the impact of climate on the law of one price a test using north american food prices from the 1920s using grocery price data for over 100 urban locations across the us and canada from the 1920s we show that deviations from the law of one price lop were strongly related to climate differences the effect of climate has a large impact on the elasticity of deviations from lop with respect to distance while having no impact on the border effect we then test a counterfactual to show that the relationship between deviations from lop and temperature does not hold when historical temperature data are replaced with contemporary this is evidence that climate impacts production l impact du climat sur la loi du prix unique un test utilisant les prix de la nourriture en amerique du nord dans les annees 1920 a l aide de donnees sur les prix de la nourriture dans les epiceries dans plus d une centaine de villes aux etats unis et au canada dans les annees 1920 on montre que les deviations par rapport a la loi du prix unique lpu sont fortement reliees aux differences dans le climat l effet du climat a un grand impact sur l elasticite des deviations par rapport a la lpu par rapport a la distance mais aucun impact sur l effet de frontiere on utilise alors un test contrefactuel pour montrer que la relation entre les deviations par rapport a la lpu et la temperature ne tient pas quand on remplace les temperatures historiques par les temperatures contemporaines ceci montre que le climat a un impact sur la production

federal lending and the market for credit abstract federal lending is an important but unrecognized feature of modern credit markets this paper analyzes the effects of credit interventions on credit allocation and economic efficiency the underlying model posits asymmetric information between borrowers and lenders and allows for market clearing rationed or redlined equilibria principal results include unsubsidized credit interventions are neutral the relative effectiveness of alternative lending instruments depends on whether rationing occurs interactions among programs can have perverse effects and even without an informational advantage the government may enact welfare improving credit policies under certain conditions

the role of interest rate taxes in credit markets with divisible projects and asymmetric information this paper assumes that entrepreneurs have divisible projects with random payoffs however managerial skill is unobservable to outsiders projects are assumed to be financed through debt a pooling equilibrium is shown to exist in which good and bad entrepreneurs sell debt at the same price if both types of entrepreneur have a positive probability of bankruptcy project scale will be too large this provides a prima facie case for raising interest rates and hence the cost of capital through taxation if in equilibrium only the poor entrepreneurs go bankrupt there is an outlying possibility that interest rates are too low and a subsidy is called for

multiple equilibria in markets with screening this paper adds endogenous screening to broecker 1990 and shows the possibility of multiple screening equilibria a high intensity of screening by a bank decreases average quality of firms applying to other banks which in turn have further incentives to screen the link between the degree of concentration of the banking industry and the extension of credit is also discussed

imperfect information and the theory of government intervention in farm credit markets this paper describes some possible economic motivations for government intervention in farm credit markets these motivations are made possible by explicit departures from the perfect information and complete market assumptions that underlie both the neoclassical competitive paradigm and the fundamental theorems of welfare economics to be more precise the analysis focuses on three types of asymmetric information between farmers and prospective outside investors both of whom are assumed to be risk neutral arguably the three informational asymmetries examined here represent natural departures from perfect markets in that unlike the unencumbered neoclassical model each elicits farmers optimal use of debt contracts rather than equity instruments or other contractual forms to raise investment capital despite their consistency with observed contractual choices all three of the models analyzed below yield free market equilibria that diverge from first best perfect information outcomes given the inefficiency of these market equilibria the key question raised and discussed here is can government improve upon the derived competitive outcomes and if so how despite the enormity of the credit rationing literature only a few extant studies address this question in models that are consistent with debt contracts among them are demeza and webb 1987 1988 1989 and innes 1988 which focus on the third type of informational asymmetry considered below the other two information structures posited in this paper have been studied in several analyses of credit markets but with attention focused on positive attributes of the unfettered competitive equilibrium rather than on prospective implications for welfare enhancing government intervention in what follows th s literature is surveyed and for the first two information structures some new policy results a e presented a critical discussion of the paper s limitations concludes the article

exporting to new destinations and the effects of tariffs the case of meat commodities this study uses a random parameter probit estimation to examine the effects of tariff liberalization on the probability of establishing new trading relationships in meat commodities our simulation results indicate that the effects of tariff reductions decrease with distance but increase with the level of development the probabilities of trade increase at an increasing rate with the size of tariff reductions thus justifying calls for ambitious liberalization schemes canada and mexico are the nafta countries that are most likely to export in response to eu tariff reductions on bovine and poultry meats while brazil and argentina emerge as the mercosur countries most likely to penetrate the eu bovine meat market after eu tariff reductions uruguay s probability to export poultry meat is most responsive to eu tariff reductions

democracy market liberalization and political preferences abstract we estimate the impact of market development and democratization on subjective political preferences we rely on the specific situation of frontier zones and the considerable regional variations in culture and economic development in the countries of the former socialist bloc for identification using a survey conducted in 2006 we find a positive and significant effect of democracy on support for a market economy but no effect of market liberalization on support for democracy hence in contrast with the conventional wisdom concerning the sequencing of political and economic reforms democratization may become a necessary condition to obtain public support for further economic liberalization

staying in business abstract the paper analyses factors which help a small entrepreneurial firm to stay in business the time scale for the analysis is three years 1985 1988 the main issue that the paper is concerned with is the role of market and financial variables primary source data are used an estimated probit model indicates that for this sample product range and gearing are the key maket and financial variables respectively the greater the product range and the lower the gearing ceteris paribus the better the chances of staying in business

the trade off between cash flow and net present value in a world of asymmetric information it is shown that firms need to convey information to the market about the quality of their earnings streams this effort to mitigate the adverse selection problem in financial markets results in a bias in project selection which has a myopic characteristic the result is developed in a simple model it is contrasted with alternative explanations of short termism which invoke earnings distortion by management to mislead a market perceived to be myopic the robustness of the result to the introduction of partially informative cash flows and alternative mechanisms for conveying information is also discussed

