Comparing Britain To Japan :: essays research papers

In 1900 Britain was in many see the realnesss leading nation, admireing a large share of world trade, a dominant position in the international money market, and possessing a far flung empire supported by the worlds approximately powerful navy. lacquer was a complete contrast, sharing with Britain only the item that it too was a nation of Islands lying off the shore of a major continent. Until the 1860s it had possessed a genial and economic structure to a greater extent akin to that of feudal, rather than twentieth century, Europe. By the 1990s, the positions were almost reversed. This paper sets stunned to examine the contrasting democratic political systems of the two nations and to explore the social and democratic consequences of the changes that have occurred.      The establishment of the Japanese archipelago assumed its amaze determine around 10,000 years ago. Soon after the era known as the Jomon period began and continued for about 8,000 years. Gradually they formed small communities and began to target their lives communally. Japan can be said to have taken its get-go steps to nationhood in the Yamato period, which began at the end of the third century AD. During this period, the ancestors of the present Emperor began to bring a number of small estates under interrelated rule from their bases around what are now Nara and Osaka Prefectures. At the beginning of the ordinal century, Tokugawa Ieyasu set up a government in capital of Japan (now Tokyo) and the Edo period began. The Tokugawa regime adopted an isolationist policy that lasted for more than cc years, cutting off exchange with all countries except China and the Netherlands. The geezerhood of the Samurai came to and end with the Meiji Restoration of 1868, and a new system of government pertain on the Emperor was set up. The new government promoted modernization, adopted western political, social and economic systems, and stimulated industrial activity. The Di et was inaugurated, and the people began to enjoy limited participation in politics.      From around 1920 a democratic bm gained strength. However, amid a global economic crisis, the military came to the fore, and Japan eventually marched good deal the road to war. With the end of World War II in 1945 Japan put into effect a new Constitution, committed itself to becoming a peace-seeking democracy, and successful in relaunching its economy. In 1956, the nations entry into the joined Nations was approved.

Women, Sport and Film :: Argumentative Persuasive Essays

Women, Sport and FilmOut of all the material we cover in this course, the ones that bear most directly on this question I think are the documentary about women in sports, and the movie Girlfight. However, I felt that both of these films focussed on the issue from womens point of view. This is not to say that it isnt important or necessary to do so, but I started thinking about how men are also greatly affect by gender stereotyping. Being in a womens college, I smelling like we focus a lot on the ways in which women are forced into certain roles, but we neglect to also breast at how men are forced into certain roles. Last semester I watched the movie baton Elliot, about a young boy increase up in Newcastle, England, during the time of the miners strike. I think the movie illustrates truly well the costs and benefits of breaking gender stereotypes. Billy grows up in a mining family and his family consists of himself, his father, and his elder brother. He is surrounded only by mal e role models, and that too men who engage in manual labour. His father and his brother are both very masculine in the traditional sense of the word. The basic plot of the movie is that Billy wants to be a concert dance dancer. His father wants him to learn boxing, but he sees a group of girls having ballet lessons at the same time and he starts victorious ballet lessons on the sly. He turns out to be very talented, and his instructor wants him to apply to go to ballet school on a scholarship. The equipoise of the movie follows his progress and his struggle to be accepted by his family at once hes been discovered. At first his father prohibits him from doing ballet, and calls him a pouf, but Billy persists and is finally accepted by his family and community. I found it interesting that eve though Billy is pre-pubescent, the mere fact that he wants to learn ballet induces people to question his sexuality even at such an early(a) age. At an age when children arent supposed to b e sexual beings yet, Billy is chthonian constant pressure to decide what his sexual orientation is, both by his family in that he has to defend himself, and by a friend of his in school who fits a certain stereotype of homosexuality and is romantically raise in him.

Cultural Assignment

Organizational Communication I struggled with this assignment and I found it very(prenominal) difficult to determine cultural personate manner of speaking movements for the African American culture. However, what I found is over the years the African American culture has blended with the white American culture. There be historical facts regarding slavery and how that impacted the African American culture. Through art, music, and bound the African Americans found their outlet for self expression. right away a lot of black Americans block onto their own culture through and through their interactions at church, which holds enthusiastic singing this is an expression of their culture.Its quite absorbing and uplifting attending services at an African American congregational church. African American Body language and cultural issues They carry themselves in a way that exhibits strength. African dance moved north from the south. Families argon brought together through food. Soul foo d plays an important role in the African American culture and traditionally these foods be high in fat. However, over the years they fuddle tried to remove trans- fats from their diets. African Americans honor ethnic holidays alongside traditional holidays.We now have black invoice month which focuses on the lives and history of African Americans. They will refer to from each one other as sister and brother even though they atomic number 18 not related. It is used as a sign of respect. The salutation mam is similarly used in some cases as a sign of respect. Families a good deal include extended families living under one roof. Latino body language and culture issues A simple toss of something can be considered ill-treatmenting. If you need to give something to someone dont toss it notch over and hand it to them. Stupid is considered a huge insult. Gringo is not an insult just means foreigner.The hand gestures come here means you are romantically interested in that person. Hugs and kisses Hispanic culture is very emotional. Family ties include parent, grandparents, sisters, brothers, and children. Different holidays Christmas is celebrated on the 24th and the Santa celebration is done on the January, 7th. They dont celebrate Halloween or Thanksgiving. Touching they will hold hands without thinking about it. Differences between Latin (Hispanic) culture and African American The term Hispanic is used in the United States to hear all people of Latino and Spanish descent.It is a broad ethical code classification including somebodys who originated from the Dominican Republic, Spain, Puerto Rico, and about 20 to 30 other regions. correspond to the federal guidelines, Hispanics are classified as white Hispanic or black Hispanic. Our federal government doesnt recognize Hispanic as a hie, only an ethnicity. If you ask a Hispanic child what is your race he/she most often will tell you Spanish, or Hispanic he/she will very rarely say white. However , the federal guidelines do recognize African American or black as a race. The two cultures are different, yet very similar.They both have extended families who they share their living quarters with even though they are not really related. Hispanics like close quarters they like touching, hugging, and kissing. It is not singular for Spanish woman to hold hands. They are considered to be a very sensual population. African Americans also believe in the extended family concept. I have the benefit of working with both Hispanic and African American individuals and I find through personal experience that Hispanic individuals are very upbeat, friendly, emotional, and very touching.They want to be physically close to the individual with whom they are speaking. In addition, the African American individuals I work with have some of the same cultural characteristics however, they are a little more(prenominal) reserved. Both cultures are close to family, both treat their mothers with the high est respect, and they both get ahead around food. Every party no matter how small has an ample amount of food. And, I believe individuals in both cultures to be aphonic working and just trying to hold on to some of their laissez faire and stay true to their heritage.

An Open Letter to Black Parents Essay

In renowned sports figure, Arthur Ashes, An Open Letter to Black Parents burden Your Children to Libraries, he negotiation about the fact that a college cultivation is more than important than the perks of becoming a professional athlete. While attending UCLA, Ashe came to the finding that African Americans were more caught up in the hype of one twenty-four hours becoming a professional athlete, rather than obtaining a lasting college education/ sheepskin. Ashe believes that African Americans should re-write their persona into one of profoundness and professionalism.Arthur Ashe states that the role models of the African American gild are princip wholey composed of athletes. Therefore, the young children in that society tend to model themselves after those battalion. Instead, Ashe wants to have those role models spread a message that a college education is far more important than creation a professional athlete. For illustration, Ashe has stated many times to high take aim students that, For every hour you spend on the athletic field, spend both in the library. These words are a very powerful message, in particular to young adults still searching for their call in this world.In conclusion, although Arthur Ashe may be recognized as one of the greatest tennis players of his generation, his college diploma from UCLA is his proudest moment in life.  In Richard Rodriguezs Complexion he talks about the racial discrimination he experienced as a child. Rodriguez places a lot of emphasis on rhetorical devices throughout his essay. The rhetorical devices that Rodriguez primarily uses is, description and symbolism. finished using these two rhetorical devices, Rodriguez is able to consult to the reader in a more personal level, in my opinion. Through description, Rodriguez is able to elaborate on certain details. Through using symbolism, he expresses the emotions and feelings that he feels.Richard Rodriguez writes this essay in devote to inform peo ple of the racism that he has experienced. Since Rodriguez was the one experiencing the racism, his essay coincides nicely with the rhetorical devices that he chose. Rodriguez is of the Mexican culture and he recalls times when he was a kid where he was being discriminated. Rodriguez writes that as a young child he was insulted and squall called for being of the Mexican culture. He writes how he would never retaliate with other insult back because he would be so embarrassed. The reason as to why Rodriguez was being discriminated was because of his complexion.Through reading this story, it is just a nonher example of how ignorant people are. There are many stories about how people have been discriminated against just due to the fact that they are from a variant culture. Richard Rodriguez did the right thing in not retaliating or doing something stupid, in order to not suffer any consequences. Summary Dont let Stereotypes Warp Your JudgmentsIn Robert Heilbroners, Dont let Stereotyp es Warp Your Judgments, he talks about the affects of stereotyping. Heilbroner discusses that stereotyping is evident in just about all over we are. The affects that stereotyping has on a person, as stated by Heilbroner, is it makes us wasted thinkers, and is harmful to those whom we are stereotyping.Heilbroners suggests that people who stereotype, do it because it helps make adept out of a highly confusing world (Heilbroner 373). This makes sense because we evaluate to come up with answers to things we do not understand. Another theory that Heilbroner suggests as to why people stereotype, is because we are raised with a certain wit about people. In his story Heilbroner gives the reader three ways to conk out rid of stereotyping. His first suggestion is to become sensible of the standardized pictures in our heads, in other peoples heads, in the world or so us (Heilbroner 374). The second suggestion is that we can become suspicious of all judgments that we allow exceptions to prove (Heilbroner 374). And lastly Heilbroner suggests that we can learn to be chary of generalizations of people (Heilbroner 375).After reading Robert Heilbroners essay, I became more aware to the large amounts of stereotyping that occurs in todays society. Although I was already aware, stereotyping not only has a negative effect on the person stereotyping, just on the person that is being stereotyped. Through stereotyping, one opens up a path that encourages horrible things such as racism and ignorance.

Obamacare Essay

Change will not adopt if we wait for some other(a) person or some other time. We ar the ones weve been waiting for. We are the change that we go outk. Those words were famously communicate from Barack Obama during his election period. Following through with those words, he begins to posit change in the country. Change isnt easy, yet you hope its worth it in the end.The USA seems to be standing on both sides of the fence when it comes to the changes the president is making with wellnesscare. March 23, 2010 Obama signed into law Affordable Care Act, or better known as Obamacare. Together with the Health Care and rearing Reconciliation Act, it represents the most signifi raftt government expansion and regulatory military service of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965 (www.obamacarefacts.com).Obamacare was enacted to provide affordable health indemnification to 44 cardinal uninsured Ameri sacks and to reduce the growth in health care s pending. Obamacare has done some important things already, such as prohibiting insurance companies from dropping your reporting if you get sick and has been working with insurance companies who will not cover a person because of a pre-existing condition.However, as with all change there are two slipway at looking at the new bill. Obamacare will drastically mask the low-income families in a appointed way. In America healthcare is so difficult to afford for the average low-income family, Obama has placed the care on a sliding scale. The expansion will cover over 15 million low-income individuals and families below the 133% FLP mark.However each state has the option to opt-out of providing coverage for the poor. By not providing coverage for the poor, it will leave 2-3 million people without coverage. States that settle to opt-in employers will have to respond by laying people take away and making full time employees part time to bend Obamacare penalties and taxes by not implem enting the program. Others will not expand beyond 50 employees to avoid the bills mandates (Shenk, 2013). The average consumer will see a difference because some businesses are adding surcharges to invoices in to help make up the cost of healthcare coverage for their employees.On a positive note, there would be no annual or lifetime limits, children can stay on their parents plans to age 26 FDA can approve more generic drugs driving prices down and breaking monopolies and protections against contrariety for gender, disabilities and domestic abuse. And there will be significant tax attribute to the small businesses with less than 25 employees, to help offset the costs of providing coverage to their employees.Obamacare will certainly challenge the nation over whether it requires a bailiwick system to be dependent on Washington or imprecate on dual federalism that protects freedom. The bill doesnt allow the American citizen the option, if they want to offer or accept coverage they have to have it or they will be penalized. That doesnt allow much freedom of choice, further at least they are being offered the opportunity to coverage.Despite the boisterous road Obamacare has had to start, it has lived to see another day and each day the kinks are worked out. This bill is here to stay. So, as cchange isnt always easy, the average American citizen can say that the law will be beneficial to them as individuals, their families, communities, and country.

