Risky Policy Research Articles

PROGRAM OPSI SAHAM DAN PERILAKU PENGAMBILAN RISIKO MANAJEMEN: PENGUJIAN MEDIASI MODERASIAN

The management stock option program (POSM) is a type of equity compensation that is theoretically predicted to encourage risk alignment between management and principals, which in turn will encourage goal alignment. This study examines this argument on companies that adopted POSM during the period 1999-2016. Utilizing moderated mediation model, we find that management team’s risk taking behavior mediate the effect of POSM on company performance as measured by ROA, but not so when performance is measured by ROE and stock performance index. We also provide evidence that management team considers the company's capital structure, measured by the level of debt, in their risky policy making. Overall, our study documents the critical role of management team’s risk behavior to encourage goal alignment between management and principals.

Strategic Policy Overreaction as a Risky Policy Investment

Policy overreaction is a policy that imposes objective and/or perceived social costs without producing offsetting objective and/or perceived benefits. It is therefore an objective fact and, at the same time, a matter of interpretation. Policy scholars tend to view this duality as a problematic ontological issue and to categorize such policies as errors of commission or omission. This article builds on (i)the aforementioned duality and (ii)a recent conceptual turn whereby this concept is re-entering the policy lexicon as a type of deliberate policy choice. This may be motivated by, among other factors, political executives’ desire to pander to public opinion, appear informed to voters, and signal extremity. The article assigns specific policy overreaction responses to two dimensions: the scale of policy in terms of objective costs and benefits, and public perceptions of policy. The derived policy taxonomy highlights four distinct empirical categories, which are elaborated and exemplified here, as well as a set of hypotheses about differing patterns of politics and governance associated with the design of these policy choices. These distinctions should facilitate a more systematic empirical test of strategic policy overreaction as a risky policy investment.

Environmental Intergenerational Justice and the Nonidentity Problem

A moral Kantian approach can be developed to deal with the nonidentity problem with regard to environmental intergenerationl justice—at least in cases of depletion or risky policy. Being a duty-oriented moral theory, this approach allows both that people coming into existence in a nonidentity situation can be glad to exist while simultaneously taking into account depletion or risky policy, to which their existence is causally related, as possibly being morally wrong because of a violation of moral duties.

Mechanisms of global financial crisis (2007–2009)

The speculative boom in the mortgage market, the systematic underestimation of market risks, and the global imbalance of investment and savings have become the general economic causes of the global financial crisis. The main problem was the excessive amount of unreliable mortgage loans (total $ 14 trillion) with high risk, which were massively issued to people who did not have work, income or other assets. Such loans were issued not only by the false belief that prices at the mortgage market can only grow, but also for the purpose of attracting a large number of new clients for mortgage companies. However, in addition to these explicit reasons, there were implicit financial mechanisms that caused the crisis. First of all, this is the huge market of CDO (collateralized debt obligations) created through the securitization of mortgage assets. For the issue of CDO the heterogeneous mortgages and other assets, between the market prices of which was a weak correlation, combined in a pool. Theoretically, in such diversified asset package, the probability of simultaneous default decreases. However, in practice, in the CDO emission pool, the lowest-rated (BBB) mortgage bonds were targeted, which was then artificially raised to AAA by rating agencies. Hence, the risks were concealed, and the CDO with the highest rating could be sold to institutional investors in Japan, Germany and other countries. For CDO insurance, the largest banks and financial companies issued CDS (credit default swaps), which capitalization market ($ 80 trillion) exceeded global GDP in 2008. The risky policy of issuing CDSs by their largest issuers (in particular, the financial company AIG Financial Products) led banks and financial companies to take on the risks of huge sums that they could not pay. In addition, the push to the beginning of the crisis became « the big short game», started by the largest investment bank Goldman Sachs, John Paulson & Co hedge fund and some other market players.

Framing unpopular policies and creating policy winners: the role of heresthetics

This article deals with a critical challenge for policymakers: how can political actors become policy winners in areas where they have previously experienced resounding losses? To address this puzzle, the article develops William Riker's concept of heresthetic, which describes how clever actors can disrupt the equilibrium of the political opposition by re-framing people's choices in such a way that they are inclined to contribute to their cause. Specifically, we propose a new analytical framework that enables scholars to trace and explain the various strategies available to politicians who seek to advance seemingly detrimental or risky policies in circumstances of uncertainty and complexity. This is applied to the surprising case of education reforms advanced by Australia's Liberal–National Coalition. In doing so, the article affirms the importance of vicarious instruction for aspiring herestheticians, the media, and the citizens whom they seek to manipulate.

