taxes and capital structure understanding firms savings abstract the u s non financial corporate sector became a net lender to the rest of the economy in the early 2000s with close to half of all publicly traded firms holding financial assets in excess of their debt liabilities we develop a simple dynamic model of debt and equity financing where firms strive to accumulate financial assets even though debt is fiscally advantageous relative to equity moreover firms find it optimal to fund additional financial asset holdings through equity revenues the calibrated model matches well the distribution of public firms balance sheets during the 2000s and correctly predicts which firms are net savers

how debt markets have malfunctioned in the crisis the financial crisis that began in 2007 is especially a crisis in debt markets a full understanding of what happened in the financial crisis requires investigation into the plumbing of debt markets during a financial crisis when funds often cannot be raised easily or quickly the fundamental values for certain assets can become separated for a time from market prices with consequences that can echo into the real economy this article will explain in concrete ways how debt markets can malfunction with deleterious consequences for the real economy after a quick overview of debt markets i discuss three areas that are crucial in all debt markets decisions risk capital and risk aversion repo financing and haircuts and counterparty risk in each of these areas feedback effects can arise so that less liquidity and a higher cost for finance can reinforce each other in a contagious spiral i will document the remarkable rise in the premium that investors placed on liquidity during the crisis next i will show how these issues caused debt markets to break down indeed fundamental values and market values seemed to diverge across several markets and products that were far removed from the toxic subprime mortgage assets at the root of the crisis finally i will discuss briefly four steps that the federal reserve took to ease the crisis and how each was geared to a specific systemic fault that arose during the crisis

the interaction of monetary and macroprudential policies i analyze a new keynesian dynamic stochastic general equilibrium dsge model where the financing of productive investment is affected by a moral hazard problem i solve for jointly ramsey optimal monetary and macroprudential policies i find that when a financial friction is present in addition to the standard nominal friction the optimal policy can replicate the first best allocation if the social planner can conduct both monetary and macroprudential policy using monetary policy alone is not enough a policy trade off between stabilizing inflation and output gap emerges when policy follows simple rules the source of fluctuations is relevant for the choice of the appropriate policy mix

estimating dynamic demand for cigarettes using panel data the effects of bootlegging taxation and advertising reconsidered abstracct a dynamic demand for cigarette consumption is estimated using pooled data of 46 states over the period 1963 to 1980 a price elasticity of 0 2 and an insignificant income elasticity is found using pooled estimation techniques the bootlegging effect is modeled explicitly using neighboring price the effect is found to be significant two major policy issues are analyzed in light of these new estimates 1 cigarette taxation is found to be an effective tool for generating revenues even though there may be spillover effects to neighboring states where bootlegging is significant 2 the effects of the fairness doctrine act and the advertising ban on cigarette consumption are re examined we find mild support for the effectiveness of subsidized anti smoking messages in reducing cigarette consumption and no support for the thesis that the ban on advertising helps to increase per capita consumption

the effects of price and smoking risk information on the demand for tobacco in taiwan an empirical study this study evaluates the effects of a cigarette price increase and smoking risk information on tobacco consumption in taiwan tobacco price expenditure and an index of smoking risk information for taiwan were introduced into a central bureau of statistics cbs demand model to estimate several cigarette demand elasticity coefficients according to this model increasing the cigarette price is a more effective means of reducing cigarette consumption than disseminating more risk information in addition we found that a price rise of nt 5 per cigarette pack would cause a reduction in the consumption of domestic and imported cigarettes of 3 23 and 4 86 packs per capita respectively total per capita consumption of cigarettes would be reduced annually by 8 09 packs 7 56 despite this reduction in cigarette consumption the increase in cigarette price would at the same time lead to a significant net increase in tax revenue to the taiwan government

securitized markets international capital flows and global welfare we study the effect of collateralized lending and securitization on the global supply of securitized assets welfare and international net and gross capital flows in a two country general equilibrium model with idiosyncratic investment risk the financial sectors in the two countries home and foreign differ by the collateral requirement for investment loans with home requiring lower margins in autarky home endogenously supplies more assets and enables more risk sharing upon financial integration capital flows from foreign to home leading to lower interest rates and an increase in the global supply of assets foreign enjoys substantial welfare gains through better risk sharing and portfolio reallocation while the welfare experience for home is ambiguous gross capital flows arise when agents face aggregate shocks to the expected payoff to investment projects but can collapse when shocks concern the variance of returns