Advances in Medical Technology

Composition I 19 Feb 2008 Advances in health check Technology Medical Technology has developed to a great bound over the course of many centuries. Since the days of Hippocrates, considered the Father of Medicine, advances in the medical field guide brought us into a brave sweet world. With the advent and application of modern technology, the medical field seems to have evolved to a greater extent in the last 10-20 yrs than in the previous 1000 social classs.Recently, new fuse has been broken throughout the field, involving medical techniques, surgical procedures, and electronic devices. Such advancements have streamlined the pattern and science of medicine in the twenty-first century. sensation form of advancement in Technology that has simplified the record c ar process for Physicians and Nurses alike is the computerized clipboard.According to Steve Kelly of Phillips Medical Systems, The portable, always connected device is intentional to require minimal training and provi des significant benefits to the clinical users, helping to turn off medication errors, positively identify staff and patients, fill out charts, sequester zippy signs, write up reports and validate blood transfusions as salutary as the ability to closely monitor the healing of wounds (Terry). Terrys words sum up the benefits of such(prenominal) a device quite nicely. Another concept at the forefront of Medical Technology is that of bionics.Bionics involves the engineering of Synthetic, or artificial limbs to replace those lost due to accidents or amputation. Bionics, as a whole, is not an entirely new concept. The crafting of synthetic limbs has been in force(p) for some time, but modern Technological advances have cleared a path for much much realistic, functional, and smarter limbs. The I-Limb Hand, made by Touch Bionics, is plausibly the most recent example of how realistic these limbs have become in their appearance.As stated by Paul Bright of Touch Bionics, Touch Bionics created the I-LIMB pop off in hopes to add more functionality for people who wanted more than practiced a gripping tool(Bright). In the photo to the left, courtesy of gizmag. com, angiotensin-converting enzyme of the hands is an implant, and one is real. Thanks to advances in the science of Bionics, it is difficult to speciate which one is artificial. Similarly, research into the field of Implantable Biochips has led to innovations in monitoring vital signs and personal information for soldiers on the battlefield.The Center for Bioelectronics, Biosensors, &038 Biochips, Based at Clemson University, is among the hint manufacturers of these Biochips. In an article in scientific discipline Daily based on materials provided by Clemson University, it is stated that The biochip, nearly the size of a grain of rice, could bankers bill and relay such information as lactate and glucose levels in the incident of a major hemorrhage, whether on the battlefield, at home or on the highwa y. Furthermore, weve seen advances in Medical Technology concerning how surgeries are performed in the 21st Century.As computers become more and more integrated into medical procedures, we can rise to envision surgical procedures that are done zombiically. One of the latest innovations in Robotic Surgery is the Da Vinci Robot Surgery System, from Intuitive Surgical. An article in Newsweek written by Jennifer Barrett entitled Cutting boundary line, states that The robotic system has already transformed the field of prostate surgery, for which it was approved in May 2001. That category it was used in less than 1 percent of all prostatectomies. This year more than 20 percent will be done with the robot(Barrett).Barretts remarks indicate that the utilization of such Technology is becoming more prevalent and will most likely be standard practice in the near future. Another innovation of Technology involving portable devices in the field of medicine is the product of research done at the NYU school of Medicine. The BrainScope, as it is called, is a handheld device capable of monitoring use in the brain. The implications of such a device in both Sports and warfare are quite amazing. When an Athlete or a Soldier is injured, such a device can be used to measure fluctuations in brain activity to indicate the severity of the damage.The brain activity is taken in only a few minutes, preventing costly and time eat trips to a hospital for an MRI. These features allow for faster diagnoses of trauma to the brain, and contribute to faster, die informed decisions following an injury. As stated in an article in ScienceDaily, adapted from materials provided by the New York University Medical Center, BrainScope consists of an adhesive strip, containing six electrodes, which are connected to a mini-computer that resembles an oversized iPod.After a suspected head injury, a first responder affixes the electrode strip to the patients forehead. The device mechanically collects a sample of the patients EEG and computes a oversized number of QEEG features, each of which are compared to a databank of normal scores. Within minutes, BrainScopes color display indicates whether any of the patients brain functions quit from normal. In conclusion, recent advancements in Technology have brought about vast changes in regards to the practice of Medicine.With the advent of such concepts as Computerized Clipboards, Bionic Replacement Limbs, Biochips, Robotic Surgery Systems, and the hand held BrainScope, the world of Medicine has certainly evolved to see to it the new century. Undoubtedly, as we have merely scratched the surface of Computerized Technology and the applications thereof, the probable for the future of Medicine is nothing short of amazing. Works Cited Barrett, Jennifer. Cutting Edge. Newsweek. com 19 Dec. 2005. 25 Feb. 2008 http//www. newsweek. com/id/51510. Bright, Paul. Worlds First Bionic Hand to Now procurable the Public. 18 Jul. 2007. 24 Feb. 20 08 http//www. associatedcontent. com/article/318351/worlds_first_bionic_hand_now_available. html. Clemson University. Implantable Biochip Could Relay Vital Health entropy If Soldier Is Wounded In Battle. Science Daily 1 dreadful 2007. 25 February 2008 . Kelly, Steve. Philips joins Intel to develop wireless, handheld Mobile Clinical Assistant. 27 Feb 2007. 24 Feb. 2008 . New York University Medical Center. Experimental Handheld Device cannister Detect Subtle Brain Injury Immediately After Concussion. Science Daily

Construction Case Study Essay

Resistance to schemeal deviate is a lifelike re proceeding to those who want to protect their self-interests in the musical arrangement. However, it is fire from the case report card that the employees of XYZ whirl showed little apology to the change implemented by the inbound managing director.The primary reason that change was welcomed was due to the excogitateer Managing conductors management air which was non widely accepted in the plaque. Employees tendinged him and it was not acceptable to announce openly and honestly. Employees were conscious(predicate) that this behaviour was often counterproductive, and created a negative impression with the former Managing film director. As the unsandedly ap arcdegreeed Managing manager had previously worked at the organisation, he was aw be of certain of the issues and concerns of the employees. The cognize gained from working at other companies, and the reputation he built from his c atomic number 18er prior to retur ning to XYZ Construction ensured that the employees had faith in his selectership ability.The new Managing directors first step in developing kinds with managers and employees was to incorporate observe employees into Senior caution Team activities. His actions make it clear that he was unforced to retain the current workforce and promote from within the organisation. This created a authoritative environment which encouraged employees to work harder and produce turn ups Employees and managers did not fear departure of employment with the new Managing Director, but rather felt included in the decision making process.The new Managing Directors attitude and actions were clear and concise which addressed the problems within the organisation. His actions were collectively moving in the aforementioned(prenominal) direction, to achieve a clear goal of improving internal and immaterial relations and improving the organisations performance. He correctly identified problem areas m uch(prenominal) as relationships, communication and the structure of the organisation. An incorrect diagnosis of the problems within an organisation may result in incorrect changes being implemented, which can lead the organisation into complete disarray.The new Managing Director identified deuce of the essence(p) activities to be performed in conjunction with each other to enable the teddy of the organisation. The two activities identified wereTo introduce new practices and techniques to improve service to clients and hence improve the organisations performance.To change the attitudes and behaviour of employeesBy identifying the two activities above, the new Managing Director identified crucial steps to improve its performance. alone through improving services to customers can the overall organisations performance improve. A satisfied customer is likely to return and pep up the organisation to others. This is directly linked to the growth of the organisation. The new Man aging Director is aware that to provide better service to customers, the employees will have to develop and lift up new practices and techniques to ensure superior service quality is provided to customers.The implementation of the help activity is critical to the success of the overall goal of improved customer relationships. The employees and managers attitudes and behaviours are to be transformed to ensure the best results are achieved. Employees and managers who were infelicitous under the former Managing Director are to a greater extent willing to lodge to the recommended changes. The willingness to adhere also stems from the onrushes presented being feasible and there is no fear for loss of employment. The changes bring new opportunities for employees and managers to develop in their current roles and perchance grow into new roles. The potential positive outcomes as a result of these changes are a contributing factor in the omit of fortress experienced by the Managing D irector.The personify effectiveness of the changes implemented also contributed to the lack of resistance from employees. The new Managing Director introduced asmall-scale Kaizen programme. The programme was introduced with the four-spot goals namely (Burnes, 2009, p. 162) Improvements could be achieved on a quick low cost/no cost basisPromote teamworkBuild managers confidence such that they can delegate workEmpower lagThe goals above are all positive resulting in the support of employees and minimises resistance to change.An additional contributing factor was the Managing Directors communication regarding his commitment to this green light. This eradicates any disarray regarding the implementation of this change, and strengthens the buy-in of employees and manager.3 Introducing a new management dashThis portion will discuss the following statement and to what extent I equal or disagree with the statement the new Managing Director has not changed the husbandry of XYZ Const ruction but has merely introduced a new management look.3.1 arrangingal CultureTo understand the statement clearly, the term organisational shade needs to be defined and understood. Organisational culture is defined as the collection of basic assumptions, values, norms and artefacts that are shared by and influence the behaviour of an organisations members (Burnes, 2009, p. 600). Organisation culture is also commonly defined as how organisations do things (Watkins, 2013). 3.2 Management StyleThe management elbow room of XYZ Construction changed from an compulsive management style to a participative style when the new Managing Director was appointed. The former Managing Director was feared by his colleagues, where open and honest relationships did not exist. Autocratic drawship is an extreme form of transactional leadership, characterised by a manager who makes decisions on his own without input from colleagues. This caseful of management style has the advantage that decis ions can be made readily and efficiently, however this approach is not suitable in all organisations and is contain in its application. The disadvantage of this approach is that it leads to high employee turnover, demotivated employees and poor performance (Unknown, 2013).The autocratic management style of the former Managing Director was not suitable for XYZ Construction and was identified by the parent company. The parent companys trance was that the company was underperforming due to the poor management and lack of cooperation within the organisation. one time the former Managing Director retired he was re driftd by a new Managing Director with the primary objective to improve the overall managerial competency and improve the performance of the organisation. The new Managing Director displayed a Participative management style, which was required for the inevitable operation, culture and structure changes in the organisation. A Participative management style is characterised by managers that use various decision procedures that allow other people almost influence over the leaders decision (Yukl, 2013, p. 115). This is clearly displayed in the New Managing Directors action of inclusion of pick up employees who were not directors to participate in Senior Management Team. This action has a profound impact on relationship building within the organisation and an impact on the structure. The organisation under former management was hierarchical conscious which hinders the development of relationship and the sharing of information and ideas. The new approach in management style results in a culture change in the organisation.3.3 DiscussionI agree with the statement, with the effect that a culture change has interpreted place in XYZ Construction under the new Managing Director, however this was achieved by the change in the managerial style rather by changing the culture.The new Managing Directors participative managing style, has allowed for a culture change. Employees and managers are able to speak openly and honestly changing the norms within the organisation. The transformation is a long-term change with endeavours rolled-out in intervals. This allows for employees and managers to acquire and develop the necessary skills and characteristics at each level before moving to the next step of the transformation. The new Managing Directors management style requires that the attitude and behaviours to be changed of both employees and managers to cope with the demands of the initiatives aimed at increasing the organisations performance. My agreement with the statement is not significant, as the new Managing Director has brought upon a new management style however the initiatives that he proposed require a change in culture. A culture change of the employees and managers supports that new Managing Directors management style.4 in the south African contextSouth Africa as a verdant has been transforming during the post-apartheid regi me. The most significant transformation that is presently taking place in organisations is the implementation of various BBBEE initiatives, one of which is to adjoin in females in the workplace. The BBBEE initiative focusses on reconciling indiscretions of the past and allowing for the workplace to be balanced found on race, gender and disabilities. There are many examples of organisations in South Africa where this transformation has taken place. An example of this transformation is in PPC Ltd. which appointed Ketso Gordhan as the new gaffer executive officer effective 1 January 2013 (Allix, 2012). Ketso Gordhans extensive experience in multiple industries such as his role as director-general in the Ministry of transport, serving in the Presidency and head of private equity in FirstRand makes him extremely capable and suitable for the position. His experience in the multiple he roles he has fulfilled has provided him with knowledge as to how to bring change to an organisat ion. The cementum industry had faced a major fall in gross revenue during the financial recession coupled with competitive forces. These factors had started to be addressed by the former CEO with the goal of growing the business and earning a significant portion of profits through operations in Africa (Allix, 2012).It was at this point that Ketso Gordhan was appointed with the crucial task of growing operations into Africa. The approach that was taken by Ketso Gordhan to achieve this goal is based on two key strategies of expanding business into Africa and to keep current operations in South Africa to decease efficiently (keep the home fires burning) (Allix, 2013). Ketso Gordhan made the goals and the direction taken very clear to ensure a collective drive from employees. His actions are the same actions taken by the newly appointed Managing Director of XYZ Construction.Ketso Gordhan made hes commitment to PPC Ltd. clear through his actions as rise up as through the acquisition of PPC Ltd. shares summing a total of R30 million (Shevel, 2014). This action indicated internally and remotely hes commitment and faith in the organisation to achieve a significant improvement in the organisations performance (Hasenfuss, 2013). Ketso Gordhans management style has brought a culture change in the organisation. The culture change has included a more hands-on approach from the CEO with constant interaction with employees and managers. This once once again reinforces his ideas and motivation in the workplace.Earlier in 2014, Ketso Gordhan reduced his wage by R1m in an effort to support the reduction of salary gap mingled with the highest and the worst paid employee in the organisation. He took grievances from the last-place paid employees and acted to recess the items. He approached the top 60 managers, asking whether they would volunteer their increases to be distributed to the concluding paid employees. This approach enabled the organisation to increase 1 200 of the lowest paid employees salary by R10 000 per year and an interest related increase later in the year (Shevel, 2014).This initiative received great repartee from employees, which was primarily attributed to the feeling that grievances were heard and action was taken. The initiative allowed the CEO salary to reduce from 120 clock the lowest paid employee to 48 times with the clear goal to secure 40 times in future. This was achieved through the decrease in the highest paid salary and the increase in the lowest paid salaries (Shevel, 2014). The initiative has an impact external to the organisation. In South Africa which currently is facing numerous problems, one clear problem in the rotund economic gaps that exists. The actions of Ketso Gordhan are an encouragement to fellow JSE-listed organisations CEO to follow suit and attempt to reduce the large salary gaps that exist in many organisations. Collective actions will enable the country to reach goals of social developme nt at a faster rate. Ketso Gordhan is a participative leader which is clear through his engagement with the organisations employees and through the initiative he has developed. He has initiated the I commission, PPC Cares programme coupled with the Kambuku philosophy in the organisation (PPC Ltd, 2014). This philosophy and initiative is aimed at addressing the following (PPC Ltd, 2014)Disparity amongst the cost of living and salaries of lower-level employeesSubstandard housing and access to housing for few employeesEffectiveness of first-line managers and team membersIndividual development plans and organisational climate initiativesImproving the information of employees in terms of job satisfactionThe philosophy is aimed at not only improving the internal environment but also the external environment of the organisation, such as the assistance in providing housing for employees. The approach is very fitting in the South African context.ReferencesAllix, M., 2012. Ketso Gordhan t o replace capital of Minnesota Stuiver at PPC. Online ready(prenominal) at http//www.bdlive.co.za/business/industrials/2012/10/11/ketso-gordhan-toreplace-paul-stuiver-at-ppc Accessed 3 whitethorn 2014.Allix, M., 2013. Safika deal to help PPC keep the home fires burning. Online Available at http//www.bdlive.co.za/business/industrials/2013/08/08/safika-deal-to-helpppc-keep-the-home-fires-burning Accessed 3 May 2014.Burnes, B., 2009. Managing Change. 5th ed. Essex Pearson teaching method Limited. Hasenfuss, M., 2013. PPC chief Ketso Gordhan splashes out on cement firms stock. Online Available at http//www.bdlive.co.za/business/industrials/2013/09/12/ppc-chief-ketsogordhan-splashes-out-on-cement-firms-stock Accessed 3 May 2014.Investopedia, 2014. Definition of Kaizen. OnlineAvailable at http//www.investopedia.com/terms/k/kaizen.asp Accessed 16 April 2014.PPC Ltd, 2014. Our People. OnlineAvailable at http//www.ppc.co.za/about-us/our-people.aspxAccessed 3 May 2013.Shevel, A., 2014. Kets o Gordhan Laying the foundations for a fairer workplace. Online Available at http//www.bdlive.co.za/business/management/2014/03/23/ketso-gordhanlaying-the-foundations-for-a-fairer-workplace Accessed 3 May 2013.Stroh, U., 2005. Chapter 3 Approaches to Change Management, Pretoria University of Pretoria etd.Unknown, 2013. lead Styles. OnlineAvailable at http//ofd.ncsu.edu/wp-content/uploads/2013/01/Leadership-Styles-1_11_13.pdf Accessed 30 April 2014.Watkins, M., 2013. What Is Organizational Culture? And Why Should We Care?. Online Available at http//blogs.hbr.org/2013/05/what-is-organizational-culture/ Accessed 30 April 2014.Yukl, G., 2013. Leadership on Organizations. 8th ed. Essex Pearson Education Limited.

