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This paper develops a framework in which asset class dimensions are extended to include both risk and exhaustibility for explaining the evolution of shadow prices of marginal units of exhaustible natural resources in capital-resource economies. It is shown that the pricing kernel function required for socially valuing marginal units of exhaustible resource, hereafter called the Exhaustion-Stochastic Discount Factor, combines a factor that discounts for risk and another factor that discounts for resource exhaustion over time. The social rate of return on the marginal unit of resource stock adds to the risk-premium an exhaustion premium that accounts for the resource depletion over time. In this setting, the principle of no-arbitrage holds by extending asset-class dimensions to include not only a risk dimension but also an exhaustibility dimension. [ABSTRACT FROM AUTHOR]

The reduction in capex (capital expenditures) and opex (operating expenses) for distribution utilities is very important under market conditions. Utilities want to extend the life of existing equipment such as circuit breakers and transformers for deferring investment. They operate distribution transformers over its useful life to maximize the return on their investment. The studies on the distribution feeder reconfiguration have been brought up because distribution utilities have made increased investments in smart distribution systems. In this study, the life extension of the existing transformers is considered as an objective together with other economical ones such as loss minimization in the reconfiguration process. In the proposed approach, the problem is handled as a load balancing problem considering life extension of transformers over a time period using quasi-static time-series simulations, and the problem is solved under operating constraints such as current carrying capacities of feeders to find optimum system topology. [ABSTRACT FROM AUTHOR]

The financial manager faces two basic problems: first, the firm's investment or capital budgeting decision, and second, the financing decision. Capital investment and financing decisions are typically analyzed independently. Capital budgeting criteria proceeds under the simplest possible assumption about financing, namely all-equity financing. The only link between investment and financing decisions is the cost of capital. The basic idea behind Modigliani and Miller's famous proposition I is that in perfect markets, changes in capital structure do not affect value. As long as the total cash flow generated by the firm's assets is unchanged by capital structure, value is independent of capital structure. This paper is the first attempt to prove that leverage affects the mathematical structures of the cash flow of financing, and that different mathematical structures of financing cash flows may change the total cash flows generated by the firm or the project, thus altering the value of the firm even in perfect markets. The purpose of this paper is to explore the validity of the separation rule through net present value (NPV) and internal rate of return (IRR) rules, as representatives of academic and business practice, and compare their results with simulations that will include the financial decision of the firm. A singular experiment proving that we can change the IRR or NPV of an investment modifying the financial structure cannot be used to affirm a universal statement, but it can be used to show that a theory is wrong. [ABSTRACT FROM AUTHOR]

This paper documents the extent to which collectors-specifically, those owning collectible classic US postage stamps-experience an opportunity cost associated with expenditures on their collection. Results show, based on stamp price, S&P 500, bond, and T-bill rate data over the period 1969 through 2013, that collectible stamps tend to underperform stocks and bonds on a risk-adjusted basis. Using estimates based on the Modigliani measure (M), it was determined that collectors incur an opportunity cost when selecting collectible stamps over more traditional investments. However, it is known that collecting as a hobby provides sociological and psychological benefits. This paper adds to the literature by illustrating how collecting also provides psychic return benefits that can be valued similarly to investment returns. In this study, the foregone return rate of stamp collecting for those who allocate a significant percent of available resources to their collection equates to between 3 and 13 % on an annual basis. [ABSTRACT FROM AUTHOR]

We investigate an iterative, data-driven approximation to a problem where the investor seeks to maximize the expected return of her portfolio subject to a quantile constraint, given historical realizations of the stock returns. The approach, which was developed independently from Calafiore (SIAM J Optim 20:3427-3464 ) but uses a similar idea, involves solving a series of linear programming problems and thus can be solved quickly for problems of large scale. We compare its performance to that of methods commonly used in the finance literature, such as fitting a Gaussian distribution to the returns (Keisler, Decision Anal 1:177-189 ; Rachev et al. Advanced stochastic models, risk assessment and portfolio optimization: the ideal risk, uncertainty and performance measures, Wiley, New York ). We also analyze the resulting efficient frontier and extend our approach to the case where portfolio risk is measured by the inter-quartile range of its return. Our main contribution is in the detail of the implementation, i.e., the choice of the constraints to be generated in the master problem, as well as the numerical simulations and empirical tests, and the application to the inter-quartile range as a risk measure. [ABSTRACT FROM AUTHOR]