advertising and the us market demand for beer the us per capita market demand for beer is empirically estimated to determine the effect of advertising on the demand for beer the empirical results indicate that the most important determinants of demand are the price of beer the price of substitutes demographic factors and a light beer dummy variable the positive effects of income and lagged consumption appear to be small although many have argued that advertising promotes beer consumption the empirical results of this study do not support this hypothesis

parallel imports and the pricing of pharmaceutical products evidence from the european union we consider policy issues regarding parallel imports pis of brand name pharmaceuticals in the european union where such trade is permitted we develop a simple model in which an original manufacturer competes in its home market with pi firms the model suggests that for small trade costs the original manufacturer will accommodate the import decisions of parallel traders and that the price in the home market falls as the volume of parallel imports rises using data from sweden we find that the prices of drugs subject to competition from parallel imports fell relative to other drugs over the period 1994 1999 econometric analysis finds that parallel imports significantly reduced manufacturing prices by 12 19 there is evidence that this effect increases with multiple pi entrants

money liquidity and monetary policy in a market based financial system banking and capital market developments are inseparable and funding conditions are closely tied to fluctuations in the leverage of market based financial intermediaries offering a window on liquidity the balance sheet growth of broker dealers provides a sense of the availability of credit contractions of broker dealer balance sheets have tended to precede declines in real economic growth even before the current turmoil for this reason balance sheet quantities of market based financial intermediaries are important macroeconomic state variables for the conduct of monetary policy

cross national price differences for pharmaceuticals how large and why bilateral drug price and quantity indexes based on comprehensive data for seven countries us canada france germany italy japan and the uk refute the conventional wisdom that us drug prices are much higher than elsewhere for laspeyres us weighted indexes previous drug price comparisons are biased by unrepresentative samples and unweighted indexes quasi hedonic regression shows that cross national price differences reflect differences in product characteristics and in their implicit prices which reflect the regulatory regime strict price regulation systematically lowers prices for older molecules and globally diffused molecules generic competition lowers prices in less regulated regimes which also have more price elastic demand

leverage cycles and the anxious economy ing opportunities for emerging economies their access to international markets has turned out to be very volatile with frequent periods of market closures even worse as we will show emerging economies with sound fundamentals are the ones that issue less debt during these closures the goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets like emerging markets that are not yet mature enough to be attractive to the general public their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy who are also marginal buyers of other risky assets we will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses

information shocks and cigarette addiction views from dynamic panels with common structural changes in this article we attempt to evaluate the impact of various information shocks on cigarette consumption in contrast to the existing studies we do not impose any break points a priori we use recently developed techniques for sample splitting in the data on us cigarette demand and find that using a time index as a transition variable can cluster cigarette demand into four distinct regimes in the past four decades a myopic to rational switch in cigarette consumption behaviour was observed in response to various anti smoking information events in particular we find strong evidence in support of the rational addiction model in the 1980s and 1990s moreover in line with the theoretical prediction our estimate of the long run elasticity is twice as large as the short run elasticity our empirical framework should improve policy makers understanding of the dynamics of cigarette consumption in response to various anti smoking campaigns and stress the role of sound policy making in improving smoking con

is there the threshold effect of cigarette price on smoking prevalence a cross country panel data analysis this article shows new cross country evidences by empirically investigating the joint effects of cigarette price levels and joining the world health organization framework convention on tobacco control who fctc on smoking prevalence in 74 countries over the period of 2000 2003 2005 and 2006 we assessed cigarette price elasticity for three national income levels using different databases on cigarette price from the economist intelligence unit eiu demographic and socioeconomic country characteristics from the world bank and adjusted smoking prevalence rates published by various yearly who reports on the global tobacco epidemic from 2000 to 2010 a panel threshold regression was used to capture the nonlinear effects that cigarette prices on smoking prevalence at the three national income levels endogenously determined by estimation our findings supported the evidence that joining the who fctc would have a positive effect on reducing cross country smoking prevalence especially among countries with l

