consumption and debt response to unanticipated income shocks evidence from a natural experiment in singapore abstract this paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock consumption rose significantly after th

economics of leadership and hierarchy this paper explores leadership within hierarchical organizations for each hierarchy i consider a dynamic signaling game in which each player observes only the actions of his direct superiors before choosing his action at the top of the hierarchy are the leaders who learn the state from nature the hierarchy controls the flow of information and the timing of the game and determines the equilibrium output and welfare i show that the welfare optimal hierarchy is the chain because it maximizes the incentive of players to lead by example for their subordinates the chain remains optimal even in the presence of verifiable or unverifiable costly information acquisition by the leaders

do renewable energy technology innovations promote china s green productivity growth fresh evidence from partially linear functional coefficient models abstract renewable energy technology innovation can benefit the environment by promoting green productivity as proposed by existing theoretical studies however recent uneven developments of both environmental performance and renewable energy technology among regions in china remind us to revisit the above theoretical link in this paper we relax the hypothesized homogeneity and linearity in traditional empirical models to investigate the effects of renewable energy technology innovation on china s green productivity the results of the partially linear functional coefficient models show that the effect of renewable energy technological innovation on green productivity is significant only when the relative income level of a province passes a critical turning point beyond the turning point such an effect increases with the growth of relative income levels finally we provide provincial specific policy implications based on the estimated nonparametric relationship between renewable energy technology innovation and green productivity

a quantitative model of sovereign debt bailouts and conditionality in times of sovereign debt crises international financial institutions provide temporary financial support contingent on the implementation of specific macroeconomic policies this paper develops a model of sovereign debt and default with endogenous participation rates in bailout programs conditionality enters as a constraint on fiscal policy in the model the insurance character of bailouts generates incentives for debt accumulation quantitative results suggest that bailouts prevent sovereign defaults in the short run but may come at a cost of a greater default probability in the long run increasing the intensity of conditionality lowers the bailout participation rate and generates a hump shaped pattern of sovereign default risk

incentives and loss of control in an optimal hierarchy this paper studies incentives and loss of control in a hierarchy model which combines and generalizes the models of williamson calvo wellisz and keren levhari in our model of the hierarchy the levels of effort from managers and workers the wage scales the span of control and in particular the total number of tiers are all endogenous using optimal control techniques we show that in the optimal hierarchy the wage scales and effort levels decrease as one moves down the hierarchy as the hierarchy expands with no technological progress workers exert less effort and are paid less top managers work harder and are paid more and the wage distribution becomes increasingly skewed

coordination and delay in hierarchies this article studies hierarchical organizations where concerns for fast execution are important and employees must be coordinated to avoid wasteful duplications of effort simple conditions are provided for the time spent on coordinating subordinates to be increasing and the span of control to be decreasing as one goes up the hierarchy with equalities holding if delay is all that matters when returns to specialization are substantial the span of control also tends to widen and the hierarchy to flatten as urgency increases the model suggests that concerns for fast execution may be key in explaining recent trends toward decentralization and delayering in firms

working wives and convenience consumption this paper examines role overload as a possible explanation for the lack of direct links between working wife families and convenience consumption role overload is combined with factors from past research in a structural equation model parameters are estimated using lisrel iv on data provided by an area cluster sample of 186 households from the milwaukee smsa the resultant model is generally supportive of the proposed theory

voluntary sovereign debt exchanges we show that some recent sovereign debt restructurings were characterized by i the absence of missed debt payments prior to the restructurings ii reductions in the government s debt burden and iii increases in the market value of debt claims for holders of the restructured debt since both the government and its creditors are likely to benefit from such restructurings we label these episodes as voluntary debt exchanges we present a model in which voluntary debt exchanges can occur in equilibrium when the debt level takes values above the one that maximizes the market value of debt claims in contrast to previous studies on debt overhang in our model opportunities for voluntary exchanges arise because a debt reduction implies a decline of sovereign default risk this is observed in the absence of any effect of debt reductions on future output levels although voluntary exchanges are pareto improving at the time of the restructuring we show that eliminating the possibility of conducting voluntary exchanges may improve welfare from an ex ante perspective thus our results highlight a cost of initiatives that facilitate debt restructurings

learning about the nature of production from equilibrium assignment patterns this paper exploits empirically a key insight from lucas 1978 and rosen 1982 that the organization of production and the distribution of earnings across individuals are jointly determined by the equilibrium assignment of individuals to firms and hierarchical positions we study how different classes of production functions generate alternative equilibrium assignments we then use confidential census data on u s law offices to investigate the form that the production function should take to rationalize earnings patterns in legal services we argue that earnings patterns in this industry are consistent with a production function that is characterized by asymmetric sensitivity to the skill of agents in different organizational positions complementarity between managers and workers skill and scale effects in individual skill

