults aged 50 years-plus were analysed. Bivariate and multivariable analyses were carried out to analyse the association between outpatient/inpatient utilisation and (1) socioeconomic status (SES), controlling for need variables (horizontal equity) and (2) need variables, controlling for SES (vertical equity). Odds ratios with 95% confidence intervals were calculated to analyse the association between relevant variables.ResultsHorizontal and vertical inequities were found in the utilisation of outpatient services. Inpatient healthcare utilisation was both horizontally and vertically equitable. Women were found to be more likely to use outpatient services than men but had reduced odds of using inpatient services. Possessing a health insurance was also significantly associated with the use of both inpatient and outpatient services.ConclusionWhilst equity exists in inpatient care utilisation, more needs to be done to achieve equity in the access to outpatient services. The study reaffirms the need to evaluate both the horizontal and vertical dimensions in the assessment of equity in healthcare access. It provides the basis for further research in bridging the healthcare access inequity gap among older adults in Ghana.

Managerial implications of off-balance sheet items in community banks

PurposeCommunity banks were affected distinctly by changes in banking regulation in the 1990s when compared with large commercial banks. These banks offer non-traditional finance items, presumably to compete with these financial institutions. This study aims to examine the importance of accounting for off-balance sheet (OBS) items when estimating the financial performance of community banks.Design/methodology/approachThis study applies a two-stage analysis pathway that initially calculates X-efficiency scores as part of the overall cost structure and then deploys data envelopment analysis bootstrapping method for a second-stage ordinary least square model.FindingsStudy findings indicate that failure to include OBS items in the X-efficiency calculation for community banks understates the efficiency performance of these banks. Furthermore, results indicate that factors internal and external to the community bank affect X-efficiency. Increases in OBS items are associated with growth in assets and growth in net non-interest income. Therefore, OBS items become an attractive alternative source of income and a mechanism for expanding output with the same volume of inputs. In addition, OBS items allow the largest community banks to deleverage their balance sheet, whereas the smallest community banks still emphasize on traditional lending products and benefit from existing equity. Also, larger banks may be using OBS items as a mechanism to isolate their performance from macroeconomic fluctuations.Research limitations/implicationsResearch limitations include a reduced number of community banks as consolidation accelerates partly because of compliance concerns.Practical implicationsThe approach used supports a series of community bank managerial approaches that may be adopted by management.Originality/valueThe results of this study show several reasons why community banks may have managerial incentives to include OBS items. As observed by Gilbert et al. (2013), community banks are adjusting their product line so as to operate efficiently. Community banks must provide a product line which provides margin and meets customer needs at a profit to the firm. OBS items allow existing staff to provide funds without additional equity requirements from the balance sheets. The increase in OBS activities may signal the perception that the associated interest income is less risky and less costly than other alternatives, including adopting technologies to diversify traditional loan product offerings. As community banks tend to have lower default rates than their larger counterparts, the most likely explanation is that the OBS interest risk is more attractive than compliance or development of mechanisms to offer a broader suite of traditional loan products.

A Theoretical Framework for Emancipatory Nursing With a Focus on Environment and Persons' Own and Shared Lifeworld.

By giving a brief overview of the metaconcepts in nursing, with a focus on environment, we sketch a theoretical framework for an emancipatory perspective in nursing care practice. To meet the requirements of equality in care and treatment, we have in our theoretical framework added a critical lifeworld perspective to the antioppressive practice, to meet requirements of equity in health care encounter. The proposed model of emancipatory nursing goes from overall ideological structures to ontological aspects of the everyday world. Based on the model, nurses could identify what kind of theoretical critical knowledge and thinking they require to conduct equal care and encounter the person behind the patient role.

Bank Recapitalizations, Credit Supply, and the Transmission of Monetary Policy

We integrate a banking sector in a standard New-Keynesian DSGE model, and examine how government policies to recapitalize banks after a crisis affect the supply of credit and the transmission of monetary policy. We examine two types of recapitalizations: immediate and delayed ones. In the steady state, both policies cause the banking sector to charge inefficiently low lending rates, which leads to an inefficiently large capital stock. Raising bank equity requirements reduces this dynamic inefficiency and increases lifetime utility. After the banking sector suffered large losses, a delay in recapitalizations creates banking sector debt-overhang. This debt-overhang leads to inefficiently high lending rates, which reduces the supply of credit and weakens the transmission of monetary policy to inflation (the transmission to output is largely unchanged). Raising bank equity requirements under these circumstances can cause lifetime utility to decline. Hence, the timing of bank recapitalizations after a crisis has several macro-economic implications.