Assessment of Financial Health

Reocities Home Neighborhoods Making Of Cases in Finance Final professionalject Report hospitable cards, Inc. (1988) Gary Cao Noah N Flom Robert Harris Srini Pidikiti whitethorn 1997 TABLE of CONTENTS 1 Assessment of fiscal health &038 Pro Forma fiscal Statements 1. 1 tummyvass of History and Statement of monetary Health 1. 1. 1 Industry 1. 1. 2 accessible Cards History 1. 1. 3 brotherly Financials 1. 2 Review and Evaluation of Pro Forma Statements 1. 3 Financial Policy / Covenants 2 Beaumonts Decisions 2. 1 gasbag Machine Proposal 2. 1. 1 Evaluation 2. 1. 2 Financial Effect of Investment 2. 1. Recommendation 2. 2 Evaluation of West microscope slide (new virtue offer) 2. 2. 1 Advantages 2. 2. 2 Disadvantages 2. 3 Valuation of originative Designs, Inc. 2. 3. 1 Capital bodily structure Argument 2. 3. 2 Weighted Average salute of Capital Assumptions (WACC) 2. 3. 3 funds F dispiriteds, termination judge, Equity nourish Valuations 2. 4 Pooling Implictions ( amicable + C D) 2. 5 informal Cards tenor Valuation 3 Over alone Assessment 4 Goals for the Financial Structure of couthie Cards, Inc. &8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212&8212- jump 1. Assessment of Financial Health &038 Pro Formas 1. Review of History and Statement of Financial Health Wendy Beaumont, president of sociable Cards, Inc. , has apace expanded her greeting eyeshade business through internal proceeds and learnednesss. Ms. Beaumont realizes that money is menstruationly tight, however, she is adamant about future developth and has desire our opinion as to determine her best course of action. In presenting a decision we will first conduct an analysis of the manufacturing, then spend a penny a short history of matey Cards, Inc. (Friendly), and then examine Friendlys financial statements to determine the financial health of the keep familiarity.Industry Information The greeting pea k constancy is dominated by triad monumental companies, (H alonemark, American Greetings, &038 Gibson), which ar referred to as The bear-sized Three. The Big Three dominate market place sh be, and the remaining competitors atomic number 18 predominantly small private and family owned firms. The greeting card intentness is characterized in high spirits heady addresss referable to large inventory costs, large investment costs in the establishment of efficient dispersion lines, and the lease for a exceedingly diversified production lines. Market leaders do it great economies of scale which tends to hinder new ntrants into the market. As a termination, the card industry is chief city intensive and in truth warring. The number of firms competing in the industry has change magnitude by an annualized stride of 15% all over the last three decades. Exiting firms were typically smaller in size, the legal age of which had slight than 50 employees. Additionally, the co mpetitive nature of the market results in a high degree of wrong sensitivity which culminates in smaller margins on gross revenue. Sales tend to be very seasonal in nature with peaks during major(ip) passs.There is classing toward a larger variety of card offerings ( change magnitude inventories), shorter carrying/selling periods, change magnitude diversification of product lines, and an increase in sales of everyday tease as comp ared to holiday tease. Friendly Cards, Inc. Beaumont Greeting Card Co. was entraped by Wendy Beaumont in 1978, in brand-new York City. She later on acquired Lithograph Publishing Co. and took these companies public a year later for $3 a dole out under the name Friendly Cards, Inc. Friendly has speedyly expanded by getting Glitter Greetings of Lansing, Michigan (for silver and beauteousness), whose primary market was selling cards to supermarkets.Soon on that pointafter, it acquired Edwards &038 Co. of Long Beach, sweet York (for cash), who se primary market was selling juvenile valentines through chain, drug, variety, and discount stores, as well as, to wholesalers and supermarkets. These acquisitions greatly enhanced Friendlys scattering line expanding it to a regional power. Later Friendly acquired a California firm (Friendly Artists) which extended the distri stillion line to a national basis. Friendly Artists primary market was packaged cards direct to the warehouse.Twenty-five percent of Friendlys sales are packaged boxes, which train a high margin than regular cards due to lower return place and lower handling costs. Currently, Friendly appears to be a niche player in the prepackaged box cards market and has avoided entry into the premium card market, frankincense, avoiding direct competition with the Big Three. Friendlys sales are much concent measured than the industry with the majority of sales exitring near Christmas at 30% (vs. Industry 32%), and Valentines Day at 25% (vs. Industry 7%). Thus, over 55% of sales occur within a 3 month period.Plants at Friendly are being apply at capacity thus, harvest-time would necessitate just admittances or acquiring contract services. Friendlys distribution line is effective for a smaller firm due to its structure. Of twenty salesmen, one-third work on commission thus lowering Friendlys costs. However, one problem with victimization salesmen on commission and having such a small sales force is the propensity to sell to rack jobbers and wholesale distributors. This decreases the potential margin on cards by twain-thirds. Friendlys Financials Sales keep change magnitude by over 50% between 1985 to 1987. represent of goods sold has diminish as a dowery of sales in each of those years thus, producing an increasing margin ( 29. 36% in 1985 to 35. 15% in 1987). The rapid harvest-festival by acquisition and the national distribution channels that were accomplished by it, have affect the number slightly. In 1986 selling and delivery exp enses increased by 1. 45% and this directed out in 1987. G&038A expenses also spiked in 86, reflecting the recent buy of a nonher company, and then executetled back in 1987. However, mend sales whitethorn have grown rapidly they have not matched the increase in asset emergence, which nearly doubled in 1986.Growth in this company is being lineageed by improving margins and by increasing leverage, as indicated by the Dupont Data. Although the acquisitions were acquired by two cash and equity, the majority were debt financed, which explains why the ROE figures have increased so dramatically (almost 16%) in the last three years. The activity dimensions indicate that the receivable to payable were in arrears by 36 days in 1985 increasing to 52 days in 1987. This is probably a result of increased sales to less creditworthy individuals or inattention to collections. Inventory turnover umbers are shrinking due to the continually larger inventories being carried. sort out fixed ass et turnover has decreased by 2. 3% between 1985 and 1987. This can be explained by higher(prenominal) return in assets than in sales. The liquidness proportions indicate that the asset to li baron proportionality for this company is trending down. The current balance indicates that the company is becoming slightly more insolvent with a current proportion of 1. 18 during 87. However, by looking at the Quick ratio and discounting for the affect of inventory in the asset number, the company is dramatically less liquid at 0. 67 in 1987.This indicates that the company is very passing leveraged and is using its large inventory levels in order to support its unanimous borrowing deficiencys. Friendlys actual growth tramp exceeded the sustainable growth footstep in 1986 and was equivalent in 1987. This difference in 1986 produced a submit for added debt to finance growth. However excess funds were not requisite to fund additional growth in 1987 since the actual regulate of gro wth did not exceed the sustainable rate of growth. This can also be seen in the native debt to equity ratio which increased from 3 in 1985 to 5. 21 in 1986 and cut down to 4. 1 in 1987. The leverage ratios indicate that the buzzword loans to debt are fairly well matched, with loans being less than receivables, however, increasing in percentage. Interest bearing debt jumped dramatically in 1986 as a result of debt funded acquisitions but continues to level off along with total debt to equity figures in 1987. Finally, debt to assets has increased dramatically in the last three years, increasing by 7. 5% to 82. 5% in 1987. Thus Friendly Cards seems to be very highly leveraged, even more so than other firms in the industry although the trend is to increase debt.This highly leveraged position coupled with the high fixed costs and low margins characteristic of the industry, exposes Friendly as exceedingly susceptible to fluctuations in the market. Therefore, further debt growth whitet horn not be advisableespecially since it is currently violating its existing debt covenants. However, Continued growth, however, is motivationed as to allow the company to further take advantage of its existing distribution lines and realize further economies of scale. 1. 2 Review and Evaluation of Pro Forma Statements The parameters that Ms.Beaumont has set for the pro formas seem reasonalbe for the most part. There are, however, some questionable numbers. For instance, all the forecasts are establish on continued sales growth at 20% per year. When compared to astronomical growth range of 58% in 1986 and 27% in 1987, these rates appear almost conservative. The majority of the growth in the past, however, were associated with major acquisitions which served to in two-dimensionale the sales numbers. The historical reluctance to use equity to grow would serve to limit growth if continued into the future.Furthermore, it may be awkward to continue to grow at such a high rates in an increasingly competitive market. Holding costs of goods guide ons at 65% of sales and may also present a problem depending on whether the company can continue to manage its costs as it continues to grow. It could be argued that the reason CGS has dropped recently is due to the acquisition of Friendly Artists and the increasing reliance on a sales mixed bag do up of low cost prepackaged boxes of cards. A shift in the mix away from these items could increase costs. Also, further acquisitions will serve to push up delivery and selling costs.For our purposes, however, holding them flat seems reasonable. The tax revenue rate seems low at 38% but, depending on the new volume of sales and the uttermost tax rate for a corporation, this rate could be even higher. And while the rest of the numbers seem to follow their previous assumptions, the inventory turnover, debt to asset, and cheer rate assumptions could be assumed differently. As a result of increased competition in the industry, increasing variations of cards as well as shorter holding duration, it is very unlikely that inventory turnover would improve to 1. 1, and it may very well drop well below this number, possibly to 1. 75. Since growth is likely to continue into the future, an increased meat of inventory will be needed for new market areas. Debt to assets needs to decrease, but this will be difficult to do without funding growth by equity quite than debt. The large sales growth assumptions are directly related to acquisitions, thus increasing assets. If this is done through equity, this number is very realistic. Finally, there may be a problem with the assumption that spare-time activity rates on LTD will be 11%.The Monetary Policy Report to relation back indicates that rates should tend to decrease in the future so this rate may be attainable even to such a highly leveraged firm as Friendly. Without more information this estimate seems fine. 1. 3 Financial Policy / Covenants Friendlys apparent f inancial policy is rapid growth by debt. This debt-financed growth may be due to a ownership issues that could affects Ms. Beaumonts find over her company. The financials indicate that growth is also taking place at the expense of margins, as indicated by the Dupont data.The company believes in the economies of scale of the industry and appears to be establishing a national distribution network. While costly in the short run, this strategy may enable a viable and gainful position in the industry. The elements of Friendlys financial policy appear to be the chase. Friendlys jacket structure mix is governed by a debt orientation. Its debt/assets ratio is currently at 82. 5% which places is significantly below the AAA rate. AAA bonds are listed at 9. 7% while Friendly can only borrow at 11. 5%.While equity has been used in recent acquisitions there is a strong preference by management to use debt funding. Without question, Friendly is at an integral juncture. Existing lines of credi t are maxed out and the depository financial institution is imposing new covenants on future loans bank loans 85% of AR and liabilities not to exceed three times the BV of the company. Friendly currently has a $6. 25 one thousand thousand line of credit. Under the current structure Friendly will be in violation in 1987 with bank loans at 87% of AR and debt to equity is at 3. 13 times.Significantly, bank and swop credit for Friendly is expected to reach over $9 million in Dec. 87. Long term and short term debt are both fueling growth. The basis is assumed to be the prime rate (which is 8. 5%) plus 2. 5% points. This is assumed to be a fixed rate established at the time of borrowing. The companys currency is the U. S. dollar and the company does not have any exotica policy to mention. Control of the company rests solely with Ms. Beaumont as she is both the president and the leading mete outholder, possessing 55% of the bank line. An additional 20% of the pipeline is owned by emp loyees and officers of the company.Finally, meshing are retained for future growth and resonateing current obligations. There are no dividend payments and the stock has depreciated in value from a high of $15 a share. PART 2. Decisions set about by Ms. Beaumont 2. 1 Envelope Machine Investment Evaluation of the Envelope Machine We do not agree that the investment in the windbag weapon will result in a return of 31%. The reason for this is that the working capital needed to fund the motorcar would be funded by additional debt by the company. The affaire on the debt needs to be considered before evaluating the total return on the investment.Under this scenario, and considering that Friendly Cards interest on debt is 11% the interest expense is $22,000 per year before taxes. Our Estimated one-year savings from Operation of Envelope Machine, Years 1 through 8 ( Dollar figures in thousands) is as follows Savings Outlays for envelopes purchased in 1987 $1,500 Incremental expenses from manufacturing envelopes Materials$ 902 store 94 Labor 91 Depreciation 62 Total Expenses $1,149 profit in lucre before Taxes (decrease in COGS) 351 Interest Expense on Working Capital 22Actual Increase in Profit before Taxes 339 Increase in Income Taxes . 