Implicit Costs Research Articles

Implicit Cost of the 2010 Foot-and-Mouth Disease in Korea

The most destructive foot-and-mouse disease (FMD) outbreak in Korea occurred in November 2010. Various studies have quantified the economic impact of culling affected animals, mostly swine, from the event by applying different assumptions to the Input-Output (IO) model. The present study takes into account a type of implicit cost, considering the types of effects in the previous literature, as well as costs that have been unaccounted for in prior studies. A seasonal autoregressive model (SARIMA) is estimated employing the number of swine slaughtered leading up to the 2010 FMD outbreak, and forecasts from the model are compared to the actual drop and rebound. The unaccounted implicit cost is estimated to be more than 2 trillion Korean Won (≈ 1.8 billion US dollars), which is a cost Korea must give up or cannot recover. This study serves to strengthen the justification of applying preventive efforts to reduce the likelihood and economic impact of an animal disease outbreak and may be applied in other countries.

Integrated supply chain model for deteriorating items with linear stock dependent demand under imprecise and inflationary environment

In this paper, we develop an integrated supply chain model for deteriorating item, with linear stock dependent demand, taking into account the views of both the vendor and the multi-buyer under imprecise and inflationary environment. We have used the implicit cost in this model and use function principle to calculate the fuzzy total supply chain cost and graded mean integration representation method is used to defuzzify the fuzzy total supply chain costs.

The Performance of China Stock Market, Based on the Analysis of Implicit Transaction Cost

This paper is based on the stocks listed on the Shanghai and Shenzhen stock exchanges for full year in the early period of 1992 to the end of 2016, using Hasbrouck sampling method to estimate the implicit transaction cost of Chinese order-driven market, and observing the performance of stock market and affecting factors based on the implicit transaction costs. Empirical results show: the implicit transaction cost is an unavoidable cost for investors, and the performance of China stock market is not ideal. Finally, it is suggested that China stock market should improve the trading system, strengthen the information disclosure system and optimize the equity system of listed companies.

The effect of cyber-attacks on stock returns

A widely debated issue in recent years is cybercrime. Breaches in the security of accessibility, integrity and confidentiality of information involve potentially high explicit and implicit costs for firms. This paper investigates the impact of information security breaches on stock returns. Using event-study methodology, the study provides empirical evidence on the effect of announcements of cyber-attacks on the market value of firms from 1995 to 2015. Results show that substantial negative market returns occur following announcements of cyber-attacks. Financial entities often suffer greater negative effects than other companies and non-confidential cyber-attacks are the most dangerous, especially for the financial sector. Overall findings seem to show a link between cybercrime and insider trading

Estimating the Economic Impact of Stormwater Runoff in the Allen Creek Watershed

Stormwater runoff generated by increased landscape imperviousness results in flooding and degradation of aquatic systems. This paper proposes an economic model of stormwater runoff damage estimation. Using a hedonic property model that allows us to account for the heterogeneity in each parcel's generation of stormwater runoff, we estimate the marginal implicit cost of an additional 10,000ft3 of annual runoff (which represents about a 2% increase in the average annual runoff volume coming from each lot) to a downstream community in the Allen Creek watershed located in Rochester, NY. We estimate that an additional 10,000ft3 of runoff translates to nearly $12,000 (or $1.20 per cubic foot) of damages to downstream residences under current development conditions. Results can be compared with abatement cost estimates from other studies to help quantify one important part of the tradeoffs between the desirability of development versus the increase in environmental challenges and economic costs that may result.

The Implicit Costs of Motherhood over the Lifecycle: Cross‐Cohort Evidence from Administrative Longitudinal Data

It is well known that the explicit costs of raising a child have grown over the past several decades. Less well understood are the implicit costs of having a child, and how they have changed over time. In this article, we are the first to examine the evolution of the implicit costs of motherhood over the lifecycle and across generations using high quality administrative data. We estimate that the lifetime labor market income gap between mothers and women who never have children (never‐mothers) decreases from around $350,000 to $280,000 between women born in the late 1940s and late 1960s. Gaps tend to increase monotonically over the lifecycle, and decrease monotonically between cohorts. Our evidence suggests that changes in the gaps are caused by changing labor force participation rates.