The Importance of Being A Policy Implementer

Public policy is used to tackle market imbalances, failures and also restore societal requirements of equity and justice. Research on policy implementation has been substantial and there is enough literature to support its importance. There is no guarantee however, that selected policy prescriptions will be implemented efficiently. This study has attempted to understand the factors affecting implementation of the Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) synthesizing variables and constructs from policy implementation literature and analyzing survey responses data obtained from mid-level implementers in the south Indian state of TamilNadu. This paper focuses on the implementing stakeholders and investigates their role in policy implementation and endeavours to achieve a deeper understanding of the factors governing implementation of a welfare oriented public policy scheme over ‘networks and processes'. The results pointed to ‘administration factors’ defined by accountability, process clarity and power devolution to the implementer, as important to implementation. Resources were also significant to implementation. Surprisingly governance and planning were not found to be significant. And perhaps therein lies the disconnect between implementers and implementation - the central idea of this paper.

Equitable resourcing of primary health care in remote communities in Australia\u2019s Northern Territory: a pilot study

BackgroundImproved Primary Health Care (PHC) utilisation is central to reducing the unacceptable morbidity and mortality rates characterising populations living in remote communities. Despite poorer health, significant inequity characterises the funding of PHC services in Australia’s most remote areas. This pilot study sought to ascertain what funding is required to ensure equitable access to sustainable, high quality primary health care irrespective of geographical remoteness of communities.MethodsHigh performing remote Primary Health Care (PHC) services were selected using improvement measures from the Australian Primary Care Collaboratives Program and validated by health experts. Eleven PHC services provided data relating to the types of services provided, level of service utilisation, human resources, operating and capital expenses. A further four services that provide visiting PHC to remote communities provided information on the level and cost of these services. Demographic data for service catchment areas (including estimated resident population, age, Indigenous status, English spoken at home and workforce participation) were obtained from the Australian Bureau of Statistics 2011 census. Formal statistical inference (p-values) were derived in the linear regression via the nonparametric bootstrap.ResultsA direct linear relationship was observed between the total cost of resident PHC services and population, while cost per capita decreased with increasing population. Services in smaller communities had a higher number of nursing staff per 1000 residents and provided more consultations per capita than those in larger communities. The number of days of visiting services received by a community each year also increased with population. A linear regression with bootstrapped statistical inference predicted a significant regression equation where the cost of resident services per annum is equal to $1,251,893.92 + ($1698.83 x population) and the cost of resident and visiting services is equal to $1,378,870.85 + ($2600.00 x population).ConclusionsThe research findings provide empirical evidence based on real costs to guide funding for remote PHC services that takes into account the safety and equity requirements for a minimum viable service. This method can be used as a transparent, coordinated approach to ensure the equitable delivery of sustainable, high quality PHC in remote communities. This will in turn contribute to improved health outcomes.

Bank networks: Contagion, systemic risk and prudential policy

We present a network model of the interbank market in which optimizing risk averse banks lend to each other and invest in non-liquid assets. Market clearing takes place through a tâtonnement process which yields the equilibrium price, while traded quantities are determined by means of an assortative matching process. Contagion occurs through liquidity hoarding, interbank interlinkages and fire sale externalities. The resulting network configuration exhibits a core-periphery structure, dis-assortative behavior and low density. Within this framework we analyze the effects of a stylized set of prudential policies on the stability/efficiency trade-off. Liquidity requirements unequivocally decrease systemic risk, but at the cost of lower efficiency (measured by aggregate investment in non-liquid assets). Equity requirements also tend to reduce risk (hence increase stability), though without reducing significantly overall investment. On this basis, our results provide general support for the Basel III approach based on complementary regulatory metrics.

Housing Demand During the Boom: The Role of Expectations and Credit Constraints

I use a life-cycle model of housing demand to infer expectations about house prices and home equity requirements for the housing boom of the 2000s from observed household choices. Expectations and credit constraints are separately identified from the intensive and extensive margins of housing demand. The main results are that (1) expected price growth was close to average long-run growth, (2) home equity requirements were lax initially, but tightened after the bust, and (3) subjective uncertainty about future price growth was large. Given the option to default on mortgage debt, greater price uncertainty leads to higher optimal household leverage. Received January 14, 2015; editorial decision September 4, 2016 by Editor Stefan Nagel.

Clearinghouse Default Waterfalls: Risk-Sharing, Incentives, and Systemic Risk

Central to the ongoing debate on default resource adequacy are the incentives provided by the clearinghouse waterfall structure. We show that clearinghouse equity and member default funds play a complementary role to initial margins: they incentivize safe members to participate rather than deterring risky ones from not participating. Our results explain the empirical differences in capitalization and profitability across clearinghouses, and show that temporary low funding cost environments create the illusion that clearinghouses are adequately capitalized. The model sheds normative insights: minimum equity requirements can impose additional costs on members because the clearinghouse's equilibrium response is to increase default funds.