38 125 Increase in profit after taxes $ 204 The projected Cash flows for the investment in the machine are (attachments). establish upon the cash flows projected in the above dishearten the internal assess of Return on the investment is 26%. found upon Friendly Cards Cost of Equity which is 20% (Appendix WACC) buying the machine with all equity at 20% or debt at 11% is recommended Financial Effects of Investment The Financial effects of buying the envelope machine are can be examined in detail in Appendix Machine.The activity ratios for Friendly if the investment in the machine is do are (attachments). The investment in the machine has the following effects * Decreases Cost of Goods Sold by about 1. 5 % which in turn in creases the coarse Margins * Decreases Inventory Turnover from 1. 91 to 1. 86 * Increases Funds needed in 1988 by $418,000, in 1989 by $323,000 and in 1990 by $112,000. * wampum per share increase to $2. 89 in 1990 from $2. 53 in 1990 without investment * By reservation the investment in the machine Friendly would not be able to act as both of the covenants required by the bank The ratio of the bank loans to receivables exceeds . 85 in all three periods. * Ratio of Friendlys total liabilities to the book value of the companys net worth exceed 3 in 1988 and 1989 which do not view the covenant but in 1990 the ratio drops down to 2. 94 where it meets the covenants. 2. 2 Evaluation of West sea-coast tin (New Equity) We agree with Ms. McConvilles conclusion that Friendly should accept the offer from the West Coast Group at the terms stated if that was the only option getable to Friendly Cards. The advantages of this purpose would be Agency costs will be only 5% compared to the a ctual costs if an investment bank was used to sell securities of the company in a public offering. * The infusion of equity would enable Friendly to meet all the covenants required by the banks (Appendix WC) enabling Friendly to continue its rapid growth without any financial restrictions from the bank. * The equity infusion would enable Friendly to invest in the envelope making machine and reduce its cost structure and still meet all covenants required by the bank. * The uncertainty about how many securities will be sold if a public stock offering is held is eliminated. Continuing rapid growth would enable Friendly to retain most of the sales representatives who aptitude shift to a competing firm if growth is slowed to enable Friendly to meet its financial covenants * The price that Friendly is getting is more than reasonable based upon the present value of the discounted cash flows as shown in (Appendix Valuation) Disadvantages of accepting the proposal would be * Loss of contro l. Ms. Beaumonts who presently owns 55% of the outstanding shares would own 40. 37% of the company after the equity infusion.Even though along with the employees of the company she would own 60% of the company she would not be able to lease unilateral decisions. * The West Coast Investors who would own 26% of the company would have a significant say in how the company should be run which may affect the current management structure and aversely effect their ability to mange the company as they wish. * Reduction of EPS. Earnings per share would be reduced to $2. 29 per share from the projected $2. 89 per share in 1990 with the purchase of the machine and without equity infusion due to the dilution effect of the new shares.This earnings dilution would probably result in a lower share price. (Approximately $18. 32 instead of $23. 12 considering a price multiple of 8). 2. 3. Valuation of inventive Designs, Inc. Capital Structure Argument Ms. Beaumont had been considering a possible acq uisition of Creative Designs, Inc. (CD), a small mid-western manufacturer of studio cards. She had examined the details of CDs operations for four-spot months, and believed that under her management, CD could immediately reduce cost of goods sold by 5%, and reduce other expenses by 10%.If Friendly acquires CD in early 1988, assumptions are made that CDs sales would stay flat during 1988 but would grow at 6% per year thereafter. establish on the following table from effort facts, there is a wide melt down of Debt-to-Equity Ratios for the four companies within the same industry. American Greetings(AG) D/E ratio increased from 0. 35 in 1985 to 0. 63 in 1987. The reason for this upward trend was that American Greetings had diversified its business segments from solely relying on greeting card sales AG expanded into gift wrap and stationary goods, such as playing cards, gift-books, and college study guides.Such diversification efforts demanded higher debt levels. In addition, AG was a large company with annual sales of $1,174 million in 1987, up 16% from 1985. Gibson Greetings (GG)D/E ratio decreased from 0. 71 in 1985 to 0. 49 in 1987. The reason for this downward trend was that Gibson was a relatively small company, with annual sales of $359 million in 1987, an 8. 8% increase from 1985. GGs growth rate was significantly lower than American Greetings. The total debt-to-equity ratio of Creative Designs would decrease over the side by side(p) some(prenominal) years.Since CDs sales in 1987 was $5 million, it was much smaller than the above two companies. Based on the pro forma financial statements for the period of 1988 to 1990, we see maturement sales and EBIT. As a small-size manufacturer, the best capital structure would be financing its operations mainly by internal growth and a significant reduction in the companys debt levels. Ms. Beaumont wanted to acquire CD for the following reasons * In the highly competitive market with high cost in distribution and low margin, Friendly had to grow in order to survive, and CD was a good target Since CDs shareholders agreed to the acquisition by stock-exchange, pooling of interests explanation method would be used, and the consolidated financial statements more attractive than without CD, and Friendly need not record free grace (if any) and avoid amortization of goodwill * Since CD had a relatively low debt level and a very low bank loan to receivable ratio, while Friendly had difficulty meeting its bank borrowing restrictions, acquiring CD would delineate possible for Friendly to meet the covenants Friendly can easily desegregate CD to its high growth strategy, and expand Friendlys market presence in the mid-western region. Weighted Average Cost of Capital Assumptions (WACC) Based on the case facts that the premium for equity risk was 6% on semipermanent governmental bond rate of 8. 37%, we may calculate the unleveraged beta for American Greetings and Gibson Greeting, and use a derived esti mate as a proxy for CDs unleveraged beta. 1987 Financial Data for Two Large Publicly Traded Companies To be conservative, we assume the unleveraged beta for CD is 0. 77.Since the cost of debt was 11% and the tax rate was 38%, we deliberate CDs cost of equity is 13. 97% in 1988, and the weighted average cost of capital (WACC) is 11. 07%. Over the next five years, CDs WACC would increase to 11. 92% in 1992 due to the decreasing D/E ratio and therefore the tax shield effect. Cash Flows, Terminal Value, Equity Value Valuations In addition to the above information on WACC and sales growth rate, we have made the following assumptions * Sales will stay flat in 1988, but will grow at 6% per year after 1989. * Cost of goods sold will stay at 55. 2% of sales level. * Depreciation, Selling, delivery, and depot expenses, and general and administrative expenses will grow proportionately to sales growth. * increase Retained Earnings will be used to reduce long-term debt. * Prepaid expenses will increase by a small amount each year. * Interest expenses will decrease over the period since the debt level will decrease. * No dividend will be paid after 1988. Based on the above assumptions, we found that the total present value for CD was $4. 349 million. Adjusting for the interest-bearing loans totaling $1. million, the net worth of CD would be $3. 049 million, $1. 168 million higher than the calculated value of the stock exchange ($1. 881 million). This indicates that acquiring CD is a good transaction for Friendly. 2. 4 Pooling Implications (Friendly + CD) By using the pooling of interests accounting method, we constructed the Friendly and CD consolidated financial statements. (see Appendix Valuation Friendly + CD) The advert on 1988 pro forma financial statements is as follows * New bank loans needed decreased from $1. 585 million to $1. 357 million * EPS increased from $1. 7 to $1. 73 * Net profit margin increased from 4. 96% to 5. 49% * Assets turnover increased from 1 . 01 to 1. 03 * ROA increased from 5. 01% to 5. 49% * ROE decreased from 25. 23% to 20. 5% * geezerhood in Receivable reduced from 157 to 149 * Bank loan to receivable ratio decreased from 0. 9 to 0. 74 * Interest bearing debt to equity ratio decreased from 2. 62 to 1. 92 * Total debt to equity ratio decreased from 4. 04 to 2. 62. The overall impact of acquiring CD to CF is positive. The result of pooling is in line with Friendly Cards financial strategy.In the long run, acquisition of CD would become an integral part of Friendly Cards strategic plan for the next few years to achieve a higher growth rate and increased market share. In the short run, acquisition of CD would meet Friendly Cards immediate financial needs enabling the company to meet the banks covenants, specifically, to reduce the bank loan to receivable ratio to an estimated 0. 9 in 1988 to 0. 85 or lower, and to decrease total liabilities to equity ratio from an estimate 4. 04 in 1988 to 3 or lower. The result of po oling shows that these two indispensabilitys are met. 2. 5 Friendly Cards Stock ValuationAssumptions Capital structure Based upon the pro forma financial statements and the bank covenants requirements, we assume the capital structure to be 75% debt and 25% equity. Any other capital structures with the reduction of debt would adopt it more difficult to get additional capital through equity. We need the debt financing to be able to meet Ms. Beaumonts growth requirment. Discount rates We assume the cost of debt to be 11%. This is based upon the following facts In early 1988, interest rates were declining, the 10-year Treasury Notes rate declined from 9. 52% in October 1987 to 8. 9% in January 1988 even though the short-term Prime Rate increased to 9. 07% by October 1987, it had decreased to 8. 5% by January 1988 furthermore, the Federal militia Monetary Policy Report(Jan. 1988) stated that high rates of capacity workout and low unemployment suggest the needs in maintaining progress toward price stability, indicating that interest rates would stabilize at the present level. Also the need to reduce the trade deficit, business and labor would continue to exercise simmpleness in price and wage behavior, indicating the Fed would hold interest rate at the present level, or even reduce them.We assume the interest rates would hold stable at the present level of 8. 5% and that the lending institution will continue its premium of 2. 5% over prime. We assume all the funding for the debt to be short term as most of the debt would be used to fund the current assets (receivable and inventories). This would be a proper matching of funds. Based on the valuation of Friendly Cards, we found that * FCFE Method (Free Cash Flows for Equity) the valuation was -$ . 95 per share * Free Cash Flow for Capital the valuation was -$5. 5 per share * Book Value Method using 11/2 times Book Value the valuation was $7. 40 * P/E ratio (multiple) method using the industry average P/E rati o of 7, the valuation was $9. 50 per share. (Please refer to appendix Valuation Friendly Cards, Inc. ) The only way the companys stock price was worth $8 to $9. 50 per share was that West Coast Investors and Creative Designs valued the company using a Price to Earnings multiple method. **Note** We attempted to back out a discounted cash flow model that would justify an $8 or $9. 50 share price.By altering certain assumptions, most specifically the sales growth rate we can achieve positive valuations of the stock price. Slower growth in sales PART 3 Overall Assessment Our tribute to Ms. Beaumont is to (1) First, acquire CD with a stock exchange of 198,000 shares at $9. 5/share, (2) With the additional leverage obtained by the CD acquisition, purchase the envelope machine. As evidenced by the above matrix and graphs, even though Friendly Cards would achieve a higher EPS by not acquiring CD but buying the machine, it would not meet the bank covenants.Advantages of our tribute * Meet all of the banks covenants * Meet Ms. Beaumonts growth needs * Meet Ms. Beaumonts requirement on D/E ratio of 2 by 1990 * husband a relatively high level of control for Ms. Beaumont over the company * Position the company for future growth by providing a more favorable D/E ratio. Disadvantages of our recommendation * EPS dilution by acquiring CD from $4. 64 per share in 1992 as compared to $4. 15 with the CD acquisition * Reduce Ms. Beaumonts control from currently 55% to 41. 5% with CD acquisition.PART 4 Goals for the Financial Structure of Friendly Cards, Inc. 4. 1 Friendly Cards capital structure consideration Our recommendation is that Ms. Beaumont to move Friendly Cards capital structure closer to 60% debt and 40% equity (a D/E ratio of 1. 5). Our reasoning for such a recommendation is as follows tractableness For future growth and possible acquisitions, Funds for acquiring more assets (another envelope machine ) to reduce costs. Risk Ability to deal with possible chastenin g into the future (i. e. , low sales) Lower risk level than current D/E ratio IncomeFuture growth in earnings due to ability to acquire market share through acquisitions. Further beg the economies of scale to reduce CGS, Handling and Distribution Costs Control support controlling interests in the company Timing Having a higher D/E Friendly can issue equity at more favorable terms at a later date when EPS is higher, the market environment is friendlier, and the company will be in a split financial position. Our recommended target capital structure for Friendly Cards, Inc. of 60/40 D/E is realistically attainable within 3-4 years (mid 1991). Friendly Cards Case Attachments

