rm as agent.
Unlike what might have been expected, the incentive compatible investment func- tion is not merely an attenuation of its full information counterpart, but may involve a qualitatively dierent behavior for some types. Several results appear surprising at rst glance, both because they add some hitherto ignored considerations to real investmentdecisions and their determinants, and because they illustrate the implications of intro- ducing dynamic considerations to standard principal-agent models. Thus we nd that situations may occur where both the low cost, and the high cost, types are asked to carry out the same investment as they would under full information, if the principal faced the same shadow price of capital. However, because the shadow price of capital is aected by informational asymmetry, we nd that the investment behavior of all types must in fact be modied relative to the full information situation. We also show that investment behavior under asymmetric information exhibits hysteresis, although for reasons quite dierent from those described by Dixit and Pindyck (1994). Of course, these results de- pend on the seriousness of informational asymmetries; in contrast with otherwise similar adjustment cost models (Abel, 1983; Caballero, 1991) an increase in uncertainty, taking the form of an increase in the spread of types, has a depressing eect on investment. Our model also casts a new shadow on the q theory of investment. We show that, if
third column. The fitch’s history rating is given at the last column.
Table 5: Fundament Implied Rating, Market Implied Rating, Adjusted Rating and Agency Rating
4 Discussion and Conclusion
As investment opportunities become more global and diverse, it is important to decide which countries represent good investment opportunities. There are advantages to invest in foreign markets, but the risks associated may be considerably higher when investing in emerging economies. To secure the advantage of foreign investment, investors should ensure that the return generated is sufficient to offset the risk they are taking. Measuring the ability of a country to face its financial commitments, i.e. its debts, ratings are essential tools to support investmentdecisions. Traditional ratings are issued by credit rating agencies (CRAs) which are painfully recovering their credibility after the crisis. The recent remedial regulations such as the Sarbanes-Oxley Act or the Code of Conduct for CRAs 15 cannot solve the problems completely. Hence, it is necessary to challenge CRAs’ fundamental methodologies. In this paper, we proposed an hybrid method using public information to evaluate sovereign’s credit. We find several interesting results supporting the idea that investors should rethink the credibility or the objectivity of the ratings issued by CRAs.
Abstract: The aim of the article is to understand how the drivers for investmentdecisions in the capacities of electricity production have evolved over time, from 1945 to the present day, in the specific context of Europe facing wars and conflicts, scientific and technological progress, strong political and academic developments.
We study the electric investmentdecisions by comparing the history of the European electricity markets with the successively dominant economic theories in this field. Therefore, we highlight differences between rational behaviors, such as described by the theories, and actual behaviors of investors and governments. Thus the liberalization of electricity markets in the European Union, more than twenty-five years ago, parts of a rationalization prescribed by new economic theories. It is clear that liberalization is being discussed. First, it remains very heterogeneous, which complicates the goal of creating a large single market for electricity in the Union. Second, we see a recent re-centralization of energy policy in the European Union (EU), which takes the form of a new regulation mainly relating to climate and renewables. However, this re-regulation is different from centralized control experienced by all European electricity markets until the mid-1980s.
to analyse the issue of investment in generation with a discrete representation of plant capacities and behavioural hypothesis of risk aversion.