One cause of the high rate of COVID-19 cases in the USA is thought to be insufficient prior capital investment in national health programs to preemptively reduce the likelihood of an outbreak and in national capacity to reduce the severity of any outbreak that does occur. We analyze the choice of capital investments (e.g. testing capacity, stockpiles of PPE, and information sharing capacity) and find the economically efficient capital stock associated with mitigating pandemic risk should be dramatically expanded. Policymakers who fail to invest in public health forgo significant expected cost savings from being prepared. [ABSTRACT FROM AUTHOR]

We develop an aggregate growth model with environmental pollution and unemployment equilibrium to be explained by efficiency wage hypothesis. Environmental quality is degraded due to emissions generated from production and is improved by abatement expenditure. The efficiency of a worker varies positively with its wage, unemployment rate and environmental quality. In the short-run equilibrium, an exogenous improvement in environmental quality given the capital stock lowers efficiency wage rate and unemployment rate but raises the rental rate on capital and the level of output; and an exogenous increase in capital stock given the environmental quality raises efficiency wage rate and level of output but lowers rental rate on capital and unemployment rate. Capital stock and environmental quality accumulate over time. A proportional tax is imposed on the rental income on capital to finance the abatement expenditure; and households' savings is invested. An increase in the tax rate raises the capital stock, national income and the environmental quality but lowers the unemployment rate in the long run equilibrium. [ABSTRACT FROM AUTHOR]

In recent years, the world has witnessed a soaring inflow of capital into sustainable investment. This is particularly so following the devastating COVID-19 pandemic. However, while a growing amount of literature has been deliberating debt financing in sustainable investment, less ink has been spilt on equity financing in this area, and even less scholarship has explored the role of government and law in supporting sustainable venture capital ('VC') funds. This paper proposes a dualist approach towards facilitating the development of sustainable VC funds encompassing a contractarian strategy with government support. The contractarian approach includes effective contracting covering the entire VC cycle in sustainable investment. It aims to provide strong incentives for all participants, ranging from investors, entrepreneurs and fund managers, to credit-rating agencies and evaluation firms. In the same vein, this paper seeks to craft a role for regulators that facilitates the simultaneous availability of several factors in a sustainable VC cycle (i.e., fund raising, investment and exit). In the fund-raising stage, governments can play an active role by expanding the source of financing for sustainable VC funds and enacting detailed and targeted legislation. In the VC investment stage, sustainable VC funds should make full use of their strong corporate governance rights and monitoring tasks to ensure that start-ups deliver on their sustainable promises. In the exit stage, a specialised sustainability board is strongly recommended to offer viable exit options, together with greater standardisation and comparability in sustainability information disclosure, and regulatory support for trustworthy sustainable impact rating agencies to sustain investor confidence. [ABSTRACT FROM AUTHOR]

This paper investigates the causal relationship between firms' R&D expenditures and their investments in fixed capital. It argues that a firm's R&D expenditures lead to inventions that in turn trigger investments in fixed capital, as the manufacturing of newly invented goods or services requires the creation of additional production capacities. Using firm-level panel data ranging from 1990 to 2014, the paper applies a 2SLS approach to uncover the direction of causality between R&D expenditures and fixed capital investment. To obtain exogenous instruments, the paper exploits shocks to i) technological opportunities and ii) innovative sales of capital goods industries. The results reveal that firms' R&D expenditures cause subsequent investments in fixed capital, while there is no evidence of the reverse effect. An increase in R&D expenditures of 1% leads to an increase in fixed capital investments between 0.4% and 0.6%. Therefore, increasing R&D expenditures may not only be valuable for long-term economic growth but also, via fixed capital investment, provide the economy with positive stimuli in times of prolonged stagnation. [ABSTRACT FROM AUTHOR]

Regulators in many countries have adopted individual quotas as a means of dealing with the open access problem inherent in fisheries. The Norwegian Purse Seine fishery has evolved over the last 40 years from an open access fishery to a Rights Based management system with individual vessel catch quotas assigned to all major fish species. Regulations do allow for merging vessel quota. The purpose of this paper is to employ an index approach to decompose vessel revenues and costs by factor components. The index approach can measure the importance of prices, output and regulatory changes impacting productivity and provides insight into changes in a mature IVQ fishery. The current study uses a large individual vessel data set for the period 1994–2013. Results show that over time output prices have been the main drivers associated with increased revenues. We correlate output prices with an evolving IVQ fishery, and changes in harvest and demand conditions. Ongoing capital investment, not offset by increased harvest, has seen productivity decline in the early periods of the study but some recovery towards the end of the period. [ABSTRACT FROM AUTHOR]