taxation or regulation looking for a good anti smoking policy abstract this paper investigates the relative ability of two anti smoking policies taxes and regulation in inducing reductions in cigarette consumption and in providing incentives to stop smoking or not to start to our results based on canadian data show that cigarette demand responds to taxes elasticity of 0 28 but not to regulation while the converse is true for the proportion of smokers in the population

markets gift cards the mobil oil company introduced the first retail gift card that recorded value on a magnetic strip in 1995 in under a decade such gift cards replaced apparel as the number one item sold during the christmas season this study will discuss the reasons for the strong surge in the gift card market it will then consider the value of gift cards as an intermediate option between two alternatives purchasing a physical gift which could possibly be returned or exchanged versus giving cash empirical data on the resale price of gift cards from an internet auction website provide information on the value that recipients place on gift cards suggesting that the difference between the cost of a gift card to the giver and its value to the recipient is substantial although perhaps not quite as large as the parallel gap involved in physical gifts

the asymmetric relationship between executive earnings management and compensation a panel threshold regression approach abstractprior research shows that chief executive officers ceos are rewarded for their earnings management we re examine this issue using a panel threshold regression approach which allows the effect of earnings management on the ceo compensation to change across the level of earnings management and ceo compensation our results show that the effect of ceos discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation in particular for firms with moderate inordinate levels of earnings management and ceo compensation earnings management is rewarded penalized

cigarette tax avoidance and evasion variation in state cigarette taxes provides incentives for tax avoidance through smuggling legal border crossing to low tax jurisdictions or internet purchasing when taxes rise tax paid sales of cigarettes will decline both because consumption will decrease and because tax avoidance will increase the key innovation of this paper is to compare cigarette sales data to cigarette consumption data from the behavioral risk factor surveillance system brfss i show that after subtracting percent changes in consumption residual percent changes in sales are associated with state cigarette tax changes implying the existence of tax avoidance i estimate that the tax avoidance response to tax changes is at least twice the consumption response and that tax avoidance accounted for up to 9 6 of sales between 1985 and 2001 because of the increase in tax avoidance tax paid sales data understate the level of smoking and overstate the drop in smoking i also find that the level of legal border crossing was very low relative to other forms of tax avoidance if states have strong preferences for smoking control they must pair high cigarette taxes with effective policies to curb smuggling and other forms of tax avoidance or employ alternative policies such as counter advertising and smoking restrictions

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

who bears the cost of a change in the exchange rate pass through accounting for the case of beer abstract nominal exchange rates are remarkably volatile they ordinarily appear disconnected from the fundamentals of the economies whose currencies they price these facts make up a classic puzzle about the international economy if prices do not respond fully to changes in the nominal exchange rate who bears the cost of such large and unpredictable changes foreign firms domestic firms or domestic consumers this study presents a new analysis of the sources of incomplete pass through and then uses this analysis to re examine its implications for social welfare i develop and estimate a structural model that analyzes the sources of local currency price stability for a particular industry the model enables counterfactual simulations that quantify the relative importance of firms local cost components and markup adjustments in the incomplete transmission of exchange rate shocks to prices and the effect of the exchange rate shock on domestic and foreign firms profits and on consumer surplus the model is applied to a panel dataset of one industry with retail and wholesale prices for upc level products i find that markup adjustments by manufacturers and the retailer explain roughly half of the incomplete transmission and local cost components account for the other half foreign manufacturers generally bear a greater cost or reap a greater benefit following an exchange rate induced marginal cost shock than do domestic consumers domestic manufacturers or the domestic retailer

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

credit provision and banking stability after the great financial crisis the role of bank regulation and the quality of governance abstract in response to the great financial crisis gfc bank regulatory regimes were tightened world wide to strengthen banking stability and the resilience of the banking sectors yet it is often claimed that regulatory tightening may lead banks to cut back on lending and comes at the cost of a lower loan supply the present paper uses a country panel for 50 advanced and emerging market economies to analyze how the post crisis tightening in supervision and regulation affected aggregate bank stability and aggregate credit growth we find that higher capital buffers improved aggregate bank stability after the gfc whereas a strengthening of supervisory independence helped to reduce the decline in domestic credit and improved the stability of banks both effects have been stronger for countries with relatively poor institutions thus our results suggest that bank supervision regulation and institutions tend to be substitutes rather than complements

