Victor Iwuagwu Oguledo

A gravity model analysis of international migration to North America

This study examines the influence of political, economic and demographic factors on the size and composition of migration flows to North America. A modified gravity model is specified and adjusted to include immigration regulations and characteristics specific to the origin and destination countries. For empirical test of the model, the time period of study is from 1976–1986, and 70 countries are covered for a total of 1540 observations of migration flows to Canada and the USA. The results reveal that the population of origin countries and the income of destination countries are two major determinants of migration to North America. High population areas of Asia and Latin America provided a large share of the immigrants. Domestic restrictions on political and civil freedom in origin countries are found to significantly impair migration to North America.

Gravity models: a reformulation and an application to discriminatory trade arrangements

Gravity Models are used to estimate trade flows from 162 countries into 11 major importing countries for 1976, counting the EC as one. The main theories underlying gravity models are reviewed and a new gravity model is derived from a linear expenditure system. A major innovation of this model is that both tariffs and dummy variables for discriminatory arrangements are incorporated. Price variables are also explicitly included in the model. The tariff and the dummy variables are found to be statistically significant and this indicates that previous gravity model studies which used dummies to estimate the trade benefits of preferential tariffs may not have accurately estimated the effects of the preferences. The price variables generally are also found to be statistically significant, which casts doubt on the homogeneous-goods assumption underlying the purchasing power parity hypothesis. Some significant differences in the estimates were found when separate equations were regressed for the EEC and the US.

The trade effects of the U. S. generalized system of preferences

ConclusionSubsequent rounds of multilateral tariff reductions and changes in the GSP and other trade arrangements supersede the analysis presented here, but this study still provides some guidance to future analysis of tariff concessions. The review of the literature suggests a need for greater precision in methods and data. The new technique employed here would appear to be appropriate for future analyses of multilateral trade liberalization and of proliferating free trade areas. Our results indicate that extremely optimistic and pessimistic estimates of GSP trade effects should be regarded with skepticism. The GSP has probably had a modest positive impact on LDC exports to the United States.

A formula for the after‐tax APR for home mortgages

Purpose – The purpose of this paper is to provide a simple formula for determining a borrowers APR for mortgage loans after including the effects of mortgage interest tax deductions.Design/methodology/approach – This formula is derived by adjusting the APR provided by the lender for the length of the mortgage, the amount of discount points, the mortgage interest rate, and the borrowers tax rate.Findings – From this formula, it is found that the tax‐adjusted APR is not only lower but also more informative than the traditional APR.Research limitations/implications – The tax‐deductible items of a mortgage loan used in this formula for after‐tax APR are based on those stipulated under US tax law. However, this formula can easily be adapted to other internal rate of return methods such as the annual effective rate of return (AER). In addition, further research is needed to develop a formula when a mortgage loan is the result of a refinance. Under this situation, mortgage discount points are no longer tax‐ded...

Random walks and monetary velocity in the G-7 countries: new evidence from a multiple variance ratio test

The random walk hypothesis (RWH) of the velocity of money has often been supported for the developed economies. The literature is, however, far from unanimous. This paper employs the most recent methodological advances in testing for random walks, the multiple variance ratio test, to re-examine the behaviour of the velocity of money in the G-7 countries. Monetary velocity is computed as the ratio of nominal income to contemporaneous money stock, under alternative definitions of income and money. The empirical results from the present study do not support the RWH in most of the G-7 countries, with the US M1 and M2 velocities as exceptions. Furthermore, the results show that the RWH is sensitive to either the definitions of monetary velocity or the sample period of study.

Optimal Disability Insurance with Moral Hazards: Absenteeism, Presenteeism, and Shirking

Presenteeism occurs when employees are present at the workplace but cannot perform at their best because of ill-health or other reasons, while absenteeism occurs when employees are absent from the workplace. Although absenteeism is important, researchers now say presenteeism can be more costly to businesses and may be responsible for as much as three times the health-related lost productivity as compared to absenteeism and may cost the U.S. economy as much as

Exploring the Optimal Design of an Employer-Sponsored Sickness-Disability Compensation Insurance Plan When Sickness Presenteeism Is Penalized

150 billion per year. Given the cost of absenteeism and presenteeism, one of the objectives of this article is to provide actuaries with the techniques and insights needed to design disability insurance policies that take into account the dynamics of absenteeism and presenteeism. To this end we develop a simple multistate sickness-disability model of the evolution of an employee’s health over time. We assume employees receive sick pay, the size of which depends on their health state, and there is a government-sponsored unemployment insurance program. In our model it is possible for employees in good health to avoid work by staying home, which is called shirking. To reduce shirking, the employer decides to check the health status of a certain percentage of employees who “call in sick.” Given the sick-pay structure, the probability of a health check, and the existence of unemployment insurance, employees develop rational strategies about whether to engage in shirking, absenteeism, or presenteeism. These strategies are captured in a set of Volterra integral equations. We use these Volterra integral equations to show how the employer can design a disability insurance plan that can incentivise employees to eliminate shirking and to act in a manner that will maximize the employer’s expected profits.

Optimum Allocations to Health Care Flexible Spending Accounts

We explore the impact of presenteeism, absenteeism, and shirking on the optimal design of an employer-sponsored sickness-disability compensation insurance plan when the employer penalizes sickness presenteeism. We assume an employees health follows a simple multistate model with a “severely ill” sickness state. To combat absenteeism, the employer randomly verifies an employees claim of sickness. However, to combat presenteeism, we also introduce the new concept of a presenteeism penalty whereby employees who are found to be at work in the “severely ill” sickness state are sent home and receive a penalized sick pay that is lower than the normal sick pay. Thus sick employees must decide whether to stay at home and receive a sick pay or go to work sick and run the risk of being sent home and penalized. We further assume (1) employees are risk-averse utility maximizers, (2) each employee has a strategy for staying home or working while sick that maximizes his or her lifetime expected discounted utility, and (3) an employees strategy is unknown to the employer. The primary plan design factors that affect an employees lifetime expected discounted utility and the employers discounted expected accounting profits over an employees working lifetime are the sick pay, the presenteeism penalty, and two health check probabilities. Volterra integral equations are used to derive expressions for an employees lifetime expected discounted utility and the employers expected discounted accounting profits over an employees lifetime under various employee strategies. Laplace transforms are used to derive asymptotic expressions for the solutions to these integral equations. These asymptotic solutions are used to explore the impact of these factors on the optimal sickness compensation insurance plan design.

Pricing high-risk and low-risk insurance contracts with incomplete information and production costs

Abstract Models used to derive optimal contributions to health care flexible spending accounts (FSAs) typically assume an employee’s household annual out-of-pocket health care expenses are an absolutely continuously random variable. This assumption, however, ignores the fact that some employees may be able to accurately predict a portion of their household annual out-of-pocket health care expenses and often actually incur only those expenses during the plan year, implying that a mixed random variable may be more appropriate. In addition, data have shown that employees are setting contributions at lower levels than existing absolutely continuous models would suggest is optimal. Using a mixed model of household annual out-of-pocket health care expenses we prove that it is often optimal for employees to contribute an amount equal to their household annual predictable out-of-pocket expenses, thus avoiding the risk of forfeiture. We also propose a practical rule of thumb that employees may use for setting their FSA contributions. Overall, we recommend that employees use their FSAs to cover only their highly predictable out-of-pocket health care expenses rather than use their FSAs as a contingency fund to pay for unlikely or unexpected outof-pocket health care expenses.