the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

going digital credit effects of land registry computerization in india digitization of land records represents a unique way to test for credit supply effects of improved land administration information over time the authors exploit variation in the timing of the shift from manual to digital operation of andhra pradesh s 387 sub registry offices during the state wide rollout of this intervention from 1999 to 2005 data on credit disbursement and registered mortgages for the 1995 2007 period point to significant though quantitatively modest increases in credit access in urban areas institutional factors allow the authors to explain these results

econometric analysis of structural systems with permanent and transitory shocks this paper considers the implications of the permanent transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock it provides a simple and intuitive generalization of the influential work of blanchard and quah 1989 the dynamic effects of aggregate demand and supply disturbances the american economic review 79 655 673 and shows that structural equations with known permanent shocks cannot contain error correction terms thereby freeing up the latter to be used as instruments in estimating their parameters the approach is illustrated by a re examination of the identification schemes used by wickens and motto 2001 estimating shocks and impulse response functions journal of applied econometrics 16 371 387 shapiro and watson 1988 sources of business cycle fluctuations nber macroeconomics annual 3 111 148 king et al 1991 stochastic trends and economic fluctuations american economic review 81 819 840 gali 1992 how well does the islm model fit postwar us data quarterly journal of economics 107 709 735 1999 technology employment and the business cycle do technology shocks explain aggregate fluctuations american economic review 89 249 271 and fisher 2006 the dynamic effects of neutral and investment specific technology shocks journal of political economy 114 413 451

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

does the bund dominate price discovery in euro bond futures examining information shares abstract this paper examines the relative information shares of the bund i e the 10 year euro bond future contract on german sovereign debt versus two futures with shorter maturity we find that the bund is most important but does not dominate price discovery the other contracts also have relevant and at many days even higher information shares in examining determinants of information shares we add order flow measures to market state variables and macroeconomic news more order flow in a contract consistently increases this contract s information share

an empirical investigation of rationing constraints in rural credit markets in india abstract the literature on rural credit markets has generally assumed that households are rationed in their access to subsidized formal credit the validity of this assumption depends on the level of effective demand for formal credit in turn a function of the demand for credit and its availability from informal sources this paper estimates the demand and the sector specific costs of credit and hence the extent of formal sector rationing through an analysis of household participation in both the formal and the informal credit sectors the results show that the extent of rationing is considerably less than what is conventionally assumed

information shocks liquidity shocks jumps and price discovery evidence from the u s treasury market in this paper we identify jumps in u s treasury bond t bond prices and investigate what causes such unexpected large price changes in particular we examine the relative importance of macroeconomic news announcements versus variation in market liquidity in explaining the observed jumps in the u s treasury market we show that while jumps occur mostly at prescheduled macroeconomic announcement times announcement surprises have limited power in explaining bond price jumps our analysis further shows that preannouncement liquidity shocks such as changes in the bid ask spread and market depth have significant predictive power for jumps the predictive power is significant even after controlling for information shocks finally we present evidence that post jump order flow is less informative relative to the case where there is no jump at announcement

complementarity and external linkages the strategies of the large firms in biotechnology in biotechnology large firms enter into different kinds of linkages with universities and small medium sized research intensive firms we test the hypothesis that the strategies of external linkage of the large firms with other parties are complementary to one another we show that if any two strategies are complementary i e undertaking more of one strategy raises the marginal value of the other then they are positively correlated using data for a sample large us european and japanese chemical and pharmaceutical producers we find that the strategies above are positively correlated even after controlling for firm specific characteristics

price movements and price discovery in futures and cash markets r isk transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity working 1962 evans 1978 p 80 and silber 1981 risk transfer refers to hedgers using futures contracts to shift price risk to others price discovery refers to the use of futures prices for pricing cash market transactions working 1948 wiese 1978 p 87 and lake 1978 p 161 the significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities this paper examines the characteristics of price movements in cash or spot markets and futures markets for storable commodities section ii presents an analytical model of simultaneous price dynamics which suggests that over short intervals of time the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract greater elasticity fosters more highly correlated price changes and thereby facilitates the risk transfer function the elasticity of supply of arbitrage services is constrained by among other things storage and transaction costs thus futures contracts will not in general provide perfect risk transfer facilities over short time horizons the essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices hoffman 1932 pp 258259 the model in section ii provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery in section iii we develop a model based on section ii which is appropriate for estimating the lead lag relationship between cash prices and futures prices section iv presents empirical estimates of the parameters of the model for seven different storable commodities wheat corn oats frozen orange juice concentrates copper gold and silver the cost of arbitrage between cash and futures differs across these commodities for this reason we are not surprised to find inter commodity differences in the correlation of short run price changes and in the substitutability of futures contracts for cash market positions with respect to the price discovery function of futures markets we find that while futures markets dominate cash markets cash prices do not merely echo futures prices there are reverse information flows from cash markets to futures markets as well