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

horizontal and vertical indirect tax competition theory and some evidence from the usa this paper provides a simple theoretical framework for analysing simultaneous vertical and horizontal competition in excise taxes and estimates equations informed by the theory on a panel of us state and federal excise taxes on cigarettes and gasoline we also examine the role played by smuggling the results are generally consistent with the theory when the characteristics of the markets for the goods are taken into account for neither good do federal excise taxes affect state taxes taxes in neighbouring states have a significant and large effect in the case of cigarettes and a much weaker effect in the case of gasoline we also find that in the setting of cigarette taxes concerns about cross border shopping play a more important role than concerns about smuggling

cigarettes and addiction information simulating the demand effects of the tobacco industry s conspiracy of silence although cigarette manufacturers were aware of the addictive properties of nicotine as early as 1962 the information did not become available to the us public until 1979 when the surgeon general disclosed it us department of health education and welfare 1979 this study simulates the impact this information would have had on the demand for cigarettes had it been released in 1962 the simulations build on past work by fenn et al 2001 who found evidence that the release of addiction information resulted in a structural shift in demand in 1979 in the present study the econometric results from fenn et al 2001 are used to compute simulated time paths for state level per capita consumption under the hypothetical scenario involving the earlier release of the addiction information using these simulated consumption paths the projected reductions in cigarette sales revenue are calculated these dollar figures provide a benchmark against which to judge the compensation amounts that the industry must

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

a textbook example of international price discrimination we show that books for general audiences are similarly priced internationally but textbooks are substantially more expensive in the united states we argue that cost factors cannot explain this phenomenon and discuss several demand side explanations

rising cigarette prices and rising obesity coincidence or unintended consequence economists have begun to debate if the rise in cigarette prices in the u s in recent decades has contributed to the nation s rise in obesity reaching conclusions that are surprisingly sensitive to specification i show that allowing for the effect to occur gradually over several years leads to the conclusion that a rise in cigarette prices is actually associated with a long run reduction in body mass index and obesity this result is robust to the different methodologies used in the literature i also provide evidence that indirect effects on exercise and food consumption may explain the counterintuitive result

arbitrage across borders why itunes gift cards sell above face value on ebay i introduction firms that operate internationally often charge different prices for the same product in different countries these price differences may be due to cost differences exchange rate fluctuations and or price discrimination where firms set prices based on consumers willingness to pay for the product there is an extensive literature on international price differences but nearly all of this research has focused on physical goods where arbitrage the situation where someone buys the product from a low price country and resells it to someone in a high price country tends to be relatively costly because of transaction costs including search costs and transportation costs there have been no empirical papers in the economics literature thus far on the arbitrage of downloadable goods this paper looks at the case of itunes which sells downloadable music videos books ipad and iphone applications and other content worldwide and shows how the sale of itunes gift cards above face value on the auction website ebay is linked to the arbitrage of itunes products itunes which is operated by apple first started selling music downloads in 2003 and by 2008 it was the largest music retailer in the united states and the world 1 people typically purchase products from their own country specific itunes stores but not all content is available in all countries due in part to licensing restrictions and consumer preferences e g itunes does not sell music movies and tv shows in many countries prices also vary across countries as detailed in section iii of this paper one can easily switch to any other country s itunes store with just a few mouse clicks in particular the u s store would seem to be a natural focal point and it tends to have lower prices and a wider selection however in order to actually purchase something from the u s store one needs to have either a u s credit card or a u s itunes gift card available in denominations ranging from 10 to 100 in the primary market through apple and its authorized sellers such as wal mart and best buy as such it can be surmised that some individuals outside the united states may be willing to purchase itunes gift cards on ebay in order to gain access to the u s store it should be noted that itunes terms and conditions specify that the u s store s products are available only to buyers in the united states we can see the evidence for this through the sale of itunes gift cards on ebay nearly 200 itunes gift cards are sold daily on ebay about 10 of all gift cards and more than half of these itunes gift cards sell above face value a phenomenon that is unusual among gift cards after discussing some background information and related literature this paper examines more than 1 300 ebay transactions in february 2011 and finds that itunes gift cards targeted to international buyers which are often sent electronically are more likely to have higher prices controlling for seller reputation shipping charges and other variables this indicates that non u s buyers are willing to pay a premium for the gift cards because they are unable to obtain them otherwise information about the buyers countries allows us to see whether it is the u s store s greater product availability or its lower prices that buyers are interested in this paper addresses an important issue because of the rising popularity of the sales of downloadable content worldwide this market includes music videos books video games and applications the internet has also made it easier for buyers and sellers in different countries to find one another and in the case of digital products exchange goods if arbitrage is widespread firms may decide to either minimize price differences between countries stop selling in low price countries altogether or use the legal system or other methods to prevent arbitrage in terms of the big picture this issue has implications for social welfare copyright enforcement and international trade policies and governments in some countries may also be concerned if their citizens have access to goods that are banned

