Elettra Agliardi

Taxation and Investment Decisions: A Real Options Approach

The purpose of the paper is to analyse the impact of the tax system on the firms incentives to invest and disinvest in an uncertain environment. This paper follows the real options approach, which allows us to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic and investments partially reversible. The implications for the magnitude and directions of the effects of tax policy are studied; also the case of tax policy uncertainty is examined. Copyright 2001 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Fuzzy defaultable bonds

This paper develops a structural model for defaultable bonds in a fuzzy environment. The numerical results calculated from the closed-form solution show that the fuzziness of the stochastic underlying asset and of bankruptcy costs have material impact on the term structure of credit spreads and the duration of defaultable bonds.

An application of fuzzy methods to evaluate a patent under the chance of litigation

The value of a patent, including such unmeasurable things like the chance of litigation, is calculated using a methodology which combines real option theory and fuzzy numbers. The vagueness about the patent holders future profits, the validity and scope of the patent, the litigation costs, the courts decision under imperfect enforcement of property rights are specified introducing fuzzy numbers. This method is embedded in a real option computation, where the value of a patent includes the option value of litigation. We study how the value of a patent is affected by the timing and incidence of litigation. The main results are compared with the empirical findings of previous results.

Bond pricing under imprecise information

This article develops a computational method to implement the effect of imperfect information on the value of defaultable bonds. A fuzzy modeling is adopted and the numerical experiments show that an imprecise value of the stochastic underlying asset and/or the barrier triggering default have material impact on the qualitative shape of the term structures of credit spreads.

A generalization of supermodularity

Abstract The notion of pseudo-supermodularity is introduced and the existence and order structure of equilibria in pseudo-supermodular games are analyzed using lattice-theoretical methods.

Environmental protection, public finance requirements and the timing of emission reductions

The effects of four environmental policy options for the reduction of pollution emissions, i.e. taxes, emission standards, auctioned permits and freely allocated permits, are analyzed. The setup is a real option model where the amount of emissions is determined by solving the firms profit maximization problem under each policy instrument. The regulator solves an optimal stopping problem in order to find the critical threshold for policy adoptions taking into account revenues from taxes and auctioned permits and government spending. In this framework we find the ranking of the alternative policy options in terms of their adoption lag and social welfare. We show that when the output demand is elastic, emission standards are preferred to freely allocated permits. Taxes and auctioned permits are always equivalent in terms of their adoption lag and social welfare, and also equivalent to emission standards when the regulator redistributes revenues.

Morphogenesis of an Institution on a Lattice Game

In this paper we study the morphogenesis of an institution when local social interactions are taken into account. The structure we obtain has characteristics of “self-organized criticality”. After a transient period the system self-organizes into a configuration which is compatible with a high degree of differentiation among different sites and generates typical power laws.

Self-reinforcing mechanisms and market information

We consider the possibility of switching between two technological standards when there are network externalities and imprecise market information. Multiple equilibria in terms of market shares can arise. The main result is that lock-in to one of multiple equilibria is not a permanent out- come when the source of lock-in is network externalities. The market lingers at prevalence of one standard with intermittent transitions to prevalence of the other. In other words, lock-in is a temporary occurrence.

Assessing Temporal Trends and Industry Contributions to Air and Water Pollution Using Stochastic Dominance

We employ a stochastic dominance (SD) approach to analyze the components that contribute to environmental degradation over time. The variables that are considered include countries’ greenhouse gas (GHG) emissions and water pollution. Our approach is based on pair-wise SD tests. First, we study the dynamic progress of each separate variable over time, from 1990 to 2005, within 5-year horizons. Then, pair-wise SD tests are used to study the major industry contributors to the overall GHG emissions and water pollution at any given time, to uncover the industry which contributes the most to total emissions and water pollution. We find that CO2 emissions not only contribute the most to the GHG emissions over time, but also increased within 15 year in the first-order SD sense. On the other hand, water pollution increased in a second-order SD sense. Pair-wise industry comparisons suggest that the major industry contributors to the CO2 emissions have always been the electricity and heat production sectors, while the transport sector has been the second contributor between 1990 and 2005. Finally, the food industry gradually became the major contributing industry for water pollution over time.

Pseudo-supermodular games: theory and an application

In this paper we introduce the notion of pseudo-supermodular games and analyze the existence and order structure of equilibria using lattice-theoretical methods. Moreover, we provide, as an application, an analysis of equilibrium solutions for evolutionary games with monotonic selection dynamics, identifying the implications for pseudo-supermodular games.