Future Income Streams Research Articles

Coastal dilemma: Climate change, public assistance and population displacement

• Countries with populations and economic activity concentrated in low-lying coastal regions are vulnerable to sea-level rise. • As the ocean advances inland, millions of coastal inhabitants will have to retreat, either by choice or force majeure. • Linkages among environmental stress, public assistance and population change are assessed for coastal India and Bangladesh. • Compensatory public assistance strongly dampens the migration response to rising environmental stress. • Damage compensation should direct public resources to households that choose to relocate as the coastal threat mounts. Linkages among climate change–related environmental stress, public assistance, and the spatial pattern of population change are assessed for neighboring coastal areas of India and Bangladesh. Environmental stress is measured using historical cyclone impacts, salinization, and land loss from erosion. Household migration decisions are based on current and expected future income streams in different locations. Rising environmental damage raises costs, but it may also induce increased public assistance that moderates or neutralizes those costs, diminishing migration incentives, even in areas hard-hit by climate change. Econometric estimates for the Sundarbans region shared by India and Bangladesh suggest that endogenous public assistance strongly dampens the migration response to rising environmental stress in both countries, though the assistance response and migration dampening are lower in Bangladesh. A broader analysis for the coastal region from India’s Odisha State to eastern Bangladesh finds that present and past cyclone impacts are highly significant for explaining coastal population changes, although responses are lower in India because of lower environmental stress and greater public-assistance intensity. A counterfactual simulation suggests that, as a result of cyclones since 1970, the affected regions are 8–10% less populous in Bangladesh but only 2% less populous in India. The paper’s findings motivate a discussion of the implications for alternative policy regimes as land erosion increases, and sea-level rise and salinization continue with climate change. After comparing the efficiency and equity of regimes that provide universal damage compensation or leave coastal households to fend for themselves, the paper suggests an alternative approach that focuses public resources on compensation for households that choose to relocate as the coastal threat mounts.

Effectiveness of rent recovery strategies on residential real estate in Ibadan, Nigeria

PurposeThe upward rise of the prolonged payback period and the inability of the project to generate estimated income that has been linked with the irregular rent payments has been a major problem confronting real estate investment. Given the fact that real estate investment is a risky investment venture with a highly uncertain future stream of income, this paper examines the effectiveness of rent recovery strategies in the emerging Nigeria residential real estate practice.Design/methodology/approachThe study employed an exploratory research design. The study identified the five recovery strategies adopted by the estate surveying and valuation firms in Ibadan Metropolis, Nigeria. The study adopts a purposive sampling method to select 52 registered estate firms in the study area and a questionnaire using a five-point Likert scale was used to elicit information. The data obtained were analyzed using descriptive and inferential statistics.FindingsThe result showed that the rent recovery strategies adopted by the respondents include email approach, rent reminder notice, adequate maintenance, eviction notice and dialogue approach. The perceived top-rated strategies that could influence estimated income were dialogue and rent reminder notice. Also, the findings showed the factors that influence the choice of strategy are property type, company policy and the proportion of rent to the tenant's income.Practical implicationsThe study has an implication for real estate investors and property practitioners regarding the willingness of the investors to invest in real estate investment.Originality/valueThis paper is relevant given the fact that the rental property market is prone to risk that could impede the regular streamflow of income. This serves as a need for examination of the effectiveness of adopted rent recovery strategies as it relates to real estate property management practice and investment viability.

Managing seasonality in West African informal urban vegetable markets: The role of household relations

AbstractSeasonality influences African informal agricultural markets, but existing literature inadequately explores its interactions with market actors' social relations and livelihood outcomes. Thus, agricultural commercialisation policy ineffectively supports such actors to manage seasonality. Across Bamako, Ouagadougou and Tamale, we conducted interviews, focus group discussions, and a survey of farmer and marketer profits across seasons. Hot, dry season lettuce transactions performed by marketers are more likely to make profit. Farmers and marketers rely on household and community relations and reproduce gendered skills to optimise profit and secure future income streams. Policies supporting household reproduction, and infrastructure, may best support their marketing activity.

Children's Hospitals: We Get What We Pay For.