the price of innovation new estimates of drug development costs the research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms these data were used to estimate the average pre tax cost of new drug development the costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval the estimated average out of pocket cost per new drug is us 403 million 2000 dollars capitalizing out of pocket costs to the point of marketing approval at a real discount rate of 11 yields a total pre approval cost estimate of us 802 million 2000 dollars when compared to the results of an earlier study with a similar methodology total capitalized costs were shown to have increased at an annual rate of 7 4 above general price inflation 2003 elsevier science b v all rights reserved

price formation and liquidity in the u s treasury market the response to public information the arrival of public information in the u s treasury market sets off a two stage adjustment process for prices trading volume and bid ask spreads in a brief first stage the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume demonstrating that price reactions to public information do not require trading the spread widens dramatically at announcement evidently driven by inventory control concerns in a prolonged second stage trading volume surges price volatility persists and spreads remain moderately wide as investors trade to reconcile residual differences in their private views how do financial markets form prices and provide liquidity when information arrives efforts to address this issue have led to an extensive microstructure literature on equity markets and to a lesser extent on the foreign exchange fx market relatively little work has focused on the u s treasury market however in spite of its importance in its own right and the advantages it offers as an alternative testing ground for microstructure hypotheses

contractibility and the design of research agreements we analyze how contractibility affects contract design a major concern when designing research agreements is that researchers may use their funding to subsidize other projects we show that when research activities are not contractible an option contract is optimal the financing firm obtains the option to terminate the agreement and in case of termination broad property rights the threat of termination deters researchers from cross subsidization and the cost of exercising the termination option deters the financing firm from opportunistic termination we test this prediction using 580 biotechnology research agreements contracts with termination options are more common when research is non contractible

agricultural household models extensions applications and policy this book presents the basic model of an agricultural household that underlies most of the case studies undertaken so far the model assumes that households are price takers and is therefore recursive the decisions modeled include those affecting production and the demand for inputs and those affecting consumption and the supply of labor comparative results on selected elasticities are presented for a number of economies the empirical significance of the approach is demonstrated in a comparison of models that treat production and consumption decisions separately and those in which the decisionmaking process is recursive the book summarizes the implications of agricultural pricing policy for the welfare of farm households marketed surplus the demand for nonagricultural goods and services the rural labor market budget revenues and foreign exchange earnings in addition it is shown that the basic model can be extended in order to explore the effects of government policy on crop composition nutritional status health saving and investment and to provide a more comprehensive analysis of the effects on budget revenues and foreign exchange earnings methodological topics primarily the data requirements of the basic model and its extensions along with aggregation market interaction uncertainty and market imperfections are discussed the most important methodological issues the question of the recursive property of these models is also discussed

incomplete contracts and strategic ambiguity why are observed contracts so often incomplete in the sense that they leave contracting parties obligations vague or unspecified traditional answers to this question invoke transaction costs or bounded rationality in contrast the authors argue that such incompleteness is often an essential feature of a well designed contract specifically once some aspects of performance are unverifiable it is often optimal to leave other verifiable aspects of performance unspecified the authors explore the conditions under which this occurs and investigate the structure of optimal contracts when these conditions are satisfied copyright 1998 by american economic association

nonfarm income diversification and household livelihood strategies in rural africa concepts dynamics and policy implications abstract asset activity and income diversification lie at the heart of livelihood strategies in rural africa this paper introduces a special issue on the topic income diversification and livelihoods in rural africa cause and consequence of change we concentrate on core conceptual issues that bedevil the literature on rural income diversification and the policy implications of the empirical evidence presented in this special issue

price discovery in the u s treasury market the impact of orderflow and liquidity on the yield curve we examine the role of price discovery in the u s treasury market through the empirical relationship between orderflow liquidity and the yield curve we find that orderflow imbalances excess buying or selling pressure can account for as much as 26 percent of the day to day variation in yields on days without major macroeconomic announcements the effect of orderflow on yields is permanent and strongest when liquidity is low all of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve

re examining the consumption wealth relationship the role of model uncertainty this paper discusses the consumption wealth relationship we use data on consumption assets and labor income and a vector error correction framework this framework defines a set of models that differ in the number of co integrating vectors the form of deterministic components and lag length further models can be defined through parametric restrictions and in particular interest centers on a weak exogeneity restriction that says that the co integrating residuals do not affect consumption and income directly key results in previous work relate to the roles of permanent and transitory shocks in driving wealth and how consumption responds to these shocks we investigate the robustness of these results to model uncertainty and argue for the use of bayesian model averaging we find that there is a large degree of model uncertainty whether this uncertainty has important empirical implications depends on the researcher s attitude toward the theory used to motivate a co integrating relationship between consumption assets and income if we work with models consistent with this theory and impose the weak exogeneity restriction we find precisely estimated results that show that permanent shocks have only a small role in driving assets and that the predominant transitory shocks have little effect on consumption these findings are consistent with the previous literature however if we work with a broader set of models and let the data speak we find that the exact magnitude of the role of permanent shocks is hard to estimate precisely thus although some support exists for the view that their role is small we cannot rule out the possibility that they have a substantive role to play copyright c 2008 the ohio state university

the impact of credit on peasant productivity and differentiation in nicaragua abstract an endogenous switching regressions framework is used to structure and identify the impact of credit on small farm food production in nicaragua the results which emerge weakly support the hypothesis that credit had a positive impact on production and could be expected to reduce the pattern of structurally unbalanced growth in nicaraguan agriculture however the estimated impact is of a form which implies a process of differentiation and unequal growth in the peasant sector in the wake of the new opportunities afforded by credit

measuring the business cycle effects of permanent and transitory shocks in cointegrated time series abstract this paper proposes a statistical framework to evaluate the contribution of permanent and transitory shocks to the cyclical fluctuations of cointegrated variables an empirical application with us macroeconomic data reveals that transitory shocks are responsible for most of the variability at the business cycle frequencies