non defaultable debt and sovereign risk abstract we quantify gains from introducing limited financing through non defaultable debt into a model of equilibrium sovereign risk for an initial sovereign spread of 4 2 introducing the possibility of issuing non defaultable debt for up to 10 of aggregate income reduces immediately the spread to 1 5 and implies a welfare gain equivalent to a permanent consumption increase of 0 8 nevertheless the spread reduction achieved by the introduction of non defaultable debt is short lived our findings shed light on different aspects of proposals to introduce common euro area sovereign bonds that could be virtually non defaultable

do land revenue windfalls create a political resource curse evidence from china abstract by analyzing a panel on the political turnovers of 4390 county leaders in china during 1999 2008 we find that the revenue windfalls accrued to these officials from land sales have undermined the effectiveness of the promotion system for government officials instead of rewarding efforts made to boost gdp growth promotion is positively correlated with signaling efforts and with corruption the robust positive relationship between land revenue windfalls and political turnover or specifically promotion suggests that those who are politically connected to their superiors and those beyond the prime age for promotion are the primary beneficiaries the case for corruption is substantiated by the evidence inferred from anti corruption crackdowns which reveals that the additional effect of land revenue on political turnover and size of bureaucracy a proxy for corruption decreases significantly in crackdowns but that land revenue has no effect on city construction expenditure a proxy for signaling

decentralization hierarchies and incentives a mechanism design perspective separation of ownership from management multidivisional firm organizations delegation of production decisions to worker teams delegation of pricing and advertising decisions to retail franchisers reliance on intermediaries in trade or finance and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision making authority instead of centralizing it this paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination it starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ one class of models pertain to contexts where the classical revelation principle applies i e where costs of contractual complexity information processing or communication are absent agents do not collude and the mechanism designer can commit to the mechanism delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality top down contracting and monitoring of transfers or production assignments between subordinates the next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility which has to be traded off against possible control losses of delegation finally consequences of collusion among agents is discussed which typically enlarge the range of circumstances under which delegation can attain optimal second best outcomes the paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role adoption of innovative human resource management practices new information technologies and retail franchising

debt dilution and sovereign default risk we measure the effects of debt dilution on sovereign default risk and study debt covenants that could mitigate these effects we calibrate a baseline model with endogenous debt duration and default risk in which debt can be diluted using data from spain we find that debt dilution accounts for 78 percent of the default risk in the baseline economy and that eliminating dilution increases the optimal duration of sovereign debt by almost 2 years eliminating dilution also increases consumption volatility but still produces welfare gains the debt covenants we study could help enforcing fiscal rules

recent experience with commercial bank debt reduction has the menu outdone the market abstract debt reduction at market terms has been criticized as too expensive from the point of view of the debtor the recent reduction agreements following the menu approach are partially concerted but they also possess some elements of voluntariness this raises two issues a what is the conceptual justification for such financial arrangements and b based on recent evidence to what extent have these arrangements reduced the cost of debt reduction in a review of six recent menu driven debt reduction agreements we find that the debtors achieved a far better financial result than would have been feasible with simple market buybacks

the firm as a dedicated hierarchy a theory of the origins and growth of firms in the formative stages of their businesses entrepreneurs have to provide incentives for employees to protect rather than steal the source of organizational rents we study how the entrepreneur s response to this problem determines the organization s internal structure growth and its eventual size large steep hierarchies will predominate in physical capital intensive industries and will have seniority based promotion policies by contrast e at hierarchies will prevail in human capital intensive industries and will have up or out promotion systems furthermore e at hierarchies will have more distinctive technologies or cultures than steep hierarchies the model points to some essential differences between organized hierarchies and markets at the root of most enterprises generating economic surplus is an entrepreneur with a unique critical resource such as an idea good customer relationships a new tool or superior management technique a fundamental problem of entrepreneurship is how to enlist the cooperation of the many agents necessary for production without ceding to them too much of the surplus generated by the enterprise the risk of being expropriated however is always inherent in production in particular the entrepreneur has to give her employees whom we call managers close proximity or access to the critical resource for them to learn to produce effectively for example a manager has to understand the idea be in contact with the key customers and suppliers or even learn the entrepreneur s unique managerial techniques in order to work effectively but access also gives the manager the opportunity to expropriate this critical resource and compete against the entrepreneur managers may steal the idea walk away with clients or mimic the entrepreneur s management style and start up a rival concern the greater the access a manager has the more he can appropriate and the more effectively he can compete this paper explores the role of organizational design in

