risk sharing and contagion in networks we investigate the socially optimal design of financial networks that allows to tackle the trade off between risk sharing and contagion we identify conditions on the shock distribution under which full integration or maximal segmentation is optimal we also show that under different conditions the optimal network displays different levels of strength of linkages to other firms or intermediate degrees of segmentation in the latter case the individual and social incentives to establish linkages are not necessarily aligned when firms face heterogeneous distributions of risks they should optimally form linkages only with firms facing risks of the same kind

macroeconomic consequences of the real financial nexus imbalances and spillovers between china and the u s relying on quarterly data since 1998 we estimate for china and the u s small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them we conclude that inflation in china responds to credit shocks indeed the monetary transmission mechanism in china resembles that of the u s even if the channels through which monetary policy affects their respective economies differ we also find that the monetary policy stance of the pboc was helpful in mitigating the impact of the 2008 9 global financial crisis on china s financial conditions finally spillovers from the u s to china are significant and originate from both the real and financial sectors of the u s economy

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

does competition from new equity mitigate bank rent extraction insights from japanese data previous research shows that bank information production mitigates asymmetric information problems however this literature has ignored the concern that firms with better growth prospects are more vulnerable to bank rent extraction this paper points out that funding competition from new equity as an effective natural mechanism solves this important concern using japanese data from 1983 to 1997 we show that the relationship between loan to debt ratio and growth while starting significantly negative consistent with holdup theory turns significantly positive towards the high end of the growth spectrum we confirm that high growth firms raise more new equity than do low growth firms and use more equity relative to bonds in external finance this is consistent with a generalized myers majluf framework these results suggest that for high growth firms when competition from public debt lessens due to increased growth based valuations competition from new equity steps in to restrain bank rent extraction

symmetry breaking in two player games via strategic substitutes and diagonal nonconcavity a synthesis abstract this paper is an attempt to develop a unified approach to symmetry breaking in strategic models arising in industrial organization by constructing two general classes of two player symmetric games that always possess only asymmetric pure strategy nash equilibria these classes of games are characterized in some abstract sense by two general properties payoff nonconcavities and some form of strategic substitutability our framework relies on easily verified assumptions on the primitives of the game and relies on the theory of supermodular games the underlying natural assumptions are satisfied in a number of two stage models with an investment decision preceding product market competition to illustrate the generality and wide scope for application of our approach we present some existing models dealing with r d capacity expansion and information provision which motivated this study

the governance structure of the japanese financial keiretsu abstract we rationalize the cross holdings of debt and equity within the japanese keiretsu as a contingent governance mechanism through which internal discipline is sustained over time the reciprocal allocation of control rights supports cooperation and mutual monitoring among managers through a coalition enforced threat of removal from control in financial distress this threat is less effective and the governance mode shifts to hierarchical enforcement under main bank leadership the model is consistent with the capital structure the distribution of claims the extent of intragroup trading and patterns of investor intervention within the groups

intercorporate shareholdings and corporate control in the japanese firm abstract the purpose of this paper is to specify a formal model that rationalizes the intercorporate shareholdings observed in the japanese equity market as a mechanism for mutual commitment and risk sharing that creates greater possibilities to resolve managerial myopic problems caused by the threat of external takeovers we show that under certain conditions all agents including the existing shareholders of the firm are strictly better off when participating in an implicit contract associated with intercorporate shareholdings the results also suggest that intercorporate ownership raises the stock prices of the member firms