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

using evidence of household income diversification to inform study of the rural nonfarm labor market in africa abstract the labor market literature in developing countries has seldom drawn on the studies of rural household income diversification this paper draws on such studies to inform future study of the rural nonfarm labor market in africa the review of evidence provides some surprising departures from traditional images of nonfarm activities of rural households among the most striking is the dominant importance in the majority of case study areas of nonfarm wage labor as compared to self employment of nonfarm sector earnings as compared to farm sector wage earnings and of local nonfarm earnings as compared to migration earnings the most worrying finding was the poor distribution of nonfarm earnings in rural areas despite the importance of these earnings to food security and farm investments this poor distribution implies significant entry barriers and market segmentation it is probable that this will lead over time to an increasingly skewed distribution of land and other assets in rural africa

environmental and gender impacts of land tenure regularization in africa pilot evidence from rwanda although increased global demand for land has led to renewed interest in african land tenure few models to address these issues quickly and at the required scale have been identified or evaluated the case of rwanda s nation wide and relatively low cost land tenure regularization program is thus of great interest this paper evaluates the short term impact some 2 5 years after completion of the pilots undertaken to fine tune the approach using a geographic discontinuity design with spatial fixed effects three key findings emerge from the analysis first the program improved land access for legally married women about 76 percent of married couples and prompted better recordation of inheritance rights without gender bias second the analysis finds a very large impact on investment and maintenance of soil conservation measures this effect was particularly pronounced for female headed households suggesting that this group had suffered from high levels of tenure insecurity which the program managed to reduce third land market activity declined allowing rejection of the hypothesis that the program caused a wave of distress sales or widespread landlessness by vulnerable people implications for program design and policy are discussed

access to capital and its impact on agrarian structure and productivity in kenya access to capital and its distribution across agents can profoundly shape the structure and performance of an agrarian market economy it is conceptually useful to distinguish between ex ante and ex post capital access ex ante capital access denotes the ability of agents to finance production costs e g labor and purchased inputs costs which must be paid ex ante that is prior to the actual realization of production ex post capital access that is access to capital after the realization of the production process is of particular importance as an insurance substitute in low income agrarian economies where contingency markets are imperfect buoyant ex post capital access would permit an individual to stabilize consumption year to year even as production fluctuates annually a number of theoretical models have ex

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

markov switching stochastic trends and economic fluctuations abstract i investigate cointegrating relationships such that even though the long run attractors are assumed to be linear the dynamics of the equilibrium errors depends on the business cycle i postulate a markov switching common stochastic trends model to study both the short run responses to permanent shocks and the effects of recessions in the long run growth i apply these findings to explore the short and long run asymmetric relationships among output consumption and investment

credit constraints credit unions and small scale producers in guatemala abstract efficient and equitable development outcomes may depend in part on whether formal financial institutions leave low wealth producers tightly constrained in their access to credit if so can cooperative institutions efficiently relax these constraints these issues are explored using survey data gathered from 950 small scale producer households in areas of guatemala with market oriented credit unions that mobilize savings and make unsubsidized loans nonprice rationing by banks is found to be common among lower wealth households while credit unions relax credit constraints for a significant portion of those rationed by banks but not the poorest of the study households

credit constraints and productivity in peruvian agriculture this article evaluates the performance of a rural credit market in peru we develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing just like quantity rationing these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity we test the insights of the model using a panel data set from northern peru we estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model we find that consistent with the theory productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households we estimate that credit constraints lower the value of agricultural output in the study region by 26

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

forecasting bank loans loss given default abstract with the advent of the new basel capital accord banking organizations are invited to estimate credit risk capital requirements using an internal ratings based approach in order to be compliant with this approach institutions must estimate the loss given default the fraction of the credit exposure that is lost if the borrower defaults this study evaluates the ability of a parametric fractional response regression and a nonparametric regression tree model to forecast bank loan credit losses the out of sample predictive ability of these models is evaluated at several recovery horizons after the default event the out of time predictive ability is also estimated for a recovery horizon of 1 year the performance of the models is benchmarked against recovery estimates given by historical averages the results suggest that regression trees are an interesting alternative to parametric models in modeling and forecasting loss given default

fx trading and exchange rate dynamics i examine the sources of exchange rate dynamics by focusing on the information structure of fx trading this structure permits the existence of an equilibrium distribution of transaction prices at a point in time i develop and estimate a model of the price distribution using data from the deutsche mark dollar market that prroduces two striking results 1 much of the short term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution that under normal market conditions changes comparatively slowly 2 public news is rarely the predominant source of exchange rate movements over any horizon copyright the american finance association 2002