comparing static and dynamic estimates of behavioral responses to changes in family composition or income comparing static estimates of behavioral responses with dynamic estimates and using different time spans for the latter reveals striking differences in estimated effects of changing family composition income and wife s work these are interpreted to be the result of several things 1 bias in the cross section estimates from unmeasured and perhaps unmeasurable variables that do not affect the dynamic change data 2 lags in adjustment with static data being closer to long run effects and 3 different relative importance of errors in measuring the explanatory variables the effects of changing family composition appear to be less affected by any of these problems than are the estimated effects of changes in income or wife s work

decentralization aggregation control loss and costs in a hierarchical model of the firm abstract we study the multi divisional firm with the help of a model which links organizational structure and performance we add to our previous model an ability to delegate decisions at the cost of control loss and study its effects on both the structure and the average costs of the firm our technique involves the aggregation of observations and disaggregation of commands the aggregation while simplifying the calculations by superiors and saving time introduces error into their decisions the tradeoff between time and error is taken into account in the construction of the hierarchy

is the implementation of energy saving and emission reduction policy really effective in chinese cities a policy evaluation perspective abstract reducing pollutant emissions while ensuring a stable economic growth is an important embodiment of sustainable development based on the national comprehensive demonstration of energy saving and emission reduction fiscal policy eser policy proposed by the chinese government in 2011 this paper analyzes the impact of such policy on emissions reduction and economic growth under the framework of differences in differences did method this paper first identifies the implementation conditions of eser policy then we adopt three specifications to control the endogenous problem for the selection of demonstration cities the robustness test verifies the reliability of our findings and the spillover effect analysis reveals the deficiency of this policy we reach the following conclusions 1 different from the previous studies we find that the eser policy can effectively reduce the pollutant emissions while ensuring a stable economic growth 2 however the event study reveals that the reduction effect is only existing in the demonstration period which means that this policy is not sustainable 3 furthermore we find no spillover effect of eser policy on the non policy targeted pollutant suggesting that the local government only cares about the reduction of policy targeted pollutants based on these findings we propose that the future energy saving and emissions reduction policy formulation should focus on the policy sustainability and overall environmental performance

sovereign default private sector creditors and the ifis abstract the data reveal that emerging market sovereign borrowing from international financial institutions ifis is small intermittent and countercyclical compared to that from private sector creditors the ifi loan contracts offered to sovereigns differ from the private ones in that they are more enforceable and have conditionality arrangements attached to them taking these contractual differences as given this paper builds a quantitative model of a sovereign borrower and argues that better enforceability of ifi loan contracts is the main institutional feature that explains the size and cyclicality while conditionality accounts for the intermittency of borrowing from the ifis

china s land market auctions evidence of corruption this paper studies the urban land market in china in 2003 2007 in china all urban land is owned by the state leasehold use rights for land for re development are sold by city governments and are a key source of city revenue leasehold sales are viewed as a major venue for corruption prompting a number of reforms over the years reforms now require all leasehold rights be sold at public auction there are two main types of auction regular english auction and an unusual type which we call a two stage auction the latter type of auction seems more subject to corruption and to side deals between potential bidders and the auctioneer absent corruption theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders or are cold which would suggest negative selection on property unobservables into such auctions however if such auctions are more corruptible that could involve positive selection as city officials divert hotter properties to a more corruptible auction form the paper finds that overall sales prices are lower for two stage auctions and there is strong evidence of positive selection the price difference is explained primarily by the fact that two stage auctions typically have just one bidder or no competition despite the vibrant land market in chinese cities

sovereign debt repurchases no cure for overhang troubled debtor countries do not gain by repurchasing external bank debt at market discount even if a buyback would stimulate investment by relieving debt overhang the reason is that buybacks allow creditors to reap more than 100 percent of any efficiency gains that might result from increased investment we show that open market buybacks provide a benchmark for evaluating more complex negotiated buyback deals by comparing any given deal with a hypothetical market buyback of the same size one can derive upper and lower bounds on the gain to the country we apply our model to the 1990 mexican debt deal

sovereign debt guarantees and default lessons from the uk and ireland 1920 1938 abstract we study the daily yields on irish land bonds listed on the dublin stock exchange during the years 1920 1938 we exploit irish events during the period and structural differences in land bonds to tease out a measure of investors credibility in a uk sovereign guarantee using ireland s default on intergovernmental payments in 1932 we find a premium of about 43 basis points associated with uncertainty about the uk government guarantee we discuss the economic and political forces behind the irish and uk governments decisions pertaining to the default our finding has implications for modern day proposals to issue jointly guaranteed sovereign debt further in view of all the historical circumstances it is not equitable that the irish people should be obliged to pay away these moneys eamon de valera 12 october 1932