taxation regulation and addiction a demand function for cigarettes based on time series evidence this work analyzes the effects of prices taxes income and anti smoking regulations on the consumption of cigarettes in california a 25 cent per pack state tax increase in 1989 enhances the usefulness of this exercise analysis is based on monthly time series data for 1980 through 1990 results show a price elasticity of demand for cigarettes in the short run of 0 3 to 0 5 at mean data values and 0 5 to 0 6 in the long run we find at least some support for two further hypotheses that antismoking regulations reduce cigarette consumption and that consumers behave consistently with the model of rational addiction

effect of generic cigarettes on us cigarette demand and smuggling abstract this paper examines the effects of generic cigarettes on overall cigarette demand and smuggling and studies influences of casual and organized smuggling for the united states generic cigarettes lower the price elasticity and diminish the effect of formal smuggling

leverage across firms banks and countries we present new stylized facts on bank and rm leverage during the period 2000 2009 using internationally comparable micro level data from many countries we document the following patterns a there was an increase in leverage for investment banks prior to the sub prime crisis b there was no visible increase in leverage for the typical commercial bank and non nancial rm c o balance sheet items constitute a big fraction of assets especially for large commercial banks in the us whereas investment banks do not report these items d the leverage ratio is procyclical for investment banks and for large commercial banks in the us e banks in emerging markets with tighter bank regulation and stronger investor protection experienced signicantly less deleveraging during the crisis the results suggest that excessive risk taking before the crisis was not easily detectable because the risk involved the quality rather than the quantity of assets

pennies from ebay the determinants of price in online auctions this paper presents an exploratory analysis of the determinants of prices in online auctions for collectible united states one cent coins at the ebay web site starting with an initial data set of 20 000 auctions we perform regression analysis on a restricted sample of 461 coins for which we obtained estimates of book value we have three major findings first a seller s feedback ratings reported by other ebay users have a measurable effect on her auction prices negative feedback ratings have a much greater effect than positive feedback ratings do second minimum bids and reserve prices have positive effects on the final auction price in particular minimum bids appear only to have a significant effect when they are binding on a single bidder as predicted by theory third when a seller chooses to have her auction last for a longer period of days this significantly increases the auction price on average

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

parallel imports demand dispersion and international price discrimination parallel imports goods imported by unauthorized resellers are advocated worldwide for undermining international price discrimination for a continuum of markets we find that uniform pricing by a monopolist yields lower global welfare than third degree discrimination if demand dispersion across markets is large though uniform pricing avoids output misallocation too many markets go unserved mixed systems permitting discrimination across but not within designated groups of markets yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination and can pareto dominate uniform pricing thus while parallel imports might benefit some countries our results weaken the multilateral case for allowing them

adverse selection in electronic markets evidence from online stamp auctions we analyze adverse selection costs in online stamp auctions based on a comparison of prices on ebay with those of matched stamps at a specialty stamps auction site in the u s michael rogers inc mr which we know a priori has low quality uncertainty we find that buyer prices are 10 15 lower on ebay as compared to mr and the price difference increases with the value of the stamps consistent with this adverse selection discount we find that the seller reputation mechanism on ebay has an economically modest although statistically significant effect on auction price and probability of sale