* Abbreviations: FCH — : freestanding children’s hospital HDDI — : hospital diversity of diagnosis index NCH — : nonchildren’s hospital NFCH — : nonfreestanding children’s hospital In 2016, the US spent $3.34 trillion on health care, with almost one-third of it allocated to hospitalizations1; of that total, $47.7 billion was for pediatric hospitalizations.2 As hospitalization expenditures continue to increase, much attention is understandably focused on how to identify the drivers of these high-cost events, in particular, on what explains the considerable variation in hospitalization costs among different hospitals caring for similar conditions. On one hand, we know that certain patient characteristics are associated with more expensive care. We have learned, for example, that children with documented high-risk social conditions have longer lengths of stay3 and those children hospitalized from low-income zip codes also incur higher costs for common pediatric conditions compared with children from high-income zip codes.4 But these variations in patient features are not enough themselves to account for the cost differences observed among different hospitals. In this issue of Pediatrics, Berry et al5 offer another insight into the phenomenon of hospital cost variation. Beginning with the premise that hospitals that care for a greater variety of conditions likely incur a higher set of fixed costs, the authors invoke a novel instrument, the hospital diversity of diagnosis index (HDDI), … Address correspondence to Andrew D. Racine, MD, PhD, Montefiore Health System, 111 E 210th St, Bronx, NY 10467. E-mail: aracine{at}montefiore.org

An Employment Guarantee as Risk Insurance? Assessing the Effects of the NREGS on Agricultural Production Decisions

Abstract Uninsured risk constrains households in their production decisions in many developing countries. Similarly to crop insurance, employment guarantees can support farmers in managing agricultural production risks. Evidence from representative panel data of Andhra Pradesh, India, suggests that the National Rural Employment Guarantee Scheme (NREGS) reduces households’ uncertainty about future income streams because it provides employment opportunities in rural areas independently of weather shocks and crop failure. Therewith the NREGS makes an ex-post labor supply response to agricultural shocks more efficient. Households with access to the NREGS are found to shift their production toward riskier but also more profitable crops. The observed shifts in agricultural production do considerably raise the profitability of agricultural production and hence the incomes of smallholder farmers. The findings are not driven by changes in the labor or cost intensity of those crops, which supports the idea that the causal mechanism underlying the observed changes is indeed an insurance effect.

Cross-country evidence on the link between job security and housing credit

This paper investigates the relationship between job security and housing credit, specifically the contradiction between employment insecurity and take up of housing credit—the former being the main reason for income uncertainty and the latter necessitating long-term commitment. It is argued that higher employment protection can increase demand for housing due to its mitigating impact on uncertainty about workers’ future income streams. Using yearly data for 23 countries from 1990 to 2016, the empirical analysis suggests a positive relationship between job security and housing credit at the aggregate level. A key implication is that it is crucial to provide sufficiently paid and secure employment that will enable households to fulfill their long-term commitment to creditors to meet housing demand through the financial intermediation channel. Moreover, higher job security could mitigate income and wealth inequality, and decrease the size and duration of financial shocks due to increasing debt repayment capacity during stressful times.

Integrated Model of Computable General Equilibrium and Social Cost Benefit Analysis of an Indian Oil Refinery: Future Projections and Macroeconomic Effects

Cost benefit analysis (CBA) has long been used as a useful tool to appraise and evaluate the value of a range of investment projects to a society. Certain aspects of this method such as the appropriate discount rate is an important concern, because the choice of discount rates deeply affect the valuations of future income streams. Other aspects concerning financial flows and appropriate ‘shadow prices’ have also received considerable attention. However, when a megaproject with the character of a ‘universal intermediate’ is considered, its multiplier effects may be wide-ranging and permeate several economic and social layers and may be captured only in the aggregates. This study examines the costs and benefits of Vadinar refinery in Gujarat with a focus on this welfare dimension on society for the project. The framework explores a methodological breakthrough in CBA studies. In constituting the macroeconomic effects of expansion of the mega oil refinery, the wider economic impact (WEI) is estimated using the computable general equilibrium (CGE) model and incorporated into the CBA. This assimilation of CBA with macroeconomic externality obtained from the CGE model framework is perhaps only one of its kind in economic analysis of major infrastructure projects of any country. CBA when combined with CGE as an analytical tool can be gainfully employed to appraise or evaluate large scale projects like oil refineries. JEL Classification: B41, C51, C52, C53, C54, C55, D50, D58, D60, D61, D62, H23, H43, L71, O22, Q43

The Impact of Green Premium on the Development of Green-labeled Offices in the U.K.

