In this paper we analyze and evaluate a standard approach financial institutions use to calculate their so-called total economic capital. If we consider a business that faces a total random loss S over a given one-year horizon then economic capital is traditionally defined as the difference between the 99.97% percentile of S and its expectation. The standard approach essentially assumes that th...

In this paper we propose a new rule to allocate risk capital to portfolios or divisions within a firm. Specifically, we determine the capital allocation that minimizes the excesses of sets of portfolios in a lexicographical sense. The excess of a set of portfolios is defined as the expected loss of that set of portfolios in excess of the amount of risk capital allocated to them. The underlying ...

Economists tend to favor Pigouvian taxes or cap-and-trade programs to correct the negative externalities of climate change and local pollution caused by the burning of fossil fuels. Arguments against energy taxes, and gasoline taxes more specifically, often include concerns about the regressivity of the tax. Other concerns relate to the geographic incidence of the tax. We study the effect of a ...

Are there any differences in how men and women fare from unemployment in terms of the wages they receive on a new job? This paper addresses that question using the 1991 wave of the Level of Living Survey. The results suggest that men who experience unemployment will suffer a reduction of subsequent wages while no such effect could be found for women. These findings support the interpretation th...

This study examines the contracting benefits of accounting conservatism on international debt and equity markets. Results show that firms domiciled in countries with more conservative financial reporting systems have significantly lower cost of debt and equity capital, after controlling for differences in legal institutions and securities regulations. I use one-year-ahead interest rate to measu...

Using data from three countries (U.S., Italy and Australia) and surveying related studies from several other countries in Europe, we investigate the effects of the New Basel Capital Accord (Basel II) on bank capital requirements for small and medium sized enterprises (SMEs). For each country, we analyze different possibilities that banking organizations have in considering SMEs, as either retai...