us monetary policy and the global financial cycle us monetary policy shocks induce comovements in the international financial variables that characterize the global financial cycle a single global factor that explains an important share of the variation of risky asset prices around the world decreases significantly after a us monetary tightening monetary contractions in the us lead to significant deleveraging of global financial intermediaries a decline in the provision of domestic credit globally strong retrenchments of international credit flows and tightening of foreign financial conditions countries with floating exchange rate regimes are subject to similar financial spillovers

excise tax avoidance the case of state cigarette taxes we conduct an applied welfare economics analysis of cigarette tax avoidance we develop an extension of the standard formula for the optimal pigouvian corrective tax to incorporate the possibility that consumers avoid the tax by making purchases in nearby lower tax jurisdictions to provide a key parameter for our formula we estimate a structural endogenous switching regression model of border crossing and cigarette prices in illustrative calculations we find that for many states after taking into account tax avoidance the optimal tax is at least 20 smaller than the standard pigouvian tax that simply internalizes external costs our empirical estimate that tax avoidance strongly responds to the price differential is the main reason for this result we also use our results to examine the benefits of replacing avoidable state excise taxes with a harder to avoid federal excise tax on cigarettes

an embarrassment of riches confronting omitted variable bias and multiscale capitalization in hedonic price models abstract many researchers have addressed concerns of omitted variable bias in hedonic price models through the use of spatial fixed effects we argue that this approach does not consider the biases introduced by effects that overlap the zone of capitalization for nonmarket goods we show this bias can dominate the usual omitted variable bias using data on developer provided open space we control for multiscale capitalization and omitted variables simultaneously by extending the hausman taylor estimator where the panel component of the estimator is defined over repeated transactions within neighborhoods rather than the traditional definition following a unique cross sectional unit through time

a nearly global look at the dynamics of youth smoking initiation and cessation the role of cigarette prices this study investigates the role of cigarette prices on smoking initiation and cessation among youth in a sample of eight primarily non western low middle and high income countries with a particular focus on a subsample of 40 low and middle income countries lmics using split population duration models on longitudinally transformed individual data from the global youth tobacco survey gyts the average impact of cigarette prices in the presence of unobserved country heterogeneity and shifting cultural norms within countries is identified by the variation of cigarette prices within countries over time price increases are found to effectively reduce initiation in early youth and girls are considerably more responsive than boys the price elasticity of initiation in lmics is 0 82 for the combined gender analysis 0 46 for boys only and 1 5 for girls only there is some indication that youths in developing countries may be slightly less responsive to price changes than in high income countries no

demand for cigarettes revisited an application of the threshold regression model recent estimates of the income elasticity of cigarette demand have pointed to a disturbing result a nearly zero or sometimes negative income elasticity in order to explore the nonlinearity embedded in the cigarette demand structure we employ a four regime panel model dynamic fixed effect to estimate the cigarette demand function in the united states the results indicate that income elasticity is i positively significant for the income level less than 8 568 us ii positive but statistically insignificant for the income greater than 18 196 us and iii negatively significant for the income range between 8 568 and 18 196 us in addition we find that the price elasticity assumes the greatest absolute value for the income level in excess of 18 196 us but becomes most inelastic for the income level between 11 129 and 18 196 us

efficient excise taxation the evidence from cigarettes we develop a model in which optimizing policy makers in adjacent government jurisdictions levy excise taxes on a commodity that has a unique point of production from which all shipments emanate from this model we derive an unusually specific predicted geographical pattern of those excise taxes in which these taxes rise at a decreasing rate as one moves outward from the point of production we compare these predictions to the observed pattern of cigarette taxes imposed by state governments in the united states and find the data to be fully consistent with our model among these predictions is the existence of a ripple effect which reduces taxes in many other jurisdictions due to low taxes at the point of production we estimate that these induced tax reductions in other states save cigarette producers and consumers a minimum of 110 million per year

