Coping with Digital Extortion: An Experimental Study of Benefit Appeals and Normative Appeals

Digital extortion has emerged as a significant threat to organizations that rely on information technologies for their operations. Using human subject experimentation, we study the effectiveness of message appeals in encouraging defenders to adopt two mitigation strategies, investment in security and refusal to pay ransoms, to digital extortion threats. We explore two types of appeals, benefit and normative, for this purpose. We find that the decisions of the defenders (representing any organization that can be a potential victim) deviate from the predictions of game theory. However, given the strategic interactions between the defenders and the attacker as well as noisy decision-making behaviors, it is challenging to untangle the influence of the appeals on the defenders. We develop a structural model based on the quantal response equilibrium framework to measure how message appeals change the defenders’ utilities of investment and payment refusal. Although the interventions may be successful in increasing the utilities of investment and/or payment refusal, their impacts on investment rate and payment rate are mitigated by the attacker reducing ransoms. Thus, it is challenging for an intervention to significantly boost a community’s investment rate or to suppress the ransom payment rate. We characterize how security outcomes of a community (including expected ransom, attack rate, investment rate, and payment rate) vary with the defenders’ utilities of investment and pay refusal. This paper was accepted by Chris Forman, information systems.

Examining Asset Pricing Anomalies: Evidence from Europe

We examine five important asset pricing anomalies, namely, size, value, momentum, profitability, and investment rate to evaluate their efficacy in major West European economies, that is, France, Germany, Italy, and Spain. We employ four prominent asset pricing models, namely Capital Asset Pricing Model (CAPM), Fama–French three-factor (FF3) model, Carhart model and Fama–French five-factor (FF5) model to evaluate whether portfolio managers can create trading strategies to generate risk-adjusted extra normal returns for their investors. We also examine the prominent anomalies which pass the test of asset pricing in our sample countries and evaluate the best performing asset pricing model in explaining returns in each of these countries. We find that in spite of being matured markets, these countries provide portfolio managers with opportunities to exploit these strategies to generate extra normal returns for their investors. Momentum anomaly for Germany and profitability anomaly for Italy can be exploited by fund managers for generating risk-adjusted returns. For France, except for net investment rate anomaly, all the other anomalies remained unexplained by asset pricing models. We also find CAPM to be the better model in explaining returns of Italy and Spain. While FF3 factor and FF5 factor models explain returns in Germany, our sample asset pricing models failed to work for France. Our study has implications for portfolio managers, academia, and policymakers.

FDI and growth: Evidence from provinces and cities in South East region of Vietnam

The paper uses recent panel dataset of provinces and cities in South East region of Vietnam to investigate the effects of foreign direct investment (FDI), local governance quality, state investment rate, domestic private investment rate and trade openness on economic growth. Empirical results show that an increase in foreign direct investment share to GRDP and governance capacity and quality of provincial authorities in creating a favorable business environment will significantly impulse the growth of the local economy. The private investment is found to play an important role in the economic growth of South East provinces and cities, while the impact of public investment and trade openness on economic growth of the region is found to be insignificant over the period 2015 - 2019.

Investment Demand and Structural Change

We study the joint evolution of the sectoral composition and the investment rate of developing economies. Using panel data for several countries in different stages of development, we document three novel facts: (a) the share of industry and the investment rate are strongly correlated and follow a hump‐shaped profile with development, (b) investment goods contain more domestic value added from industry and less from services than consumption goods do, and (c) the evolution of the sectoral composition of investment and consumption goods differs from the one of GDP. We build a multi‐sector growth model to fit these patterns and provide two important results. First, the hump‐shaped evolution of investment demand explains half of the hump in industry with development. Second, asymmetric sectoral productivity growth helps explain the decline in the relative price of investment goods along the development path, which in turn increases capital accumulation and promotes growth.

Public investment efficiency and monetary policy consequences: The case of investment ratio enhancing policy in Russia

The article analyzes the effects of measures to raise the investment rate from 21% to 25% of GDP up to 2024 on GDP growth and monetary policy. We conduct the analysis using an econometric general equilibrium model that reflects key features of the Russian economy. Achieving the target sequentially implies adding about 14 p. p. of GDP of public and/or private investment over 2019—2024 compared to the unchanged investment rate scenario. We find raising private investment to be the most efficient for stimulating GDP growth up to 2024. Among sources of public investment funding, using the sovereign wealth fund gives the highest GDP growth up to 2024. Nevertheless, given low public investment efficiency, a significant fraction of GDP growth becomes inflationary in this case. If the central bank minimizes the risk of inflation, inefficient public investment can lead the economy to equilibrium with higher private interest rates.

Investment rate, growth, and the accelerator effect in the supermultiplier model: the case of Brazil

This paper investigates the role of demand in the productive investment evolution in the Brazilian economy. First, it assesses the long-run relationship between the investment rate and GDP growth, taking annual data from 1962 to 2015. The paper then constructs a ‘final demand’ index and estimates its impact on the productive investment growth rate, taking quarterly data from 1996Q1 to 2017Q2, highlighting a shift in the aftermath of the 2008 global financial crisis. The results support two hypotheses of the supermultiplier model of Freitas and Serrano (2015) and Serrano et al. (2017) for the Brazilian economy: (i) non-capacity-creating expenditures lead productive investment; and (ii) there is a very slow adjustment of the investment rate to demand growth, as described by the flexible accelerator process.

Are Capital Goods Tariffs Different?

In this paper we demonstrate the importance of distinguishing capital goods tariffs from other tariffs. Using exposure to a quasi-natural experiment induced by a trade reform in Colombia, we find that firms that have been more exposed to a reduction in intermediate and consumption input or output tariffs do not significantly increase their investment rates. However, firms’ investment rate increase strongly in response to a reduction in capital goods input tariffs. Firms do not substitute capital with labor, but instead also increase employment, especially for production workers. Reduction in other tariff rates do not increase investment and employment. Our results suggest that a reduction in the relative price of capital goods can significantly boost investment and employment and does not seem to lead to a decline in the labor share.

Where Does Multinational Investment Go with Territorial Taxation? Evidence from the United Kingdom

In 2009, the United Kingdom changed from a worldwide to a territorial tax system, abolishing dividend taxes on foreign repatriation from many low-tax countries. This paper assesses the causal effect of territorial taxation on real investments, using a unique dataset for multinational affiliates in 27 European countries and employing the difference-in-differences approach. It finds that the territorial reform has increased the investment rate of UK multinationals by 16.7 percentage points in low-tax countries. In the absence of any significant investment reduction elsewhere, the findings represent a likely increase in total outbound investment by UK multinationals. (JEL F23, G31, H25, H32, H87)