Incentives For Diversification Research Articles

Which government policies to create sustainable food systems have the potential to simultaneously address undernutrition, obesity and environmental sustainability?

IntroductionA transformation of food systems is urgently needed, given their contribution to three ongoing and interlinked global health pandemics: (1) undernutrition and food insecurity, (2) obesity and non-communicable diseases (NCDs), and (3) climate change and biodiversity loss. As policymakers make decisions that shape food systems, this study aimed to identify and prioritise policies with double- or triple-duty potential to achieve healthier and more environmentally sustainable food systems.MethodsThis study undertook a 4-step methodological approach, including (i) a compilation of international policy recommendations, (ii) an online survey, (iii) four regional workshops with international experts and (iv) a ranking for prioritisation. Policies were identified and prioritised based on their double- or triple-duty potential, synergies and trade-offs. Using participatory and transdisciplinary approaches, policies were identified to have double- or triple-duty potential if they were deemed effective in tackling two or three of the primary outcomes of interest: (1) undernutrition, (2) obesity/NCDs and (3) environmental degradation.ResultsThe desk review identified 291 recommendations for governments, which were merged and classified into 46 initially proposed policies. Based on the results from the online survey, 61% of those policies were perceived to have double- or triple-duty potential. During the workshops, 4 potential synergies and 31 trade-offs of these policies were identified. The final list of 44 proposed policies for healthier and more environmentally sustainable food systems created was divided into two main policy domains: ‘food supply chains’ and ‘food environments’. The outcome with the most trade-offs identified was ‘undernutrition’, followed by ‘environmental sustainability’, and ‘obesity/NCDs’. Of the top five expert-ranked food supply chain policies, two were perceived to have triple-duty potential: (a) incentives for crop diversification; (b) support for start-ups, and small- and medium-sized enterprises. For food environments, three of the top five ranked policies had perceived triple-duty potential: (a) affordability of healthier and more sustainable diets; (b) subsidies for healthier and more sustainable foods; (c) restrictions on children's exposure to marketing through all media.ConclusionThis study identified and prioritised a comprehensive list of double- and triple-duty government policies for creating healthier and more environmentally sustainable food systems. As some proposed policies may have trade-offs across outcomes, they should be carefully contextualised, designed, implemented and monitored.

Livelihood Diversification in Rainfed Areas of Telangana State: Evidence from Household Level Survey

Farmers in rainfed agriculture participate in both on-farm and off-farm activities to reduce risks from weather shocks, low farm fragmentation, low soil productivity, and frequent droughts and floods. Dependence on farm revenue alone proved difficult and risky. The study was conducted in 2022 to determine patterns and a livelihood diversification index at the household level for various farm sizes producing the chickpea crop. Primary data were acquired from 80 randomly selected farmer respondents in four mandals of Kamareddy district in Telangana State. Descriptive statistics were applied to characterize the sample households’ demographic, social, and economic factors. The livelihood diversification index was estimated using the Simpson diversity index at the household level. The data revealed that small and marginal farmers have very high diversification levels, while medium and large farmers have high diversification levels. The percentage share of on farm income stands highest for large farmers and lowest for marginal farmers and vice versa about non-farm activity. Regression analysis indicated education, farm size, total on-farm income, and net returns from pulse crops were significant determinants for diversification. The study further suggests that government support needs to focus on the provision of incentives for diversification at both on-farm and non-farm levels.

Booms, Busts, and Common Risk Exposures

ABSTRACTI present a dynamic general equilibrium model in which commonality in bank assets endogenously changes over the business cycle and shapes systemic risk. To reduce individual risks, banks diversify, increasing portfolio overlap and hence the similarity of their exposures to fundamental shocks. Systemic financial crises burst at the end of credit booms when productive investment opportunities are exhausted, banks' diversification incentives are strong, and their portfolios are highly correlated. A calibrated model is able to match key moments related to frequency, severity, and the economy's behavior around systemic crises.