The Underwriting Challenges Facing P.S.V. Insurers in Kenya

judicious election speculation An Over gull by Steven L. commonalty Professor of Economics and Statistics Chair, De interruptment of Economics Baylor University Prep argond for the Baylor University Faculty evolution Seminar on rea boying(prenominal) Choice Theory May 2002 2002, Steven L. Green It has been utter that democracy is the worst form of g eachplacenment except plainly the almostwhat(prenominal) oppositewises that shed been tried. -Winston ChurchillIt bring downms easy to accept that lucidity guides m either features that sack up non be summarized in cost of rough straightforward formula, such as binary consistency. But this intelligence does non immediately lead to alternate characterizations that baron be regarded as satis concomitantory, even though the inadequacies of the customal givens of keen-sighted deportment bannerly used in sparing scheme shake off catch hard to deny. It all t doddering toldow non be an easy t study to fa ll out replacements for the standard boldnesss of co here(predicate)(predicate)nt behaviour hat base be found in the traditional economical literature, some(prenominal) because the identified deficiencies affirm been seen as calling for preferably diverging remedies, and likewise because t evidence is little hope of finding an alternative assumption structure that go step to the fore be as simple and usable as the traditional assumptions of egoism maximization, or of consistency of select. Amartya Sen (1990, p. 206) 1. Introduction Rational Choice Theory is an under get by used by social scientists to understand charitable way.The fire has long been the dominant paradigm in economics, notwithstanding in recent decades it has become to a greater extent widely used in other disciplines such as Sociology, Political Science, and Anthropology. This allot of the noetic excerption court beyond conventional economic issues is discussed by Becker (1976), Radnitzky an d Bernholz (1987), Hogarth and Reder (1987), Swedberg (1990), and Green and Shapiro (1996). The principal(prenominal) conclude of this constitution is to provide an overview of sharp prime(a) scheme for the non-specialist.I counterbalance enlist the prefatorial assumptions of the coherent selection approach, indeed I provide several(prenominal) exemplifications of its use. I abide chosen my utilizations to illust site how widely the coherent pickax method has been applied. In the paper I also discuss some im geezerhoods as to why the intelligent survival of the fit quiz approach has become much(prenominal)(prenominal) prevalent in legion(predicate) disciplines in recent stratums. virtuoso idea is that the keen-sighted cream approach gos to provide opportunities for the novel chit of theories. I argue that these opportunities ar the result primarily of the numeric nature of the approach.I aside gestate several issues raised by reasoning(prenominal) picking come-at-ableness. First, I compargon the limited meaning of tenableness in intellectual predilection conjecture with the to a greater extent general definitions of the shape use by philosophers. Second, I describe some of the main criticisms that shoot been levied a securest the keen-witted prime(prenominal) approach. Third, I consider the limitations of rational filling exercises as guides to public policy. Fourth, I critique some Christian perspectives on the rational excerpt appraoch.I displace the paper by out liner three bounds of perplexitys I would like us to discuss in the faculty development seminar. Before I proceed, an apology and a c atomic spell 18 be in order. I apologize for the length of this paper. The British publishing house Lord Beaverbrook once apologized to a friend for sending a five- varlet letter, opineing he did not have term to write a one-page letter. I have the same sen seasonnt here. The caveat is that my discussion of the rational election speculation in this paper is necessarily simplistic, so the subscriber should not take it as definitive.If some broker of the opening seems risible in some way, thither allow for roughly ever so be an advanced version of the system published somewhere that is to a greater extent sagacious and nuanced. Most statements in this paper argon subject to qualification along m whatsoever lines, so the endorser should view what I present here keeping in head teacher the goal of the paper, which is exclusively to give the reader some sense experience of the overall flavor of the rational survival approach. 2. staple fibre Assumptions close to(predicate) Choice DeterminationRational Choice Theory principally begins with consideration of the cream bearing of one or much individual stopping point- reservation units which in staple fiber economics atomic crook 18 most(prenominal) practically conveyrs and/or firms. The rational plectron theor ist lots presumes that the individual decision- render unit in question is normal or representative of some humongousr crowding such as buyers or give awayers in a government agencyicular food market. at one eon individual mien is established, the abbreviation in general moves on to examine how individual choices interact to lease imports.A rational choice psycho psychoanalysis of the market for fresh love applees, for example, would generally involve a description of (i) the desired purchases of tomatoes by buyers, (ii) the desired production and gross revenue of tomatoes by sellers, and (iii) how these desired purchases and desired sales interact to determine the bell and quantity sold of tomatoes in the market. The typical tomato buyer is approach with the line of work of how over a great deal of his income (or to a greater extent(prenominal) narrowly, his food budget) to fall on tomatoes as opposed to some other trusty or service.The typical tomato sell er is faced with the problem of how mevery tomatoes to arrive and what monetary value to lade for them. precisely how does the buyer choose how much of his income to spend on tomatoes? Exactly how does the seller choose how mevery tomatoes to produce and what harm to charge? One could imagine a add of answers to these questions. They might choose based on custom or habit, with current decisions just a continuation of what has been go for (for whatever reason) in the past. The decisions might be wreak randomly.In contrast, the rational choice approach to this problem is based on the fundamental premise that the choices made by buyers and sellers be the choices that best help them achieve their objectives, given all germane(predicate) featureors that atomic government issue 18 beyond their control. The basic idea behind rational choice system is that people do their best under familiar circumstances. What is meant, exactly, by best achieve their objectives and do thei r best? The discussion in this section impart emphasize the choices of consumers. 1 The rational choice hypothesis of consumer behavior is based on the following(a) axioms regarding consumer takeences2 1) The consumer faces a liven set of alternative choices. 2) For any pair of alternatives (A and B, say), the consumer either prefers A to B, prefers B to A, or is theme little mingled with A and B. This is the axiom of completeness. 3) These penchants be transitive. That is, if a consumer prefers A to B and B to C, so she necessarily prefers A to C. If she is indifferent amidst A and B, and indifferent between B and C, then(prenominal) she is necessarily indifferent between A and C. ) The consumer go away choose the most preferable alternative. 3 If the consumer is indifferent between devil or more alternatives that atomic bod 18 preferred to all others, he or she allow for choose one of those alternatives &8212 with the specific choice from among them remain in determinate. When economists speak of rational behavior, they usually mean bonnie behavior that is in accord with the above axioms. I consider the definition of rationality in more detail near the end of the paper at a lower place. Rational choice theories usually represent options with a expediency form.This is a mathematical officiate that assigns a numerical value to for for individually one one workable alternative liner the decision maker. As a simple example, suppose a consumer purchases two nears. Let x foretell the name of units of good 1 consumed and y denote the number of units of good 2 consumed. The consumers proceeds function is given by U = U(x,y), where the function U(,) assigns a number ( value) to any given set of values for x and y. 4 The properties of a large number of specific function forms for U(,) have been considered. 5 The analysis is by no instrument easericted to two goods, though in many an(prenominal) outcomes the analyst finds it convenient to assume that x is the good of interest is and y is a composite good representing aspiration of everything and good x. The function U(,) is normally fictitious to have veritable properties. First, it is generally take for granted that more is preferred to less so that U deepens with amplifications in x and with increases in y. other way of saying this is to say that marginal emolument is positive where the term marginal utility is the change over in utility associated with a gloomy increase in the quantity of a good consumed.The blink of an eye spot of U(,) is that of diminishing marginal utility, which meat that the (positive) marginal utility of separately good gets smaller and smaller the more of the good that is being consumed in the set-back place. Ones first Dr. Pepper after a workout yields quite a lot of satisfaction. By the fifth or sixth, the redundant satisfaction, while still positive, is much smaller. An important result in consumer theor y is that a preference relationship apprize be represented by a utility function completely if the relationship satisfies completeness and transitivity.The converse (that any complete and transitive preference relation whitethorn be represented by a utility function) is also true provided that the number of alternative choices is finite. Mas-Collel, Whinston, and Green (1995, p. 9) If the number of possible alternative choices is infinite, it may not be possible to represent the preference relation with a utility function. Rational choice analysis generally begins with the premise that some divisor, or group of agents, is argon maximizing utility that is, choosing the preferred alternative. This is just part of the story, however.Another important ingredient of the choice process is the presence of constraints. The presence of constraints makes choice necessary, and one law of rational choice theory is that it makes the trade-offs between alternative choices very declared . A typical constraint in a simple one- plosive consumer choice problem is the budget constraint, which says that the consumer sternnot spend more than her income. Multi- design beats allow for borrowing, but in that depicted object the constraint is that the consumer must be able to repay the loan in the future.The use of utility functions doer the idea of agents making the preferred choices from among gettable alternatives is translated into a mathematical exercise in constrained optimization. That is, an agent is off-key to make the feasible choice (feasible in a sense that it is not prohibited by constraints) that results in the highest possible value of his or her utility function. Constrained optimization methods (based on either calculus or set theory) are wellspring highly-developed in mathematics. The solution to the constrained optimization problem generally leads to a decision rule.The decision rule shows how utility-maximizing choices substitute with changes in circumstances such as changes in income or in the damages of goods. A third element of rational choice analysis involves assumptions to the highest degree the environment in which choices are made. Simple economic perplexs are often restricted to choices made in markets, with emphasis on how much of each good or service consumers indispensableness to purchase (or firms want to produce and sell) under any given set of circumstances. A fourth element of rational choice analysis is a discussion of how the choices of different agents are made accordant with one another.A situation with coherent choices in which each agent is optimizing subject to constraints is called rest. In the fresh tomato market, for example, the choices of buyers and sellers are tenacious if the quantity of tomatoes consumers want to purchase at the prevailing value is relate to the quantity that firms want to produce and sell at that price. In this as in other simple market nonpluss, price plays a li ght upon single-valued function in the establishment of sense of balance. If consumers want to purchase more than firms are producing, the price entrust be bid upward, which leave behind induce more production by firms and adulterate desired purchases by consumers.If consumers want to purchase less than firms are producing, the resulting glut will force prices down, which will reduce production by firms and increase purchases by consumers. Fifth and last, in the absence seizure of fond reasons to do otherwise such as the imposition of price controls by the government, the analyst employing rational choice theory will generally assume that equilibrium outcomes in the im soulateing are adequate representations of what really happens in the real world.This promoter, in the above example, that a rational choice theorist would formulate changes in the actual price of tomatoes observed in the real world by looking for possible causes of changes in the equilibrium price of toma toes in her sample. Extensions The basic rational choice theory depict above has been ex tiped in a number of ways. I will consider four important ones in this section, though there are of course many others. First, the basic theory accounts plainly for choice at a given time that is, the model is static.In contrast, a high-octane (or intertemporal) model allows the agent to protrude for the future as well as make choices in the present. In a dynamic model, the agent is still assumed to increase utility, but the concept of utility is generalized to include not besides present satisfaction but also future satisfaction. The agent does not just make choices today he makes a plan for current and future choices. In this typesetters case, it may well be rational to sacrifice (e. g. , consume less or work more) today in order to obtain some better outcome tomorrow. The dynamic conceptualisation is an essential element of theories of saving and placement.One issue that arises in dynamic models is that of discounting. In most dynamic models, the agents under consideration are assumed to prefer (other things equal) a given level of utilization in the present to a given level of amusement in the future. Consider a model with two plosives, 1 and 2. Let U1 denote the agents utility in period 1 and U2 denote utility in period 2. (U1 and U2 open fire depend on a number of factors, some of which can be controlled by the agent. ) The agent would then be assumed to throw a plan for periods 1 and 2 to maximize the sum V = U1 + ? U2, where 0 < ? < 1 is the discount factor. 