trading volume and serial correlation in stock returns this paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns for both stock indexes and individual large stocks the first order daily return autocorrelation tends to decline with volume the paper explains this phenomenon using a model in which risk averse market makers accommodate buying or selling pressure from liquidity or noninformational traders changing expected stock returns reward market makers for playing this role the model implies that a stock price decline on a high volume day is more likely than a stock price decline on a low volume day to be associated with an increase in the expected stock return

liquidity credit quality and the relation between volatility and trading activity evidence from the corporate bond market this paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from october 2004 to june 2012 we find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size consistent with the prediction of the search based theory the relations are much stronger for illiquid and risky bonds furthermore both liquidity and credit risk become more important in times of stress and their effects are reinforcing results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market

access to capital and agrarian production organisation there are two problems both universal that entrepreneurs in any economy must contend with firstly an agent generally has access only to a limited amount of working capital secondly workers hired by an agent are subject to moral hazard and this necessitates their supervision this paper models for an agrarian economy the constraints imposed on entrepreneurs activities by these two problems and endogenously determines the various organisational forms of production as well as the allocation of resources that will obtain with a simple model we endeavour to explain a diverse set of empirical observations pertaining to the less developed countries in terms of the general processes that determine the distribution of income among the various agents and the hierarchical relationships that develop among them agricultural production typically involves a period of several months between the time the inputs are purchased and the time the output is marketed access to working capital and hence to the credit market thus plays an important role in a farmer s production decisions the distribution of access to credit in turn tends to be an important determinant of income distribution in poor agrarian economies credit is invariably rationed according to the ability to offer collateral the amount of working capital a farmer can mobilise therefore depends on the amount of land he owns which is often a good proxy for his overall wealth and thus his ability to offer collateral further since hired hands have a propensity to shirk they need to be supervised and therefore the

credit market access and profitability in tunisian agriculture this work develops an econometric model that links credit access with agricultural profitability and investment using data collected from rural tunisia this work provides direct estimates of credit access and its effects econometric estimates are run for agricultural investment and profitability as a function of credit access the investigation of credit access and its effect suggests that the presence of credit market constraints does impinge significantly on farm profitability but not on investments

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

social networks and factor markets panel data evidence from ethiopia we investigate the role of an indigenous social network in ethiopia the iddir in facilitating factor market transactions among smallholder farmers we use detailed longitudinal household survey data and employ fixed effects estimation approaches to identify the effect of iddir membership on factor market transactions among farmers we find that joining an iddir network improves households access to land labour and credit transactions our findings also hint that iddir networks may crowd out borrowing from local moneylenders locally referred as arata abedari a relatively expensive credit source these results suggest that non market institutions can play crucial roles in facilitating market transactions

explaining the swollen middle why most transactions are a mix of market and hierarchy why are firms sometimes more efficient than markets at organizing transactions why are most transactions arrayed neither at the pure market nor at the pure hierarchy end of the continuum but rather in the swollen middle incorporating features of both market and hierarchy why don t firms make greater use of price incentives this paper addresses these three questions by developing a model of the choice of institution one key building block is the distinction between organizing methods hierarchy and the price system and institutions firms and markets hierarchy and the price system are two distinct methods for organizing transactions each with particular costs and benefits markets and firms are institutions which use one or both of these methods although markets predominantly use prices and firms rely principally on hierarchy there is not a one to one correspondence between prices and markets or between hierarchy and firms indeed the paper argues that it is generally more efficient to use a mix of both methods than to specialize in either the paper focuses on the enforcement properties of prices and hierarchy hierarchy controls individuals directly by constraining their behavior by imposing behavior constraints while prices do it indirectly by measuring their outputs through price constraints under hierarchy individuals receive a salary to do as told while self employed individuals governed by the price system are rewarded on the basis of their output each system has its own biases using prices maximizes effort minimizes shirking but incites individuals to inflate the price and or reduce the quality of their output it encourages cheating relying on hierarchy results in the opposite bias under hierarchy individuals are not paid in function of their output but instead are rewarded for following directives they have thus strong incentives to minimize effort to shirk unless properly supervised but being paid a fixed sum to follow orders they have few incentives to cheat hence the price system experiences low shirking but potentially high cheating costs while hierarchy faces low cheating but high shirking costs organizing costs are the sum of shirking and cheating costs any given transaction will be organized by the mix of price and hierarchy i e by the mix of price and behavior constraints that minimizes organizing costs a transaction will be organized within a firm if the reduction in cheating costs achieved by replacing price constraints by behavior constraints exceeds the resulting increase in shirking costs and by the market in the opposite case the paper shows that cheating and shirking costs increase more than proportionately as one concentrates in either pure price or behavior constraints hence using a mix of both methods generally minimizes the sum of cheating and shirking costs this explains why most transactions exhibit features of both markets and hierarchy the paper shows clearly the tradeoff involved between price and behavior constraints it explains the costs and benefits of using two types of price incentives in firms piecework and profit centers and predicts when they will be used