The perceived wisdom in many studies is that the establishment of a premium value is an essential prerequisite for the promotion of green buildings. This green premium is then a driver of the development of new green buildings, as well as an agent of the green transformation of the existing non-labeled properties. In this study, green premium is assessed as a potential driver of labeled office property development. Thirty-two commercial real estate professionals, working for organizations that are involved in the development, sale, letting or management of green offices, were interviewed across four cities in the United Kingdom: London, Manchester, Birmingham, and Edinburgh. The results reveal that after 15 years of an active development of green offices, the existence of a green rent premium remains elusive. Similarly, no evidence was found of a willingness to pay more to occupy green-labeled offices. The results suggest that a green premium cannot be simply seen in terms of a headline rent but more widely by reference to future income streams. Consequently, we propose a “green letting premium” as the primary motivation for the development of green offices. Our study contributes significantly to how green premium is defined, understood, and valued globally.

Poverty in Europe: Sociodemographics, Portfolios, and Consumption of Wealth‐Poor Households

In this article, I describe the portfolio structure of poor households within the euro area (EA) using microdata from the Household Finance and Consumption Survey (HFCS), the Luxembourg Wealth Study (LWS), and the Luxembourg Income Study (LIS). My approach differs from existing ones in that I analyze the (net) wealth‐poor instead of the income‐poor households. I am able to identify households in the bottom net wealth decile and study their portfolio structure. From a methodological point of view, my study shows that a poverty indicator based on households’ net wealth needs to be designed and interpreted with great care. Given that wealth accumulates over time and (high‐ income) households can borrow against their future income stream, it is not clear whether low net wealth holdings are really indicative of being poor, for example, in the sense of material deprivation or consumption opportunities. As consumption can be financed from wealth and income, an indicator combining wealth and income may be a solution. I find significant heterogeneity in the portfolios of households in the bottom net wealth decile across countries. The characteristics of the group of households with low wealth are different across countries as well. Real assets are held by fewer less wealthy households than financial assets, and almost all wealth‐poor households own deposits and sight accounts, but only a few have mortgage debt. Wealth‐poor households are, on average, smaller than other households, and their heads are younger. Additionally, less wealthy households are not the unemployed households with low education levels. In some countries, highly educated household heads and full‐time employees belong to the wealth‐poor. The poor households spend, on average, about 20 percent of their gross income on food.

Measuring the Adequacy of Retirement Savings

This paper introduces four metrics for quantifying the adequacy of retirement savings, taking into account all major sources of retirement income. We then apply them to projections of expected future retirement income streams of a representative sample of the Australian population aged 40 and above. We find that omitting one or more pillars of savings significantly biases estimates of retirement savings adequacy. We also find that the four metrics are only weakly correlated with key commonly used indicators of financial well‐being, in particular current income and net worth. Our analysis also points to several shortcomings of the widely used income replacement ratio as an indicator of savings adequacy.

UNDERSTANDING LAND IDLING AS A STRATEGIC BEHAVIOUR: A BRIEF NOTE USING THE REAL OPTIONS APPROACH

One possible explanation for land idling in a rapidly transforming economy can be found by looking at the value of the option to wait and hysteresis behaviour in the land market. If investors assume that the drop is temporary and that its long term prospects outweigh current holding losses, the market will observe some form of a zone of inactivity i.e., no selling and no additional buying. The fact that landowners elect to keep their valuable land underdeveloped for prolonged periods of time suggests that idled land is more flexible and valuable than what the current market price suggests. If the revenue from farming is insufficient to sustain the activity, land is left idle; although this operational decision is open to continuous revision. The numerical example shown in the paper shows that price of land can be substantially bolstered by the option to wait embedded in land. We argue that land market prices are based on more than the land’s total present value of its future income stream. In a transforming economy, the option to wait and change land-use are especially important to consider. Policy-wise, the government can discourage land idling by ensuring appropriate and suitable zoning of agricultural areas, strong adherence to the zoning conditions/plans as well as more far-sighted land conversion decisions. These efforts can go a long way to reduce the source and degree of uncertainty which is the most important cause of real option premium in land prices. Based on the nature and type of data available, future directions of research should emphasize on empirical testing of real options premium in sale prices of agricultural land.