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices

price formation in a sequential selling mechanism abstract this paper studies a dynamic trade institution where an auction is combined with a buy it now option this option presents a take it or leave it price offered by the seller to a potential buyer before the auction if the buyer rejects this buyout price the object is auctioned off in equilibrium sales should take place only in the auction an experimental test reveals that average buyout prices and profits are well captured by the theoretical prediction however a substantial amount of sales takes place before the auction this is caused by offering too low or accepting too high buyout prices we discuss alternative explanations such as risk preferences and wrong formation of beliefs that might account for agents behavior

kalman filter and the demand for cigarettes kalman filter estimates of price income and advertising elasticities are presented an analysis of structural change in the demand for cigarettes in the us for the period 1929 86 is made estimated price and income elasticities are generally smaller and the advertising elasticity larger than estimates previously found cigarette demand is inelastic with respect to price and income and advertising elasticity is statistically insignificant for the most part furthermore both income and price elasticities decline over time while advertising elasticity tends to rise four time periods where structural change has occurred are identified the health scare reports and the fairness doctrine act have a significant impact on per capita cigarette consumption

the paradox of liquidity the more liquid a firm s assets the greater their value in a short notice liquidation it is generally thought that a firm should find it easier to raise external finance against more liquid assets this paper focuses on the dark side of liquidity greater asset liquidity reduces the firm s ability to commit to a specific course of action as a result greater asset liquidity can in some circumstances reduce the firm s capacity to raise external finance firms with excessively liquid assets are in the best position to finance illiquid projects this leads us to a theory of financial intermediation and disintermediation based on the liquidity of assets

alternative panel estimates of alcohol demand taxation and the business cycle this paper uses a new technique of estimating dynamic heterogeneous panels developed by pesaran shin and smith 1999 on state level alcohol consumption as a function of income taxes and cyclical variables pooled mean group pmg estimators provide an alternative to extremes of pooling the data assuming slope homogeneity and estimating individual states assuming complete heterogeneity postsample tests indicate that a conventional fixed effects model outperforms both the pmg estimator and individual state estimators despite the heterogeneity of the sample current levels of taxation appear to have little effect on alcohol consumption and alcohol is found to be a procyclical good

cigarette taxes and illicit trade in europe cigarettes are highly taxed in europe but at higher prices some consumers substitute more toward illicit cigarettes the illicit retail trade in cigarettes irtc includes counterfeit untaxed and smuggled cigarettes some existing literature includes claims that taxes are not an important determinant of irtc using data from the european union we find the opposite raising prices leads to substantial increases in irtc a 1 increase in tax pack is expected to increase illicit market share by 5 to 12 percentage points and increase illicit cigarette sales by 29 to 95 the results are robust to alternative specifications and data jel i18 h26 k42

accounting for incomplete pass through recent theoretical work has suggested a number of potentially important factors in causing incomplete pass through of exchange rates to prices including markup adjustment local costs and barriers to price adjustment we empirically analyze the determinants of incomplete passthrough in the coee industry the observed pass through in this industry replicates key features of pass through documented in aggregate data prices respond sluggishly and incompletely to changes in costs we use microdata on sales and prices to uncover the role of markup adjustment local costs and barriers to price adjustment in determining incomplete pass through using a structural oligopoly model that nests all three potential factors the implied pricing model explains the main dynamic features of short and long run pass through local costs reduce long run pass through by a factor of 59 relative to a ces benchmark markup adjustment reduces pass through by an additional factor of 33 where the extent of markup adjustment depends on the estimated super elasticity of demand the estimated menu costs are small 0 23 of revenue and have a negligible eect on long run pass through but are quantitatively successful in explaining the delayed response of prices to costs we nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level

adjustment costs and threshold effects in factor demand relationships abstractit has been recently argued that producers may not respond to every input price change in the way that a linear factor demand model would predict this lumpy response is due to adjustment costs that are inherent in the act of adjusting the mix of inputs applied in the underlying production technologies this study aims to provide a solid conceptual framework for these nonlinearities in factor demand relationships industry specific implications of convex and non convex adjustment costs for the linearity of the factor demand relationships as well as price and substitution elasticities are explored a two regime threshold system of factor demand equations is estimated for several manufacturing industries in the united states empirical results suggest significant threshold effects in the factor demand relationships in most nondurable goods sectors the size and the nature of thresholds depend upon industry characteristics including input composition and non convexity of underlying adjustment costs