6 A specification of ? < 1 operator that a given utility is worth less to the agent in the future than in the present, and is denoted a positive rate of time preference or simply time preference. A justification for time preference is given by Olson and Bailey (1981). Elster (1984, pp. 66ff) summarizes the opposing view that for an individual the very fact of having time preferences, over and above what is justified by the fact that we are mortal, is irrational and perhaps immoral as well. In any case, dynamic models with positive time preference are pervasive in the rational choice literature.The basic rational choice model assumes all outcomes are known with certainty. A second appendix of the basic model involves explicit treatment of diffidentty. This is important in rational choice models of crime, for example, where a rational agent is assumed to consider the chance he or she will be apprehended while committing a crook act. The rational choice model is extended to allow for uncertainty by assuming the agent maximizes expect utility. Uncertainty is characterized by a probability distribution that assigns a likelihood (probability) to each possible outcome. approximate there are two possible outcomes (for example, the prospective criminal is apprehended while committing a crime, or not apprehended while committing the crime), which we can denote outcome A and outcome B. Let pA denote the probability that outcome A will transcend pB denote the probability of outcome B. With these as the only possible outcomes, it is clear that pA + pB = 1 &8212 that is, there is a 100% chance that either A or B will occur. Let U(A) be the agents utility with outcome A and U(B) be the agents utility with outcome B.The agent is then assumed to maximize expected utility, which is the sum of utility in each outcome weighted by the probability that outcome will occur V = pAU(A) + pBU(B). In general, the choices of the agent can preserve pA and pB as well as U(A) and U(B). A associate (and third) orbital cavity in which the rational choice model is extended involves partial cultivation. In the basic model described above, the agent knows perfectly all the qualities of the goods under her consideration. More generally, an agent may have to make choices when she does not have full in arrangement.A university generally does not have full information a bout the future research productivity of a new participator professor, for example, and a used car buyer cannot be certain that he is not tearaway(a) a lemon off the lot. The fourth area in which the basic rational choice model is extended involves strategic behavior. This generally occurs in situations in which there are only a few agents. The key issue is that each agent must take into account the belike frame of his actions on the decisions of other agents, all of whom are looking at the situation the same way.A classic ongoing example of this class of interaction involves the crude-oil production decisions of the Organization of Petroleum Exporting Countries (OPEC). performing collectively, OPEC members have an incentive to restrict production to keep the world price of crude-oil high. so each OPEC ground is given a production quota a limit on the amount it can produce. Each country playing individually, however, has an incentive to cheat on its quota and thereby be abl e to sell more crude-oil at the high price. This will only be boffo if the other countries state their quotas, however, thereby keeping the price high.Thus when a country is contemplating the breach of a quota, it must consider how other member countries may react. The branch of economics that deals with strategic interactions is called game theory. 7 3. A Brief exposition of the Rational Choice Method Like most scholarship, rational choice analysis usually begins with a question. What determines perform building attendance? Are suicide rate affected by the state of the economy? Do back tooth belt laws make highways safer? Under what circumstances are cold bomb calorimeter methods necessary to end addictions?Why are drivers of certain minority groups more likely to be pulled over by jurisprudence? Which soldiers are most likely to suffer casualties in a war? Why cant Yasser Arafat and Ariel Sharon just get along? Why did large mammals become extinct in the Pelistocene era? When are workers most likely to shrink from their job responsibilities? Does a report decline in consumer confidence presage a slowdown in the economy? Varian (1997, p. 4) describes the model-building process as follows all economic models are pretty much the same. in that location are some economic agents. They make choices in order to advance their objectives.The choices have to quit various constraints so theres something that adjusts to make all these choices consistent. This basic structure suggests a plan of attack Who are the people making choices? What are the constraints they face? How do they interact? What adjusts if the choices arent mutually consistent? I will provide a slightly more slender description here. Rational choice analysis may be characterized as working through the following ill-uses 1) Identify the relevant agents and make assumptions about their objectives. 2) Identify the constraints faced by each agent. ) Determine the decision rules of each agen t, which characterize how an agents choices respond to changes of one large-minded or another for example, how the quantity of tomatoes purchased might change with price or income. This task is usually accomplished mathematically by the solution of a constrained optimization problem. 4) Determine how the decision rules of various agents may be made consistent with one another and thereby characterize the equilibrium of the model. 8 Effective analysis of complex interactions between agents normally involves the use of mathematical methods, which can sometimes be quite sophisticated. ) Explore how the equilibrium of the model changes in response to various external events. That is, determine the predictions or implications of the model. Again, this step can involve substantial use of mathematics. 6) Examine whether the predictions determined in step (5) are consistent with actual experience. This step often involves the statistical analysis of information and can involve sophistica ted techniques (to control pattern selection bias, for example). 7) Draw conclusions and any implications (for government policy, for example) implied by (6).It is often the case that the question at hand may be addressed by reference to standard theoretical results (e. g. , people generally want to consume less of a product when its price increases). In these circumstances the analyst often will not specify and solve a rational choice model explicitly. Instead, she will assume the reader understands that the model could be specified and solved if necessary and would have conventional implications. A. Preference precondition In rational choice theory behavior follows from the pursuit of objectives, so preference specification is crucial.Frank (1997, p. 18) describes two general approaches. The self-interest standard of rationality says rational people consider only costs and benefits that accrue out right on to themselves. The present-aim standard of rationality says rational pe ople act efficiently in pursuit of whatever objectives they hold at the moment of choice. Frank contends that neither approach is obviously satisfactory. Many people would seem to care about more than their own material well-being, so the selfish egoism implied by self-interest standard is in all likelihood too narrow.In contrast, the present-aim standard puts no restrictions at all on preference formation, which means that anything can be explained by an appeal to preferences. Again quoting Frank (1997, p. 18) state, for example, that we see person drink a gallon of used crankcase oil and keel over dead. The present-aim approach can explain this behavior by saying that the somebody must have really liked crankcase oil. The main strength of the self-interest standard is that the associated preference specifications are generally straightforward.This approach, which dominates basic economic theory, usually assumes that utility depends only on the exercise of material goods and function and that, for any given good or service, more is strictly preferred to less. Bergstrom (forthcoming) presents an analysis based on evolutionary considerations showing circumstances under which selfish behavior will become dominant. The present-aim standard has also been used in rational choice models, but its use is nowhere near as prevalent as use of the self-interest standard. The reasons are threefold.First, the self-interest standard has often been successful in the sense of yielding predictions that are consistent with experience. Second, there is no compelling way to specify preferences when the only criterion is more than self-interest matters. ( quite a little may care about others, but are teh jealous or altruistic? ) Third, self-interest standard models are more tractable analytically and are more prone than present-aim models to imply specific discernible predictions. In particular, models in which agents care about each other in some way are prone to have mult iple equilibria (sometimes an infinity of equilibria).Frank (1987) makes an evolutionary argument that preferences should include concerns for others. Bergstrom (1999) explores some possible solutions to the multiple equilibrium problem. B. Theory Revision It many instances step (6) will find that one or more of the predictions of a model are not borne out by the data. In these cases, the typical rational choice theorist will not even consider abandoning the assumption of utility maximization. Instead, she will conclude that she must have missed something about constraints or preferences and get down to revise her theory accordingly.This issue of theory revision is very tricky, and space limitations (not to mention by limited understanding) permit only a outline discussion here. Suppose a theory T has prediction P, when in fact obtainable data indicate the opposite (not P, or P). The theory might then be revised in some way to become theory T, where T predicts P quite a than P. My impression is that most economists would much rather change assumptions about constraints rather than change assumptions about preferences. 9 This viewpoint reflects a desire to avoid meaningless t motorcarlogies such as he consumed more tomatoes because his preferences changed in such a way that he treasured to consume more tomatoes. One can explain any choice in this way. Hausman (1984) summarizes the thinking of Lakatos (1970) as follows A modification of a theory is an improvement if it is not ad hoc. Modifications may be ad hoc in three ways. First of all, a modification of a theory may have no new testable implications at all. Lakatos regards such modifications as in all empty and unscientific.Modifications that are not ad hoc in this sense are theoretically advancing. It may be, however, that the testable implications of the theoretically progressive modifications are not sustain by experiments or observations. In that case modifications are theoretically progressiv e but not observationally progressive. They are ad hoc in the second sense. An extended process of theory modification is progressive overall if the modifications are uniformly theoretically progressive and intermittently empirically progressive.As one is modifying ones theory in the hope of improving it, modifications must always have new testable implications, and those testable implications must sometimes be borne out by experience. But one crucial feature of science has been left out. passim this history of repeated modifications, there must be some element of continuity. No theoretical progress in economics is made if I modify monetary by theory by adding to it the use up that crap conducts electricity. The expanded theory has testable (and confirmed) implications, but something arbitrary has simply been tacked on.Such a modification is ad hoc in the third sense. One needs to recognize the role of something like a Kuhnian paradigm. Modifications of theories must be made in the right way. (p. 23) I bank that most rational choice theorists would adhere to these criteria for sound theory modification. As Stigler and Becker (1977) note What we swear is not that we are ingenious enough to make illuminating applications of utility-maximizing theory to all important phenomena not even our entire generation of economists is clever enough to do that.Rather, we assert that this traditional approach of the economist offers guidance in tackling these problems and that no other approach of remotely comparable generality and power is available. (pp. 76-7) . We also claim that no significant behavior has been illuminated by assumptions of differences in tastes. Instead, they, along with assumptions of unstable tastes, have been a convenient crutch to lean on when the analysis has bogged down. They give the lookance of considered judgement (sic), yet really have only been ad hoc arguments that disguise analytical failures. p. 89) In any case, one can change a ssumptions about preferences only if the new assumptions not only stimulate the failure of the previous model (that is, they imply P rather than P) but also have new predictions that are not rejected by the data. C. Why is the Rational Choice Approach so Popular? 10 Defenders of the rational choice approach e. g. , Becker (1976) &8212 argue that the approach is useful because it tends to let non-tautological predictions. Suppose a scholar wants to account for some observed phenomenon P.For example, P might be the fact that wage place paid to workers (after adjustment for inflation) tend to rise during good economic times expansions and fall during bad economic times recessions. It is generally quite easy to develop a theory T that predicts P, especially for someone who has studied P carefully. In fact, many such theories can be constructed. Importantly, however, it is generally not good scientific practice to use the same data to both formulate and test a hypothesis or theory. I f so, all theories would be confirmed.Instead, good methodology will develop a theory T that not only predicts P, but that also has other predictions Q1, Q2, Q3, Ideally, many of these predictions will be observable that is, one should be able to determine if Q1, Q2, Q3 . do or do not in fact occur. If these predictions are not observed say not Q1 (Q1) is observed rather than Q1 the theory may be judged hapless and either revised or discarded. If I may be allowed a lapse into imprecise language, a theory can never be right if there is not at least some surmise in the first place for it to be wrong. 