UNDERSTANDING LAND IDLING AS A STRATEGIC BEHAVIOUR: A BRIEF NOTE USING THE REAL OPTIONS APPROACH

One possible explanation for land idling in a rapidly transforming economy can be found by looking at the value of the option to wait and hysteresis behaviour in the land market. If investors assume that the drop is temporary and that its long term prospects outweigh current holding losses, the market will observe some form of a zone of inactivity i.e., no selling and no additional buying. The fact that landowners elect to keep their valuable land underdeveloped for prolonged periods of time suggests that idled land is more flexible and valuable than what the current market price suggests. If the revenue from farming is insufficient to sustain the activity, land is left idle; although this operational decision is open to continuous revision. The numerical example shown in the paper shows that price of land can be substantially bolstered by the option to wait embedded in land. We argue that land market prices are based on more than the land’s total present value of its future income stream. In a transforming economy, the option to wait and change land-use are especially important to consider. Policy-wise, the government can discourage land idling by ensuring appropriate and suitable zoning of agricultural areas, strong adherence to the zoning conditions/plans as well as more far-sighted land conversion decisions. These efforts can go a long way to reduce the source and degree of uncertainty which is the most important cause of real option premium in land prices. Based on the nature and type of data available, future directions of research should emphasize on empirical testing of real options premium in sale prices of agricultural land.

Microcredit programs: Objectives and functions

Microcredit programs mostly target poor women who do not have access to credit in the formal financial system because they lack the necessary collateral or formal employment, which secure a stream of future income. It is believed that the poor women can use the credit as some sort of seed money to turn themselves into entrepreneurs, even at a small scale. Since the founder of the microcredit programs Muhammed Yunus won the Nobel Prize in Economics, we have been hearing about the success of the programs. It is widely argued that this is not only an institutionalization of a welfare mechanism, which otherwise would be a burden on the state resources, but also a means to empower women. However, there are also serious criticisms against these programs. One group of critics argues that there is no solid evidence that supports the success of microcredit programs in reducing poverty and those successful examples we hear are only a few exceptions to the majority of the credit users who do remain impoverished. Another group of critics draw attention to a particular subjectivity created by these programs in the developing countries. Such subjectivity can be described as agents responsible for their own well-being, as woman entrepreneurs who invest wisely, work hard, and rely only on their own efforts to take care of themselves and their families. Yet, such critics continue, neither this subjectivity nor access to finance through microcredit can challenge existing social hierarchies as ideological barriers to gender transformation are quite strong.

The Long-Run Economic Impact of an Institution of Higher Education

One of the main contributions of higher education institutions is human capital. In the context of regional universities, their primary impact can be measured through the future income stream of alumni who remain in the local area for work. This constitutes a long-run impact and a substantial part of the overall economic impact of an institution to the local, regional, and national economies. This study provides an important contribution to the existing literature by developing a methodology that takes into account the counterfactual, allowing for the more precise definition of economic impact. The methodology is applied to a public regional university.

Reckoning Contract Damages: Valuation of the Contract as an Asset

When a contract is breached the law in most jurisdictions provides some version of the aphorism that the non-breaching party should be made whole. Application of the aphorism has proven problematic, particularly for anticipatory repudiations. This paper argues for a general principle that should guide application — the contract is an asset and the problem is one of valuation of the change in value of that asset at the time of the breach. This provides a framework that will help clear up some conceptual problems in damage assessment. The focus is on direct damages, not consequential damages.The paper begins with the simplest case in which the breach occurs at the time of performance. Even in that case there is some controversy as to whether post-breach facts (e.g., changes in market conditions) should be taken into account. In the United States, for instance, some commentators argue that there is a conflict between UCC §2-706 (cover) and 2-708(1) (contract/market differential). The conflict is resolved if, instead of viewing the two as alternatives, we view cover as evidence of the value at the time of the breach.Long-term contracts present two different issues, the breach of a single installment and the anticipatory repudiation of a contract with many years yet to run. The latter problem is exacerbated if the contract includes such complicating factors as take-or-pay clauses, price adjustment mechanisms, and early termination options. The value of the contract at the time of the repudiation would reflect both the expected future stream of income (lost profits) and the efforts of the counterparty to adapt if performance ceased (mitigation). Cases of this sort often arise in international arbitrations. A State might, for example, grant a concession to exploit an oil field and, after the development has been successful, it could try to recapture some, or all, of the value, perhaps by imposing taxes or by an out-and-out expropriation. The basic damage principle — valuation at the time of the repudiation — remains the same.