what drives us foreign borrowing evidence on external adjustment to transitory and permanent shocks the joint dynamics of us net output consumption and valuation adjusted foreign assets and liabilities characterized empirically following lettau and ludvigson 2004 is shown to be strikingly consistent with current account theory while us consumption is virtually insulated from transitory shocks these contribute considerably to the variation in net output and even more so in gross foreign positions arguably smoothing temporary variations in returns a single permanent shock naturally interpreted as a productivity shock raises consumption swiftly while causing net output to adjust only gradually this leads to persistent procyclical external deficits but interestingly moves gross assets and liabilities in the same direction

structural vector autoregressions checking identifying long run restrictions via heteroskedasticity long run restrictions have been used extensively for identify ing structural shocks in vector autoregressive var analysis such restric tions are typically just identifying but can be checked by utilizing changes in volatility this paper reviews and contrasts the volatility models that have been used for this purpose three main approaches have been used exoge nously generated changes in the unconditional residual covariance matrix changing volatility modelled by a markov switching mechanism and multi variate generalized autoregressive conditional heteroskedasticity garch models using changes in volatility for checking long run identifying restric tions in structural var analysis is illustrated by reconsidering models for identifying fundamental components of stock prices

credit constraints and agricultural productivity evidence from rural rwanda while potentially negative impacts of credit constraints on economic development have long been discussed conceptually empirical evidence for africa remains limited we use a direct elicitation approach on a national sample of rwandan rural households to empirically assess the extent and nature of credit rationing in the semi formal sector and its impact using an endogenous switching model elimination of all constraints could increase output by some 17 per cent implications for policy and research are spelled out

equilibrium credit rationing of small farm agriculture it is often argued that externally imposed contractual restrictions lead to inequitable credit rationing this paper argues that unrestricted laissez faire markets may also inequitably ration credit a formal model which grants borrowers autonomy in credit application and use demonstrates that adverse incentive and selection effects may cause banks to endogenously impose interest rate restrictions and ration small farms out of the credit market consequently liberalization of financial markets may be insufficient to guarantee small farms access to credit

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

effective interim collaboration how firms minimize transaction costs and maximise transaction value this study of automotive transaction relationships in the u s a and japan offers abta which indicate that transaction costs do not necessarily increase with an increase in reiation specijk investments we empirically examine the conditions under which transactors can simultaneously achieve the twin benejits of high asset specificity and low transaction costs this is possible because the dtfferent safeguards which can be employed to control opportunism have different set up costs and result in different transaction costs over dl erent time horizons we examine in detail the ractices of javanese firms which result in effective inteq n collaboration 1997 by john wiley sons ltd

uninsured health shocks and agricultural productivity among rural households the mitigating role of micro credit this article investigates how health shocks affect farm productivity in the presence of microcredit it is expected that microcredit increases agricultural productivity by enhancing allocative and

impulse response analysis of cointegrated systems abstract impulse response or dynamic multiplier analysis of vector autoregressive systems with cointegrated variables is considered the asymptotic distribution of the responses estimated with johansen s 1988 maximum likelihood procedure is derived the results are illustrated with an analysis of a west german money demand system the investigation shows that a direct interpretation of the cointegration relations may be difficult or misleading thereby the virtue of impulse response analysis for applied work is illustrated

wealth risk and activity choice cattle in western tanzania abstract imperfect credit markets force households to use their savings for investment profitable activities often require lumpy investments limiting entry by poorer households resulting in increasing welfare differences in tanzania cattle are a profitable but lumpy investment and a liquid asset for consumption smoothing richer households own substantial cattle herds while poorer households specialize in low return low risk activities a dynamic programming model and simulations are presented to analyze entry into asset accumulation under income risk the evidence suggests that households with lower endowments are less likely to own cattle and returns to their endowments are lower

farm investment credit rationing and governmentally promoted credit access in poland a cross sectional analysis abstract the aim of this paper is to empirically analyse the effects of governmentally promoted credit access on the investment behaviour of credit rationed farmers in poland this is done by an econometric analysis of cross sectional polish farm household data a probit analysis revealed that the reputation of the borrower but not the availability of land as collateral had an effect of credit rationing the estimates of an investment equation suggest that access to subsidised credit has a statistically significant role in determining investment behaviour of farmers in various specifications of the credit investment relationship the average marginal effect of credit on investment was smaller than one which implies that credit is partly used for purposes other than productive investment furthermore investment volume is negatively related to farm size a governmental policy which aims to promote productive investment should emphasise lending in larger amounts without discriminating against small farms