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

informative advertising with differentiated products in this paper we study the role of promotional expenditures by sellers in a model of product differentiation advertising conveys full and accurate information about the characteristics of products heterogeneous consumers who have no source of information other than advertisements seek to purchase the products that best fit their needs despite the roles played by advertising in improving the matching of products and consumers and in increasing the elasticity of demand faced by each firm we find that the market determined levels of advertising are excessive given the extent of diversity in the market we derive a promotional equilibrium based on a specific information transmission technology paying explicit attention to the structure of consumer information and its impact on firms demand curves this allows us to study the effects of changes in the advertising technology including an increased ability to target messages to specific groups of consumers on the equilibrium in the product market we find that decreased advertising costs may reduce profits by increasing the severity of price competition

the provision of information in a bertrand oligopoly a two stage model of a homogeneous good oligopoly is constructed that is composed of a first stage determining costless information provision to consumers and then a second stage of price setting a perfect equilibrium is found that is characterized by les s than full information and by positive expected profits an alternati ve interpretation of the model is of firms deciding the proportion of contracts to tender for and then the prices at which the tenders wil l be made copyright 1993 by blackwell publishing ltd

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

business groups in a market economy abstract the purpose of this paper is to examine the nature and significance of the interfirm relationship called the business group first the nature of the japanese business group is discussed it is then pointed out that the business group is not a phenomenon unique to japan and an effort is made to explain the significance of the business group in the context of a market economy using the williamsonian approach to questions of internal organization and the market finally the relationship between the input output relationship of the firms and their group affiliation is tested

dynamic oligopoly with partial cooperation and antitrust threshold correspondance corresponding author tel 39 011 6705753 fax 39 011 6705783 merlone ugo

oligopolistic competition product variety entry deterrence and technology transfer this article develops a model of product variety to examine how competition among actual and potential market participants determines product characteristics the model is used to consider the effects of market size barriers to entry and differences in tastes between different groups of consumers on the configuration of product types produced welfare and distribution of income the incentive for a firm with a superior technology to sell that technology to other actual and potential producers is also analyzed equilibrium is the outcome of a two stage process in the first stage firms commit themselves to producing a particular model of a commodity they do so sequentially in the second stage firms that have entered determine prices and outputs given the set of firms that entered initially and the models they established we assume perfection in the sense that actual and potential producers make their entry and model choice decisions by calculating correctly the effects of their actions on the second stage outcome in characterizing equilibrium as the outcome of a two stage process with sequential entry at the first stage we follow prescott and visscher 1977 eaton and lipsey 1978 and lane 1980 the first two articles do not provide a complete characterization of the second stage of

the assessment japan s stagnation can policy revive the economy for a decade now japan has virtually stagnated some blame this on a succession of unfavourable shocks that began with the bursting of the bubble economy more appropriate macroeconomic policies targeting inflation and or the exchange rate could in this view lead to a revival others argue that the country s problems are deeper seated and require major structural reforms many aspects of japan s distinctive economic system should in this view be either jettisoned or profoundly changed it is unlikely that demand management policies can add much to what they have done so far deregulation is needed in many areas and would no doubt help but a wholesale rejection of erstwhile institutions and practices does not seem on the cards and might well be disruptive copyright 2000 by oxford university press

becoming a bad doctor we analyze a market with n rational rms doctors and a continuum of boundedly rational consumers patients following spiegler 2006a we assume that patients are not familiar with the market and rely on anecdotes we analyze the price setting game played by doctors with given dierent healing qualities doctors know their own quality as well as the qualities of their competitors in the unique equilibrium all doctors no matter how bad earn positive prots if doctors even costlessly choose their qualities doctors mainly oer mediocre qualities in all spne welfare may strictly decrease in the number of doctors

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

deregulation disintermediation and agency costs of debt evidence from japan abstract many japanese firms reduced dependence on banks following financial deregulation in the 1980s the financial architecture of japanese firms after liberalization provides an opportunity to investigate the choice of financing with public bonds versus monitored bank loans examination of accounting and stock price data for a sample of japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agency costs of debt in particular we find that the proportion of bond debt is inversely related to growth opportunities while the proportion of bank debt is positively related to growth opportunities