ARIMA modelling of economic variables in the COVID-19 era: A study of the consumer price index

In addition to being fatal to the lives of thousands of people, coronavirus disease (COVID-19) was also fatal for corporations, businesses, and the entire global economy. COVID-19 is a pandemic with a contagious medical character, and it can even be fatal for the infected person who may have severe blockage of the respiratory system. From its origin, this virus spread across the globe, infecting hundreds of people of various ages and nationalities. For future occurrences to be understood, mathematical or statistical models with the fewest errors are required. This research is based on the studies of Sahai et al. (2020) and Ribeiro et al. (2020). In this study, the autoregressive integrated moving average (ARIMA) model is used to forecast the monthly consumer price index (CPI) in Kosovo. Furthermore, ARIMA (3, 1, 2) projections revealed the potential values for monthly CPI are expected to be on the rise with related implications for Kosovo. The study suggested introducing health, political and economic policies, such as a secure political climate, incentives for indigenous industries, economic diversification, and development of healthcare facilities throughout the world. The relevance of this research lies in the mathematical treatment of this problem which has never been treated in the Kosovar environment.

ДИВЕРСИФІКАЦІЯ ВИРОБНИЧОЇ ДІЯЛЬНОСТІ АГРАРНИХ ПІДПРИЄМСТВ РОСЛИННИЦЬКОГО НАПРЯМУ В УКРАЇНІ

In this article, the authors determine the productivity factors of crop production and outline the range of problems associated with the lack of diversification. The importance of national agricultural production for the economy of Ukraine as a whole is emphasized. It is indicated that the intensification of production and cultivation of mainly highly profitable crops led to the narrowing of crop rotations. According to the results of the research, it was established that the existing business model in crop production is based on the scenario of a consistently high yield of agricultural crops. Taking into account dependence on weather factors, the a priori uncertainty of the results of agricultural production worsens due to climate change. It is substantiated that risk reduction in crop production can be achieved by diversification of production. The conceptual basis for the diversification of production activities in crop production is determined, which consists in the redistribution of available resources for the product supply in accordance with the requirements of market demand, and taking into account the influence of institutional mechanisms to achieve a higher level of sustainability. The business entity's incentives for diversification are divided into internal, which consist in the possibility of obtaining economic benefits, and external, caused by the action of institutional mechanisms. Opportunities for each type of product should be evaluated based on the parameters of income from production and the risk of loss of profit. Appropriate efforts are recommended to be directed to more complete use of working capital and creation of added value based on the implementation of innovations. Based on the calculated average indicators of crop production, an analysis of fluctuations in the level of land yield during 2016–2020 was carried out. The dynamics of the degree of management risk as a deviation of the level of profitability of the production of agricultural crops compared to the level of operational profitability of agricultural enterprises were studied. It is substantiated that production diversification is a powerful tool for effectively smoothing out price fluctuations when achieving the forecasted harvest volume and compensating for production losses. It was emphasized that the decision to grow additional agricultural crops should be evaluated in terms of production capability and economic feasibility.

Big Banks versus Agricultural Banks: Has Too‐Big‐To‐Fail Regulation Affected Efficiency and Scale Economies Measures?

The Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010 aimed to improve the financial stability of the banking industry. This reform was intended to reduce the too‐big‐to‐fail practices for very large banks. However, it might also affect the performance of relatively small asset size banks with different lending portfolios. Using the Call Report data from 2006 to 2016, evidence suggests that the Dodd‐Frank Act has affected the estimates of cost efficiency and returns to scale measures of both big banks and small agricultural banks. Results indicate that Dodd‐Frank Act has increased cost efficiency, discouraged mergers, and encouraged product specialization for banks above the $50 billion asset size. However, none of these results hold for the banks just above the $10 billion asset size. This appears to suggest that Dodd‐Frank Act has mainly affected the economic measures of those very big banks that are subject to the more stringent regulations. Nevertheless, Dodd‐Frank has reduced agricultural banks' cost efficiency and increased incentives for mergers. In addition, the Dodd‐Frank Act has dampened the incentives for product diversification in agricultural banking. Likewise, evidence exists that this act has slowed productivity growth, efficiency, and technological change in agricultural banks. Taken together, Dodd‐Frank reduced consolidations in very big banks that are subject to greater oversight but adversely affected U.S. agricultural lending.