What Influences Trader Decision to Add or Remove Liquidity?

We examine determinants of U.S. equity trader maker-taker decisions (e.g., execute a non-marketable limit order or marketable order). Those with a higher maker tendency are slower, larger-size traders who exhibit smaller price impact and concentrate their trading in fewer markets. When the bid-ask spread is narrower, depth is thinner, volume is lower, and volatility is higher, traders are more likely to take quotes. Trading costs differ between orders, and implicit and explicit costs are negatively (positively) related for maker (taker) executions. Overall, our findings indicate trader characteristics, market conditions, and trading cost dimensions influence order type decisions.

Global Market Integration Reversals and Funding Liquidity

We show that constraints on using leverage for foreign positions can act as an international investment barrier. Guided by an international CAPM with leverage constraints, we use observed stock prices to measure the variation in the magnitude and the implicit cost of such cross-border funding barriers. Our measure helps explain the dynamics of global market integration and, in particular, its reversals documented in the literature but not explained by other international investment barriers. We confirm our results using alternative financial integration measures, international capital flows, and institutional portfolio holdings.

Frontal theta accounts for individual differences in the cost of conflict on decision making

Cognitive conflict is often experienced as a difficult, frustrating, and aversive state. Recent studies have indicated that conflict acts as an implicit cost during learning, valuation, and the instantiation of cognitive control. Here we investigated if an implicit manipulation of conflict also influences explicit decision making to risk. Participants were required to perform a Balloon Analogue Risk Task wherein the virtual balloon was inflated by performing a flankers task. By varying the percent of incongruent flanker trials between balloons, we hypothesized that participants would pump the balloon fewer times in conditions of higher conflict and that frontal midline theta would account for significant variance in this relationship. Across two studies, we demonstrate that conflict did not elicit reliable behavioral changes in this task across participants. However, individual differences in frontal theta power accounted for significant variance by predicting diminished balloon pumps. Thus, while conflict costs may act as investments to some individuals (invigorating behavior), it is aversive to others (diminishing behavior), and frontal midline theta power accounts for these varying behavioral tendencies between individuals. These findings demonstrate how frontal midline theta is not only a candidate mechanism for implementing cognitive control, but it is sensitive to the inherent costs therein.

Corporate governance and credit financing in a developing economy

Emerging markets have common weaknesses in their financial market development. Financial development is one institutional force that shapes financing and governance of firms in emerging markets. Debt and equity are alternative governance instruments. Trade credit is part of debt and therefore should be treated as such in corporate governance. We used a fixed effect regression of financial sector development and trade credit of firms listed on the Johannesburg Stock Exchange to ascertain the relationship of financial sector development and trade credit. We also analyzed the Socially Responsible Index (SRI) which measures corporate governance. We find that good corporate governance practices do not result in substituting of trade credit, despite its high implicit costs, with bank loans for working capital financing.

Creating Order in the Absence of Formal Regulations and Law: A Historical Perspective on Corporate Governance and the Joint Stock Company

The legal and political explanations that underpin the contemporary literature on corporate governance have focused how the prevailing political or legal system determines how large corporations are governed. They imply that in order to facilitate good corporate practices, emerging economies should converge towards governance systems that offer strong legal protection for investors. Distinguishing itself from this approach, this paper adopts a historical account of the major political economy factors that either impeded or facilitated the evolution of the Anglo American Joint Stock Company (JSC). This illustrates how the JSC did note merge by blueprint or design as is implied in the literature. It also describes the implicit costs associated with the JSC including political rent seeking, the expropriation of small investors, market crises and monopolies. Under these circumstances legal and political developments often enhanced corporate power at the expense of the public interest. This account suggests that the JSC is better viewed as an adaptive and innovative organisational form that has thrived in the absence of formal regulations and law, rather than as a nexus of contracts arising from market failure. The evolution of the JSC and its corporate governance structures are therefore best understood within a political economy framework that accounts for market developments, political and legal interventions and the rise of the regulatory state. For developing economies the main lesson is not that they should replicate either the US or UK, but rather they can draw on the factors that allowed both countries to lessen the costs of mobilising finance, and adapt them to suit local market structures.