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

strategic underinvestment in informative advertising the cases of substitutes and complements the authors analyze the strategic pricing and informative advertising decisions made by firms in duopolistic contexts they show that whether the products are substitutes or complements there exist strategic settings in which firms keep potential consumers uninformed about their products even if the advertising cost is zero

estimating the performance effects of business groups in emerging markets business groups confederations of legally independent firms are ubiquitous in emerging economies yet very little is known about their effects on the performance of affiliated firms we conceive of business groups as responses to market failures and high transaction costs in doing so we develop hypotheses about the effects of group affiliation on firm profitability affiliation could either boost or depress firm profitability and members of a group are likely to earn rates of return similar to other members of the same group using a unique data set compiled largely from local sources we test for these effects in 14 emerging markets argentina brazil chile india indonesia israel mexico peru the philippines south africa south korea taiwan thailand and turkey we find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine group affiliation appears to have as profound an effect on profitability as does industry membership yet strategy scholars have a much clearer grasp of industries than of groups moreover membership in a group raises the profitability of the average group member in several of the markets we examine this runs contrary to the wisdom conventional in advanced economies that unrelated diversification depresses profitability overall our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts conclusions drawn in one context may well not apply to another copyright 2001 john wiley sons ltd

what has driven chinese monetary policy since 1990 investigating the people s bank s policy rule abstract post 1990 chinese monetary policy is modeled with an augmented mccallum type rule that takes into account the people s bank of china s emphasis on targeting the rate of money supply growth people s bank policy appears responsive to the gap between target and actual nominal gdp as well as to external pressures additional cointegration analysis yields estimates of the gap between estimated money demand and actual money supply that appear to track the inflationary trends evident over our sample period chinese inflation and monetary policy outcomes seem reasonably captured using a standard monetary approach without the need to appeal to china specific structural factors

the persistence and implications of japanese keiretsu organization this paper examines two important research questions 1 to what extent have recent economic and regulatory changes influenced the japanese inter corporate network 2 have the patterns of firm performance fostered by the japanese inter corporate system remained stable or has there been an evolution to more north american performance profiles using hierarchical regressions to compare patterns of networking and firm performance with data from the periods 1987 to 1991 and 1992 to 1997 we find little evidence to support the existence of significant changes in the patterns and implications of japanese industrial organization we conclude that the keiretsu system remained strongly in place throughout the first half of the 1990s nevertheless we suggest that the continued move toward globalization of capital markets in japan and ongoing regulatory change may potentially impact networking and performance implications in the 21st century

a multilevel analysis of the performance implications of excess control in business groups a central premise of business groups is that controlling shareholders seize disproportionate control in excess of their ownership as a means of becoming and remaining competitive we reexamine this axiom by exploring the relationship between excess control rights and performance outcomes in business groups using a sample of 106 taiwanese business groups we confirm that the effects of excess control in business groups are double edged such that group level excess control exhibits an inverted u shaped relationship with group performance at the same time results show that when group level excess control is high there is a stronger negative relationship between firm level excess control and firm performance moreover the study indicates that the detrimental effect of excess control is less pronounced in business groups that are governed by family members or by professional managers findings offer a far deeper view than previously proposed on the excess control phenomenon in business groups and the ne

subjective price search and price competition abstract in this paper we study price rivalry between two firms facing a population of imperfectly informed buyers the two sellers are geographically dispersed and consumers search for the lowest price the competitive process either suffers from cyclical instability or stabilises at that price at which no buyer searches

understanding the rise and decline of the japanese main bank system the changing effects of bank rent extraction this paper shows how main bank rent extraction affects corporate decisions about investment and financing during financial regulatory reform our model predicts that limited loanable funds can initially contain main bank controlled overinvestment even when new equity is available to the firm abundant funds facilitate overinvestment to the detriment of firm profitability a shift of control rights back to the firm due to financial deregulation produces an equity for upside potential and bank debt for downside risk bias against the banks a stock market and real estate boom in japan made it harder than ever for the banks to diversify risk the insights from this analysis help explain why japan s main bank system was beneficial in the capital constrained postwar period but became harmful during the capital abundant and even bubbly 1980s and why the adverse shocks of the post deregulation 1990s had such severe effects on the banking system