Collateralized Debt Networks with Lender Default

The Lehman Brothers' 2008 bankruptcy spread losses to its counterparties even when Lehman was a lender of cash, because collateral for that lending was tied up in the bankruptcy process. I study the implications of such lender default using a general equilibrium network model featuring endogenous leverage, endogenous asset prices, and endogenous network formation. The multiplex graph model has two channels of contagion: a counterparty channel of contagion and a price channel of contagion through endogenous collateral price. Borrowers diversify their lenders because of the counterparty risk, but they have to deal with lenders who lend at a higher margin. This diversification generates positive externalities by reducing systemic risk, but any decentralized equilibrium is constrained inefficient due to under-diversification. The key externalities here, arising from the tradeoff between counterparty risk and leverage (margin), are absent in models with exogenous leverage or exogenous networks. I use this framework to analyze the introduction of a central counterparty (CCP). I show that the loss coverage by the CCP reduces diversification incentives and exacerbates the externality problem which can rather increase systemic risk.

Collateralized Debt Networks with Lender Default

The Lehman Brothers' 2008 bankruptcy spread losses to its counterparties even when Lehman was a lender of cash, because collateral for that lending was tied up in the bankruptcy process. I study the implications of such lender default using a general equilibrium network model featuring endogenous leverage, endogenous asset prices, and endogenous network formation. The multiplex graph model has two channels of contagion: a counterparty channel of contagion and a price channel of contagion through endogenous collateral price. Borrowers diversify their lenders because of the counterparty risk, but they have to deal with lenders who lend at a higher margin. This diversification generates positive externalities by reducing systemic risk, but any decentralized equilibrium is constrained inefficient due to under-diversification. The key externalities here, arising from the tradeoff between counterparty risk and leverage (margin), are absent in models with exogenous leverage or exogenous networks. I use this framework to analyze the introduction of a central counterparty (CCP). I show that the loss coverage by the CCP reduces diversification incentives and exacerbates the externality problem which can rather increase systemic risk.

Neighborhoods and National Housing Policy: Toward Circumscribed, Neighborhood-Sensitive Reforms

This article provides a holistic analysis of why and how federal assisted housing policy (specifically, public housing, Low-Income Housing Tax Credit [LIHTC], and voucher programs) should be reformed in ways that would be more conducive to socially desirable outcomes at the neighborhood level. First, I argue that past research has documented mutually causal interrelationships between assisted housing policy and neighborhoods that have been couched as having negative connotations for both. Second, I argue that there is there a rationale on grounds of both efficiency and equity for altering assisted housing policy so it would encourage the creation and preservation of neighborhoods that are physically of good quality and economically diverse. Third, I advocate a circumspect menu of programmatic reforms that would be gradualist, option enhancing, and relatively budget neutral, yet would garner these positive impacts. As overarching reforms, I propose regional housing institution-building, fair housing law revisions, impaction standards, and diversity incentives built into Affirmatively Furthering Fair Housing. As reforms to site-based assistance programs, I propose: a new formula for disbursing LIHTC, to repeal and replace the Qualified Census Tract bonus, diversification/preservation incentives for existing assisted private developments, and preserving assisted housing in revitalizing neighborhoods. As reforms to tenant-based assistance programs, I propose: Small Area Fair Market Rents, premove and postmove mobility counseling, ancillary family supports postmove, reducing barriers to lease-up, and diversification incentives in U.S. Department of Housing and Urban Development regulations.

Multidivisional firms, internal competition, and comparative advantage: Baye et al. Meet Neary

We present a tractable general equilibrium model to capture the effects of divisionalization on trade in oligopolistic industries. Divisionalization reduces the incentives for diversification in production. The extensive margins of trade expand as a result of divisionalization, facilitating specialization toward the direction of comparative advantage, with exports rising in the case of domestic divisionalization and imports rising in the case of foreign divisionalization. This effect of internal competition on specialization is magnified when competition between divisions is staggered. The factor market effects of divisionalization, domestic and/or foreign, strengthen the expansionary effects on the extensive margins of trade.

Family succession and business diversification: Evidence from China

This study examines whether family firms tend to expand their business when family successors inherit the entire business. In the specific economic environment of China, we find that second-generation successors are more likely to diversify the family business and perform better after diversification. Moreover, family successors located in provinces with low levels of development have more incentives to diversify their business, relative to successors located in provinces with high development levels. However, political connections reduce successors' incentives for diversification. Therefore, we find that the specific effects of political connections and regional levels of market development influence family successors' incentives for diversification.