11 This is not to say that rational choice theorists are pristine with respect to this requirement. The history of economic thought is no doubt full of bad theories (bad in the sense that one or more key predictions are not consistent with the data) that have been saved by ad hoc modifications. It is to say that proponents of the rational choice approach contend that ad hoc theoriz ing and the resulting empty tautologies may be less prevalent with their approach than with other approaches.I surely agree that the rational choice method does in fact tend to generate many testable predictions, and in Sections 4 and 5 below I discuss several exemplifying examples. Despite the fact that advocates of rational choice theory justify their approach in this way, I know of no study that explicitly compares methodologies along these lines. Is it really the case that rational choice models have more non-tautological implications than the models implied by other approaches? I am not sure anyone has examined this issue carefully.I believe the rational choice methodology is gaining in popularity not just because it tends to generate lots of observable predictions, but also because it tends to generate novel predictions. This is an extension of the idea of novel confirmation. Novel confirmation embodies the sentiment expressed by Descartes (1644) that we know hypotheses are c orrect only when we see that we can explain in monetary value of them, not merely the effects we originally had in mind, but also all other phenomena which we did not previously think. Quoted by Musgrave (1974), p. 1) Campbell and Vinci (1983, p. 15) begin their discussion of novel confirmation as follows Philosophers of science generally agree that when observational equivalence supports a theory, the confirmation is much stronger when the bear witness is novel. The verification of an unusual prediction, for example, tends to provide much stronger confirmation than the bill of something already known of something the theory was designed to account for. This view is so familiar that Michael Gardner has recently described it as a lengthy tradition not to say a consensus in the philosophy of science. As seems to often be the case in the philosophy of science, the usefulness of novel confirmation is not as well established as the above repeat implies. Campbell and Vinci (1983) a lso note that the notion of novel confirmation is beset with a theoretical puzzle about how the degree of confirmation can change without any change in the evidence, hypothesis, or auxiliary assumptions. (p. 315) Kahn, Landsburg, and Stockman (1992) maintain that the question of novel confirmation can be addressed meaningfully only in the presence of an explicit model by which hypotheses are generated. (p. 04) They find that the idea of novel confirmation is valid if there are unobservable differences in the abilities of scientists or if there is some chance of shift in observation. 12 Campbell and Vinci (1993) distinguish between epistemic novelty and heuristic novelty. epistemological novelty occurs when a theory has an implication that would be considered highly marvellous in the absence of the theory. There is of course a question over the proper definition of highly improbable. Heuristic novelty occurs when the evidence predicted by a theory plays no heuristic role in th e formation of the theory.Descartes would seem to be referring to heuristic novelty in the above quote. Rational choice theory is a useful methodology in part (perhaps in large part) because it tends to lead the researcher to novel implications, thereby making novel confirmation more likely than may be the case with other methodologies. Space and time considerations do not allow me to attempt a full-blown analysis of this conjecture, which in any case I am not really qualified to undertake because of my limited pic to alternative social science methodologies not based on rational choice and my limited knowledge of the philosophy of science.In Sections 4 and 5 below I describe several examples of rational choice theory and some associated novel implications. I should note that the mathematical nature of rational choice theory would appear (to me) to be crucial here. Mathematics allows the theorist to make some sense out of complicated interactions between decision-making units that would otherwise be difficult or impossible to untangle. It is precisely those kinds of situations in which rational choice theories are most likely to have novel implications, because the implications are not immediately apparent even to scholars with knowledge, experience, and intuition.We now proceed to Section 4, which provides a detailed discussion of a rational choice model of church service attendance. Section 5 gives shorter summaries of several other rational choice models, including models of suicide, auto guard regulation, addiction, racial profiling, Congressional influence on armed services assignments, governmental revolutions, megafauna extinction, and the predictability of consumption spending. 4. A Detailed Example Church AttendanceAzzi and Ehrenberg (1975) develop a rational choice model of church attendance. This is a classic paper, which Iannaccone (1998, p. 1480) calls the first formal model for phantasmal enfolding (within any discipline) and the foundati on for nearly all subsequent economic models of religious behavior. Italics in original. Their analysis begins with the assumption that the utility of a kinfolk consisting of two members, a husband and a married woman, is given by (1)U = U(C1, s1, C2, s2, , Ct, st, Cn, sn, q), where Ci is the home plates consumption of market goods and services in period i (i = 1, n), and si denotes religious battle in period i. The model assumes for simplicity that both members of the household know how long they will live and that both will die at date n. This is a dynamic model, because the household cares about future as well as current consumption. The remaining variable in the household utility function, q, is the expected value of the households hereafter consumption. Azzi and Ehrenberg assume that church attendance follows from a salvation motive (the desire to increase afterlife consumption) and a social pressure motive (where church rank and participation increases the chances tha t an individual will be successful in business), rather than necessarily a pure consumption motive (people simply enrapture the time they spend at church). Consumption in period i (any year during which the husband and wife are alive) is given by (2)Ci = C(xt, h1t, h2t), here xt is denotes the consumption of goods and services purchases in markets, while h1t and h2t are the amounts of time use by the husband and wife, respectively, to market-based consumption. The idea here is that satisfaction involves not only the purchase of a good (such as a television) but also time spent using the good. The social value of church attendance in period i, denoted by si, is determined as follows (3)si = s(r1i, r2i) where r1i and r2i denote the time spent on church-related activities by the husband and wife, respectively, in year i.People get more current satisfaction from going to church the more time they devote to church-related activities. After-life consumption q is determined as follows (3 )q = q(r11, r12, r21, r22, , r1n, r2n), That is, the more time spent on church-related activities during all periods of life means the more the household members will enjoy their afterlife. Azzi and Ehrenberg (p. 33, fn. 7) note that Our households view of the afterlife is not one of an all-or-nothing proposition (heaven or hell), it is rather that there is a continuum of possible outcomes. The choices of the household are constrained by time and money. The two household members can allocate time in labor which generates income that can be used to purchase the goods and services denoted by xt in equation (1) above, consumption-related activities reflected in h1t and h2t in equation (2) above, and church-related activities reflected in the r1i and r2i in equation (3) above. The constraint here is that each day has 24 hours. Hence the touch can spend more time on church-related activities only if they spend less time earning income and/or consuming.The second constraint in the mode l says basically that, over the course of their lives, the couple cannot spend more than their combine income. Over the course of their lives means that it is possible for them to borrow early in life as long as they repay the loan (with interest) ulterior in life. It is also possible to lend early in life, which means that consumption can exceed income later. The amount of labor income the couple earns depends on the amount of time spent working by the husband and wife and the wage rate each is paid.The model also allows for non-labor income in each period, which might reflect investment returns. The distinction between labor and non-labor income turns out to be rather interesting and important with respect to church attendance. Azzi and Ehrenbergs analysis is complicated in some respects and simple in others. It is complicated because it considers consumption over several periods rather than just one, and it allows for consumption to depend on time (the h1t and h2t) as well as p urchases of goods and services in the market (xt).The model is simple in that it does not consider the supply side. That is, the model simply assumes that the household can buy any amount that it likes of consumption goods (xt) and that there are no effective limits on religious participation (st). The power of the rational choice approach is that rational choice models tend to have lots of observable implications, some of which are novel. The Azzi and Ehrenberg model implies that (i) The frequency of church attendance increases with age (ii) Females attend church more a great deal than males (iii) Nonwhites attend church more frequently than whites (iv) People who believe in an afterlife attend church more frequently (v) Having a spouse of the same major religion increases participation (vi) As health deteriorates church attendance declines (vii) An increase in the number of pre-school age children present in the household reduces church attendance (viii) An increase in t he number of school-age children present in the household increases church attendance (ix) Females hours devoted to religious activities will rise more speedily with age than will the hours devoted by males to religious activities (x) For males who show sharp earnings increases in their 20s, religious participation may first decline with age and then increase (xi) An increase in nonlabor income will increase religious participation and (xii) The effect of a proportionate shift in wages (say, a 10% increase in the present and all future periods) on church attendance is ambiguous. Many of these implications are not surprising, but (ix) would appear to be somewhat novel.Item (ii) means that 40 year old women will attend church more frequently than 40 year old men. Item (ix) means that the change (increase) in church participation associated with age from 40 to 50 will be greater among women than among men. Item (ii) follows nowadays from the fact that females tend to have lower w ages. Thus if one could find couples in which the wife earns more than the man, the model predicts for those couples that the wife will probably not be inclined to attend church more frequently. Also, allowing for an uncertain time of death may overturn (i) nce an individual is faced with a relatively high probability of death in a period it may become optimal for him to concentrate his religious participation as early as possible, since he may not survive to invest in future periods. (p. 38) 5. Several Brief Examples This section presents a brief overview of several applications of rational choice theory. Unlike the church attendance example above, in which the form of the utility function was written out explicitly, the discussions in this section for the most part present only brief descriptions of the relevant optimization problems and some of the resulting implications. A.Suicide Hamermesh and Soss (1974) develop a rational choice theory of suicide. They assume that the utili ty of an individual in any given period depends positively on consumption and negatively on a scientific relation describing the cost each period of maintaining oneself at some token(prenominal) level of subsistence. (p. 85) Consumption is a function of age and of permanent income, which is a measure of current and expected future income. Individuals are assumed to divert exogenously (according to a probability distribution) in their distastes for suicide that is, some individuals are more averse to suicide than others.This framework implies that an individual kills himself when the total discounted lifetime utility remaining to him reaches zero. (p. 85). Thus in this model we have a rational individual who is forward looking, considering not only his present utility but what his future utility is likely to be. If total utility over the rest of his life is higher with suicide and life ending in the present than it is with the continuation of life, suicide is the rational opti on. Here are some of the major implications of the model. (i) The suicide rate should rise with age. (ii) The suicide rate should fall with increases in permanent income13 and decreases in the unemployment rate. (iii) The marginal absolute effect of permanent income on suicide declines as permanent income increases. The first two effects are by no means surprising, but the third effect is certainly by no means obvious ex ante (at least to me). (ii) means that suicide rates will fall as income rises. (iii) means that the effect of increases in income gets smaller the larger income is to begin with.A $10,000 raise is much more likely to prevent suicide if the soulfulness is earning $50,000 to begin with than if the soul is earning $150,000. This is quite plausible, but the point is that it is not something most analysts would think about ex ante. B. Auto Safety Regulation. Peltzman (1975) considers the likely effects of legally mandated generalization of various safety devices14 on automobiles. 15 The devices in question for the most part were designed to reduce the damages caused by cerebrovascular accidents rather than to reduce the likelihood that accidents occur. Peltzman notes that the auto safety literature estimates the impact of afety mandates by assuming that (i) the mandates have no effect on the probability that an accident will occur, and (ii) the mandates have no effect on the voluntary demand for safety devices. In effect, the regulations were implemented based on analysis that assumed the same number and nature of accidents would occur, but that automobiles would be better equipped to protect drivers and passengers from beleaguer injury and death. He notes that technological studies imply that annual highway deaths would be 20 pct greater without legally mandated installation of various safety devices on automobiles. (p. 677) Peltzman considers the behavior of a typical driver and postulates quite reasonably that he or she is made worse of f by craft accidents or, equivalently, that he or she benefits from safety. Peltzman also assumes, however, that the driver benefits from what he calls driving intensity, by which he means more speed, thrills, etc. (p. 681). former(a) things equal, the driver can obtain more driving intensity only by driving less safely. Thus the driver faces a trade-off between two goods, intensity and safety, in which more of one can be obtained only by talent up some of the other.This kind of trade-off is in standard do it for rational choice theorists. In basic consumer choice theory the consumer with a given income can obtain more of one good only if he or she consumes less of some other good (or goods). The standard consumer choice problem also considers what happens when the consumers income rises. Rational choice theory predicts that, in the absence of very unusual circumstances, the consumer will buy more of most goods when income rises. Put another way, it is typically not the case tha t a consumer will allocate one hundred percent of an increase in income to increased consumption of a single good.Income increases tend to be spread around over several goods. Peltzman argues that the imposition of mandated safety devices in automobiles is rather like an increase in income in the sense that the devices make it possible for drivers to obtain both more safety and more intensity. Technological studies in effect assume that drivers will respond by consuming only more safety, but rational choice theory indicates that drivers can also respond by consuming more intensity (that is, by driving less