In the development of mining projects, there is a period in between commitment of finance and production commencement. Risks are present in various aspects of development such that production start-up could be delayed, thereby affecting the value of the project. This paper demonstrates the application of convolution in the capital investment problem for projects with long lead-times as a means of characterising the relationship between capital invested and the materialisation of capacity for production to begin. The system is functionally similar to that of a causal linear time-invariant system in signal processing. We find that the filter for capital projects, affecting the rate at which capacity becomes available for use, can be approximated by a straight-line function with positive gradient on bounded support contained in the positive time domain. The deterministic version is derived and evaluated, and uncertainty is simulated in the stochastic version, where variance results from the presence of a random process in the form of a standard Brownian motion. [ABSTRACT FROM AUTHOR]

This paper examines the effects of total, mineral, natural gas, and oil rents on the public total, education, health, and infrastructure expenditures using the dynamic panel estimation methods and data for more than 100 countries for the 1980–2015 period. Our results indicate that total resource rents do not have a significant impact on the public total and infrastructure expenditures. However, they provide a robust evidence for the adverse effect of resource rents on the public education and health expenditures. Our results lend a substantial evidence for the conclusion that the notorious resource curse can be also explained by its adverse effect on the human capital accumulation. We then test whether the democracy level matters in investigating the effects of resource rents on the public expenditures. Interestingly, we find that total resource rents exert a negative impact on the education expenditures only in autocratic countries. These results clearly indicate that policy makers should take necessary steps to remove the adverse effects of resource rents on the public education and health expenditures to increase human capital formation. [ABSTRACT FROM AUTHOR]

Distribution automation technology plays a key role on power system reliability by providing faster detection, isolating the faulted area and restoring the fault. In this paper, the impacts of distribution automation are considered on radial distribution system in the event of substation transformer bank malfunction at maximum load level with the aim of deferring the big capital investments. The aim of the proposed method is not only to increase physical impact such as the reliability but also to monetize physical measures into significant economic benefits by deferring the overall investment costs. The proposed algorithm is tested with the real distribution system data, and it is shown that it can obtain remarkable economic benefits by deferring the larger capital equipment investments by making smaller investments in distribution automation. [ABSTRACT FROM AUTHOR]

The mineral industry has encountered severe price turbulence in the recent years. A new portfolio management strategy will help to actively deal with this turbulence, corporate mining organizations need to improve their decision-making processes associated with capital allocation to new proposed projects. The proposed approach will help mining corporates to improve their capital allocation strategies to new projects in such a way as to consider operational performance in the prioritization of business-related spending on capital projects. The problem is formulated as the minimization of the risk at the desired return under constraints of operational performance requirement of the project's initiators product group. This optimization model is solved using MATLAB. The results show that, on top of the NPV criteria, the more you diversify the portfolio, the more you potentially increase the corporate portfolio return and the more you slightly increase the risk for correlated projects. These results also show that as the performance of the product group increases, the number of approved projects at the corporate level also increases. [ABSTRACT FROM AUTHOR]

Despite substantial evidence that foreign direct investment (FDI) is influenced by taxation, the impact of bilateral tax treaties on FDI is surprisingly unclear. We provide a simple theoretical framework illustrating why the impact of tax treaties may be heterogeneous across the distribution of FDI, and thus why focusing on the average effect of tax treaties may be misleading. We then assess the empirical relevance of such heterogeneity by estimating the quantile treatment effects of tax treaties on US inbound and outbound FDI using panel data from 1980-1999. Our results are striking, and consistent with our expectations. We obtain positive effects of tax treaties at lower quantiles of the distribution of FDI, but negative effects in the upper quantiles. Moreover, while the negative effects are substantially larger in absolute terms relative to the positive effects, the two effects are roughly equivalent in percentage terms. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to study the impact of derivatives use on corporate capital expenditures by utilizing reporting changes under the disclosure requirements of the Statement of Financial Accounting Standards 133 (SFAS 133). The standard requires firms to recognize and report the use of derivatives in their financial statements, including its purpose and its hedging effectiveness. This greater transparency is expected to incentivize firms toward demonstrating greater effectiveness in their derivatives use for hedging purposes. The literature on the real consequences of derivatives use is limited, probably due to the difficulty of ascertaining its hedging effectiveness in addition to its purpose, which is made possible under SFAS 133. Since effective hedging reduces risk exposure, lowers the costs of financial distress, and mitigates underinvestment, it can have a real effect in the form of raising the level of capital investment. The research in this paper distinguishes itself from earlier studies in linking derivatives use to hedging and hedging effectiveness in its study of the impact of derivatives use on capital investment. I find evidence supporting a positive effect of derivatives use on capital investment. Additionally, a lower risk exposure that can be linked to hedging effectiveness, as it is under SFAS 133, is shown to have a positive impact on capital investment. From a policy standpoint, the results suggest that required disclosures may have a real impact if they provide affected firms with an incentive to change their behavior while meeting the disclosure requirements. [ABSTRACT FROM AUTHOR]

