nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2005‒08‒28
six papers chosen by
Ken D'Silva
London South Bank University

  1. Information in Mechanism Design By Dirk Bergemann; Juuso Valimaki
  2. Public Governance. A Blueprint for Political Action and Better Government By Rodolfo Apreda
  3. The Impact of Hedging on Stock Return and Firm Value: New Evidence from Canadian Oil and Gas Companies By Chang Dan; Hong Gu; Kuan Xu
  4. Lashed to the Mast?: The Politics of Notional Defined Contribution Pension Reforms By Sarah M. Brooks; R. Kent Weaver
  5. Investment Choice in the Swedish Premium Pension Plan By Marten Palme; Annika Sunden; Paul Soderlind
  6. Design and Implementation Issues in Swedish Individual Pension Accounts By R. Kent Weaver

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Juuso Valimaki (Dept. of Economics, Helsinki School of Economics, University of Southampton)
    Abstract: We survey the recent literature on the role of information for mechanism design. We specifically consider the role of endogeneity of and robustness to private information in mechanism design. We view information acquisition of and robustness to private information as two distinct but related aspects of information management important in many design settings. We review the existing literature and point out directions for additional future work.
    Keywords: Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management
    JEL: C79 D82
    Date: 2005–08
  2. By: Rodolfo Apreda
    Abstract: This paper sets forth a comprehensive viewpoint about how Public Governance should be assessed and worked-out, by making three contributions to the subject matter. Firstly, it provides the semantics by which this field of learning and practice may become operational in Political Science. Next, a four-tiered framework of analysis is laid bare, which deals with architecture, covenants and safeguards, collective action, and deviant behavior. Afterwards, and focusing on conflict systems, we give heed to the underlying logic of Public Governance, which stems from a network built up around the mechanisms of participation, contest and safeguarding.
    Keywords: governance, public governance, conflict systems, institutional safeguards
    JEL: H1 H11 D70 D73
    Date: 2005–08
  3. By: Chang Dan; Hong Gu; Kuan Xu (Department of Economics and Department of Mathematics and Statistics, Dalhousie University)
    Abstract: This paper analyzes the impact of hedging activities of large Canadian oil and gas companies on their stock returns and firm value. Differing from the existing literature this research finds that some of these relationships are nonlinear based on the framework of nonlinear generalized additive models. The research based on this more general methodology reveals some interesting findings on oil and gas hedging activities. The large Canadian oil and gas firms are able to use hedging to protect downside risk against the unfavorable oil and gas price changes. But oil hedging appears to be more effective in protecting stock returns than gas hedging is when downside risk presents. In addition, oil and gas reserves are more likely to play a positive (negative) role when the oil and gas prices are increasing (decreasing). Finally, hedging, in particular hedging on gas, together with profitability, investment and leverage, has certain impacts on firm value.
    Keywords: oil; gas; hedging; return; firm value; general additive models ; Canada
    JEL: G10 G30
    Date: 2005–08–22
  4. By: Sarah M. Brooks (Ohio State University); R. Kent Weaver (The Brookings Institution)
    Abstract: Over the past decade, a number of countries have adopted a new form of pension system known as "notional defined contribution" (NDC) pensions. Like traditional defined benefit (DB) pensions, NDC pensions operate largely on a pay-as-you-go basis, but base benefits on total lifetime contributions rather than those in a specified number of peak earnings years. Payroll tax rates are (at least in theory) permanently fixed, while adjustments necessitated by demographic change and slow economic growth are automatically made on the benefit side. The authors argue that adoption of NDC-based reforms reflects political as well as policy considerations. The article analyzes a variety of conditions that have led some countries to adopt NDC-based reforms while such reforms have not even reached the agenda in others. The authors point out a number of problems that may arise during implementation of NDC-based reforms that undercut their potential benefits, and argue that erosion of NDC-based reforms is more likely than outright reversal.
    Keywords: pension system, notional defined contribution, NDC, reform
    JEL: H55
    Date: 2005–01
  5. By: Marten Palme (Stockholm University); Annika Sunden (Swedish National Social Insurance Board); Paul Soderlind (University of St. Gallen)
    Abstract: In 1998, Sweden passed a pension reform that introduced a second tier of mandatory individual accounts, the Premium Pension, in the public system. Of the total contribution rate of 18.5 percent, 2.5 percentage points go to the accounts. The first investment selections in the Premium Pension plan took place in the fall of 2000 when all Swedes born after 1938 were able to choose how to invest their contributions from a menu of about 650 mutual funds. Approximately 70 percent of participants made an "active choice" while the remaining participants' contributions were invested in a government-run default fund. This paper examines investment choice in the Swedish individual account scheme. First, do workers with high risk in their human capital diversify their overall portfolio by investing their pension funds in low-risk funds? Second, to what extent do participants exhibit "home bias" and invest their pension funds in Swedish assets? The results show a positive relationship between income and the level of risk in the portfolio. But, looking into the details, the relationship is actually somewhat U-shaped: low-income investors take on more risk than middle-income earners. It also seems as if women who qualify for the guarantee benefit (low-income earners) take on more risk than motivated by their situation. We also find that workers in the manufacturing sector - that is, the sector that is probably most correlated with the Swedish stock market - are less likely to invest in foreign assets and thus are exhibiting "home bias."
    Keywords: Sweden, pension system, portfolio
    JEL: H55 G11 D81
    Date: 2005–04
  6. By: R. Kent Weaver (The Brookings Institution)
    Abstract: Sweden's new multi-pillar pension system includes a system of mandatory fully-funded individual accounts. The Swedish system tries to keep administrative costs down through centralized management of the collection of contributions, switching among fund options, and record-keeping and communication with account holders. The Swedish system offers contributors more than 600 fund options. However, in the most recent rounds of fund choice, more than 90 percent of new labor market entrants have not made an active choice of funds, and thus have ended up in a government-sponsored default fund. The Swedish system of individual accounts offers a number of lessons for countries considering adoption of a mandatory individual account tier. First, centralized administration of record-keeping, communication and trading functions can help to keep administrative costs down. Second, the lead time needed to set up such a system is considerable. Third, if entry barriers for funds are low, a very large number of fund options are likely to be offered. Fourth, engaging new labor market entrants in fund choice is likely to be difficult, and these barriers are likely to be particularly high for some groups-notably those with limited incomes and low English language skills. Fifth, in the absence of entry barriers for funds, a significant percentage of those making an active fund choice may choose funds that are very specialized and risky. Finally, the likelihood of limited active fund choice means that special care must be devoted both to the design of a default fund and to communicating to potential participants what asset allocation and risk-return trade-offs the default fund is likely to make.
    Keywords: Sweden, pension system, mandatory
    JEL: H55
    Date: 2005–04

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