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RE: UN Compensation Fund



This is a brief follow up to the second part of my Friday posting.  In it, I
noted that there was an error with the data on the UN Compensation
Commission's website (http://www.unog.ch/uncc/status.htm).  That has now
been corrected, and a 26 July version is available.

Based on this, I can recalculate my two estimates of the likely compensation
fees that Iraq may still be assessed:

(i) the "unconditional" total is still $71 billion; but now
(ii) the "conditional" total is only $70 billion.

I was told, after my earlier posting, that my attempt to explain how I
calculated these figures, and what the difference was, was completely
confusing.  I apologise for that, and will now take the risk of trying
again.  I'll use a simple example.  Suppose that there were two claim
categories, category A and category B.  Suppose further that they generate
the following table:

A       B       | category
100     50      | compensation sought by unresolved claims
10      20      | compensation sought by resolved claims
3       12      | compensation awarded to resolved claims

Thus, of the resolved claims (10 + 20 = 30), 50% (3 + 12 = 15) have been
settled in favour of the claimants.  If the unresolved claims (100 + 50) are
satisfied at this rate of 50%, then we estimate that an additional 75 in
awards will be granted.

We can also perform the calculation another way, by category.  Now we note
that 30% (3 / 10) of the category A claims have been awarded, while 60% (12
/ 20) of the category B claims have been.  If each category's claims
continue to be awarded at this rate then there will be an additional 60 in
awards:  30 (30%  100) from category A and 40 from category B (60%  50).

I called the first approach the "unconditional" approach, and the second
approach the "conditional" approach, because the second conditions on (uses)
the category information.

In both cases, these calculations are best when the cases to be resolved are
picked at random from the unresolved cases.  To see why, imagine that the
Commission actually picked the strongest ones first.  In this case, assuming
that the same percentage that was awarded in the past will continue to be
awarded is going to overstate the remaining awards: e.g. if only 50% of the
strongest claims were awarded, we would expect less than 50% of the
remaining, weaker, claims to be awarded.

Best,

Colin Rowat

work | 269 Mercer Street, Room 710 | Department of Economics | New York
University | New York, NY 10003, USA | (212) 998 8939 |
http://homepages.nyu.edu/~cir2 | cir2@nyu.edu

home | 116 W. 226 St. | Bronx NY 10463, USA | colinrowat@yahoo.com

tel/fax | (917) 517 5840 (mobile) | (707) 221 3672 (fax) |
9175175840@voicestream.net (SMS)

autumn | Department of Economics | The University of Birmingham |
Birmingham,  B15 2TT,  UK


> (i) The unconditional approach uses one ratio, that of the total
> compensation awarded to date relative to that sought in the
> claims processed to date.  Applying this to the compensation
> sought by unprocessed claims yields $71 billion.
>
> (ii) The conditional approach calculates ratios for each category
> of claim.  It then applies each ratio to that category's
> outstanding claims.  The figures for each category are then
> summed for a total of $75 billion.
>
> In my view, the conditional approach is a better one as it uses
> information contained in the categories about the extent to which
> settled claims differ from future claims.  To explain, the data
> table shows that category A, B and C claims are completely
> resolved; further, in all three cases, the award ratios are
> higher than those in the categories with claims outstanding.
> Therefore, a technique that applies estimates future claims by
> treating all of the past equally, may be misleading.  In any
> case, the two techniques yield similar results.
>
> I have made one inference about the data available on
http://www.unog.ch/uncc/status.htm.  The table presented there contained a 0
in the cell corresponding to compensation sought by F4 claims resolved.
This is clearly incorrect: 105 F4 claims for $0 each would not have been
submitted.  I replaced this value with $700 million by assuming that the
total value of F4 claims had not changed since 29 May 2001 (google.com's
cached version of the UNCC page has this version).  This inference leaves
open one small question: four claims seem to have disappeared between May
and June.  I've notified the UNCC's webmaster about the error and will
provide an update on these calculations when it is fixed if there is a
significant difference.

Finally, the above allows an estimate of outstanding payments.  Iraq
certainly owes $23 billion (the difference between that awarded to date, and
that paid) and, according to the estimate above, will owe another $75
billion.  These sum to $98 billion.  To this must be added the foreign debt
acquired by Iraq prior to 1990, estimated to now be worth about $120 billion
(see http://www.cam.ac.uk/societies/casi/info/alnasrawi.html).  In sum,
these amount to about $218 billion, or about $9,000 per Iraqi.

Best,

Colin Rowat

work | 269 Mercer Street, Room 710 | Department of Economics | New York
University | New York, NY 10003, USA | (212) 998 8939 |
http://homepages.nyu.edu/~cir2 | cir2@nyu.edu

home | 116 W. 226 St. | Bronx NY 10463, USA | colinrowat@yahoo.com
tel/fax | (917) 517 5840 (mobile) | (707) 221 3672 (fax) |
9175175840@voicestream.net (SMS)

autumn | Department of Economics | The University of Birmingham |
Birmingham, B15 2TT, UK


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