Reservation Income Research Articles

Managerial discretion and debt financing under information uncertainty

AbstractThis study investigates how information uncertainty influences managers' decisions and compensation. It reveals varying financial choices under uncertainty levels. Initially, information uncertainty results in debtholders undervaluing debt in comparison to situations without such uncertainty. Consequently, they consistently estimate a default threshold that is lower than the threshold managers choose to maximize their value. Low uncertainty prompts overinvestment, heightening agency issues. Increased uncertainty leads debt holders to reduce the capital they are willing to lend to companies for investment. To invest early, funds must be injected or costs incurred. Information uncertainty can ease agency conflicts, shifting decisions from overinvestment to underinvestment. Managerial compensation matters: higher fixed salaries curb overinvestment, while increased reservation income exacerbates it.

Idiosyncratic risk, managerial discretion and capital structure

This paper develops an integrated dynamic model to examine the impact of managerial compensation packages, namely, cash salary and ownership stake, and reservation income on the credit spreads and capital structure choice of a risk-averse manager who faces incomplete markets and costly effort. Our model predicts an inverted U-shaped relationship between credit spreads (market leverage) and managerial ownership stake, which reconciles empirical findings that are inconsistent with previous theories. Moreover, in contrast to the predictions of previous models, we find that credit spreads decrease with the manager's cash salary, whereas they increase with the manager's reservation income. Finally, we also demonstrate that the relationship between pay-performance sensitivity (PPS) and the firm's market leverage is dependent on the manager's ownership stake and cash salary; this prediction provides novel empirical tests.

Population change and the regional distribution of physicians

Abstract Based on an intertermporal entry model of the physician market, we analyze how the supply of office-based physicians depends on regional character and on the age-structure of the local population as determinants of the current profitability of physician services, on local population change as a predictor of future demand, and on the extent of equilibrium adjustment within local markets. Using German regional data, we find that the number of general practitioners (GPs) per capita is positively related to the share of the population 60 and above within metropolitan areas, but negatively within rural areas. Future changes in list size have an impact on the current supply of GPs, suggesting limitations to equilibrium adjustment especially in regions with excess supply. Overall, population change should have raised the profitability of GP services over the period 1997–2008. The falling supply of GPs, especially in rural regions, then implies an increase in reservation income.

A Proposal for the Introduction of Participation Exemption for the Prevention of Overseas Reservation Income

A Proposal for the Introduction of Participation Exemption for the Prevention of Overseas Reservation Income

Vertical integration in West Africa's cotton industry: are parastatals a second best solution?

AbstractThis article provides a framework to compare market outcomes among vertically integrated monopsonies in the cotton sector of West Africa and alternative, more competitive market structures. Based on a principal agent framework, in the presence of factor market constraints, as well as capital market failure, efficiently operated cotton parastatals increase sector welfare and efficiency by providing input credits. In equilibrium, outcomes with the principal agent model suggest growers receive the reservation income to participate in cotton production while the principal (cotton company) extracts the surplus above the reservation income. Competitive markets entail more equitable distribution of benefits than with parastatal vertical integration, but credit and factor market constraints can still persist. Promotion of a competitive market system will not support cotton productivity growth unless stakeholders pursue complementary programs to develop credit markets and research and extension institutions. In the presence of current market failures, parastatals may be a second‐best solution.

Random load oriented pricing strategy for resource reservation in computational grid

Traditional reservation mechanisms often have the negative influences on the QoS of local tasks.To solve this problem,a resource reservation mechanism based on the reservation income and loss balance was proposed.First,according to the local task correlation statistical property,using the theory of probability method,the sum of the local task execution time probability distribution function in a period was given and proved.Then,when computing resources providers' utility,the loss brought by the local task was considered and the lowest resources price was resolved.The experimental results indicate that the proposed mechanism can safeguard local tasks effectively and effectively raise resource utilization and reduce task rejection rate.

Income Stabilization Through Government Payments: How is Farm Household Consumption Affected?

We estimate the impacts of various types of government payments to U.S. agriculture on different components of farm household consumption. Using 2003 to 2005 data from the Agricultural Resource Management Survey (ARMS), we show that marginal rates of consumption differ by consumption category and income source, including different types of farm program payments. The results suggest that farm households treat income from different sources as imperfect substitutes and may reserve income from specific sources for specific types of consumption. Implications for the effects of different types of government payments on the farm household are considered.

