All posts by Jim Garven

My name is Jim Garven. I currently hold appointments at Baylor University as the Frank S. Groner Memorial Chair of Finance and Professor of Finance & Insurance. I also currently serve as an associate editor for Geneva Risk and Insurance Review and Journal of Risk and Insurance. At Baylor, I teach courses in managerial economics, risk management, and financial engineering, and my research interests are in corporate risk management, insurance economics, and option pricing theory and applications. Please email your comments about this weblog to

Are Shareholders Obsolete?

Corporate Governance

Are Shareholders Obsolete?

In his January 2, 2015 Wall Street Journal essay, columnist Holman Jenkins makes a compelling case for the principle of shareholder value maximization by noting that owners seeking to maximize the value of their businesses end up doing a pretty decent job of satisfying customer and employees along the way. Think of this essay as a 2015 sequel to Milton Friedman’s famous New York Times Magazine essay (published September 13, 1970) entitled “The Social Responsibility of Business is to Increase its Profits” (see for Friedman’s essay; Thomas Coleman provides important context in his recent (2013) essay about Friedman entitled “Corporate Social Responsibility: Friedman’s View @…

What’s the “future” for price at the pump?

Lately, futures prices for crude oil and refined products such as gasoline and heating oil have been in a free-fall.  For example, the January 2015 futures contract for “RBOB Gasoline” is trading at the equivalent of around $1.64 per gallon.  As shown in the following graph, this represents a price drop of roughly 85-90 cents per gallon since September:

RBOB Gasoline

AAA reports that today’s national average is $2.639 and could fall to $2.50 within the next couple of weeks.  Nationally, the average markup from the near term futures contract price to prices at the pump has averaged 62 cents per gallon since January 2000 (which is when AAA began tracking this information).  Therefore, if futures prices hold at (or fall further from) current levels it seems quite likely that the price at the pump may be headed even lower.

Terrorism risk insurance

Clearly insurance is an enabling technology; without insurance many if not most large-scale commercial activities would grind to a halt. In a Business Week article entitled “The Unexpected Threat to Super Bowl XLIX“, Wharton professors Howard Kunreuther and Erwann Michel-Kerjan point out that that if Congress decides not to renew the Terrorism Risk Insurance Act (TRIA) (set to expire on Dec. 31), there is a chance that the Super Bowl might not be played. Will Warren Buffet step in as an insurer of last resort if TRIA is not reauthorized?  Also, Gordon Woo raises some excellent points about possible private sector alternatives to TRIA in his blog posting entitled “RMS and the FIFA World Cup: Insuring Against Terrorism“.

On Australia’s minimum wage policy

In today’s daily USPS junk mail delivery, I was deluged (as is everyone these days) by a pile of political flyers. One of the flyers in particular caught my eye – it was entitled “Common Sense MMXIV” (why the Roman numerals? But I digress).

One of the supposed “common sense” proposals listed on this flyer was to “…. enact, as Australia has, a $20/hr. minimum wage”. Since I was not aware that Australia had a $20/hr. minimum wage, I googled this topic and found that in fact Australia does not have a $20/hr. minimum wage (source: What Australia does have is a 16.87AUD/hour minimum which translates (at the current exchange rate) into 14.84USD/hour (AUD and USD are acronyms respectively for “Australian Dollar” and “US Dollar”). Furthermore, there are all sorts of caveats that apply; for example, there’s a schedule of minimum wages (expressed as a percentage of the 16.87AUD/hour baseline) based upon the age of the worker:

<16 years: 36.8% AUD6.21 USD5.46
16 years: 47.3% AUD7.98 USD7.02
17 years: 57.8% AUD9.75 USD8.58
18 years: 68.3% AUD11.52 USD10.13
19 years: 82.5% AUD13.92 USD12.24
20 years: 97.7% AUD16.48 USD14.49

For more on the economics of the minimum wage, I recommend reading the attached article by David Neumark; Dr. Neumark is an economics professor and director of the Center for Economics and Public Policy at the University of California, Irvine.

Who Really Gets the Minimum Wage, by David Neumark.pdf

Sic em, Bears!

I just had a nice visit from Cindy Riemenschneider, who is Associate Dean for Research at Baylor University’s Hankamer School of Business. She came by my class for the purpose of presenting (in front of my students) a “Certificate of Exceptional Research” for my paper with Jim Hilliard and Martin Grace entitled “Adverse Selection in Reinsurance Markets” (cf. Thanks, Cindy!

2014-09-30 14.07.32

Mr. Ginger

Here’s a shout-out to Mike Akel (director) and Felipe Adams (producer) for their web comedy series called “Mr. Ginger“.   To date, Season 1 consists of four episodes, and more episodes are in the works.  (Shameless self-plug alert – I appear briefly toward the end of episode 4 as someone whose job it is to help a student face his worst fear! :-))…

For the entire series to date, go to; this link provides a menu where you can select which of the four episodes that you would like to watch; you can also watch by simply clicking on the play button below.  I recommend watching all four episodes!