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

the implications of increasing globalization and regionalism for the economic growth of small island states abstract this paper provides an overview of the implications of globalization and increasing regionalism for small island states in the context of the critical determinants of their economic growth a brief outline of the globalization process is provided followed by a discussion of regionalism and the trend in subnational regional autonomy this is followed by an overview of the empirical literature on the critical factors determining the growth of small states next is an analysis of the implications for small island states of increasing globalization and regionalism in the context of the critical growth factors identified in the preceding section the paper concludes by proposing an agenda for further research into the implications for small island states of the impact of globalization on specific growth factors

debt contracts and financial intermediation with costly screening we develop a credit market model with adverse selection where risk neutral bor rowers self select because lenders make use of a costly screening technology equilibrium contracts are debt contracts and this is robust to randomization in contrast to results for the costly state verification model this framework permits optimal financial intermediary structures in that there is delegated screening in equilibrium if many borrowers are required to fund individual investment projects contrats de dette et internendiation financiere quand le tamisage est couteux les auteurs developpent un modele de marche du credit avec selection adverse otu les emprunteurs qui sont neutres par rapport au risque se selectionnent eux memes parce que les pr6teurs utilisent une technologie de tamisage qui est cohteuse les contrats d equilibre sont des contrats de dette et ces resultats s averent robustes meme quand on utilise des processus au hasard contrairement a ce qui se passe dans le cas du modele cooteux de verification par l etat ce cadre d analyse suggere des structures d intermediation financiere optimales en ce que en equilibre il y a delegation du tamisage si plusieurs emprunteurs sont necessaires pour

north south and distance in the gravity model abstract it is generally assumed that distance in the gravity model strictly reflects frictions impeding bilateral trade however distances north south could also reflect differences in factor endowment that provide opportunities for profitable trade this paper investigates the hypothesis that if we control for distance in the ordinary sense differences north south promote international trade the hypothesis receives ample support moreover the significance of differences north south survives a battery of robustness tests concerning period distinctions between differences in latitude north north north south and south south and controls for other measures of differences in factor endowment such as differences in per capita output and differences in average temperature rainfall and seasonal range in temperature the impact of differences north south on bilateral trade has also been falling this decline in turn might be partly responsible for the weakening of the influence of distance that has been occurring since world war ii this last hypothesis receives confirmation as well finally the paper examines the impact of internal distance and remoteness on trade since both variables are country specific this is done by studying their impact on the country fixed effects themselves in the earlier estimates internal distance turns out to have a far greater impact than remoteness by an order of 10

the distance puzzle and low income countries an update the distance effect measuring the elasticity of trade flows to distance has been found to be rising since the early 1970s in a host of studies based on the gravity model leading observers to call it the distance puzzle however this puzzle is regularly challenged by new developments in the specification of the gravity equation or in its estimations we propose an original survey on the existing methods used to quantify the distance puzzle basically the computation of an average distance of trade a meta analysis on existing gravity papers and the implementation of recent econometric developments all on a well specified gravity equation both in cross section and panel data we apply all these methods to a unique large database 124 countries from 1970 to 2006 it appears that if all these new developments can change the amplitude of the increase in the trade elasticity to distance none solve the distance puzzle we confirm the existence of this puzzle and identify that it only applies to low income countries which exhibit a significant rising distance effect on their trade of around 18 between 1970 and 2006 while the distance puzzle for trade within richer countries disappears

credit market efficiency and tax policy in the presence of screening costs after establishing the existence of capital market equilibrium in the presence of asymmetric information and screening costs this paper examines tax policies designed to correct the attendant externalities when projects differ in expected returns it is shown to be ambiguous whether costly private screening weakens or strengthens the case for an interest income tax however when projects differ only in riskiness as in the model of stiglitz and weiss screening opportunities cause the efficiency case for tax intervention to disappear

measuring internal trade distances a new method applied to estimate provincial border effects in canada in this paper we suggest an improved methodology for comparing the intensity of trade across and within national and provincial boundaries earlier efforts to assess border effects for provinces or for countries without internal trade statistics made fairly arbitrary assumptions about average distances for internal trade flows we improve on earlier efforts by taking more complete account of the distribution of population within each province or country internal distance is estimated as a population weighted average of intra city and intercity distances as well as distances to and within rural areas we find higher estimates of internal distances and hence border effects than found in previous studies