The issue of capacity adequacy is reinforced by the growing part of intermittent gener- ation from RES-E directly dependent on weather conditions. Indeed, mature electricity markets as the EU electricity markets combined with very active renewables promotion oﬀer a radically diﬀerent economical context for existing generators and investors who were used to invest in a world of demand growth. Development of RES supported by out-of-market mechanisms further complicate the situation for at least three reasons: (i) on the short term, generation by RES tends to alter the pricing on short-term energy markets and to decrease the revenues of existing and new conventional plants by the so-called “merit order eﬀects” ( Sensfuss et al. , 2008 ); (ii) energy prices become more variable between hours and price-risk increases for investors; and (iii) anticipations of future development of RES capacities and their inﬂuence on prices related to their pro- duction share are uncertain ( Nicolosi and Fürsch , 2009 ). In consequence, energy spot prices do not seem to assume anymore their theoretical long-term coordination function to guarantee capacity adequacy of the system in parallel to the development of an op- timal mix. This context aﬀects both new projects in conventional units because of a huge uncertainty on the possibility to recover their ﬁxed costs and existing power plants because of the diﬃculties to recover operating costs on the short-term as evidenced by a wave of mothballings or closures of recently built gas power plants announced by a number of European electricity producers. At the same time, electricity systems need more back-up capacities to face increasing share of renewables with variable production. Thus, the debate on missing money has evolved towards a new issue: the recovering of operating costs for existing plants besides the traditional issue of recovering ﬁxed costs of new units to trigger investmentdecisions which is also ampliﬁed by the price variability resulting from the high share of variable productions. In this respect, the motivation of introducing a capacity mechanism is reinforced as a solution to complement the mar- ket design so that generation adequacy is preserved and enhanced. So, in 2015-2016, several European countries are setting up speciﬁc capacity mechanisms and others are considering implementing one, despite the reluctance of the European Commission for which scarcity pricing approach remains the theoretical benchmark solution to trigger new investments 3 .
These results lead us to speculate that there may be path dependency in the process of accessing distant funders online. To the extent that distant funders disproportionately rely on information revealed in the investmentdecisions of others, F&F might play an important role in making early investments that generate that information. Conti, Thursby, and Rothaermel (2011) argue that investments by F&F can signal the entrepreneur’s commitment to the venture. To the extent that any discounting of the information in prior funding by F&F is not complete, then this would imply a limitation to the “equal access for all” potential of the internet. Communications technologies enable artists and other entrepreneurs from anywhere to access capital globally, but in reality only those with a sufficient base of offline support may be able to do so. 3 Focusing on the role of distance, the results suggest that crowdfunding may indeed reduce distance-related barriers to investment with at least one important caveat: market efficiency depends on whether there is efficient information transfer from preexisting (offline) social networks to the online global crowd.
defined for these two variables it would be interesting to restrict the random generation of values for the two variables, so that unrealistic scenarios (e.g. when both unit costs and produced quantity are high) are avoided (Savvides 1994). In this case study however, economies of scale are assumed in the total plant cost of an investment: the total plant cost increases at a decreasing rate with increasing quantity, i.e. the specific investment cost per unit produced decreases with increasing production capacity. This correlation between investment cost and quantity produced has been built in the techno-economic model by the structure defined for investment equations (C = aQ d ) developed during a meta-analysis of investment costs for a pyrolysis plant. With this structure there is already a correlation present in the model between the produced quantity Q and the investment cost C which reflects the assumption of economies of scale. The only uncertainty remaining is about the exact level of the constant a and the exponent d in this equation, which is independent of the produced quantity Q but rather is technology dependent. Therefore it is not appropriate to construct an extra correlation between a and Q or d and Q, because then we would be incorporating economies of scale twice.
Third, strategic investmentdecisions also depend on financial constraints [23, 24, 25]. When returns on investments are subject to substantial uncertainty, as is the case with research activities, firms increase cash flow availability to secure in-house investment capacities as a response to the lack of external financial resources . If markets were perfect, investmentdecisions could be financed by either internal means or external credit availability. In the pres- ence of imperfect markets, however, limited access to external financial resources will be com- pensated for by increases in cash availability provided by the firm itself. This makes it easier for the company to undertake investmentdecisions. We therefore include the so-called liquid- ity ratio ( LR), defined as the cash flow availability normalized by current liabilities. Should
6. Conclusion and Future Work
This paper discusses how variable concern hierarchies support delaying of decisions in the context of Concern- Oriented Reuse (CORE). When reusing a concern, a devel- oper decides on the reusable functionality that is minimally needed to continue development, and reexposes relevant al- ternatives of the reused concern in the reusing concern’s interface, hence delaying decision making to when more detailed requirements are known and further decisions can be made. Variable concern hierarchies require sophisticated software composition to incrementally generate more spe- cific versions of the reusable concern whenever additional decisions are made. The variation interface of a concern needs to be composed in the concern hierarchy, along with the models describing a concern and their customization and usage interfaces. The algorithms required for these com- positions are detailed in this paper, and evaluated with the help of a crisis management case study, which shows the occurrence of delayed decision making across concern hier- archies and the feasibility of the proposed composition algo- rithms in support of delayed decision making. In contrast to other approaches, CORE advocates the use of concerns that are reuse-centric, variable, open for adaptation, and qual- ity impact-aware, while employing advanced separation of concern techniques for model composition.
