William J. Boyes

An econometric analysis of the bank credit scoring problem

Abstract Most credit assessment models used in practice are based on simple credit scoring functions estimated by discriminant analysis. These functions are designed to distinguish whether or not applicants belong to the population of ‘would be’ defaulters. We suggest that the traditional view that emphasizes default probability is too narrow. Our model of credit assessment focuses on expected earnings. We demonstrate how maximum likelihood estimates of default probabilities can be obtained from a bivariate ‘censored probit’ framework using a ‘choice-based’ sample originally intended for discriminant analysis. The paper concludes with recommendations for combining these default probability estimates with other parameters of the loan earnings process to obtain a more meaningful model of credit assessment.

Cycles in senatorial voting behavior: implications for the optimal frequency of elections

The effect that the length of electoral periods has on the behavior of elected officials is examined. The hypothesis is that the longer the period between elections the less responsible or the more independent representatives will behave relative to the desires of their polity. The hypothesis is tested by examining the behavior of U.S. Senators. It is found that their independence follows a cyclical behavior which conforms to the electoral period. As a result it is by no means clear that decreasing the frequency of elections reduces the cost of elections. The effect of this independence cost on the optimal frequency of elections is discussed.

Some Effects of the Bankruptcy Reform Act of 1978

THE use of formal bankruptcy by private and corporate debtors increased markedly-well over 100 percent-in the last decade.1 Several writers in the financial media claimed this dramatic increase to be the result of radically incorrect expectations and the subsequent accumulation of short-term, high-interest debt in the late 1970s combined with the high real interest rates of the 1980s.2 Others have argued that an emerging acceptability of bankruptcy-both as an area of practice for lawyers and as a solution to financial problems for consumers-has strongly contributed to the observed increase in filings.3 Another potential explanation of the bankruptcy explosion lies with institutional change. In October 1978 Congress changed the legal rules governing personal bankruptcy; specifically, it increased the dollar amounts of certain physical assets and cash that debtors can withhold from creditors on filing for bankruptcy. Our aim in this paper is twofold: first, to shed some light on the causes of the dramatic increase in bankruptcy filings and, second, to examine the relation between the institutional change and the ratio of secured to unsecured debt. Particular emphasis is placed on the Bankruptcy Reform Act of October 1978 (BRA).4 The Reform Act was intended to modernize

The selection of public utility commissioners: A re-examination of the importance of institutional setting

5. ConclusionsThe result of a great many studies is that it makes no difference to the rate level whether the public utility commission is appointed or elected. Nevertheless, the typical response to an inquiry regarding the effect of appointment versus election is that a difference in resulting rate structure should exist. In this paper we have reconciled these views and more carefully examined the issue of whether institutional setting does matter in the setting of regulated electricity prices. We suggest that one should not necessarily expect elected PUCs to behave differently than appointed ones. Instead different behavior should be expected from PUCs that are ‘closer’ to their constituents than those more isolated, irrespective of whether the PUC is elected or appointed. The results of an empirical examination based on a large sample of utilities operating during the period of 1981-83 support this view. The more narrowly defined is the consumer voter-group, everything else the same, the lower is the rate set by the PUC.

The Public Demand for Smoking Bans

Smoking bans are gaining widespread support in the United States and other countries. While supporters argue that bans are necessary to resolve market failures associated with negative externalities, the Coase Theorem predicts that, under various conditions, private markets internalize negative externalities. We examine the smoking issue within the framework of the Coase Theorem and hypothesize that smoking bans misallocate air space resources shared by smokers and nonsmokers. Because smoking bans shift ownership of scarce resources, they are also hypothesized to transfer income from one party (smokers) to another party (nonsmokers). Supporting evidence for these hypotheses is provided by an examination of a comprehensive smoking ban imposed in San Luis Obispo, CA.

Publish or Perish: Fact or Fiction?

The relative importance of teaching and research was the subject of a questionnaire sent to departments of economics throughout the nation. The returns indicate that good teaching tends to be rewarded in all institutions but that the pay-offs may differ between large, highly rated schools and their smaller counterparts.

The Federal Reserve as a Bureaucracy: An Examination of Expense-Preference Behavior

In this paper, the Federal Reserve System is viewed as a bureaucracy with a bureaus incentive to increase expenses beyond the profit maximizing point. Moreover, the bureau consists of divisions, the district banks, that exhibit their own expense-prefer ence behavior. An empirical investigation of labor demand by the Boar d and district banks reported in this paper demonstrates that the Fed eral Reserve has engaged in expense-preference behavior and that the centralization of the monetary authority amplified this type of behav ior. Copyright 1988 by Ohio State University Press.

The optimal concentration measure: theory and evidence for Canadian manufacturing industries

Researchers in industrial organization and applied macroeconomics do not usually concern themselves greatly with the choice of the measure of concentration measures which are correlated; they usually opt for the easy to calculate four firm concentration ratio. We show that a high correlation between alternative measures does not ensure that empirical results will be insensitive to the choice of concentration measure and present empirical evidence for Canadian manufacturing industries showing that misspecification of the concentration measure leads to quantitatively important errors in the estimation of response elasticities. If a concentration ratio is used instead of the theoretically correct Herfindahl index in an industrial structure-performance relationship, the responsiveness of performance to concentration will be biassed upwards, the resulting elasticity being overestimated by some one hundred to two hundred per cent.

Monetary and Fiscal Constitutions and the Bureaucratic Behavior of the Federal Reserve

A body of literature has developed that models the Federal Reserve as a self- interested bureaucracy, and not simply as an altruistic bureau guided only by a concern with the public interest. This literature focuses on the monetary constitution—the institutional arrangements and relationships under which the Federal Reserve operates. However, the Federal Reserve also operates under a fiscal constitution (the institutional arrangements that guide development of a federal budget). This is because the Federal Reserve is an agent of Congress. Unfortunately, this important principal-agent relationship has not been incorpo rated into the examinations of the bureaucratic behavior of the Federal Reserve. The purpose of this article is to reexamine the Federal Reserves tendency to engage in expense-preference behavior while controlling for both monetary and fiscal constitutions.

All politics is local: The effect of fiscal and monetary constitutions on economic policy

Abstract The rules of behavior for the monetary authorities changed in 1933 and 1947 and the Fed temporarily changed its operating procedures in 1979, but these changes did not alter the fact that the monetary authorities serve as the agent of the fiscal authorities. On the fiscal side, a shift from a centralized process to one where Congress was composed of a set of individual entrepreneurs altered the fiscal focus from the national economy to one of localized interests. This change led to a more autoregressive and deficit-prone federal budget and changed the interaction between monetary and fiscal policy. It also elevated the status of monetary policy to the extent where financial markets react to every utterance from the monetary authorities.