Valuing Supporting Soil Ecosystem Services in Agriculture: A Natural Capital Approach

Soil biodiversity through its delivery of ecosystem functions and attendant supporting ecosystem services—benefits soil organisms generate for farmers—underpins agricultural production. Yet lack of practical methods to value the long‐term effects of current farming practices results, inevitably, in short‐sighted management decisions. We present a method for valuing changes in supporting soil ecosystem services and associated soil natural capital—the value of the stock of soil organisms—in agriculture, based on resultant changes in future farm income streams. We assume that a relative change in soil organic C (SOC) concentration is correlated with changes in soil biodiversity and the generation of supporting ecosystem services. To quantify the effects of changes in supporting services on agricultural productivity, we fitted production functions to data from long‐term field experiments in Europe and the United States. The different agricultural treatments at each site resulted in significant changes in SOC concentrations with time. Declines in associated services are shown to reduce both maximum yield and fertilizer‐use efficiency in the future. The average depreciation of soil natural capital, for a 1% relative reduction in SOC concentration, was 144 € ha−1 (SD 47 € ha−1) when discounting future values to their current value at 3%; the variation was explained by site‐specific factors and the current SOC concentration. Moreover, the results show that soil ecosystem services cannot be fully replaced by purchased inputs; they are imperfect substitutes. We anticipate that our results will both encourage and make it possible to include the value of soil natural capital in decisions.

A Bayesian model of Knightian uncertainty

A long tradition suggests a fundamental distinction between situations of risk, where true objective probabilities are known, and unmeasurable uncertainties where no such probabilities are given. This distinction can be captured in a Bayesian model where uncertainty is represented by the agent’s subjective belief over the parameter governing future income streams. Whether uncertainty reduces to ordinary risk depends on the agent’s ability to smooth consumption. Uncertainty can have a major behavioral and economic impact, including precautionary behavior that may appear overly conservative to an outside observer. We argue that one of the main characteristics of uncertain beliefs is that they are not empirical, in the sense that they cannot be objectively tested to determine whether they are right or wrong. This can confound empirical methods that assume rational expectations.

Success Factors for Implementation of Entrepreneurial Knowledge Management in Malaysian Banks

This research focuses on developing and testing the concept of entrepreneurial knowledge management (EKM) to view knowledge management (KM) activities in domestic banks. The ability of banks to learn from the explicit and implicit knowledge it possess and turn it into knowledge assets that can generate income stream is a major factor for sustainable competitive advantage. We used structural equation modelling (SEM) to analyse the data gathered, given that SEM has become one of the popular statistical tools to test the relationships proposed in a parsimonious model. The research has empirically determined that the majority of the respondents are aware that knowledge is important in the business of banking. However, it appears some have relegated KM to Management Information Technology (IT) and neglected to cast a wider net to appreciate the importance of EKM for the purpose of creating unique entrepreneurial knowledge asset to enable sustainable differentiation and competitive advantage for generating future income streams.

A COMPARATIVE ANALYSIS OF INTEREST RATES: FORMAL SECTOR BANKS, LOCAL MONEYLENDERS AND MICROFINANCE INSTITUTIONS

This study examines the interest rate differences paid to a bank, a Micro Finance Institution (MFI) and a local moneylender. In a multi-period lending contract, a borrower discounting the future income stream at a constant rate is willing to pay the highest interest rate to the local moneylender, comparatively lower rate to a MFI and the lowest to a formal sector bank. In other words, if the interest rate charged by each of the three lenders is the same, the repayment rate will be highest for a moneylender followed by a MFI and the lowest for a formal sector bank.

English

This study analyzes the relationships between farmland values and factors associated with the growth in Chilean agriculture, and identifies agricultural land value’s determinants by estimating a log-linear hedonic price function. The results indicate that a parcel’s market value varies according to its suitability and productivity for different crops, its location and transport costs, its potential for residential use, and other factors that determine expectations of future income streams. Farms with soil aptitude for fruits, high-valued export-oriented crops that have led Chile’s agricultural boom, have higher values than those with forestry soil aptitude.