It is important to investigate the correlation between housing price and household consumption to gain an understanding of the behavior of the economy and effectively handle the consequences of economic development. In the last two decades, the accumulation of housing wealth by Chinese households has not been effectively transmitted to their final consumption. We discovered that the sustained increase in household wealth and housing-ownership rate in China has been accompanied by a decrease in consumption rate. We also identified a negative correlation between housing price and household consumption for both the homeowners who own one housing unit and those who own two units of housing. We investigated this phenomenon in China both theoretically and empirically by capturing the dual nature of housing as a consumption good and an investment vehicle. We found that the demand for second housing units is motivated by increasing housing consumption demand rather than pure investment needs. To explain the mechanisms that drive household-consumption behavior, we also explored the effects on household consumption of China’s educational system, marriage market and ageing society, as well as future housing-market uncertainty. The implications of government intervention in the housing market are discussed. [ABSTRACT FROM AUTHOR]

The 2004 American Jobs Creation Act (AJCA or the Act) sought to encourage U.S. companies to repatriate foreign earnings and invest them domestically in an effort to increase capital spending and employment. This investigation looks at how the two tax provisions in AJCA, i.e., the repatriation tax holiday and the domestic production activities deduction (DPAD), affected domestic investment and payout behaviors. An examination of repatriating firms based on the tightness of their capital constraints shows that the tax incentives fail to induce non-constrained, repatriating firms that benefit from DPAD to reinvest the capital domestically. Only capital-constrained, repatriating firms benefitting from DPAD increase domestic investment and reduce share repurchases; however, these firms also increase their cash dividend payments. The findings should be useful to policymakers as they consider modifying the corporate tax structure to increase domestic investment by encouraging U.S. firms to repatriate foreign earnings and reinvest them domestically. [ABSTRACT FROM AUTHOR]

Using a sample of 47,260 annual and 12,276 unique property observations during 2000-2011 we analyze the relationship between capital expenditures and performance by employing 2SLS models, in which capital expenditures are modeled as a function of property characteristics (age, square footage, occupancy rate, leverage, leasing commissions, lagged returns and property type), market conditions (interest rates, credit spread and standard deviation of cap rates) and property fixed effects. Our results reveal that while capital expenditures are mostly idiosyncratic and related to unique property characteristics, they are a significant determinant of property returns. We find persistently strong positive relationship between capital expenditures and excess NPI returns when controlling for the endogeneity of capital expenditures for industrial, office and retail properties. A further analysis reveals that this relationship is driven by the positive impact of building improvements and building expansions, while returns in all property types do not fully adjust to account for tenant improvements. [ABSTRACT FROM AUTHOR]

Business practice and prior research in capital budgeting both establish that a firm's marginal cost of capital (MCC) is not constant across the scope of its investments. Capital budgeting decision methodology in textbooks and in practice, however, does not address the full implications of capital budgeting decisions made under a non-constant MCC paradigm. An endogeneity problem arises naturally due to the presence of a non-constant MCC. In order to value a project, it is necessary to determine the appropriate cost of capital. However, in order to determine the appropriate cost of capital, a project must be ranked in order to determine where the project is found on the MCC schedule. We establish a net present value (NPV) maximizing methodology that fully resolves this problem. We demonstrate, using a Monte Carlo simulation, the potential magnitude of investment errors and the extent of shareholder wealth destruction that occurs when commonly used methods or simplifying assumptions are employed in place of using this optimizing approach. [ABSTRACT FROM AUTHOR]

Current Surface Transportation Board methods rely on comparisons between revenue needs and the revenues that are earned by railroads. This paper reconsiders the methods that are used to determine this 'revenue adequacy'. Specifically, we consider whether the cost of railroad capital might be better estimated through methods that incorporate a 'real-options' perspective. While not definitive, our current work suggests that the irreversible nature of many railroad capital expenditures supports a real-options approach and that such an approach could potentially improve assessments of railroad cost of capital. Further, we conclude that applying a real-options methodology also can measurably improve policy-makers' broader understanding of when, where, and how railroads choose to create new freight capacity. [ABSTRACT FROM AUTHOR]