the deadweight loss of christmas when economists comment on holiday gift giving it is usually to condone the healthy effect of spending on the macroeconomy however an important feature of gift giving is that consumption choices are made by someone other than the final consumer a potentially important microeconomic aspect of gift giving is that gifts may be mismatched with the recipients preferences in the standard microeconomic framework of consumer choice the best a gift giver can do with say 10 is to duplicate the choice that the recipient would have made while it is possible for a giver to choose a gift which the recipient ultimately values above its price for example if the recipient is not perfectly informed it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash in short gift giving is a potential source of deadweight loss this paper gives estimates of the deadweight loss of holiday gift giving based on surveys given to yale undergraduates i find that holiday gift giving destroys between 10 percent and a third of the value of gifts while these recipients may be unrepresentative of the u s population their gifts are not necessarily unrepresentative holiday expenditures average 40 billion per year implying that a conservative estimate of the deadweight loss of christmas is a tenth as large as estimates of the deadweight loss of income taxation i also explore how deadweight loss and the tendency to give cash gifts vary with the relationship and age difference between giver and recipient i find that gifts from friends and significant others are most efficient while noncash gifts from members of the extended family are least efficient and destroy a third of their value i develop a simple expected utility model to explain the decision to give cash as opposed to in kind gifts the data are consistent with the model cash gifts are most common from the sorts of givers whose noncash gifts have the lowest expected value to recipients given their cost and high variability in recipient valuation

risk taking spillovers of u s monetary policy in the global market for u s dollar corporate loans abstract we study the effects of u s interest rates and other factors on risk taking in the global market for u s dollar syndicated term loans we find that before the global financial crisis both u s and non u s lenders originated ex ante riskier loans to non u s borrowers in response to a decline in short term u s interest rates and after the crisis in response to a decline in longer term u s interest rates after the crisis this behavior was more prominent for shadow banks and less prominent for banks with relatively low capital separately before the crisis lenders originated less risky loans in response to u s dollar appreciation across the periods the responses to risk appetite and economic uncertainty varied to the extent that the federal reserve affects u s interest rates we provide evidence of global risk taking spillovers of u s monetary policy which are important but not dominant factors for risk taking in the market

from ngos to banks does institutional transformation alter the business model of microfinance institutions microfinance which pledges to provide financial services to people without access to banking is chiefly run by non governmental organizations ngos little is known about the extent to which the transformation of these ngos into shareholder owned and most often regulated firms affects the way microfinance institutions mfis conduct their business by applying the event study methodology to 66 mfis that have transformed we quantify the effect that transformation has on the mfis business models our results suggest that portfolio yield is driven down by 3 9 percentage points due to transformation indicating that clients get more favorable interest rates at the same time mfis are able to significantly cut down their operational expenses of which 1 1 percentage points can be attributed to transformation other findings include a steep increase in commercial debt leverage and deposits a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size profitability goes down in the short and medium term while return on equity is driven up in the medium to long run by exploiting within mfi data our approach goes beyond previous studies that mainly relied on between mfi data overall the results suggest that transformed mfis become an attractive environment for investors potentially encouraging a more profit seeking behavior among transformed mfis

financial fragility in the great moderation abstract a nascent literature explores the measurement of financial fragility this paper considers evidence for rising financial fragility during the 1984 2007 great moderation in the u s the literature suggests that macroeconomic stability combined with strong growth of credit to asset markets in asset prices and in credit relative to output are all indicators of rising financial fragility we show each of these trends in the great moderation we derive the testable implication that in the great moderation credit growth is driven more by past credit growth and less by output growth allen and gale 2000 relative to pre great moderation years results from a var model estimated on quarterly data for 1955 2007 are consistent with the hypothesis this invites a reinterpretation of the great moderation our methodology may help understand when a credit boom turns into a credit bubble and contributes to the development of methods of measuring financial fragility

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association