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Working Papers | 2006

A Stochastic Linear Programming Model for Asset Liability Management: The Case of an Indian Insurance Company

Garg Ankur, Tiwari Apoorva, Goutam Dutta, and Basu Shankarshan

Asset - Liability management is one of the most critical tasks for any financial institution for determining its cushion against the risk and the net returns. The problem of asset liability management for an insurance company requires matching the cash inflows from premium collections and investment income with the cash outflows due to casualty and maturity claims. Thus, what is required is a prudent investment strategy such that the returns earned on the assets match the liability claims at all points of time in future. Conventionally, the asset allocation has been done using the Mean Variance approach due to Markowitz (1952, 1959). While such a strategy ensures that the asset value always match or are greater than the liability for the next year, it does not maximise the net worth of the firm nor does it take care of all the cash inflows and outflows over a long term period. A stochastic linear programming model (on the lines of Pirbhai, 2004) maximises the net worth of the firm and also takes care of the uncertainties. While there are instances of stochastic linear programming being applied for ALM in financial institutions in developed markets, no such practical application has been reported in this area in Indian context as yet. In this paper, we describe the development of a multi stage stochastic linear programming model for insurance companies. The multi-stage stochastic linear programming model was developed on the modelling language AMPL (Fourer, 2002).

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Working Papers | 2006

The Value-Congruity Relationship Model

Kaul Subhashini, Pradyumana Khokle, and Abraham Koshy

Marketers have always aimed at improving quality of relationship with consumers. Recent efforts exploring into brand-consumer relationships indicates that individuals use the interpersonal relationship elements to forge associations with brands and stores. This paper draws from interpersonal literature to develop a value-congruity model of relationship where four district circles are identified. Each circle is associated with a set of values and relationship progression is conceived of as a movement inwards based on value-congruity.

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Working Papers | 2006

A Conceptual Note on Influencing Store Loyalty: Implications for Indian Retailers

Kaul Subhashini

Store loyalty is the most initial variable of interest to retailers. This paper reviews existing retail literature to identify the dimensions of store loyalty; with specific focus on its antecedents such as store image. The paper also discusses methodological issues in measuring store loyalty and image in the current Indian context.

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Working Papers | 2006

Identities and Store Image Formation: A Study of Retail Consumer Store Choice Behaviour

Kaul Subhashini

This theoretical paper develops a series of models applying social identify theory to the retail content. The shopper is conceived of as an actor whose self-image and related identities impact store image perceptions. The paper address how identify conflicts are likely to be resolved by a shopper and takes into account the `ideal` and `actual` selves. Suggestions are provided as to how retailers could employ symbolic cues to address different operating identities.

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Working Papers | 2006

Hedonism and Culture: Impact on Shopper Behaviour

Kaul Subhashini

Increasingly consumer shopping behaviour is being seen from the holistic perspective of the entire shopping experience. The experiential view of shopping takes a far more holistic approach to the consumption process, right from involvement to post purchase usage, and incorporates the hedonistic perspective into the existing, primarily cognitive- rational information processing view of consumption. Hedonic shopping value refers to the sense of enjoyment and pleasure that the consumer receives from the entire buying experience associated with shopping at a store and this value perception could vary depending on individual shopping orientations, the cultural orientations as well as the economic and competitive environment in which the consumer shops. This paper attempts to understand the impact of all three factors on the purchase behaviour of shoppers by examining hedonic value across different product categories signifying different shopping orientations; across culturally distinct countries; across developing and developed economies; and across different stages of retail evolution.

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Working Papers | 2006

Is India Ready for Online Dispute Resolution?

Anurag K. Agarwal

The Indian judicial system is marred by delays. Businesses suffer because disputes are not resolved in a reasonable time. Even with the use of methods of alternative dispute resolution a fair number of high value disputes end up in a court. Thus, courts hardly have any time for taking up disputes of lower value. Also, in a country of continental dimensions, every disputant cannot afford to travel and contest in a court of law. Online Dispute Resolution (ODR) has emerged as a new method which may be beneficial in a geographically large country and also where a large number of B2B or B2C disputes are significantly of low value. ODR is the best available method for resolving such business disputes. But there are a number of hurdles like access, technology, cultural and language issues, and above all trust with a new un-tested system. Of late, ODR has been successfully used by the National Internet Exchange of India (NIXI) and the judiciary has also shown perceptible shift towards use of new technology and methods in resolution of disputes. The paper examines the hurdles faced by ODR in India, discusses its future and makes a few suggestions for its success.

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Working Papers | 2006

Degree of Instant Competition: Estimation of Market Power in India Instant Coffee Market

Satish Y. Deodhar and Pandey Vivek

The new competition policy of the Government of India seeks to promote competition to protect consumer interests and increase market efficiency. In fact, the degree of price transmission between farmers and final consumers also depends on the degree of competition in the processing sector. Moreover, policy of trade liberalization too is expected to have impact on domestic markets. It becomes imperative, therefore, that one knows the degree of competition in various domestic industries. Instant coffee market in India is a duopoly of Nestlé and Hindustan Lever for decades. They also differentiate their products through branding. At the same time, however, incumbents might have perceived potential competition from another firm, Tata Coffee. In fact, instant coffee can be considered as a part of a larger beverage market with numerous competing products. With trade liberalization, imports have also started trickling in. Thus, circumstantial evidence regarding degree of competition or the market power in the instant coffee market is rather mixed one. By econometrically estimating the perceived first-order supply relation and the demand function, we calculate the market power parameter. Results indicate that the market is not characterized by collusive behaviour. It is quite close to perfectly competitive behaviour although we cannot reject the Cournot-Nash behaviour as well. The econometric study may be complemented by in-depth case study on coffee procurement, processing, and pricing by leading producers. Similar estimations of market power and case studies may be undertaken for other industries as well.