Liquidity Regulation, Monetary Policy and Welfare

In the aftermath of the Great Recession, when various policies for regulating credit liquidity were introduced, the US Fed and other central banks placed more emphasis on the interest on reserves than the more traditional required reserve ratio. This paper employs a model with endogenous credit risk, a balance sheet channel, a cost channel and bank equity requirements, to examine the macroprudential role of the interest on reserves and the required reserve ratio and compare their welfare implications. Two transmission channels are identified, the deposit rate and the balance sheet channels. The required reserve ratio is shown to have conflicting effects through these two channels mitigating its policy effectiveness as a credit regulation tool. Conversely, with the interest on reserves both these channels complement each other in reducing the output gap, the cost channel and inflation. The results show that as a credit regulation tool the interest on reserves requires lower policy rate intervention and yields superior welfare outcomes to both the required reserve ratio and credit-augmented Taylor rules.

Aggregate Liquidity and Banking Sector Fragility

As compared to non-banks, banks adopt relatively fragile balance sheet structures characterized by leverage, maturity mismatch, and asset diversification. This paper offers a new potential explanation for this observation, within a model where banks face lower aggregate (funding) liquidity risk than non-banks. This single difference between both provides banks with an incentive to adopt fragile balance sheets, even in the absence of tax distortions, moral hazard, or a special role for banks as liquidity providers. The model implies that banks engage in pro-cyclical risk-taking, are vulnerable to contagion, and will resist regulatory equity and liquidity requirements, while non-banks do not.

A classroom experiment with bank equity, deposit insurance, and bailouts

ABSTRACTIn this classroom experiment, students see how low bank equity requirements can interact with deposit insurance to encourage excessive risk-taking. The experiment fills a niche Admati and Hellwig (2013) have noted: citizens in a democracy must understand why bank owners argue for low equity requirements and why society as a whole is better off with higher requirements. Instructors can run the experiment in principles of economics courses to introduce the topics of banking and financial crisis, or in advanced courses to promote discussion of financial reform. It takes about 45 minutes to run and debrief, and requires no computerization.

Basel III Equity Requirements and a Contemporary Rating Approach

The new equity regulations of Basel III are more restrictive. Therefore the research objective of this article is to show the impact of equity regulations and to provide a proposal for professional preparation for the rating procedure for credit seeking companies. The research method applied is to give an overview of the relevant equity regulations of Basel III. From this research, we can derive that risk is the most important issue to be considered. In consequence, the outcome is a proposal for a contemporary rating approach for companies, containing an appropriate way how to control risk and perform in an excellent way. We can conclude, that the new equity regulations will not only have an impact on banks, but also on credit taking companies. Especially small and medium-sized companies will be affected. Furthermore in future banks intend to get an exhaustive insight into companies. The risks identified in the business will serve as a measure to calculate a risk adequate interest rate, depending on the rating class. Therefore it won’t be sufficient anymore to use only backward looking statements from the balance sheet or profit and loss statement. In this article we propose an evidence based approach for executing a professional and sustainable rating. Supporting this, we provide six dimensions for a contemporary rating approach.

The Sovereign-Bank Diabolic Loop and ESBies

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio--known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.

The Sovereign-Bank Diabolic Loop and Esbies

We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks’ domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio – known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.

Optimal Intermediary Rents

This paper studies a dynamic production economy with financial intermediation. It is assumed that claims held on intermediaries cannot be fully enforced such that intermediation is subject to intermediary equity requirements. It is shown that competitive equilibria are not constrained efficient whenever the aggregate amount of intermediary equity in the economy is low enough to limit production. Specifically, a constrained social planner can achieve a Pareto improvement by creating long-term rents for intermediaries, which immediately reduces intermediary equity requirements. The constrained-efficient allocation can be implemented by a positive tax on future intermediary activity. (JEL D21, D82, D86, G21, G28)

Bank Capital Regulation: Theory, Empirics, and Policy

Minimum equity ratio requirements promote bank stability, but compliance must be measured credibly and requirements must be commensurate with risk. A mix of higher book equity requirements, a carefully designed contingent capital requirement, cash reserve requirements, and other measures, would address prudential objectives better than book equity requirements alone. Basel III’s ill-defined liquidity ratios, book capital ratios, and internal models of risk must be replaced by a system of credible, incentive-robust rules that combine valid concepts with objective, market-based information into a simplified and credible regulatory process. Raising minimum capital requirements will not be socially costless; bank profitability, share prices, and loan supply are likely to suffer. But avoiding the dramatic consequences of banking crises would more than repay those costs.

Benefits of a narrative culture.

LOOKING BACK over the past 20 years, the healthcare challenges we faced then are similar to those we face now. They may be heightened, but they still concern quality and safety, healthcare equity, cost constraints, and regulatory requirements.