cross border listings and price discovery evidence from u s listed canadian stocks we examine the contribution of cross listings to price discovery for a sample of canadian stocks listed on both the toronto stock exchange tse and a u s exchange we nd that priceson the tse and u s exchange are cointegrated and mutually adjusting the u s share of price discovery ranges from 0 2 percent to 98 2 percent with an average of 38 1 percent the u s share is directly related to the u s share of trading and to the ratio of proportions of informative tradeson the u s exchange and the tse and inversely related to the ratio of bid ask spreads with the enhanced globalization of nancial markets the number of non u s rms cross listing shares on a u s exchange has substantially increased attracting non u s listings is now a top priority of the u s stock exchanges at the end of 2000 420 non u s rmswere listed on the new york stock exchange nyse the number of foreign rmslisted on nasdaq waseven higher the popularity of international cross listings has prompted many academic studies on the topic 1 most of these studies focus on the bene ts of international cross listings including the reduced cost of capital and the enhanced liquidity of a rm s stock studiessuch asalexander eun and janakiramanan 1987 1988 and foerster and karolyi 1993 suggest that the cost of capital declines because the portion of the risk premium that compensates for cross border investment barriers dissipates miller 1999 and foerster and karolyi 1999 propose increased investor recognition as another possible explanation several studies examine changes in trading volume and costs due to international cross listing foerster and karolyi 1998 nd that the bid ask spreads in canada decrease after the cross listing of canadian stocks in the united states domowitz glen and madhavan 1998 suggest that the impact of cross listing is complex and depends on the degree of quote transparency that is the extent to which price information is observable in the two markets smith and so anos 1997 examine if cross listing is a zerosum game with increased trading in the united states being oiset by reduced

formal and informal governance in biotechnology alliances board oversight contractual control and repeated deals in complex transactions like strategic alliances firms are likely to employ both formal and informal governance mechanisms to achieve effective alliance governance the question of whether formal and informal governance mechanisms are complements or substitutes needs to be addressed within the context of effective governance as a means to economic value creation for the transacting partners rather than an either or choice between the two perspectives the substitute hypothesis and the complement hypothesis on the relationship between formal and informal governance mechanisms i provide evidence from the biotechnology industry that alliances characterized by high levels of exchange hazards utilizing both mechanisms supporting the complements hypothesis whereas those alliances with lower levels of exchange hazards utilize only one type of governance mechanism finding seemingly contrasting results within a single institutional setting suggests that in addition to institution specific characteristics alliance specific characteristics may also be critical for understanding how alliance partners utilize multiple governance mechanisms

measuring international business cycles by saving for a rainy day macroeconomics inevitably begins with a trend cycle decomposition of a nation s output we propose a decomposition in which consumption is the trend component and savings is the cycle component using data from the g 7 plus australia we show that this decomposition identifies international business cycles that are i more volatile ii of longer mean duration and iii less correlated across countries than the cycle component from the hodrick prescott filter we argue that this difference stems from the fact that our method imposes a basic theoretical restriction arising from the permanent income hypothesis similar to the restriction used in cochrane s 1994 decomposition resume mesurer les cycles d affaires internationaux par l epargne les travaux en macroeconomie commencent inevitablement par une decomposition du profil de la production nationale en tendance et cycles les auteurs proposent une decomposition ou la composante consommation est la tendance et l epargne est la composante cyclique utilisant les donnees du g 7 et de l australie on montre que cette decomposition identifie les cycles d affaires internationaux qui sont i plus volatiles ii d une duree moyenne plus longue et iii moins co relies entre pays que la composante cyclique a la hodrick prescott les auteurs suggerent que la difference provient du fait que leur methode impose une restriction theorique de base emergent de l hypothese du revenu permanent semblable a la restriction utilisee dans la decomposition a la cochrane 1994

permanent and transitory shocks in the presence of asymmetric error correction this article highlights the potential importance of asymmetries in the loading vector of a set of cointegrated variables for the construction analysis and interpretation of permanent and transitory shocks using impulse response functions we derive an asymmetric version of the permanent transitory decomposition suggested by gonzalo and ng 2001 and illustrate the potential importance of such asymmetries using the cay data of lettau and ludvigson 2004

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

risk and return long run relations fractional cointegration and return predictability univariate dependencies in market volatility both objective and risk neutral are best described by long memory fractionally integrated processes meanwhile the ex post difference or the variance swap payoff reflecting the reward for bearing volatility risk displays far less persistent dynamics using intraday data for the standard poor s 500 and the volatility index vix coupled with frequency domain methods we separate the series into various components we find that the coherence between volatility and the volatilityrisk reward is the strongest at long run frequencies our results are consistent with generalized long run risk models and help explain why classical efforts of establishing a

direct elicitation of credit constraints conceptual and practical issues with an application to peruvian agriculture abstract this article provides a methodological bridge leading from the well developed theory of credit rationing to the less developed territory of empirically identifying credit constraints we begin by developing a simple model showing that credit constraints may take three forms quantity rationing transaction cost rationing and risk rationing each form adversely affects household resource allocation and thus should be accounted for in empirical analyses of credit market performance we outline a survey strategy to directly elicit households status as unconstrained or constrained in the credit market and if constrained to further identify which of the three nonprice rationing mechanisms is at play we discuss several practical issues that arise due to the use of a combination of factual and interpretative survey questions finally using a farm level data set from peru we illustrate how the methodology can be used to estimate the impacts of credit constraints

price discovery in the u s treasury market automation vs intermediation this paper examines the contribution to price discovery by electronic and voice based trading systems in the u s treasury market evidence shows that the electronic trading system has more price discovery and that trading automation increases the speed of incorporating information into prices however human trading generates significant price discovery though its volume is low the relative contribution of a trading system to price discovery depends on liquidity volatility volume trade size and order imbalance the voice based trading system contributes more to price discovery when trade size is large and liquidity is low these findings provide important implications for the design of electronic markets for securities with different characteristics and trading environments this paper was accepted by wei xiong finance

