Agustín Hernández-Bastida

Developing a Model to Measure Financial Condition in Local Government: Evaluating Service Quality and Minimizing the Effects of the Socioeconomic Environment: An Application to Spanish Municipalities

Various studies have sought to obtain a measure of the financial health of local authorities, via the concept of financial condition. However, in measuring this latter concept, two serious problems need to be addressed: The first concerns the inclusion or otherwise of socioeconomic variables in the proposed evaluation models, and the second, the difficulty of measuring the solvency in the level of services provided. Therefore, the authors have created a methodology to measure the financial condition of a local authority, including a variable to measure the quality of the services received by the population, and present a new treatment for the variables of the socioeconomic environment so that the financial and socioeconomic factors can be integrated. The application of this method to a sample of Spanish local authorities reveals its capability of minimizing the effects of the socioeconomic environment and maximizing the value of benchmarking, making comparisons between local authorities simpler and more effective.

Developing an alert system for local governments in financial crisis

This article presents a new model which will show whether a local authority is heading for financial trouble. The model is simple for national audit bodies to use and provides an early warning of financial tensions allowing corrective action to be taken before there is a crisis.

Evaluating financial performance in local government: maximizing the benchmarking value

One of the main problems in evaluating financial performance arises in carrying out comparisons between municipalities, as no account is taken of the impact of certain factors of the social and economic environment on the indicators in question. In this study, the concept of financial condition is applied, revealing the influence of such factors, and a methodology is proposed to minimize their effects on the results of the evaluation. The results of applying these to a sample of municipalities in Spain reveal that the model is useful for reinforcing the value of benchmarking between municipalities with similar characteristics. Points for practitioners The use of indicators for evaluating financial performance has advanced considerably in recent years. However, many criticisms have been made by public sector managers concerning the application of such indicators. One of these is that, in many cases, the values measured by different authorities are not comparable, as the services they provide differ significantly. If local authorities were grouped according to the social and economic factors influencing their provision of public services, the evaluations made would be much more effective, facilitating decision-making by supervisory bodies and by municipal managers.

A Sarmanov family with beta and gamma marginal distributions: an application to the Bayes premium in a collective risk model

In this paper we firstly develop a Sarmanov–Lee bivariate family of distributions with the beta and gamma as marginal distributions. We obtain the linear correlation coefficient showing that, although it is not a strong family of correlation, it can be greater than the value of this coefficient in the Farlie–Gumbel–Morgenstern family. We also determine other measures for this family: the coefficient of median concordance and the relative entropy, which are analyzed by comparison with the case of independence. Secondly, we consider the problem of premium calculation in a Poisson–Lindley and exponential collective risk model, where the Sarmanov–Lee family is used as a structure function. We determine the collective and Bayes premiums whose values are analyzed when independence and dependence between the risk profiles are considered, obtaining that notable variations in premiums values are obtained even when low levels of correlation are considered.

Original article: On the independence between risk profiles in the compound collective risk actuarial model

This paper examines a compound collective risk model in which the primary distribution comprised the Poisson-Lindley distribution with a @l parameter, and where the secondary distribution is an exponential one with a @q parameter. We consider the case of dependence between risk profiles (i.e., the parameters @l and @q), where the dependence is modelled by a Farlie-Gumbel-Morgenstern family. We analyze the consequences of the dependence on the Bayes premium. We conclude that the consequences of the dependence on the Bayes premium may vary considerably.

Bayesian analysis in an aggregate loss model: validation of the structure functions

Common ordinal models, including the ordered logit model and the continuation ratio model, are formulated by a common score (ie, a linear combination of given explanatory variables) plus rank-specific intercepts. Sensitivity to the common score is generally not differentiated between rank outcomes. We propose an ordinal model based on forward ordinal probabilities for rank outcomes. In addition to the common score and intercepts, the forward ordinal probabilities are formulated by the rankand rating-specific sensitivity (for a risk-rated portfolio). This rank-specific sensitivity allows a risk rating to respond to its migrations to default, downgrade, stay and upgrade accordingly. A parameter estimation approach based on maximum likelihood for observing rank-outcome frequencies is proposed. Applications of the proposed model include modeling rating migration probability for point-in-time probability of default term structure for International Financial Reporting Standard 9 expected credit loss estimation and Comprehensive Capital Analysis and Review stress testing. Unlike the rating transition model based on the Merton model, which allows only one sensitivity Print ISSN 1753-9579 j Online ISSN 1753-9587