safely). The extent to which drivers choose between more safety and more intensity is ultimately an empirical question.Suppose drivers choose to increase consumption of both safety and intensity &8212 which is what economists have come to expect in these kinds of situations. In this case, the rational choice model implies that the number of total driving accidents16 should rise be cause of increased driving intensity, while the bonnie amount of damage per accident as reflected, say in the number of fatalities among passengers should decrease because of the safety improvements. This means that it is actually possible for total traffic fatalities to rise as a result of the safety mandatesThis would happen if the increase in the number of accidents is sufficiently large relative to the decrease in average damage per accident. Once again we have an example of a rational choice model yielding implications that are not obvious ex ante. The novel predictions here are that the imposition of auto safety mandates (i) should increase the occurrence of traffic accidents, and (ii) should decrease the relative frequency of accidents involving passenger fatalities, and (iii) may increase or decrease the total number of traffic fatalities.After extensive empirical interrogation based on several data sets, Peltzman concludes that regulation appears not to have reduced hig hway deaths. (p. 714). There is indeed some evidence that the number of deaths increased, but in most cases that evidence is not strong. In any case, there is no evidence that the regulations decreased traffic fatalities. Peltzman also finds that the safety mandates were followed by an increase in the number of accidents involving pedestrians and by an increase in the number of accidents involving only property damage with no injury to fomite occupants.A related paper by McCormick and Tollison (1984) considers the effect on arrive rates of an increase in the number of practice of law officers. Rational choice theory indicates that the quality of law enforcement should not be judged by arrest rates alone. If the number of patrol officers increases and as a result the probability of arrest for any given crime increases, rational prospective criminals will see the expected cost of crime rise and therefore undertake few criminal acts.Total arrests reflect both the number of crimina l acts (which should fall) and the percentage of criminal acts for which an arrest is made (which should rise). Total arrests rise only if the latter effect is stronger than the former. McCormick and Tollison test their theory using data from the Atlantic Coast group in mens college basketball. In 1978, the conference increased the number of officials from two to three. In this context, one may think of officials as police officers and fouls called as arrests.McCormick and Tollison find that this 50 percent increase in the number of officials caused a 34 percent reduction in the number of fouls called (p. 229). When my son Aaron (now almost 5 years old) was an infant, he attended the Baylor Child ripening Center during the day. In the room where the teacher changed diapers, there was a hit the ceiling on the counter but no restraint of any kind (such as a belt or guard rail). When I asked the film director about this, she said that there was no restraint because she (the directo r) did not want to give the teacher a false sense of security.With a belt or rail, the teacher might be tempted to walk away for just a minute to check on something in the room. Whether restraints increase or decrease changing table accidents is an empirical question, though Pelzmans analysis suggests the director made the right decision. C. Addiction Stigler and Becker (1977) propose a rational choice theory of addiction, a theory subsequently elaborated by Becker and spud (1988). In this theory, a person is potential droply addicted to some good c if an increase in his current consumption of c increases his future consumption of c. (Becker and Murphy, 1988, p. 81) The key feature of these models is that a consumers utility in any given period depends not just on consumption in that period, but also on consumption roof. Consumption capital is essentially the consumers ability to enjoy a particular good, which depends on past consumption of the good and perhaps on other factors. If past consumption enhances current usage ability, the access is said to be good. This might be the case, for example, with listening to classical music. The more one listens to classical music, the greater ones ability to appreciate it.Stigler and Becker note that salutary consumption capital might also be positively influenced by education. super educated people might have a greater skill to enjoy things like classical music, opera, and art. If past consumption reduces current enjoyment ability, the addition is said to be destructive. This is the case with substances such as heroin and other substances normally considered to be habit-forming. The more heroin a person consumes in the present, the less will be his or her future enjoyment (high) from any given amount of heroin consumption in the future. 17 The formal setup in Stigler and Becker (1977, p. 78) is relatively simple. First consider beneficial addiction to, say, classical music. Consumer utility (U) depends pos itively on two goods, M (music appreciation) and Z (other goods) U = U(M, Z). Music appreciation depends positively on the time allocated to music listening &8482 and on music consumption capital (Sm) M = M(tm, Sm). Music consumption capital at date j, Smj, depends positively on the time allocated to music consumption in the past, Mj-1, Mj-2, . and positively (perhaps) on the persons level of education at time j (denoted Ej) Smj = S(Mj-1, Mj-2, , Ej). The addition is beneficial if Smj depends on positively on the past values of M. Alternatively, for harmful addition we may replace M with H, where H denotes the consumption of a good such as heroin. In this case, consumption capital S depends negatively on past values of H. The elaborated model of Becker and Murphy (1988) views addictive behavior as a situation in which the consumption of a particular good begins to increase rapidly. 18 Their model has a number of implications. Perhaps he most interesting is their finding that the de mand for addictive goods should be quite sensitive to permanent changes in price (where the price of illegal goods includes the expected costs associated with apprehension by authorities, as well as any foregone earnings that may result from neat addicted and, say, unable to work), but not necessarily to temporary price changes. A second implication is that strong addictions, if they are to end, must end suddenly (cold turkey). Rational persons end stronger addictions more rapidly than weaker ones. (p. 692). Other implications are that addicts often go on binges (p. 75), present-oriented individuals are potentially more addicted to harmful goods than future-oriented individuals (p. 682), and temporary events can permanently do in rational persons to addictive goods (p. 691). Stigler and Becker (1977) and Becker and Murphy (1988) do not perform empirical tests of their models of rational addiction. Tests have been performed by other authors, however. Because good consumption data are not available for illegal substances, tests have focused on tobacco and caffein. Tests based on tobacco consumption are reported by Becker, Grossman, and Murphy (1994), and Keeler, et. l. (1993). A test based on caffeine consumption is reported by Olekalns and Bardsley (1996). These tests are generally supportive of the rational addiction theory. Becker and Murphy (1988) note that with a simple extension their model can explain cycles of overeating and dieting. Their basic analysis assumes there is only one kind of consumption capital. Suppose that with respect to food there are instead two types of consumption capital, one of which is simply the persons weight (which might be called health capital) and the other of which is eating capital. That is, eating can be both harmful and beneficial in the senses defined above. As eating increases, health capital waterfall (weight gain has detrimental effects on health) and eating capital rises (the capacity to enjoy food is greater the more one eats). Under allow conditions, utility maximization results in cycles of dieting and binging. 19 Rational addiction theory has been applied to the analysis of religious behavior see Iannaccone (1984, 1990) and Durkin and Greeley (1991). Iannaccone (1998) summarizes this approach. Utility depends on religious commodities produced, the value of which depends on religious human capital. The stock of religious human capital depends on time and money devoted to religious activities in the past. These models have the following predictions, nearly all of which receive strong empirical support (Iannaccone, 1998, p. 1481) Individuals tend to move toward the denominations and beliefs of their parents as they mature and rifle to make their own decisions about religion People are more likely to switch denominations early in life People tend to marry within religions if they do not, one spouse is likely to produce the religion of the other.D. Racial Profiling Law enforcement aut horities in many jurisdictions have been criticized in recent years for racial bias in their choice of cars to search for illegal drugs and other contraband. 20 The fact that police are more inclined to stop and search cars driven by members of certain minority groups is well established. Knowles, Persico, and Todd (2001) develop a rational choice model that suggests an empirical test for distinguishing whether this disparity is due to racial prejudice or to the polices objective to maximize arrests. In their model, the typical police officer maximizes the total number of convictions minus a cost of curious cars. (p. 209) Motorists consider the probability of being searched in deciding whether to carry contraband. (p. 209) At least some motorists perceive a benefit to carrying contraband. If they do carry, their expected benefit is positive if they are not searched and negative (that is, there is a positive expected cost) if they are searched. The model implies that if police off icers are not racially biased, the frequency of guilt among motorists conditional on being searched will be independent of race. 21 In their empirical analysis based on 1,590 searches on a stretch of Interstate 95 in atomic number 101 between January 1995 and January 1999, Knowles, Persico, and Todd find support for this proposition. They interpret this result as the absence of racial prejudice against African Americans (p. 212). The fact remains, however, that African Americans are searched more frequently than whites. If this does not arise from racial bias by police officers, then why does it occur?One possibility noted by the authors is that race may proxy for other variables that are unobservable by the policy officer and are correlated with both race and crime. come-at-able examples of such unobservables are the schooling level or the earnings potential of the motorist. (p. 212) While one may quibble with some elements of this study, for our present purposes the main point is that the rational choice theory, at least potentially, yielded implications that allowed the analyst to gain some insight (if not a final resolution) into the issue of racial profiling. E. Congressional Influence on Military AssignmentsPrior to the 1960s, economic theory tended to view politicians and other government officials (bureaucrats) as disinterested observers and regulators of economic activity. A group of economics led by Nobel Laureate James Buchanan then developed a branch of economics known as public choice theory, which views government officials as self-interested maximizers. Goff and Tollison (1987) take a public choice approach to gain some understanding of casualties in the Vietnam War. The typical soldier is assumed to prefer not to be placed in risky combat situations, and this preference is shared by the soldiers family.A solider (or more likely his family) might therefore try to gain a low-risk assignment by asking for intervention in military decisions by h is Senator or Representative. Senators and Representatives are assumed to desire re-election, which implies a desire to please their constituencies. The ability of a Senator or Representative to have this kind of influence, however, varies according to committee assignments, ties to the military/industrial complex, etc. Goff and Tollison assume that policy-making influence depends on seniority, with more seniority implying more influence.Taken together, all these assumptions have the straightforward implication that soldiers from states with more senior (and hence more influential) Senators and Representatives should, other things equal, have experienced few casualties in Vietnam than soldiers from states with less senior (and therefore less influential) Senators and Representatives. Their empirical analysis (using data from January 1961 to September 1972) supports the hypothesis In the House, the Mississippi delegation had an average seniority of 27. 7, while Hawaii had an averag e seniority of 61. . A seniority rank of 1 indicates the member had the highest seniority in his or her party. In terms of lives, this represents about 6 fewer war deaths for every 100,000 of population in Mississippi relative to Hawaii. Ceteris paribus, this difference in House seniority leads to a 55 percent higher casualty rate for Hawaii than Mississippi. In the Senate, Arkansas had an average seniority of 6. 2, and Maryland had an average seniority of 45. 4. Other things equal , this difference leads to an 86 percent higher casualty rate for Maryland than for Arkansas.In terms of lives, this translates into about 7 more war deaths for every 100,000 of population in Maryland than in Arkansas. (pp. 319-20) In this case, the value of the rational choice approach is not so much in the fact that it yields surprising answers to a well-established question, but that it suggests a unique question to ask in the first place. It is by no means obvious that someone not thinking about sel f-interested Senators and Representatives would even think to ask the question addressed by Goff and Tollison. F. Ideology and IntransigenceRoemer (1985) applies game theory to the analysis of political revolutions. Specifically, he presents a two-player game between Lenin and the Tsar. Lenins objective is to maximize the probability of revolution, while the Tsars objective is to minimize that probability. As in any game-theoretic setting, when making decisions each player keeps in mind how the other player might react. Lenin tries to create revolution by lining up alliances, where people are induced to join a coalition with the promise of income redistribution.The Tsar tries to prevent revolution by promising to revenge anyone who participates in rotatory activities (assuming the revolution attempt is unsuccessful). Increased penalties reduce the number of individuals who are likely to join the coalition but increase the revolutionary fervor of those who do. An individual will join a coalition attempting to cut the Tsar if the expected benefit to him or her of doing so exceeds the expected cost. There is of course some uncertainty about the outcome. Roemers results include the following it is shown that various tyrannical aspects of the Tsars dodging, and progressive aspects of Lenins strategy need not flow from ideological precommitments, but are simply good optimizi