too much investment a problem of asymmetric information this paper shows that under plausible assumptions the inability of lenders to discover all of the relevant characteristics of borrowers results in investment in excess of the socially efficient level raising the rate of interest above the free market level will restore optimality this conflicts with generally held views and is contrasted with the stiglitz weiss model it is shown that the assumptions which yield overinvestment support debt as the equilibrium method of finance however under the stiglitz weiss assumptions used to derive an underinvestment result equity is shown to be the equilibrium method of finance

offshore pariahs small island economies tax havens and the re configuration of global finance the stock of wealth held offshore is estimated at us 6 trillion many small island economies sies host offshore finance centers and some sies are highly dependent upon offshore finance extreme examples have over 90 of government revenues derived from finance sector activities since 1998 a series of international initiatives have been launched to combat harmful tax practices money laundering and inadequate financial regulation these initiatives will transform the economies of many sies this paper explores the dependence of many sies upon offshore finance and the barriers to diversification arising from their smallness and unique political economies

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

new firm growth and bank financing this paper examines the extent to which lucas ideas on human capital and jovanovic theorising on learning can provide further insights into the development of small firms it focuses exclusively upon newly established independent firms our evidence from two surveys is that bank lending to new firms is unrelated to many of the personal characteristics of founders which have been argued by other researchers to relate to small firm performance instead lending appears to be more related to whether or not the founder can or chooses to use personal savings and the legal status of the business

should courts enforce credit contracts strictly the intimate linkages between law and nance are currently the centre of wide rangingempirical investigations this article presents a simple banking model with informationasymmetries concerning borrowers entrepreneurial talent it is shown that improvements inthe enforcement of contract by courts reduce agency problems but can also reduce the bank sincentive to screen borrowers adequately thus worsening credit allocation a stricterenforcement of credit contracts therefore may be socially harmful even if costlessly achieved improvements in accounting standards however always make bank screening of borrowers lesscostly and improve credit allocation and social welfare

investment and government intervention in credit markets when there is asymmetric information abstract this paper models private firm investment choices and government credit policy in an entrepreneurial firm financial market wherein firm owners have better information about the quality of their return distributions than do external financiers the analysis shows that despite the absence of an informational advantage the government can often increase social welfare by offering subsidized debt contracts however the paper also finds that some common credit subsidy policies including loan guarantees and government backing of targeted lending institutions yield constrained inefficient outcomes in general

asymmetric information option to wait to invest and the optimal level of investment abstract this paper analyzes equilibrium rationing on credit markets in the case of gains from waiting to acquire information about the future profitability of investment we compare the competitive outcome with the socially optimal level of investment we show that the opportunity to postpone investment changes the nature of the inefficiencies of the competitive outcome fundamentally without the option to wait high risk firms tend to invest and the outcome is characterized by a situation of underinvestment if firms can wait high risk firms benefit the most from waiting in this case low risk firms tend to invest immediately and a situation of overinvestment will result since from the banks point of view firms do not delay enough

national borders and international trade evidence from the european union in this paper the impact of national borders on international trade within the european union is considered using a gravity model i find that averaged over all eu countries intranational trade is about ten times as high as international trade with an eu partner country of similar size and distance this relatively strong home bias suggests that even within the european union national borders still have a decisive impact on trade patterns jel classification f02 f14 f15 o52 ce memoire examine l impact des frontieres nationales sur le commerce international a l interieur de l union europeenne on montre que en moyenne pour tous les pays de l union europeenne le commerce intranational est a peu pres dix fois plus important que le commerce international avec un pays partenaire de l union europeenne de meme taille et a meme distance ce degre relativement important de preference nationale suggere que meme dans le cadre de l union europeenne les frontieres nationales ont encore un impact determinant sur les patterns de commerce

credit bureau policy and sustainable reputation effects in credit markets welfare increasing reputation effects arise in credit markets when adverse selection gives rise to borrower reputation formation incentives that mitigate moral hazard problems this paper shows that welfare stemming from reputation effects will diminish over time as the private information of borrowers is revealed to lenders in the form of lengthening credit histories aggregate borrower welfare may therefore decrease over time unless reputation effects can be sustained restricting a lender s access to a borrower s credit history via credit bureau policy is shown to be one method of sustaining reputation effects and preventing a decline in welfare copyright 1995 by the london school of economics and political science

federal lending and aggregate economic activity attention to federal activity in credit markets is typically focused on the government s role as a borrower in contrast scant attention is paid to its equally large and dominant role as a lender this paper evaluates the aggregate impact of federal lending activity within the framework of a vector autoregressive representation of the us macroeconomy the empirical regularities uncovered suggest that aggregate federal lending activity does not have a net positive impact on output

the impact of international portfolio composition on consumption risk sharing abstract recent empirical work has shown that ongoing international financial integration facilitates cross country consumption risk sharing these studies typically find that countries with high equity home bias exhibit relatively low international consumption risk sharing we extend this line of research and demonstrate that it is not only a country s equity home bias that prevents consumption risk sharing in addition the composition of a country s foreign asset portfolio plays an important role using panel data regression for a group of oecd countries over the period 1980 2007 we show that foreign investment bias has additional explanatory power for consumption risk sharing