Real liabilities

Corporates balance sheets are full of real assets, so real liabilities are intuitively appealing, and future corporate revenues may not be purely inflation-linked, but they still tend to be more real than nominal. And... 

This may all seem rather convoluted, so a simple example might suffice to make the point clear. Let us assume that the average bond investor expects future long-term inflation to be 2.5%, and that the average investor is inflation risk averse, so be prepared to pay a 0.25% risk premium. On this basis alone, we would expect observed break-even inflation to be 2.75%. Now let us say that the govermnent also has inflationary expectations of 2.5%, but it prefers real liabilities to nominal liabilities, and places a 0.25% yield value on that preference. It will prefer to sell inflation-linked bonds rather than nominal bonds until break-even inflation falls to 2.25%. 

Similarly, the distinction between current and long-term liabihties is also not clear-cut. Current liabilities include accounts payable (money owed to creditors), taxes payable, dividends payable, etc., if due within a year. Long-term liabihties include deferred income taxes, bonds, notes, etc., that do not have to be paid within a year. The owners equity includes the par, or face, value of the capital received from stockholders and any retained earnings. The balance sheet shows only the nominal value and not the current or real value of this capital. 

Until recently, d-fenfiuramine was used to control appetite, in preference to d-amphetamine, because it has a lower affinity for the catecholamine transporter and so its uptake into noradrenergic and dopaminergic neurons is much less than that of amphetamine. This is thought to explain why, at anorectic doses, this compound lacks the psychotropic effects and dependence-liability that are real problems with if-amphetamine. Unfortunately, despite this therapeutic advantage, this compound has had to be withdrawn from the clinic because of worries that it might cause primary pulmonary hypertension, valvular heart disease and even long-term neuropathy. 

Some critics do not oppose liability rules in theory, but they argue that those rules, as implemented by real courts, firms, and consumers, do not yield an efficient level of risk. These criticisms can be grouped into five main categories. 

Strict liability is analogous to a mandated benefit that forces all consumers to buy insurance and knowledge development with the products they buy. Like other mandated benefits, some of the real costs probably falls on consumers as well as workers and shareholders. Additionally, strict liability gives firms, rather than individuals, the power to decide what risks are acceptable. A negligence regime... 

During the mid-1980s, insurance against risks posed by synthetic organic chemicals was expensive and sometimes impossible to obtain, for two reasons. First, real interest rates had exhibited extreme variance during the previous 15 years. Real interest rates affect premiums for lines of insurance, such as medical malpractice and environmental liability, that pay claims years after premiums are collected. Second, the use of retroactive strict liability in the "Superfund" law and in various tort decisions has extracted wealth from insurance companies and made them wary of writing policies that could expose them to future legislative and court actions. 

There is little evidence that insurance companies underprice premiums when real interest rates are high only to hit consumers hard once interest rates drop (Tort Policy Working Group 1987). The collusion needed to coordinate such behavior appears impossible. The 20 largest general liability insurers controlled only 66 percent of fhe market in 1987 (Harrington 1988, 44). If some companies collude fo raise premiums above fhe break-even level, ofher firms can raise new capital and enter the market. ... 

The relevant question for economic efficiency, of course, is whether consumers and firms properly equated the marginal costs and benefits of automobile safety given their real incomes at the time. If they did, then it is economically irrelevant that the rise in safety standards that accompanied the growth in real incomes since the 1940s has made those past automobile-accident deaths look tragic today, and the retroactive liability of the automobile companies would not be in accord with economic efficiency. CERCLA is directly analogous to this example. Just as the consumption of automobile safety has risen with increases in real income, so has concern for the environment and public health. 

Society might wish to tax chemical and insurance companies to clean up past disposal sites and provide compensation, but we must recognize that taxes alter behavior. If a state taxes sales, people shop in other states if governments tax equities, people buy real estate if Congress and the courts tax liability-insurance contracts (and their supply and demand are elastic), companies stop writing them. 

From the published clinical studies, it would appear that the partial agonists bretazenil and abercamil are less likely to cause physiological dependence, have lower reinforcing effects and a lower incidence of subjective effects associated with abuse liability than the conventional 1,4-benzodiazepine sedative-hypnotics. It is presently unclear whether the full agonists for the GABA-A receptor, zolpidem and zopiclone, offer a real advance in the treatment of insomnia although their adverse effect profiles and abuse liability may be lower than that of the conventional benzodiazepines. 

Doing all engineering in-house is not a real alternative. The Owner should not assume the responsibility and liabilities associated with structural design even if it has qualified professional engineers. That responsibility should always be delegated to a well-qualified engineering firm. 

An adiabatic method represents the most adequate technique for determining the relative tendencies of certain coals to heat spontaneously since it simulates most closely the real phenomenon. Conceivably, a field system would be similar to the adiabatic system but with appropriate modifications to hasten the oxidation process and increase the effluent gas concentrations within a reasonable test period. This could involve a more versatile system which would allow either the study of self-heating rates, similar to a method used by Guney (10) or which may be used for adiabatic calculations of a liability index through incorporation of a constant heat input. In the latter case, the heat might be supplied exclusively from the oxidizing air stream. 

Although not exclusively, it is often when businesses are sold that there are concerns raised about potential environmental liabilities. It seems to matter little whether or not there is real tangible evidence that the liabilities will materialise. What seems to be the key is the interest the parties have in proceeding with the sale and the potential use of environmental liabilities as a negotiating position within the sales process. However, in a number of cases there are real tangible fears associated with environmental liabilities and often the parties associated with transfer of businesses look to insurance to solve their problems for them. 

Although potential liabilities for damages caused by contaminated land and past industrial activities have been addressed by the House of Lords in this one case, the costs of cleaning contaminated land and the acceptability of that land once cleansed to potential land purchasers is still a very real issue. 

Public liability policies are already having their scope reduced so there is no intended cover for gradual pollution damage and very real possibilities that their scope will be further reduced in the near future to remove cover for all forms of pollution related damage. UK industry should be aware of this restriction and companies should consider whether or not their existing portfolio of insurance provides adequate protection. 

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