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Working Papers | 2006

Risk Mitigation In Indian Film Industry: A Concept Note

Rajanish Dass, Kumar Sumit, and Rungta Alok

The motion pictures business in India has certain unique aspects which pose challenges in front of those whose fortunes are linked with the industry. The shelf life of a movie is short whereas the cost of producing and marketing it along with the financial risks associated with its success are very high. The concept of hedging risks is in a very nascent state in the Indian Film Industry. The business, done in a traditional way, exposes producers, distributors and financers to undue risks. In this paper we have looked at the Indian film industry (typically the Mumbai based Hindi film industry), and the risks and challenges that the industry faces. We have analyzed various risks faced by the industry like the risk of a flop movie, financing risks, political risks, and competition from regional film industry and also competition from Hollywood movies which are gaining popularity in India to name a few. A number of these risks, it seems, looms large due to lack of proper visibility of right information due to existing information bottlenecks. We have categorized these risks into certain broad categories and looked at various ways to mitigate them. We have also analyzed the applicability of various financial instruments like options to hedge the risk of low business by a movie and looked at a novel idea of securitization of box office returns and float bonds with those returns as underlying to generate short term financing.

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Working Papers | 2006

The Adoption and Economics of Bt Cotton in India: Preliminary Results from a Study

Vasant P. Gandhi and Namboodiri N V

The paper presents preliminary results from a study of the economics and adoption of Bt cotton in India. Biotech crops, which made their appearance in the world about a decade ago, have gained substantial popularity and acceptance in many parts of the world including US, China, Australia, Mexico, Argentina and South Africa. However, their introduction in India has been relatively late and controversial and they still have considerable ground to cover in the country. Cotton is a major commercial crop in India but has substantial problems particularly from extensive pest damage and poor yields. Bt cotton offers a promising solution to these serious problems. Data from the survey, which covered the important cotton states of Gujarat, Maharashtra, Andhra Pradesh and Tamil Nadu, and 694 farmers, indicates that Bt cotton offers good resistance to bollworms as well as several other pests. The incidence of these pests is reported to be considerably lower in Bt cotton as compared to Non-Bt cotton. The yields of Bt cotton are found to be higher and the yield increase/ difference statistically significant in all the states under both irrigated and rain-fed conditions. As a result, given the good market acceptance of the product, the value of output per hectare is higher in all the states and conditions. The question of higher cost of cultivation exists, and is confirmed, mainly because of high seed cost and not commensurate reduction in pesticide cost. However, the profit is found to be higher in all the states to the estimated extent of about 80-90 percent on an average when the effects of associated inputs are included. The returns are highest in Maharashtra followed by Gujarat and then Andhra Pradesh. Subjective assessment indicates that farmers see advantage in Bt cotton in pest incidence, pesticide cost, cotton quality, yield and profit. Almost all farmers indicate that they plan to plant Bt cotton in the future. To increase the benefits from the technology, the farmers strongly urge reduction in the seed cost, greater field extension and demonstration work on the correct practices, and more Bt cotton varieties to suit the diverse agro-ecological settings.

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Working Papers | 2006

Wheat Marketing and its Efficiency in India

Vasant P. Gandhi and Abraham Koshy

The study examines the marketing of wheat in India, focusing on the private marketing system, the marketing efficiency and quality. Wheat is now a major food staple in India, crucial to India's food economy and security. With production reaching 70 to 75 million tons and a large demand, India's wheat economy is the second largest in the world. The efficiency of marketing is crucial to farmer incomes, consumer welfare, as well as government budgets and the economy. Substantial changes are taking place in the marketing of wheat. The study finds that the farmers now almost invariably sell in the nearby primary markets rather than to village traders. The farmer choice of varieties is now becoming market oriented with quality and market acceptance becoming as important as yield. The typically market intermediary provides hardly any special, value adding or developmental services in return for the commissions and margins. The farmers see considerable scope for improvement in the marketing system. The consumer demand for wheat varies considerably across the country. But wheat has made inroads into food consumption in the east and the south. The retailers are increasingly conscious of consumer demand and quality, and keep a varietiy of wheat and wheat products. Direct buying of wheat grain, storing, and own recourse to processing are common in the north and the west, whereas direct purchase of wheat products such as flour is the norm in the east and the south. The trend is towards direct purchase of processed wheat products, and within this from loose to packaged branded wheat products. The estimated average total marketing cost of wheat is found to be of the order of Rs. 266 per quintal, and in this transport has the largest share of 40 percent, commission and taxes make up 25 percent, and wastage another 15 percent. When compared to the consumer-farmer price spread, the marketing costs account for 74 percent of the spread, leaving 26 percent for margins-this is fairly efficient but there is significant scope for improvement. On an average, the farmers receive 66 percent of what the consumer pays. The government channel marketing cost is reported to be Rs. 309 per quintal, but this does not cover the whole chain and is not strictly comparable. Examination of the question of market integration for wheat is difficult due to data and quality difference problems. Co-integration analysis using monthly price data for eight markets for the period April 1997 to June 2004 indicates that nationally the markets are integrated but the LOP (Law of One Price) does not hold, and the presence of six common stochastic trends implies the absence of full pair-wise co-integration.

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