income elasticities of household expenditures a us cross section perspective two linear engel functions are estimated for household total expenditure and for 15 aggregated classifications of consumer durable non durable and service expenditures one model contains only income as the regressor variable the second model incorporating a broad range of household demographic variables introduces three new regressors number of earners in the household self employment status of the reference person and value of household financial assets utilizing cross section data on annual expenditures income elasticities are derived and compared across models the expanded engel model dramatically strengthens estimates for all expenditure categories and generates income elasticities generally lower than those derived from the simpler engel function

welfare gains of bailouts in a sovereign default model abstract we examine the welfare effects of bailouts in economies exposed to sovereign default risk when a government of a small open economy requests a bailout from an international financial institution it receives a non defaultable loan of size g that comes with imposed debt limits the government endogenously asks for the bailout during recessions and repays it when the economy recovers hence the bailout acts as an imperfect state contingent asset that makes the economy better off the bailout duration is endogenous and increases with its size the bailout size creates non trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand and facing longer lasting financial constraints and accumulated interest payments on the other hand we characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump shaped in the size of bailout loans

state capacity conflict and development the absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states this paper reports on an ongoing project to investigate the incentive to invest in such capacities the paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government the approach highlights some determinants of state building including the risk of external or internal conflict the degree of political instability and dependence on natural resources throughout we link these state capacity investments to patterns of development and growth

language and the theory of the firm we characterize efficient technical languages and study their interaction with the scope and structure of organizations efficient languages use precise words for frequent events and vague words for unusual ones a broader organizational scope allows for more synergies to be captured but reduces within unit efficiency since it requires a more generic language a manager working as specialized translator may also be used to achieve between unit coordination while maintaining separate languages our theory reconciles two recent well documented phenomena within organizations the recent increase in information centralization and the reduction in hierarchical centralization

does flattening government improve economic performance evidence from china this paper examines a causal relationship between the flattening of a government hierarchy and economic performance by exploiting a panel data set on government reorganization in china from 1995 to 2012 delayering has led to increases in revenue and inter governmental transfers for county governments but the associated enlarged span of control makes it difficult for upper level governments to coordinate and monitor local ones this has led to a reduction in county governments total public expenditure and pro growth expenditure as well as an increase in land corruption overall the flattening of the government hierarchy has a negative effect on economic performance

television and voter turnout i use variation across markets in the timing of television s introduction to identify its impact on voter turnout the estimated effect is significantly negative accounting for between a quarter and a half of the total decline in turnout since the 1950s i argue that substitution away from other media with more political coverage provides a plausible mechanism linking television to voting as evidence for this i show that the entry of television in a market coincided with sharp drops in consumption of newspapers and radio and in political knowledge as measured by election surveys i also show that both the information and turnout effects were largest in off year congressional elections which receive extensive coverage in newspapers but little or no coverage on television

esbies safety in the tranches it is well known that rational bubbles can be sustained in balanced growth path of a deterministic economy when the return to capital r is equal to the growth rate g when there is a lack of stores of value bubbles can implement an e cient allocation this paper considers a world where r auctuates over time due to shocks to the marginal productivity of capital then bubbles further e ciency though they cannot implement orst best while bubbles can only be sustained when r g in a deterministic economy r g on average in a stochastic economy fiscal policy improves welfare by adding an extra asset where only the elderly contribute to shifting resources between investment and consumption in a bubbly economy oscal policy allows part of that burden to be shifted to the young contrary to common wisdom trade in bubbly assets implements intergenerational transfers while oscal policy implements intragenerational transfers hence while bubbles and oscal policy are perfect substitutes in the deterministic economy oscal policy dominates bubbles in a stochastic economy for plausible parameter values a higher degree of dynamic ine ciency should lead to a higher sovereign debt

the agricultural roots of chinese innovation performance abstract a debate is brewing in the literature on whether legacies of rice and wheat cultivation in china matters for cultural attributes in particular individualism vs collectivism in turn this important cultural dimension has recently been shown to affect the pattern of innovation across countries however the previous literature has not firmly connected agricultural legacies and innovation rates and has consistently used low resolution data we study the role of agricultural legacy for innovation performance using unique patent data from close to two thousand chinese counties we provide robust evidence that counties with a legacy of rice cultivation generate fewer patent applications than other counties and a legacy of wheat production tends to be associated with more patent applications the results for rice are robust to e g controlling for temperature precipitation irrigation disease burden religiosity and corruption as well as accounting for migration patterns our results firmly establish the importance of agricultural legacy for shaping the culture of innovation