Irreversible investment, managerial discretion and optimal capital structure

We explore the significance of employee compensation and alternative (reservation) income on investment timing, endogenous default, yield spreads and capital structure. In a real-options setting, a manager’s incentive to under(over)invest in a project is associated to labor income he has to forego in order to work on the project, the manager’s salary, his stake on the project’s equity capital and his subsequent income, should he decide to terminate operations. We find that the optimal level of coupon payments decreases with managerial salary and ownership stake while it is increasing in the manager’s reservation income. Yield spreads (optimal leverage ratios) are increasing (decreasing) in the manager’s salary and ownership stake, while they are decreasing (increasing) in the manager’s reservation income. Exploring agency costs of debt as deviations from a value-maximizing investment policy, we document a U-shaped relationship between agency costs of debt and the managerial compensation parameters: the manager’s reservation income, salary and ownership share.

Micro Foundation of Worship of the Kims

It is well known that worship of the Kims has been strengthened in North Korea. This paper analyzes this mechanism. The paper proposes two kinds of models which depict the North Korean system. The first one is a case where North Korean authorities can directly decide the labor allocation of people. The second one is a case where North Korean authorities make contracts with people. The result shows that low levels of reservation income is the origin of the strengthening worship of the Kims.

Credit-Product Interlinkage and Captive Markets in Backward Agriculture: A Theoretical Analysis

This paper builds a model of fragmented duopsony in backward agriculture following Basu and Bell (1991) in which the purchasers (traders) have captive markets each but compete in a contested market. We focus on the formation of captive markets through trader-farmer interlinkage in the form of interlinked credit-product contracts (ICPCs). ICPC (or the formation of captive markets) is not an entry-preventive strategy in the model. Its motive is to push the farmers to their reservation income level. However, the captive and the contested markets are linked by the requirement that the reservation income of a captive farmer has to equal the income of a farmer in the contested market. In general, in our model strategic considerations determine the extent of use of ICPCs rather than explaining their existence. (In a special case, however, they do explain existence.) We also show that a credit subsidy policy will reduce the size of the captive market, improve the welfare of the farmers and raise the agricultural productivity of the economy while the effects of a price subsidy policy will be ambiguous.

The Level of Wage Bargaining as a Firm–Union Choice

There is a trade‐off between central bargaining which allows local externalities to be internalized and local bargaining which gives firms and unions the scope to determine both wages and employment simultaneously and efficiently in the sense of McDonald and Solow (1981). A model of strong unions is presented where workers are also concerned with relative wages. The trade‐off is resolved by the individual firm and union on the basis of choice, using the Pareto‐criterion. In the presence of a small extra contract cost under local bargaining, the main findings are: (i) central bargaining is Pareto‐optimal only for extreme values of the reservation income level—a change in unemployment remuneration may cause centralization to breakdown; and (ii) centralization may also be sustained as a suboptimal Nash‐equilibrium through workers’ concern with relative wages—the familiar Keynesian coordination failure.

An analysis of delayed formal and interlinked informal credit in agriculture

A model of interlinked credit-product contracts between small farmers and large farmers when the small farmer faces delay in getting formal credit and the large farmer does not, has been developed. The small farmer remains on the reservation income level, and his reservation income is inversely related to the length of the delay. However, this does not hamper the productivity of the small farmer. The large farmer extracts the surplus through the interlinked contract and this surplus is positively related to the length of the delay. Interlinkage and non-inter-linkage equilibria become identical if the small farmer gets the formal credit at the beginning of the crop cycle. Various subsidy policies worsen the distribution of formal credit.

The Illyrian Firm Revisited

The labor managed firm (LMF) is viewed as a contract-based coalition of workers. The coalition contract defines the worker's membership in the LMF, gives credence to the short-run risk of layoffs, and identifies the LMF as being more than a mere neoclassical production function plus fixed cost. Our model embodies three key features: the rational worker's concern with income-employment risk, the LMF's maximization of the member's expected utility, and the distinction between the LMF's short-run workforce and its long-run membership size. The main result is twofold. First, the LMF's short-run output supply curve is upward sloping in its price, except in the range of very low output prices where revenues are so small relative to the fixed costs as to make the LMF's remuneration fall below the member's short-run reservation income. Second, of equal importance as determinants of the LMF's short-run behavior are the internal and external conditions of financing its short-run fixed cost. In this regard the article delineates the role of internal wage funds and the external insurance provisions in inducing an upward sloping pattern of LMF's output-employment responses in the short run .

The Impact of the 12% Reserve Income Tax Provision upon the Banking Structure

The Impact of the 12% Reserve Income Tax Provision upon the Banking Structure