Sustainable commercialization of new crops for the agricultural bioeconomy

Abstract Diversification of agroecological systems to enhance agrobiodiversity is likely to be critical to advancing environmental, economic, and social sustainability of agriculture. Temperate-zone agroecological systems that are currently organized for production of summer-annual crops can be diversified by integration of fallow-season and perennial crops. Integration of such crops can improve sustainability of these agroecological systems, with minimal interference with current agricultural production. Importantly, these crops can provide feedstocks for a wide range of new bio-products that are forming a new agricultural bioeconomy, potentially providing greatly increased economic incentives for diversification. However, while there are many fallow-season and perennial crops that might be used in such a “bioeconomic” strategy for diversification, most are not yet well adapted and highly-marketable. Efforts are underway to enhance adaptation and marketability of many such crops. Critically, these efforts require a strategic approach that addresses the inherent complexity of these projects. We outline a suitable approach, which we term “sustainable commercialization”: a coordinated innovation process that integrates a new crop into the agriculture of a region, while intentionally addressing economic, environmental and social sustainability challenges via multi-stakeholder governance. This approach centers on a concerted effort to coordinate and govern innovation in three critical areas: germplasm development, multifunctional agroecosystem design and management, and development of end uses, supply chains, and markets. To exemplify the approach, we describe an ongoing effort to commercialize a new fallow-season crop, field pennycress (Thlaspi arvense L.).

Oil Trade and Climate Policy

It has been argued that a depletable resource owner might optimally increase near-term supply in response to environmental policies promoting the development of alternative resources, which might render climate policy ineffective or even counterproductive. This paper empirically confirms this prediction using data on crude oil exports from OPEC to OECD countries between 2001-2010 in a gravity framework. It documents that oil exporters decrease prices and increase quantity of oil exports in response to increases in RD (ii) the Armington elasticity of oil is about 2.4; and (iii) exports of coal, which is in abundant supply, are not significantly affected by the changes in R&D intensity of importer countries. Besides having important implications for the effectiveness and design of climate policy, these results underscore the role of dependence on oil revenues of the oil exporters and economic/political diversification incentives of the importer countries in the oil markets.

R&D Competence, Diversification, and Going Public

We examine the effects of differential initial competence within highly innovative startup firms on their innovation strategies and growth. Using a detailed project-level development database for private firms in the drug industry sector, we show that firm R&D competence is persistent over long periods of time. This suggests that the large part of the cross-sectional variation in R&D performance is initially determined. Based on the persistence of R&D competence, we find that firms with high initial competence are more likely to be exploitive by focusing on their best segment and grow faster and more successfully than firms with low initial competence. Specifically, they exit through an IPO earlier or receive greater amounts of venture capital funding. By contrast, firms with low initial R&D competence tend to be explorative, operating in multiple segments (diversifying), to increase the value of their innovation under the option-like payoffs of innovation. Medicare Part D legislation as an exogenous shock to diversification incentives suggests a likely casual relationship between diversification and firm growth. Our results are consistent with persistent initial competence leading to different innovation strategies and growth.

Ex-ante implications of sovereign default

I study how the possibility of default on external debts affects other capital allocation decisions in a small open economy. In the model, default has an option value derived from the randomization over ex-post default regimes, which depends on country-specific productivity shocks. This feature of default reduces incentives for ex-ante diversification, which would reduce exposure to the productivity shock. As a result, if the economys debt to capital ratio is allowed to cross a fixed threshold (identified in the model), the unique equilibrium exhibits an allocation of capital that is less productive in expectation and more volatile than in a benchmark model without default. The model therefore captures a number of salient features of emerging and less developed countries, where low levels of international risk-sharing have gone hand-in-hand with frequent and recurring default events.