On the Evolution of Comparative Advantage: Path-Dependent Versus Path-Defying Changes

The diversification of production and trade is considered almost unanimously a fundamental policy goal, particularly for developing economies whose export baskets are heavily concentrated on a few products. In what direction trade diversification ought to take place is, however, subject to fierce debate. The Product Space (PS) framework (Hausmann and Klinger, 2007; Hidalgo et al. 2007) is a recent contribution in the economic literature that has proved very influential in policy circles. It argues that the endowment of production capabilities (technologies, production factors, institutions etc.) determines what countries produce today but it also constrains what they can produce in the future as it is uncommon that countries develop a comparative advantage in goods that do not draw from the same pool of capabilities (unrelated products). Contributions along such line argue that defying the initial comparative advantage can be a risky policy decision with high probability of failure. The main objective of this contribution is to use a novel methodology to investigate whether the patterns of diversification of a sample of 177 countries over the period 1995-2015 conform or not to the prediction of the PS framework. We find evidence of a high degree of path-dependence but our analysis suggests also that a significant number of new products that entered countries’ export baskets were unrelated to the initial productive specialization (path-defying changes). We shed light on the determinants of these ‘radical’ patterns of diversification and show they are associated with higher economic growth. The results of this study have important policy implications in particular for the design of industrial policies aimed at actively shaping countries’ structural transformation.

TURKEY: TURN TO THE EAST

The political regime of the Republic of Turkey created by Ataturk have always combines two mutually exclusive principles of Islam and western democracy. Fro a long period of time in its foreign policy Ankara has been foolowing the west-oriented vector. Since 1952 Turkey has been the member of NATO and at the end of the 20th century made a strong application to become the member of the European Union. At the beginning of the 21st century pro- Western politics began to enter an increasingly obvious impasse. Tukrey didn’t want to continue being a U.S. agent in the Middle East. However an attempt to play an active role in the region led Turkey to almost complete international isolation. The country was not ready a complete break in relations with influential Western allies. The loss of the status of an American agent would inevitably lead to a reduction of Turkey’s military-technical capabilities, and, consequently, of the political influence that it was achieved in cooperation with its Western patrons. The author comes to the concludes that modern Turkey resembles a power which has not determined its foreign policy priorities. It continues to pursue a sufficiently risky policy of maneuvering between regional and global players.

On Conditional Lower Partial Moments and Its Applications

SYNOPTIC ABSTRACTLower partial moments (LPM) are predominantly used in portfolio theory and in areas involving financial risk, which addresses the problem of managing risky investment policies with the object of maximizing returns. LPM also plays an important role in the analysis of risks in income (poverty) studies. In this article, we extend the notion of LPM to the conditional set up and study its usefulness in the context of stochastic modeling. The relationship between various measures in reliability studies, income (poverty) studies, and risk analysis are also proved. Finally, a non-parametric estimator for conditional LPM is proposed and has been validated through simulated and real data sets.

Honeymoon in the crisis: A comparative analysis of the strategic timing of austerity policies and their effect on government popularity in three countries

Research on unpopular policies such as welfare-state cutbacks has so far shied away from an in-depth study of the complex interrelations between the occurrence and timing of austerity measures and the evolution of popular support. This study aims to take a first step into this field by means of a systematic comparison between three governments that enacted a number of politically risky policies that touched on the welfare state during the financial and economic crisis: the cabinets of Spain led by Rajoy, of the United Kingdom with Prime Minister Cameron and of Ireland led by Kenny. We add to the existing literature by (i) examining the timing and the occurrence of austerity measures and by (ii) investigating the link between these policies and government popularity measured by opinion polls. Our analysis supports the idea of a strategic timing of harsh retrenchment policies in terms of front-loading policies. Moreover, we find clear evidence for a honeymoon period during which government popularity seems to be immune to even very tough cutbacks. Finally, we find that strategic timing is less important under conditions in which the clarity of responsibility is blurred.

Risky policies: Local contestation of mainstream flood risk management approaches in Ireland

In 2017, the idea that floods are exceptional and temporary episodes is a conviction increasingly contradicted by their growing incidence and severity across the globe. Floods have lasting consequences for affected populations and such effects can be wide-ranging depending on local context. However, prevailing misconceptions remain concerning the nature and effect of floods on populations. The advent of risk-based approaches is arguably responsible for a distinct managerial perspective on floods, which often undermines the local contexts and the impacts central to these experiences. This is observable in Ireland, the case study site for this article, where policy transitions into risk-based approaches are increasingly leading to growing discontent regarding the manner in which flooding and community vulnerabilities are represented. The matter is further complicated by the interplay between risk and conservation policy. This paper considers how these powerful discourses shape ideas and decisions around flooding. Using narrative-based data, centred on a case study in the west of Ireland, we explore the understanding and perception of flood risk and nature conservation by local communities and contrast these with the views expressed through managerial approaches linked to flood risk management and conservation. By bringing together these three distinct positions (i.e. the flood risk management approach, conservation practice and local narratives) we have found limitations in underlying assumptions informing current flood risk management approaches and we bring to light crucial human dimensions of flooding which, we argue, are consistently diluted and/or buried by fractured representations of environmental and social dynamics.