Received: date / Accepted: date
Abstract Architectural decisions have emerged as a means to maintain the quality of the architecture during its evolution. One of the most important de- cisions made by architects are those about the design approach such as the use of patterns or styles in the architecture. The structural nature of this type of decisions give them the potential to be controlled systematically. In the litera- ture, there are some works on the automation of architectural decision violation checking. In this paper we show that these works do not allow to detect all possible architectural decision violations. To solve this problem we propose an approach which: i) describes architectural patterns that hold the architectural decision definition, ii) integrates architectural decisions into an architectural model and, iii) automates the architectural decision conformance checking. The approach is implemented using Eclipse Modeling Framework and its ac- companying technologies. Starting from well-known architectural patterns, we show that we can formalize all those related to the structural aspect. Through two evaluations, we show that our approach can be adapted to different ar- chitecture paradigms and allows to detect more violations comparing to the existing approaches.
During the last decade, the research community on software architecture has tackled one important type of architecture documentation: architectural decision (AD) [ 22 , 50 , 27 ]. AD is considered to have big influence on the design of a software system. Either it is about the choice of a technology, a database or an applied pattern; AD significantly changes some parts of the system. A system change always starts off with an AD and eventually ends up by specific implementation. Having said that, AD documentation is often implicitly made because either it is a time-consuming task and thus, avoided by architects; or architects themselves do not see the immediate benefit from this extra effort. Nevertheless, explicit AD documentation is found to be necessary if not crucial in most software development processes. Indeed, the benefit of AD documentation is obvious since stakeholders do always need a deep understanding of the system’s architecture: Developers want clear explications about the architecture to proceed with implementation. Customers want to make sure that the architecture satisfies their business requirements. Architects want to know the intention and the rationale of decisions that other architects have made. The lack of such explicit AD documentation can lead to design conflicts and eventually, the lost of the system’s quality properties. This phenomenon is also referred to as the vaporization of architectural knowledge (AK) in the literature. To tackle this problem, there have been a lot of works aiming to provide a proper means of AD documentation that conveys rationale and supports the traceability of AD from the architectural model.
We study the issue of integrating real and financial decisions in the monopoly framework. To that end, we combine the decisions of the firm with the decisions of the shareholders. When the managing shareholder chooses production, risk allocation, and the total number of shares for the risky asset, we show that there is no Nash equilibrium with a competitive financial market. Existence is reestablished under various restrictions on the set for the total number of shares. Moreover, there exists a Stackelberg equilibrium when the managing shareholder is the leader. In addition to discussing the issue of existence, we compare the equilibrium outcomes for each restriction we impose.
cians’ decisions to specialize, and their choice of specialty. Because we use a truly exogenous
measure of income (average-cost-per-consultation) for generalists and specialists, we avoid the po- tential sample-selection bias associated with prior results found in the literature. Furthermore, because we measure the income e¤ect through variations in potential-income and not di¤erences in levels, our income-elasticity estimates are not contaminated by potential non-pecuniary bene…ts which could be correlated with potential pecuniary bene…ts. Finally, we address the potential prob- lem associated with rationing in residency programmes which may have lead to downward-biased income-elasticity estimates in the past. Our results suggest that physicians do in fact respond to di¤erences in income when making their specialty decisions. More speci…cally, our simulation exercise suggests that provinces could increase the proportion of graduates who select a surgical specialty by increasing the fees they pay to them.