Privatization and Strategic Mergers across Borders

AbstractWe present a theoretical model to capture the role of privatization in the incentives for and implications of cross‐border horizontal mergers. Absent any merger incentives in an autarkic equilibrium, we show that a decrease in the degree of privatization will lower the incentives for diversification of international production. The incentives for diversification for any given degree of privatization will fall when the private and public firms are allowed to move sequentially rather than simultaneously. The presence of the public firm also introduces a new source of asymmetry in the incentives for cross‐border mergers: a reduction in the degree of privatization at home will dampen the potential gains from a take‐over of a home firm by a foreign firm but magnify the potential gains from a take‐over of a foreign firm by a home firm.

Cross-border mergers in vertically related industries

We construct a tractable model of an oligopolistic industry that allows us to capture the role of the vertical structure in the incentives for and implications of cross-border horizontal mergers. We show that vertical integration can increase the gains from cross-border mergers. We also demonstrate how market concentration interacts with costs in the decision of a relatively efficient foreign firm located in one country (source) to merge with a disintegrated or an integrated firm in another country (target) when the industry is vertically related. Absent any merger incentives in an autarkic equilibrium, we demonstrate that vertical integration can raise the incentives for diversification in production and add to the gains from cross-border horizontal mergers. Any additional gain from cross-border horizontal mergers, due to the existence of a vertically integrated production structure, is shown to be sensitive to the relative market concentration across countries. Cross-border mergers will be triggered by a relatively cost-efficient source taking over a disintegrated target when pre-merger competition among the disintegrated firms is relatively intense but, otherwise, the initial target will be a vertically integrated firm.

Rural development and challenges establishing sustainable land use in Eastern European countries

The European Union Rural Development Policy (RDP) for the period 2007–2013 seeks to establish a coherent and sustainable framework for the future of Europe's rural areas and is closely related to the improvement of living conditions in the countryside involving aspects of housing, the environment, infrastructure, communication, employment possibilities, land management, etc. Such interventions are very welcome in many Central and Eastern European countries where land reform after the collapse of the Soviet regime has resulted in a worrying drift towards rural depopulation. It is expected that the land consolidation (LC) process will not only allow solutions to the structural problems of rural land but could also create viable rural areas through improvements to rural services and infrastructure, and incentives for economic diversification, etc. Permanent and fluent communication between private and public interest groups is a most important aspect of achieving the stated objectives of land consolidation. However, this presently takes the form of a monologue rather than a dialogue in many Central and Eastern European countries. Today, and after the period of the currency of EU RDP 2007–2013, it is necessary to investigate the attitude and expectations of the interested parties if further degradation is to be avoided and the attractiveness of rural areas through LC projects is to be enhanced. The case study introduced in this paper, based on quantitative and qualitative surveys done with related key groups in Lithuania, reveals the main problems and offers possible solutions which should be reflected in the legislation to avoid the future degradation of rural areas.

Managerial personal diversification and portfolio equity incentives

This paper examines the diversification choices of top managers and their implications for the levels of portfolio equity incentives as well as for firms' financial policies. Standard portfolio theory should also apply to corporate managers and therefore excessive risk exposures to the firm should create portfolio diversification incentives for the managers. We use a unique dataset from the Taiwan tax data center and construct the measures of the degree of diversification in a manager's equity portfolio that is made up of equities of other firms to capture his motives for diversifying his risk exposure to his own firm. We provide empirical evidence supporting the view that managers have a risk-reduction motive when they trade in the equities of other firms besides their own. Moreover, we document evidence that the degree of diversification in such equity portfolios also significantly affects managerial equity incentives as well as firms' financial policies. Overall, our findings confirm that managers' personal diversification can help make up for the diversification that the managers would otherwise have lost, thereby reducing the agency cost of equity incentive contracts.

On the microeconomics of diversification under learning

This paper investigates the microeconomics of diversification, based on a two-period model of an owner-managed firm facing uncertainty. The analysis focuses on the role of learning. Economies of diversification are defined based on a certainty equivalent and its decomposition into three components: expected profit (capturing scope effects), the risk premium (measuring the cost of risk aversion), and the value of information associated with learning. For each component, the influence of scale effects, trans-ray concavity effects, and income effects on economies of diversification are examined. By integrating risk, scope and the role of information, the analysis provides new insights into the microeconomics of diversification. While scope economies and risk aversion can provide general incentives for diversification, we argue that information and learning can give incentives to specialize. Implications for economic analysis are discussed.