Contributions in Merlin

null

Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.

null

This paper analyzes how an investor who is convinced that he can "beat the market" should behave when the equilibrium price process is endogenous. The investor's optimal portfolio is shown to consist of three components: (1) a tangency portfolio, (2) a hedge portfolio against changes in the market's valuation of securities, and (3) a hedging position against changes in the divergence between the investor's and the market's beliefs. The sign and magnitude of this third component will depend on investor preferences and on the divergence in the investor's and the market's quality of information. A numerical example illustrates that the effect of heterogeneous beliefs on optimal portfolio allocations can be significant.

null

Security is a basic need of human beings. However, people in our society often do not attempt to achieve total security but are content with appropriate protection from major risks. The development of modern society has increasingly made this task the responsibility of the individual who can no longer rely on the social net formerly provided by big families. On the one hand, the development of technology, which has introduced new and hardly assessable risks, undermines people's sense of personal safety, on the other hand it offers new means to improve risk management. It is the objective of this book to show how individuals may identify, assess, and manage their risks in a systematic manner by means of a computer-based tool. To that intent, in the first part, the various aspects and definitions of the term "risk" will be discussed and then summarised in a comprehensive view of risk. Thus, the differing attitudes of individuals are taken into account. For instance, one person may consider risk to mean possible damage, another may think of a potential series of unfortunate circumstances with adverse effects, and yet another might associate the term with something that jeopardises the realisation of personal goals. Personal Risk Management (PRM) is only slightly different from the risk management of a company. The distinctive difference lies in the fact that companies, especially major ones, employ professional risk managers whereas most individuals, provided they consciously assess their risks at all, merely do so as an afterthought. Thus, PRM support of individuals not only has to adapt to one's particular understanding of what constitutes a risk, but also to the particular approach of dealing with it. A parent, for example, is likely to be interested in the risks facing his or her child in the future, whereas another individual primarily wants to find out whether it makes sense to take out a life insurance policy. However, in addition to supporting individuals in their specific approach, there should also be advice on how to optimise the procedure. Hence, a taxonomy of PRM approaches will be developed on the basis of a comprehensive view of PRM. In order to assess the risk that individuals face in a systematic and comprehensive way, a model of the individual will be presented. Physical, mental, financial and material aspects will be taken into consideration as well as the individual's social, economic, technological and ecological relationships within his or her environment. Furthermore, the human life cycle will be taken into account. The IT part of this book deals with the problem of how the elaborated concepts of PRM support can be transformed into a computer-based solution by means of modern approaches to software engineering. A system architecture will be presented. In order to realise it, the domain must be modelled accurately on the conceptual level. An objectoriented model meets this criterion by clearly representing the models that were outlined in words in the first part by means of Unified Modeling Language diagrams. The IT-implementation aspects will not only be discussed theoretically but a prototype with its emphasis on the goal-oriented approach will also be presented. An empirical study based on the prototype provides evidence for the fact that the suggested approach can be implemented.