stochastic trends and fluctuations in national income wages and profits macroeconomics and especially the theory of business cycles went through very important changes during the last ten years during the seventies most macroeconomists believed that economic activity evolved around a deterministic trend cyclical components and unanticipated changes in policy were believed to be the source of economic fluctuations the real business cycle rbc models which began to emerge in the early eighties cast doubt on this belief according to the rbc theory the cumulative effect of permanent shocks to productivity explains economic fluctuations the proponents of the rbc theory assume that productivity shocks are exogenous and are not affected by aggregate demand shocks therefore monetary shocks have no role in explaining economic fluctuations in fact according to the rbc theories money responds positively to fluctuations in production induced by technological shocks therefore the positive correlation between output and money is one of reverse causation critics of the rbc theories argue that productivity shocks cannot be treated strictly as exogenous evans 5 provides evidence that a significant portion of the variance of productivity impulse can be attributed to aggregate demand shocks another line of research by christiano and eichenbaum 4 shows that monetary policy shocks have persistent liquidity effects as well as persistent increases in output in this paper we investigate the role of monetary factors in explaining fluctuations in both

measuring core inflation in this paper we argue that measured rpi inflation is conceptually mismatched with core inflation the difference is more than just measurement error we propose a technique for measuring core inflation based on an explicit long run economic hypothesis core inflation is defined as that component of measured inflation that has no medium to long run impact on real output a notion that is consistent with the vertical long run phillips curve interpretation of the co movement in inflation and output we construct a measure of core inflation by placing dynamic restrictions on a vector autoregression var system

learning to contract evidence from the personal computer industry organizational forms involving more detailed contracts than are found in traditional spot market exchanges appear to be increasingly prevalent there has been relatively little analysis however of the extent to which firms learn how to use contracts to manage their interfirm relationships over time in this paper we conduct a detailed case study of a time series of 11 contracts concluded during 1989 1997 between the same two partners both of whom participate in the personal computer industry to explore whether and how firms learn to contract we find many changes to the structure of the contracts that cannot be fully explained by changes in the assets at risk in the relationship and evidence that these changes are largely the result of processes in which the firms were learning how to work together including learning how to contract with each other the nature of this learning appears to have been quite incremental and local that is not very far sighted we suggest how and when contracts might serve as repositories for knowledge about how to govern collaborations and suggest some boundary conditions for this phenomenon our findings also provide implications for the debate about whether contracts have a positive or negative effect on interorganizational trust we conclude with suggestions for future research

price discovery and trade fragmentation in a multi market environment evidence from the mts system this paper proposes new metrics for the process of price discovery on the main electronic trading platform for euro denominated government securities analysing price data on daily transactions for 107 bonds over a period of twenty seven months we find a greater degree of price leadership of the dominant market when our measures as opposed to the traditional price discovery metrics are used we also present unambiguous evidence that a market s contribution to price discovery is crucially affected by the level of trading activity the implications of these empirical findings are discussed in the light of the debate about the possible restructuring of the regulatory framework for the treasury bond market in europe

income portfolios in rural ethiopia and tanzania choices and constraints the article analyses the different income portfolios of households using survey data from rural ethiopia and rural tanzania it suggests that the different portfolios held by households cannot be e

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

a systematic framework for analyzing the dynamic effects of permanent and transitory shocks this paper proposes a systematic framework for analyzing the dynamic e ects of permanent and transitory shocks on a system of n economic variables we consider a two step orthogonolization on the residuals of a vecm with r cointegrating vectors the rst step separates the permanent from the transitory shocks and the second step isolates n r mutually uncorrelated permanent shocks and r transitory shocks the decomposition is computationally straightforward and entails only a minor modi cation to the choleski decomposition commonly used in the literature we then show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence in an empirical example the dynamic responses to the identi ed permanent shocks have properties similar to shocks to productivity the real interest rate and money growth even though no economic

farm productivity in rwanda effects of farm size erosion and soil conservation investments this paper examines the effects of farm size soil erosion and soil conservation investments on land and labor productivity and allocative efficiency in rwanda there were several key results first there is a strong inverse relationship between farm size and land productivity and the opposite for labor productivity for smaller farms there is evidence of allocative inefficiency in use of land and labor probably due to factor market access constraints second farms with greater investment in soil conservation have much better land productivity than average those with very eroded soils do much worse than average smaller farms are not more eroded than larger farms but have twice the soil conservation investments third land productivity benefits substantially from perennial cash crops and the gains to shifting to cash crops are highest for those with low erosion and high use of fertilizer and organic matter program and policy effort to encourage and enable farmers to make soil conservation investments to use fertilizer and organic matter and to participate in cash cropping of perennials will have big payoffs in productivity land markets that allow smaller farmers to buy land could also increase aggregate productivity