IMPLICIT TRANSACTION COSTS AND THE FUNDAMENTAL THEOREMS OF ASSET PRICING

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Implicit transaction costs are composed of two terms, one is able to capture the bid-ask spread, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having cádlág (right-continuous with left limits) and cáglád (left-continuous with right limits) paths of bounded quadratic variation and of finitely many jumps. That is, cádlág and cáglád predictable trading strategies of infinite variation, with finitely many jumps and of finite quadratic variation are allowed in our setting. Restricting ourselves to cáglád predictable trading strategies, we show that the existence of an equivalent probability measure is equivalent to the absence of arbitrage opportunities, so that the first fundamental theorem of asset pricing (FFTAP) holds. It is also shown that the use of continuous and bounded variation trading strategies can improve the efficiency of hedging in a market with implicit transaction costs. To better understand how to apply the theory proposed we provide an example of an implicit transaction cost economy that is linear and nonlinear in the order size.

A Comparative Study on the Opportunity Cost Approach: Economics vs Management Accounting

소비자의 선택 및 기업경영상 기회비용 만큼 중요한 개념은 없다고 해도 과언이 아니다. 경제학 전공 전문가 대다수가 기회비용에 관한 초보 수준의 문제를 맞추지 못했다는 Ferraro & Taylor(2005)의 연구 이후 미국에서는 기회비용을 포함한 경제 교육의 문제점을 지적하는 논문이나 글들이 뒤를 이었다. 국내 논문들은 학생들을 대상으로 한 Ferraro & Taylor(2005)의 반복조사 결과와 테셋 시험의 5년간 기회비용 문항에 대한 오답률 분석을 토대로 응시자나 학생들이 기회비용을 암묵적 비용만으로 잘못 알고 있으며 이러한 오해의 배경에는 기회비용에 대한 경제 교과서의 잘못된 정의 때문이라고 주장한다. 대부분의 경제 교과서에서 소개하는 ‘포기한 대안 중에서 가장 가치가 큰 대안의 가치’라는 정의는 암묵적 비용만을 암시하고 ‘가치’라는 용어가 모호하다고 지적하면서 기회비용은 ‘선택한 대안에 들어가는 명시적 비용과 포기한 대안의 가장 큰 순편익(암묵적 비용)의 합’으로 정의해야 한다고 주장한다. 이처럼 명시적 비용을 포함한 정의는 관련원가분석의 핵심인 차액분석의 장점을 활용하지 못하는 아쉬움을 갖는다. 관리회계에서는 ‘포기한 차선의 대안으로부터 기대되는 순현금흐름이나 공헌이익’처럼 순편익으로 정의하고 명시적 비용을 처음부터 배제한다. 이런 정의는 대안간에 차이를 보이지 않는(즉, 비관련적인) 명시적 비용의 집계 및 비교를 생략하는 차액분석의 정점을 활용하게 할 뿐만 아니라 기회비용을 기준 대안의 부가적 원가로 간주하거나 비교대안의 총관련원가에서 차감하여 순관련원가를 계산하는 두 방법 모두 효과적으로 최적 대안 선택을 가능하게 한다. 물론 총비용 대비 편익분석을 토대로 최선의대안을 선택할 수 있다. 또한 예산제약의 고려 등 총비용 산정이 필요한 경우에는 명시적 비용을 기회비용과 합친 총원가(즉, 비용)로 측정할 수 있다. 그러나 다른 대안들의 존재 여부를 인식하게 하고 대안들 간의 차이(상충관계)에 초점을 맞추게 하는 것이 기회비용의 순기능임을 감안할 때 ‘포기한 차선안으로부터 기대되는 순편익(현금흐름, 공헌이익, 이익 등)’으로 구체적으로 정의할필요가 있다. 굳이 명시적 비용을 포함한 정의를 고집할 경우에는 명시적 비용과 기회비용을 합친 총기회비용이란 용어 사용을 권장한다.Virtually all economists consider opportunity cost a central concept. However, Ferraro & Taylor(2005) study revealed that most of economic professors and Ph. D candidates failed to answer simple opportunity cost related economic question. Since then a lot of economists began to find out the cause of dismal performance and they mostly attributed to the failure of introductory level of economics principle in exposing students to basic economic logic. In Korea, based on the replication of Ferraro & Taylor(2005) and 5-year TESAT exam score analysis, some researchers argue that most of Korean students understanding of opportunity cost is very low and they claim that current textbooks are the main source of confusion and misunderstanding of opportunity cost. They argue that most of textbooks define opportunity cost as value from foregone next best alternatives excluding explicit cost of specific alternative and measure only based on the implicit cost. They insist that opportunity cost should be measured as the sum of explicit cost and largest net benefit forgone(implicit cost) which comes from the given-up alternatives. However their definition has critical weakness when compared with management accounting which defines opportunity cost as foregone contribution margin or income from next best alternative . Explicit cost is excluded in management accounting definition because management accounting use opportunity cost as a main differential cost in relevant analysis. According to cost-benefit principle which says that an action should be taken only if its benefit is at least as great as its cost, sometimes explicit cost of a certain alternative may be relevant, however, opportunity cost doesn t need to be defined as including explicit cost. Management Accounting approach is more desirable in the sense that it allows to reach an optimal choice among alternatives more efficiently based on differential analysis.