Investments in organization capital increase productivity of not just the investing firm but could also spillover to other firms-similar to investments in research and development. Recent evidence at the industry and economy level suggests such spillovers could be important. In this paper, we fail to find evidence of knowledge spillovers from organization capital that increase the productivity or market valuation of technologically similar manufacturing firms in the US. This lack of evidence at the firm-level suggests caution is in order at the more aggregate level, where spillover channels are harder to identify convincingly. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between output-based incentives for service quality and the use of capital and non-capital resources to meet regulatory targets in the electricity industry. To conduct the empirical analysis we use a dataset collected with the support of the Italian energy regulatory authority, comprising micro data on monetary incentives and physical assets for the largest electricity distribution operator in Italy (86 % of the market). Our results show that physical assets and operational expenditures do affect service quality. Moreover, when we investigate causality in the relationship between incentives to quality and the use of capital and non-capital resources, we find that incentives Granger-cause capital expenditures (and not vice-versa). Finally, our results reveal an asymmetric effect of rewards and penalties on capital expenditures' decisions across areas with different quality levels. From these findings, we derive several policy implications. [ABSTRACT FROM AUTHOR]

This paper proposes a real options model for valuing the option to delay mobile telecommunications network investment decisions and a method for calculating the real options' impact on mobile service costs. Ranges of option value multiples are calculated for the decisions to invest in a number of network elements, each representing a different part of the mobile network, subject to different demand and technological uncertainties. The value of the option to invest in each network element, net of future replacement options, is modeled as a function of the element's total variable profit and the cost of investment in the element. The model and method are then applied to estimate the real options' impact on mobile termination costs using real cost and volume data. [ABSTRACT FROM AUTHOR]

We have examined the volatility and macroeconomic drivers of venture capital (VC) investments in the past 17 years from 1995 to 2011. We find that VC investments in the United States (US) by the total amount, by the number of deals, and by the average amount per deal are significantly affected by macroeconomic factors and public market signals. The fundamental changes in economic situations (i.e. the 2000 high-tech bubble; the 2008 global financial crisis) had substantial impact on the US VC industry. In response to these dramatic changes, venture firms adjust their risk preferences and investment strategies by securing fewer deals with a smaller average amount per deal in general, increasing their allocations to the expansion and later-stage investments, and injecting a lower percent of cash in the first several financing sequences as opposed to their total committed investments to a company. We also find the impact of 2008 global financial crisis and economic recession on the VC industry is somewhat different from that of the 2000 dot-com bubble. [ABSTRACT FROM AUTHOR]

Previous studies find that some social groups are stuck in poverty traps because of network effects. However, these studies do not carefully analyze how these groups overcome low human capital investment activities. Unlike previous studies, the model in this paper includes network externalities in both the human capital investment stage and the subsequent career stages. This implies that not only the current network quality, but also the expectations about future network quality affect the current investment decision. Consequently, the coordinated expectation among the group members can play a crucial role in the determination of the final state. We define 'overlap' for some initial skill ranges, whereby the economic performance of a group can be improved simply by increasing expectations of a brighter future. We also define 'poverty trap' for some ranges, wherein a disadvantaged group is constrained by its history, and we explore the egalitarian policies to mobilize the group out of the trap. [ABSTRACT FROM AUTHOR]

This paper explores the effects of capital controls and policies regulating interest rates and the exchange rate in a model of economic transition applied to China. It builds on Song, Storesletten, and Zilibotti (2011) who construct a growth model consistent with salient features of the recent Chinese growth experience: high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, sluggish wage growth, and accumulation of a large trade surplus. The salient features of the theory are asymmetric financial imperfections and heterogeneous productivity across private and state-owned firms. Capital controls and regulation of banks' deposit rates stifle competition in the banking sector and hamper the lending to productive private firms. Removing such regulation would accelerate the growth in productivity and output. A temporarily undervalued exchange rate reduces real wages and consumption, stimulating investments in the high-productivity entrepreneurial sector. This fosters productivity growth and a trade surplus. A high interest rate mitigates the disadvantage of financially constrained firms, reduces wages, and increases the speed of transition from low- to high-productivity firms. [ABSTRACT FROM AUTHOR]

A interview with Bob More, head of venture investing for the Bill & Melinda Gates Foundation, is presented. When asked on why the Foundation needs to make venture capital investments, he refers to the goals of trustees and leadership at the Foundation requiring them to work with smartest people to achieve them. He says that they have a philosophy with their partners that they cal broadly global access. More says that he believed that the biotechnology industry was going to change the world.