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

bond yields and the federal reserve bond yields respond to policy decisions by the federal reserve and vice versa to learn about these responses i model a high frequency policy rule based on yield curve information and an arbitrage free bond market in continuous time the fed s target is a pure jump process jump intensities depend on the state of the economy and the meeting calendar of the federal open market committee the model has closed form solutions for yields as functions of a few state variables introducing monetary policy helps to match the whole yield curve because the target is an observable state variable that pins down its short end and introduces important seasonalities around fomc meetings the volatility of yields is snake shaped which the model explains with policy inertia the policy rule crucially depends on the two year yield and describes fed policy better than taylor rules

information forecasts and measurement of the business cycle the beveridge nelson bn technique provides a forecast based method of decomposing a variable such as output into trend and cycle when the variable is integrated of order one i 1 this paper considers the multivariate generalization of the bn decomposition when the information set includes other i 1 and or stationary variables we show how the relative importance of the cyclical component depends on the size of the information set and is necessarily higher with multivariate bn decompositions the results are illustrated using post wwii united states data an explanation is also provided for the empirical finding of a positive association of the multivariate bn cycle with output growth

income diversification and entry barriers evidence from the tigray region of northern ethiopia abstract farm households diversify their income sources into off farm wage employment motivated by low farm income and availability of surplus family labor whereas they enter into off farm self employment to earn an attractive return farm households have upward sloping although inelastic off farm labor supply curves therefore increasing the availability of off farm activities and improving the wage rate received by farm households can expand the economic activity of the tigray regional state due to entry barriers relatively wealthy farm households may dominate the most lucrative rural non farm activities such as masonry carpentry and petty trade hence the underlying factors that hinder participation in non farm activities such as credit constraints and lack of skill may have to be addressed through the provision of credit and technical training for the poor

crowding out or crowding in public and private investment in india abstract this paper contributes to the debate on the relationship between public and private investment in india along the following dimensions first acknowledging major structural changes that the indian economy has undergone in the past three decades we study whether public investment in recent years has become more or less complementary to private investment in comparison to the period before 1980 second we construct a novel data set of quarterly aggregate public and private investment in india over the period 1996 2015 using investment project data from the capex cmie database third embedding a theory driven long run relationship on the model we estimate a range of structural vector error correction models svecms to re examine the public and private investment relationship in india identification is achieved by decomposing shocks into those with transitory and permanent effects our results suggest that while public investment crowds out private investment in india over the period 1950 2012 the opposite is true when we restrict the sample to post 1980 or conduct a quarterly analysis since 1996 this change can likely be attributed to the policy reforms which started during the early 1980s and gained momentum after the 1991 crisis

the effect of the financial sector on the evolution of oil prices analysis of the contribution of the futures market to the price discovery process in the wti spot market abstract the aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils specifically that for west texas intermediate wti for this purpose we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market we modeled the relation between wti spot and future prices as a cointegration relation by using the kalman filter technique it was possible to obtain a time varying measure of the contribution of future markets to the price discovery mechanism the results show that in the case of wti the contribution of the futures market has been increasing especially between 2003 and 2008 and then again after the start of 2009 evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years during 2009 the spot prices adjusted to agents future expectations rather than to the current supply and demand conditions

formal contracts in the presence of relational enforcement mechanisms evidence from technology development projects formal contracting addresses the moral hazard problems inherent in interfirm deals via explicit terms designed to achieve incentive alignment alternatively when firms expect to interact repeatedly relational mechanisms may achieve similar results without the associated costs however as we now know from a growing body of theoretical and empirical work the resulting intuition that relational mechanisms will be substituted for formal ones whenever possible does not generally hold the extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper we study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms counter to the above intuition but consistent with recent research we find that a firm s contracts are more detailed and more likely to include penalties when it engages in frequent deals whether with the same or different partners our results suggest complementarity between formal and relational contracts and have implications for optimal contracting particularly in high technology sectors

complementarity and evolution of contractual provisions an empirical study of it services contracts an increasing volume of business activity appears to be occurring via alliances or other interfirm arrangements in which complex contracts are featured yet there has been relatively little study of contract design in the strategy or management literatures the economics literature on contracting has been extensive but it has been less concerned with learning and evolution phenomena in which strategy and organization scholars are deeply interested in this paper we investigate the relationship between two types of contractual provisions that are important in high technology contracts or contracts for which environmental uncertainty or technological complexity are significant namely contingency planning and task description previous research suggests that contracts can vary significantly in the degree of detail with which such key provisions are written and that they are each subject to learning in this paper we find evidence from a sample of 386 contracts that contingency planning and task description behave as complements in contractual design we argue that this complementarity reflects patterns of learning to contract we also find that repeated exchange between two firms leads to greater effort at contingency planning in subsequent contracts a finding that is also consistent with learning effects but not with frequently made claims that contracts and trust are substitutes

risk rationing and wealth effects in credit markets theory and implications for agricultural development we develop a model that shows that asymmetric information can result in two types of credit rationing conventional quantity rationing and risk rationing whereby farmers are able to borrow but only under high collateral contracts that offer them lower expected well being than a safe subsistence activity after exploring its incidence with respect to wealth we show that risk rationing has important policy implications specifically land titling will be only partially effective because it does not enhance producers willingness to offer up the collateral needed to secure loans under moral hazard constraints efforts to enhance agricultural investment and the working of agricultural credit markets must step beyond land titling and also deal with risk copyright 2008 oxford university press