The traditional aggregation approach assumes that decisions with informa- tion coming from various experts can be made in two steps. First, information provided by experts is somehow aggregated into a unique piece of information; then this aggregated information is used by the decision maker, who trans- forms it into behavioral beliefs. A classical example of this kind of decision process is the traditional cost-benefit analysis. Expert commission transmits the information concerning the likelihood of the relevant events, outcomes are evaluated separately, and the policy maker uses a decision rule based on transmitted information and outcome evaluation. This is typically the case for environmental and health issues (e.g., global warming, new diseases). The problem can then be reduced to independent questions. First, how should we aggregate experts opinions? Second, what should be the decision, given this aggregated information?
tify dissimilar asset regulation. While IR and MG are the more straightforward aspects to study when risk-adjusted returns are concerned due to their direct impact on portfolio allocation hence investment returns, SA may reveal insights on the regulatory environment relative to those of insurance and banking.
The impact of regulation on investment performance has been studied in the context of mutual funds. Almazan et al. (2004) examine the investment restrictions (e.g. no short-selling, no writing or investing in options on equities), as found on investment policy statements of U.S. equity funds, on fund returns. They conclude that there is no statistically significant difference of returns on constrained and uncon- strained funds. Indexing a fund’s restrictiveness by constructing a score as done by Almazan et al. (2004) is similar to our approach. More recently, Agarwal et al. (2013) investigate the mandatory increase in the frequency of portfolio disclosures among mutual funds in the U.S. to find that the funds’ risk-adjusted performance were harmed by the regulation change. As for pension funds, extensive discussion on the topic has been initiated since the late 1990s (e.g. Srinivas and Yermo (1999), Srinivas et al. (2000), Philip Davis (2002)), when many countries underwent pension reform. None of the works that we have come across rely on empirical analyses on wide cross-country investment returns data, most likely be- cause data on pension investment had not been available until recently. Attempts to-date at evaluating pension investment performance globally are either descriptive (e.g. Tapia (2008) reports asset allo- cation, fund size and other summary statistics for private pension funds in 23 countries), theoretical (e.g. Philip Davis (2002) assesses the justification, nature and consequences of prudent person rules and quantitative portfolio regulations and concludes that the former is more favorable, although the latter may be provisionally justified in emerging market economies), concern the appropriate measurement of performance for pension funds (e.g. Hinz et al. (2010) evaluate investment performance measures for pension funds, taking into consideration particular characteristics and objectives of pension systems), or seek to associate investment returns and pension design (e.g. Musalem and Pasquini (2012) find that higher returns are associated with schemes with larger asset under management, that are occupational and closed, etc.). The topic of this paper is close to that of Philip Davis (2002) as the countries’ level of economic development is taken into account when evaluating the regulation, but our approach resembles that of Musalem and Pasquini (2012), as we rely on cross-country data analysis. We hope to add to the mainly descriptive or geographically localized existing findings on the pension industry regulations and investment returns.
The …rst model, which we call the “decreasing-returns model,” features de- creasing returns to scale in production, a …xed operating cost, and quadratic capital adjustment costs. 2 The conditions for Q to be a su¢ cient statistic for in- vestment choice are not satis…ed in this model because the production function is not homogeneous of degree one. However, in a single-regime version of the model, the decision rule for optimal investment can still be very closely approximated by a log-linear function of Q. The second model, which we call the “Hayashi model,” is a version of Hayashi’s (1982) model with quadratic investment ad- justment costs. The third model, which we call the “CEE model” incorporates adjustment costs that penalize changes in the level of investment, as proposed by Christiano, Eichenbaum, and Evans (2005). This speci…cation has gained cur- rency in the macroeconomics literature because it generates impulse responses to monetary policy shocks that are consistent with those estimated using vector auto-regressions.