Political Selection and the Optimal Concentration of Political Power

This paper studies how policy choice and political selection are affected by the concentration of political power -- a central aspect of political institutions. We consider a setting with inefficient policy gambles: In equilibrium, politicians choose overly risky policies in order to appear competent and increase their electoral prospects. In this setting, variations in power concentration give rise to a previously undiscussed trade-off. On the one hand, power-concentrating institutions are beneficial because they allocate more political power to the voters' preferred candidate. On the other hand, these institutions induce the adoption of more overly risky policies and decrease the voters' capability to select well-suited politicians. We show that full concentration of power is optimal if and only if the conflict of interest between voters and politicians is small. Otherwise, voter welfare is maximized by an intermediate level of power concentration.

Detention and Delusion in Australia’s Kafkaesque Refugee Law

Under international refugee law, there is provision for a State to deny protection to persons who might otherwise qualify for refugee status where their actions render them unworthy of it. In Australia an “adverse security assessment” under the 1979 Australian Security and Intelligence Organisation allows the State to take “prescribed administrative action” against a person in order to satisfy the “requirements of security” so as to include indefinite detention of a person who otherwise may qualify for refugee status under international law. The reliance by the Government on what is tantamount to a very broad “character test” in order to effect detention of genuine asylum-seekers has been described as “Kafkaesque” and “schizophrenic” by seasoned observers even within Australia itself. Less well remarked upon is the way in which the Australian system deems people to be “undesirable” once they are deemed to pose a direct or indirect threat to national security and then become “unremovable” because if they satisfy the refugee definition, are at risk of ill-treatment, and cannot be returned, there is little that can be done to them except to detain them indefinitely. This article draws that link and highlights the potential pitfalls for the Australian system for pursuing such a risky policy in refugee law.

The Objectives of Russia’s Military Intervention in Syria

There has been much speculation about Russia’s motives for intervening in Syria in September 2015. Certainly, Russia’s direct military intervention in the Syrian civil war was a foreign policy objective in order to shore up Syrian President Bashar al-Assad and the Syrian regime, Moscow’s ally since the Cold War period, and keep Syria together as a unified state and maintain the Russian foothold in the Middle East. We argue that Russia projected force beyond its periphery to confirm Russia’s status as a great power and return it to its rightful place among the world powers. Russia’s status aspirations led the Kremlin to undertake risky policy manoeuvring, like the annexation of the Crimea and the military campaign in Syria. President Vladimir Putin wanted to pursue multipolarity; that is, a long-term strategy in which interstate relations should be based upon international law, mutual respect and equal partnership, with a proper role for Russia in global politics. The Kremlin still considers that fighting international terrorism, religious fanaticism and separatism are internal and external threats that undermine Russia’s national security and global security.

Imbalanced Foreign Policy of Revisionist Minor Powers: Venezuela's Great Powers Risky Policy

Imbalanced Foreign Policy of Revisionist Minor Powers: Venezuela's Great Powers Risky Policy

A Bright Side of Labor Union in Global Banks: Evidence from the Financial Crisis

This paper examines whether labor unions affect the bank performance during recently financial crisis. The empirical evidence from 228 largest banks around the globe indicate that the buy-and-hold returns of unionized banks are higher and the default probabilities are lower during the crisis period when compared non-unionized banks. In addition, unionized banks experience a larger increase in tier 1 capital ratio in crisis years and have lower leverage ratio and tail risk in the pre-crisis year. These results suggest that banks adopt less risky investment and lending policies to accommodate the preference of unionized labor.

David versus Goliath: Risk and Weaker State Confrontation

Confronting a more powerful rival can be a risky proposition. This paper integrates prospect theory into the growing Neoclassical Realist (NCR) literature to identify the conditions under which decision makers are most likely to accept foreign policy risks. I argue that decision makers governing regimes with low levels of political counterframing are more likely to settle into a dominant loss frame when their external security environment erodes. This increases the probability that they will initiate disputes with more powerful adversaries. To assess this proposition, I conduct a test of weaker state confrontation grounded in a NCR framework that utilizes the insights from prospect theory. Data come from the postwar era and support my hypothesis. Loss frames exert influence over the decision to initiate risky foreign policy strategies in regimes in which political counterframing is absent.

