Contributions in Merlin

Starting with Arrow's hypothesis that higher education is a filter, the paper studies three alternative filter-designs. These designs can be attributed to the higher education systems of three different countries: In the U.S., competition between schools not only leads to a stable and stratified hierarchy of schools but also validates the degrees issued by these schools. In France, the state deliberately sets and validates a hierarchy of schools acting as a monitor and at the same time as an employer of high potentials. In spite of an otherwise egalitarian regulatory environment, in Germany professors still have incentives to economize on individual reputation. Due to the rather strong property rights of German professors, their doctoral students contribute to this reputation. The incentive to employ productive doctoral students may validate the doctoral degree as a signal for talent. A closer look at the educational paths of topmanagers in the U.S., France, and Germany reveals results which are consistent with the theoretical conjectures.

The article discusses a study that investigates the conditions under which corporate venture capital (CVC) investments promote the exploitive and explorative organizational learning of incumbents. The article argues that a program of CVC investments allows incumbents to learn different things than they would otherwise from studying single CVC transactions. The article hypothesizes that there is an inverted U-shaped relationship between the volume of the incumbent's CVC investments and exploitative and explorative organizational learning. The article also discusses core business relatedness, the autonomy of the CVC unit, and the absorptive capacity of the incumbent.

Der Beitrag von Thorsten Hens und Klaus Reiner Schenk-Hoppé liefert eine quantitative Analyse der evolutionären Dynamik von Finanzmärkten. Die evolutionäre Finanzmarkttheorie beruht auf einer konsequenten Weiterentwicklung des in letzter Zeit entstandenen verhaltenswissenschaftlich orientierten Ansatzes, der die traditionelle Finanzmarkttheorie ergänzt. Hens und Schenk-Hoppé stellen ein evolutionäres Simulationsmodell vor, bei dem der Aktienmarkt als heterogene Population von häufig interagierenden Portfolio-Strategien im Wettbewerb um Marktkapital verstanden wird. Dabei wenden sie eine an Darwinschen Ideen orientierte Theorie der Portfolio-Selektion auf Aktien des Dow Jones Industrial Average an. Sie analysieren die Vermögensdynamik zwischen unterschiedlichen Portfolio-Strategien in einem Aktienmarktmodell mit tatsächlich gezahlten Dividenden. Die evolutionäre stabile Portfolio-Strategie, deren Budgetanteile proportional zu den erwarteten relativen Dividenden der Aktien sind, erzielt dabei langfristig das höchste Anlagevermögen imWettbewerb mit anderen Strategien. Und sie ist zudem die einzige Strategie mit dieser Eigenschaft.

The persistently low pay-performance sensitivity between executive compensation and firm performance has puzzled both practitioners and academics. We propose a hybrid model that incorporates both moral hazard and adverse selection problems to explain this puzzle. We argue that the managerial labor market is heterogeneous in nature, not homogeneous as assumed by the pure moral hazard model and empirical work based on this model. We demonstrate that the optimal pay-performance sensitivity derived from the hybrid model is lower than that derived from the pure moral hazard model. Furthermore, we also show that pay-performance sensitivity is a function of the mix of types in the market. The more capable managers there are in the market, the more likely the market's average pay-performance sensitivity is high. We then conduct an empirical test and find evidence that is consistent with the prediction of our model.

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In this article we discuss the implementation of general one-factor short rate models with a trinomial tree. Taking the Hull-White model as a starting point, our contribution is threefold. First, we show how trees can be spanned using a set of general branching processes. Secondly, we improve Hull-White's procedure to calibrate the tree to bond prices by a much more efficient approach. This approach is applicable to a wide range of term structure models. Finally, we show how the tree can be adjusted to the volatility structure. The proposed approach leads to an efficient and exible construction method for trinomial trees, which can be easily implemented and calibrated to both prices and volatilities.