Assorted Links (7/28/2014)

Here’s a list of articles that I have been reading and podcasts that I have been listening to lately:

Sam Altman on Start-ups, Venture Capital, and the Y Combinator

I listened to this very interesting and highly informative podcast during one of my daily walks in my hometown of Austin, TX. Basically this is a tutorial on how entrepreneurship and venture capital promote economic growth and innovation, and mostly make the world a better place…

100 Years Ago Today It Began: “Austria Has Chosen War”

“The good news is that 100 years later the world is a far more stable and peaceful place.”

Why Corporate Inversions Are All the Rage

This is the best explanation I’ve seen concerning the phenomenon of so-called corporate inversions…

Putin Restores a Cuban Beachhead

“In The Wall Street Journal, Americas columnist Mary Anastasia O’Grady writes that the Kremlin and the Castros are chummy again, and Moscow is offering military aid.”

The Danger of Too Loose, Too Long

“In The Wall Street Journal, Dallas Federal Reserve Bank President Richard Fisher writes that with an improving labor market and an uptick in inflation, the danger now is to wait too long to tighten.”

The Lingering, Hidden Costs of the Bank Bailout

“In The Wall Street Journal, Nobel laureate Vernon L. Smith asks why is growth so anemic? New economic activity has been discouraged. Here are some ways to change that.”

How we found the giant squid

“Humankind has been looking for the giant squid (Architeuthis) since we first started taking pictures underwater. But the elusive deep-sea predator could never be caught on film” (until now).

Yes to Coffee and Wine: Rewriting the Rules of Pregnancy

“Go ahead, have a glass of wine during pregnancy, writes Emily Oster.”

Math nerds are taking over Wall Street

“Elie Galam is a math geek turned finance wizard. Check out how he and other quants are taking over Wall Street.”

Freakonomics » Does Religion Make You Happy?

I listened to this podcast during one of my daily walks in my hometown of Austin, TX. It showcases research on the “economics of religion” by various economists and sociologists. I was particularly intrigued to learn about MIT economist Jonathan Gruber’s recently published research on this topic. Professor Gruber finds (among other things) that “[The religious are] more likely to have higher incomes, higher education, have more stable marriages, be less likely to be on welfare, essentially be more successful on any economic measure you want to use”. He also empirically documents (the somewhat counter-intuitive result) that religious giving and religious attendance are substitutes, not complements… (see for access to Gruber’s paper entitled “Pay or Pray? The Impact of Charitable Subsidies on Religious Attendance”…

Libertarian Charles Murray: The welfare state has denuded our civic culture

For my “bleeding heart” libertarian friends, I recommend Charles Murray’s book “In Our Hands: A Plan To Replace The Welfare State” (cf.…

Progressives’ hot new poverty-fighting idea has just one basic problem: Science

“Look at the evidence, liberals!”

Reining in ObamaCare—and the President

“In The Wall Street Journal, Jonathan H. Adler and Michael F. Cannon write that Halbig v. Burwell is about determining whether the president, like an autocrat, can levy taxes on his own.”

Obama’s Law Professor: ‘I Wouldn’t Bet’ on Obamacare Surviving Next Legal Challenge

“President Obama’s old Harvard Law professor, Laurence Tribe, said that he “wouldn’t bet the family farm” on Obamacare’s surviving the legal challenges to an IRS rule about who is eligible for subsidies that are currently working their way through the federal courts.”

US military enlistment rates by state: A Texas-sized difference

“An 18-24 year-old from Florida or Texas who enlists in the US military has more than double the chance of bumping into a fellow Southerner in uniform than a resident from Massachusetts, Connecticut, or New York does with a Northeast compatriot.”

New York law thinks a burrito is a sandwich

“New York’s “sandwich tax” might be the greatest fraud every played on New Yorkers if you don’t count the ones that involve rent or drugs.”

Hamas’s Civilian Death Strategy

“In The Wall Street Journal, Thane Rosenbaum argues that Gazans shelter terrorists and their weapons in their homes, right beside sofas and dirty diapers.”

Why a federal court just ruled Obamacare subsidies are illegal in 36 states

“This little-known lawsuit is Obamacare’s biggest threat.”

Heading Off the Entitlement Meltdown

“Demography is destiny: The retirement of 77 million baby boomers is not a theoretical projection.”

Four Years of Dodd-Frank Damage

“In The Wall Street Journal, Peter Wallison writes that the financial law has restricted credit and let regulators create even more too-big-to-fail companies.”

Income Inequality Is Not Rising Globally. It’s Falling.

“Though the income gap has widened in many individual nations, it has been shrinking globally for most of the last 20 years.”

Uber Upstarts: Technological Progress and Its Discontents

“The battle between new smartphone-enabled ‘transportation network companies’ and legacy taxicabs largely mirrors the age-old war over productivity, a war that only ever has one outcome.”

Microsoft lays off 18,000 with ridiculous letter

“I have never been laid off, but I would assume that the process begins with an apology of sorts. “I’m sorry.” “Do you have a moment?” or “Can we talk?” are probably good first steps….”

Jury Awards $23.6 Billion in Florida Smoking Case

“A jury in Florida awarded a staggering $23 billion judgment against R. J. Reynolds, the country’s second-largest tobacco company, for causing the death of a smoker who died of lung cancer.”

Doctors get due dates wrong 96.6% of the time

“Your baby is most likely to be born one week before your due date.”