Board Diversity, Firm Risk, and Corporate Policies

We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multi-dimensional measure, we find that greater board diversity leads to lower volatility and better performance. Lower risk levels are largely due to diverse boards adopting less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity invest more in R&D and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.

The interplay of actor-related strategies and political context: a fuzzy-set QCA analysis of structural reforms in continental welfare states

ABSTRACTEuropean welfare states face numerous challenges which often necessitate risky policy choices. This article focuses on the role of key political actors, asking which actor-related strategies, under certain conditions, lead to structural reforms. These strategies are ideational leadership or reform-enhancing blame-avoidance strategies, combined with two political-contextual conditions. Four set-theoretic hypotheses about combinations of the latter and structural reforms are examined, using fuzzy-set qualitative comparative analysis. The data include 16 reform cases in four continental welfare states that are notoriously hard to reform: Germany; Austria; the Netherlands; and France. The findings show that the two actor-related strategies matter for structural reform in combination, while contextual conditions function as their complements. Distant elections are indeed conducive to such reforms, while governments with a positive or negative welfare image achieve them along different paths: either combined with two strategies; or, when elections are distant, combined with ideational leadership or concession-making.

Auswirkungen der anhaltenden Niedrigzinsen auf das Versicherungswesen

Abstract This paper discusses the effects of the present low interest rate environment on the German life insurance industry. By referring to a recent study of the “International Center for Insurance Regulation”, we assess insolvency probabilities for life insurers with different capital endowments under different interest rate scenarios. Based on that, we discuss measures of insurance regulation that try to cope with the imminent problems of the life insurance industry. Finally, we have a look at product developments and investment strategies of life insurers in the presence of low interest rates. Hereby, life insurance products with lower investment guarantees that are granted for a shorter period of time are regarded as the best remedy to avoid low interest rate problems in the future. Such product development also allows for a more risky investment policy of life insurers that can make life and annuity products more attractive.

Auswirkungen der anhaltenden Niedrigzinsen auf das Versicherungswesen

Abstract Helmut Gründl discusses in his paper the effects of the present low interest rate environment on the German life insurance industry. By referring to a recent study of the “International Center for Insurance Regulation”, he assesses insolvency probabilities for life insurers with different capital endowments under different interest rate scenarios. Based on that, he discusses measures of insurance regulation that try to cope with the imminent problems of the life insurance industry. Finally, he has a look at product developments and investment strategies of life insurers in the presence of low interest rates. Hereby, he argues, that life insurance products with lower investment guarantees that are granted for a shorter period of time are regarded as the best remedy to avoid low interest rate problems in the future. Such product development also allows for a more risky investment policy of life insurers that can make life and annuity products more attractive. Rolf Ketzler und Peter Schwark explicate that the very accommodative monetary policy of the ECB and the related extremely low interest rates are involved with major challenges for the German insurance sector, in particular for life insurers. As long-term investors, insurers are not only affected in their capital investment strategy, but also by different households’ retirement saving patterns in response to the low interest rate environment. Several significant steps have already been taken in order to ensure the long-term viability of life insurance. These include changes in the product portfolio as well as new approaches in the investment strategy. In addition, new regulatory requirements have been established to strengthen the risk bearing capacity of life insurers. Given the substantial risks of low interest rates, from an economic point of view the question concerning an appropriate exit from the low interest rate environment needs more attention in the public debate. They argue that in this context, further progress regarding the economic reform policies in the euro zone is still necessary as a condition for the ECB to normalize its monetary policy as soon as possible. Focusing the perspective of German life insurance industry, the article of Heinrich Schradin starts with a brief description and discussion of the financial impact of the persistently low interest rate environment. Based on an empirical data set of German life insurers, the author illustrates actual limitations to generate sufficient investment income for to meet the given specific financial guarantees. Moreover, the core problem, caused by the use of volatile timing-related interest rates for to evaluate long-term cash flows, becomes obvious. The currently observed regulatory interventions are trying to overcome the existential consequences of the so-called fair value measurement. In consequence, the author derives four central theses: 1. Life insurance in Germany suffers from insufficient capital adequacy. 2. Persistent low interest rates threaten the fulfillment of financial guaranty commitments of German life insurers. 3. The generally accepted principals of economic evaluation do not satisfy to the traditional business model of German life insurers. 4. Under a business perspective, the development of new life insurance products is inevitable.