The Case for the Cautious Use of Leverage

After the global financial crisis, the word “leverage” became taboo among investors. This article argues that leverage can be a useful financial tool, however. When used appropriately and cautiously, it can help investors achieve many investment objectives without incurring significant additional risk. If investors forgo this helpful tool entirely, they may find it harder to achieve certain financial objectives or suffer implicit costs, such as relying heavily on “alternative” assets, high-beta securities, or moving large allocations to risky assets. The author examines the various abuses of leverage and acknowledges that leverage abuses can happen easily, and the results can be catastrophic. However, employing leverage properly can bring significant benefits, such as obtaining ideal risk-adjusted returns and avoiding suboptimal investment vehicles. The author compares leverage with power tools. Although leverage can help investors achieve many investment objectives, investors should take significant precautions and employ the best practices of leverage, including sound risk management, moderation, diversification, and reliable financing. Three potential applications of cautious leverage are examined—a simple levered portfolio to enhance returns, the liability-driven investment framework, and the risk parity asset allocation methodology. Two unlikely worst-case scenarios are discussed that may harm a levered portfolio—hyperinflation and a U.S. debt default. Finally, the author emphasizes again that leverage is an effective financial tool, although as with a power tool, great caution and protective measures need to be utilized before it can be employed safely and effectively. With the help of leverage, investors can achieve many investment objectives in today’s difficult and complicated investment environment. <b>TOPICS:</b>Wealth management, risk management, financial crises and financial market history, performance measurement

ANALISIS PENDAPATAN PADI (Oryza sativa. L) VARIETAS KARANG DUKUH DI KECAMATAN TAMBAN CATUR KABUPATEN KAPUAS KALIMANTAN TENGAH

This study aims to determine the financial aspects in the implementation of karang dukuh varieties of rice farming in the district of Kapuas Tamban Catur, which include costs of farming, receipts, income and the feasibility of farming operation. This study uses a survey in four villages of seven villages in the district of Kapuas Tamban Catur. The sampling is done by using purposive sampling method against 35 people who grow rice varieties of Karang Dukuh. As a variable in this study is the explicit costs, implicit costs, the total cost and the feasibility of Karang dukuh rice farming. The results showed that the average cost of an explicit (per ha) amounted to Rp 4,996,567,- while the costs are not incurred (per ha) amounting to Rp 2,211,458,- thus the average total cost per ha is Rp 7,208,025, - Acceptance average of Karang Dukuh rice farming in the district amounting to Rp 16,770,914,- per ha. Revenues derived from the difference between the reception with iaya explicit, which amounting to Rp 11,774,347,- per ha. Judging from the feasibility shows Karang Dukuh rice farming in the district tamban catur of 2.3 and is therefore worth the effort. Keywords: Income, Karang dukuh rice