incentives information and organizational form we model an organization as a hierarchy of managers erected on top of a technology here consisting of a collection of plants in our framework the role of a manager is to take steps to reduce the adverse consequences of shocks that affect the plants beneath him we argue that different organizational forms give rise to different information about managers performance and therefore differ according to how effective incentives can be in encouraging a good performance in particular we show that under certain assumptions the m form multi divisional form is likely to provide better incentives than the u form unitary form because it promotes yardstick competition i e relative performance evaluation more effectively we conclude by presenting evidence that the assumptions on which this comparison rests are satisfied for chinese data

long duration bonds and sovereign defaults abstract this paper extends the baseline framework used in recent quantitative studies of sovereign default by assuming that the government can borrow using long duration bonds this contrasts with previous studies which assume the government can borrow using bonds that mature after one quarter we show that when we assume that the government issues bonds with a duration similar to the average duration of sovereign bonds in emerging economies the model generates an interest rate that is substantially higher and more volatile than the one obtained assuming one quarter bonds this narrows the gap between the predictions of the model and the data which indicates that the introduction of long duration bonds may be a useful tool for future research about emerging economies our analysis is also relevant for the study of other credit markets

project characteristics incentives and team production we develop a model to show how agency conflicts free rider effects and monitoring costs interact to affect optimal team size and workers incentive contracts team size increases with project risk decreases with profitability and decreases with monitoring costs as a proportion of output our predictions are consistent with empirical evidence that firm specific risk has increased over time average corporate earnings have declined and firms organizational structures have also flattened the predicted effects of monitoring costs on team size are supported by evidence that improvements in information technology likely to lower monitoring costs lead to larger teams further firms with relatively more intangible assets where monitoring costs are likely to be higher are smaller optimal incentive intensities decrease with risk and increase with profitability the endogenous determination of team size accentuates the positive effects of a decline in risk and an increase in profitability on incentives

wives labor force behavior and family consumption patterns in 1940 the labor force participation rate for married women husband present was 14 percent by 1970 it had increased 26 percentage points to 40 percent the supply and demand variables associated with this increase have been widely investigated however there has been ve ry little research on the economic effects of wives labor force participation see r agarwala and j drinkwater margaret carroll robert holbrook and frank stafford lucy mallan and jacob mincer this paper analyzes two economic effects the effect on the ratio of consumption to income ciy and the effect on the ratio of durable goods purchases to income durly the primary question addressed is controlling for total family income and several other variables what are the differences if any in the ratios of ciy and durly for working wife w w and nonworking wife n w w families looked at in another way the question may be rephrased how do w w families use wives income

under the weather health schooling and economic consequences of early life rainfall life in rural areas of developing countries is prone to many kinds of risk such as illness or mortality of household members crop or other income loss due to natural phenomena weather insect infestations or fire for example and civil conflict in addition to their contemporaneous effects the effects of certain types of shocks may still be felt many years or even decades later from a public policy standpoint it is particularly important to identify shocks that have large long run effects moreover the mechanics underlying the persistence of shocks may be of con siderable interest for example a health shock may have a long run effect simply because the health shock itself persists over time alternately the health shock may not directly affect long run outcomes but it could affect some other outcome such as educational attainment that helps determine long run well being in this paper we focus on shocks that occur at the very beginning of life we ask how sensi tive long run individual well being is to environmental conditions around the time of birth in particular we examine the effect of weather shocks around the time of birth on the adult health education and socioeconomic outcomes of indonesian women and men born between 1953 and 1974 in addition we attempt to shed light on the intervening pathways connecting early life rainfall to adult outcomes illuminating the roles of health and educational attainment in deter mining adult socioeconomic status this investigation has considerable data requirements it necessitates information on weather shocks experienced by individuals several decades earlier as well as detailed current informa tion on adult outcomes we use information in the indonesian family life surveys ifls on an individual s year and location of birth and link each individual in that survey to locality specific rainfall data for their birth year for individuals born in rural areas on whom we focus rainfall variation across space and time should generate corresponding variation in agricultural output and thus household income to deal with measurement error in the rainfall data we run instrumental variables regressions where variables for rainfall measured at slightly more distant rainfall stations serve as instruments for rainfall in the individual s birthplace and birth year we examine the impact of early life rainfall on a range of adult outcomes observed in 2000 we find that higher early life rainfall leads to improved health schooling and socioeconomic status for women women with 20 percent higher rainfall relative to normal local rainfall in their year and location of birth are 3 8 percentage points less likely to self report poor or very poor health they attain 0 57 centimeters greater height attain 0 22 more completed grades of