mixed pricing in oligopoly with consumer switching costs abstract in this paper we develop an alternative and more natural two period model of duopolistic competition with switching costs we find that overall competition is always less severe when consumers find switching suppliers expensive however the relationship between the strength of competition and the importance of switching costs is not monotonic interestingly competition between ex ante identical firms naturally results in firms having asymmetric market shares in equilibrium

informative advertising and entry deterrence a bertrand model abstract this paper shows that strategic entry deterrence via informative advertising is impossible in a game of sequential advertising followed by simultaneous price setting in a homogenous product market it contrasts schmalensee s journal of political economy 91 1983 636 653 result that when the strategic variables at the post advertising stage are quantities not prices optimal entry deterrence is possible and involves underinvestment in advertising

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

management background corporate governance and industrial restructuring the japanese upstream petroleum industry japanese upstream companies have consistently underperformed private independents a recent audit by the ministry of international trade and industry miti underlines the magnitude of financial losses and the necessity for sectoral restructuring miti s proposals involve refocusing rather than redefining upstream policy including recognition that official intervention should be reduced in favour of greater control by the more successful local production companies some commentators claim the proposed reforms do not go far enough the ultimate success of miti s initiatives it is claimed depends upon changes in prevailing corporate governance arrangements and the progressive replacement of existing senior managers with those having superior professional or technical qualification these changes have not been directly mandated by japanese authorities on the other hand miti s proposals do imply a redisrtribution of corporate oversight in favour of greater market control a major step in the direction of increased operational and financial efficiency

on informative advertising and product differentiation abstract we study informative advertising within a random utility non localized competition model of product differentiation quasi concavity of profits may fail as each firm may prefer to deviate to a high price targeting consumers who only become informed about its own product when a symmetric equilibrium exists it is unique increasing the number of firms may increase or decrease the equilibrium price advertising tends to be suboptimal when product differentiation is low and excessive otherwise we also revisit grossman and shapiro grossman g shapiro s 1984 informative advertising with differentiated products review of economic studies 51 63 81 focusing on similarities in constructing a symmetric equilibrium in the two models but also illustrating differences in their welfare properties

market socialism a case for rejuvenation in this paper we will outline a feasible economic mechanism of competitive socialism our claim is that competitive markets are necessary to achieve an efficient and vigorous economy but that full scale private ownership is not necessary for the successful operation of competition and markets contrary to popular impression this claim has not yet been disproved by either history or economic theory it is the failure of both the political right and the left to disentangle the concepts of private ownership and the competitive market that has led to the premature obituaries for socialism in the second section we look at the question of the soft budget constraint as an agency problem under market socialism we then propose two variants of a bank centric system of insider monitoring as a viable solution to the agency problem the next section discusses the essential problem of political accountability and the difficulty of credible pre commitment in avoiding the soft budget constraint problem and suggests ways of minimizing this problem in our proposed system we then conclude by addressing some of the other standard objections to a proposal for market socialism

institutional herding business groups and economic regimes evidence from japan we study institutional herding in japan japanese firms are primarily owned by financial institutions and other corporations they may belong to a business group the keiretsu and they have experienced several distinct economic regimes in its recent past overall we find herding in japan occurs on a lower level than in the united states but with a large impact on price movements the price impact is even greater for keiretsu affiliated firms we also find the effects and behavior of institutional herding depends on the economic condition and the regulatory environment

posting multiple prices to reduce the effectiveness of consumer price search in a model of competition with imperfect consumer price information and incomplete price search some consumers may end up comparing prices originating from the same supplier either because one firm sets multiple prices or because a group of firms colludes this leads to added monopoly power for these firms and average prices in the mixed strategy equilibrium become higher there is a shift in welfare from consumers to producers both with exogenous and endogenous consumer search behaviour however consumers might search more or less with multiple prices the implications for the price setting equilibrium competition policy and recent judgements are considered