Risk aversion and implicit shortage cost explain the Anchoring and Insufficient Adjustment bias in human newsvendors

The Anchoring and Insufficient Adjustment (AIA) bias has been observed in many newsvendor experiments, although a mathematical explanation for this behavior has previously eluded researchers. We show here that risk aversion coupled with an implicit shortage cost, both of which are well-known components of newsvendor decisions, comprehensively explains this behavior. We construct combinations of a risk-averse utility function and a shortage cost that explain the results from previously reported newsvendor experiments.

Feedback predictive control strategies for investment in the financial market with serially correlated returns subject to constraints and trading costs

SummaryIn this paper, we consider the optimal portfolio selection problem subject to hard constraints on trading amounts, trading costs, and different rates for borrowing and lending when the risky asset returns are serially correlated. We consider both explicit and implicit trading costs. No assumptions about the correlation structure between different time points or about the distribution of asset returns are needed. The problem is stated as a dynamic tracking problem of a reference portfolio with a desired return. We leverage the methodology of model predictive control (also known as receding horizon control) to design feedback portfolio optimization strategies and to provide a numerically tractable algorithm for practical applications. All expressions are presented in terms of first‐ and second‐order conditional moments. Our approach is tested on sets of real data from the Russian Stock Exchange Moscow Interbank Currency Exchange and New York Stock Exchange.

The Effectiveness of Incentive Schemes in the Presence of Implicit Effort Costs

Agents' decisions to exert effort depends on the provided incentives as well as the potential costs for doing so. So far most of the attention has been on the incentive side. However, our lab experiments underline that both the incentive and cost side can be used separately to shape work performance. In our experiment, subjects work on a real-effort task. Between treatments, we vary the incentive scheme used for compensating workers. Additionally, by varying the available outside options, we explore the role of implicit costs of effort in determining workers' performance. We observe that incentive contracts and implicit costs interact in a non-trivial manner. Performance reacts significantly to changes in implicit effort costs under low-powered piece-rate and target-based bonus contracts, but not under a high piece rate contract. In addition, comparisons between the incentive schemes depend crucially on the implicit costs.

Risk, Return and Profit-Loss Shared Lending Under Zero-Interest Financial System

Owing to its unique nature, writing a profit-loss shared lending (PLSL) contract for a Zero-Interest Financial System (ZIFS) bank is a challenge. Like venture capitalists and stock owners, a PLS lender faces some of the same risks as the borrower. However, as a lender and not as an investor (as opposed to the classical definition), it does not share in any increment or loss in the value of equity. While the share of profit going to capital may be constant, the absolute amount going to the lending bank is likely to diminish over a fixed period of time until the loan is paid. In economies where attempts to float a PLSL contract is strong, it is made worse by an abundance of adverse selection (AS) and moral hazard (MH) factors: lack of knowledge and training, errors in planning and projection, tardiness in identifying and reacting to problems, limitations of oversight, nepotism, favoritism, corruption, falsification, legal loopholes, tendency to cut corners, etc. So, despite its obvious benefits PLSL contracts are finding it difficult to take root and become established as a standard financing arrangement. This is vitiated by internal competition posed by mark-up financing. Pivotal to a viable PLSL contract, relevant equations incorporating AS and MH and related explicit and implicit costs are identified. Then risk-adjusted return to ZIFS bank, capital’s share of profit, absolute income accruable to banks and relevant first order conditions are derived.

Justification of the Coexistence of Formal and Informal Reciprocal Loans in Developing Countries

This paper provides a new justification for the coexistence of formal and informal reciprocal loans in developing countries. We develop an investment model capable of comparing the financing costs of different financing alternatives. Notably, the reciprocal feature of interest-free loans from friends imposes an agnostic obligation on the borrower and generates implicit financing costs. The diverse financing outcomes hinge on the comparison of the explicit costs of formal loans and the implicit costs of reciprocal loans from friends.