Deferral

Abstract: This article investigates the effect of time pressure on choice deferrai. Recent research suggests that the likelihood of deferral is contingent on the ease of making the selection decision (which option to choose) as well as the overali attractiveness of the selected alternative. We focus on how time pressure systematically impacts choice deferral by increasing the use of noncompensato ry decision rules in the selection decision and by increasing the relative emphasis placed on the unique features in the deferral decision (whether to choose). Consistent with the hypotheses, we find over a series of five studies that time pressure (1) decreases choice deferral when choice involves high conflict but not when conflict is low, (2) reduces the impact of shared features on choice deferral, and (3) decreases choice deferral for sets with common bad and unique good features (approach-approach conflict) but not for sets with common good and unique bad features (avoidance-avoidance conflict). We further show that greater attention to the unique features is not a general property of decision making under time pressure but rather a consequence of the primacy of the selection decision over the deferral decision. Consistent with this premise, time pressure did not decrease the relative attention paid to common features when the task was described as purely a deferral decision. The theoretical and practical implications of the findings are discussed.

Abstract: The authors use risk-neutral option pricing theory to value the guaranteed minimum death benefit (GMDB) in variable annuities (VAs) and some recently introduced mutual funds. A variety of death benefits, such as return-of-premium, rising floors, and "ratches," are analyzed. Specifically, the authors compute the fair insurance risk fee, charged to assets, that funds the embedded option. The authors derive analytic option prices for a simplified exponential mortality model and robust numerical estimates in the case of a properly calibrated Gompertz model. The authors label this contingent claim a Titanic option because its payoff structure is in between European and American style but is triggered by death. The authors' main objective is to compare theoretical estimates against a cross-section of insurance risk charges, as reported by Morningstar, Inc. The authors' main conclusion is that a simple return-of-premium death benefit is worth between one and ten basis points, depending on gender, purchase age, and asset volatility. In contrast, the median Mortality and Expense risk charge for return-of-premium variable annuities is 115 basis points. Presumably, the remaining markup can be attributed to profits, model imperfections, or, more cynically, to an implicit payment for the tax-deferral privilege. INTRODUCTION In the United States, a variable annuity (VA) policy is a collection of investment subaccounts that are wrapped with a life insurance contract. The raison d'etre of the VA is the convenient deferral of all income and capital gains taxation until the funds are withdrawn or annuitized at retirement. The tax deferral on investment gains--of increasing long-term benefit--make VAs a popular alternative to fully taxable mutual funds, even though they involve higher management fees. In fact, despite the recent reduction in the long-term capital gains tax rate, sales of variable annuities amounted to $121 billion during 1999 and $100 billion during 1998. Interestingly, an estimated 55 percent of these variable annuity purchases were conducted within qualified, i.e., tax-sheltered, IRAs, 401(k)s, 403(b)s, and 457 retirement savings plans for which the tax deferral is redundant. [1] However, in addition to the tax deferral--and in contrast to most mutual funds--the variable annuity provides a unique death benefit, possibly justifying its sale within tax-sheltered plans. The variable annuity death benefit stipulates that at least the original investment will be returned to the estate or beneficiary of the policy, regardless of the performance of the underlying assets in the account. This guaranty will be in-the-money if the VA policyholder (annuitant) dies during a "bear" market and at the same time the investment is showing a paper loss. Recently, some innovative mutual funds have joined with insurance companies to offer a similar death benefit on their investments. Presumably, this innovation has been partially driven by an attempt to compete with the VA market and its implicit investment protection. Of course, the tax deferral can only be provided by VAs. The coincidence of death and market downturn, as unlikely as it may seem, is the impetus for this study. Specifically, the authors are interested in the economic value and fair cost of this death benefit. Before embarking on this endeavor, it is important to mention that not all VA contracts and death-protected mutual funds (DPMF) are created equal. Many innovative insurance companies sell VA products with death benefits that are more "generous" than others. By generous the authors mean that the guaranteed minimum death benefit is higher than a simple return of premium plus minimal interest. For example, some products guarantee a more lucrative death benefit that locks in accrued investment gains during the life of the contract. As such, the VA and death-protected mutual fund market is not homogenous, and one must be careful with any generalizations about these products. …

Abstract: This paper presents an approach to the quantification of the distribution network capacity deferral value of distributed generation (DG). Besides different technical benefits such as reliability and power quality improvement, there are a number of economic benefits related to DG, the most important of which being the end-user electricity bill reduction capability. However, since the onset of the implementation of these technologies, the potential of DG to defer investments on distribution wires and transformers was soon realized, to the point that "non-wire solutions" are now considered as an alternative to network upgrades. In this work, a first approximation to the capacity deferral benefits brought about by DG is obtained. Such approach can be the starting point towards the development of a framework of credits to the owners of DG that fully and fairly recognize the deferral benefits provided to the utility. The financial performance of investments on these important technologies can be then improved, thus broadening DG as a viable market alternative for customers and utilities

Abstract: History of Principles The Tax Treaty System The International Tax System at the Crossroads International Tax Avoidance The Dilemma of Deferral Tax Havens and International Finance Anti-Haven Measures The Transfer Price Problem The Worldwide Unitary Taxation Controversy The Internationalization of Tax Administration Global Business and International Fiscal Law Bibliography Index