sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

bank risk within and across equilibria abstract the global financial crisis highlighted that the financial system can be most vulnerable when it seems most stable this paper models non linear dynamics in banking small shocks can lead from an equilibrium with few bank defaults straight to a full freeze the mechanism is based on amplification between adverse selection on banks funding market and moral hazard in bank monitoring our results imply trade offs between regulators microprudential desire to shield individual weak banks and the macroprudential consequences of doing so moreover limiting bank reliance on wholesale funding always reduces systemic risk but limiting the correlation between bank portfolios does not

central local relations in china during the reform era the economic and institutional dimensions abstract central local relations are a core but problematic issue in china s reform process the conventional wisdom is that the economic reforms have considerably weakened control by the central government over economic activities in the localities political implications are derived directly from these economic observations the prevalent view is that the economic reforms have reduced the political control of the center and indeed have called into question the viability of china as a single political entity this article disputes these views it shows that economic decentralization has been accompanied by a strengthening of china s unitary political system this has direct bearings on local economic conduct because of the political and institutional constraints local officials surrender tax revenues to the central government and curb their inflationary investment demand

analytics of sovereign debt restructuring abstract this paper develops a simple theoretical model to analyse recent proposals on restructuring of sovereign bonds we find that collective action clauses cacs inserted in bonds resolve the inefficiencies caused by intra creditor coordination problems providing that all parties have complete information about each other s preferences in such a world statutory mechanisms such as international bankruptcy courts are unnecessary this is no longer the case when the benefits from reaching a restructuring agreement are private information to the debtor and its creditors due to inefficiencies caused by the debtor creditor bargaining problem

clusters and comparative advantage implications for industrial policy abstract cases of industrial agglomeration or clusters arise in the presence of industry specific and local externalities also called marshallian externalities the standard argument is that such externalities may justify a policy of infant industry protection to allow and encourage clusters to emerge in this paper i explore this carefully and show that different policy implications emerge under a more realistic modeling of clusters in particular rather than distorting prices to promote clusters in advanced sectors that may exhibit strong clustering possibilities countries should focus instead on promoting clustering in current sectors which have revealed to have the strongest comparative advantage import substitution is not a proper way to achieve this

how does china s industrial policy affect firms r d investment evidence from china manufacturing 2025 aimed at improving innovation capacity and upgrading technology of manufacturing industry china manufacturing 2025 cm2025 which relies on selective industrial policies has attracted great at

on crises contagion and confusion abstract since the tequila crisis of 1994 1995 the asian flu of 1997 and the russian virus of 1998 economists have been busy producing research on the subject of contagion yet few studies have examined empirically through which channels the disturbances are transmitted if there are indeed fundamental reasons for the spillovers we observe we attempt to fill this gap by analyzing how both trade links and the largely ignored financial sector links influence the pattern of fundamentals based contagion we examine the role of international bank lending the potential for cross market hedging and bilateral and third party trade in the propagation of crises

territorial competition in china and the west chien s s and gordon i territorial competition in china and the west regional studies in modern western societies and most other economies to which it has spread territorial economic competition is associated with a combination of competitive electoral politics and private land ownership in mainland china however a very strong form of this competition has emerged without either of these supports in general the development of such local collective action and its particular effects reflect an interaction between materially interested local agents and structural pressures the difference in china is that these agents are principally local government leaders whose career prospects within a still centralized system depend upon performance in terms of economic criteria set from above chien s s et gordon i la competition territoriale en chine et dans l ouest regional studies dans les societes occidentales d aujourd hui et dans la plupart des autres economies auxquelles elle s est etendue la

the size of firms and r d investment we construct an industry equilibrium model in which it is costly for consumers who have previously purchased from one firm to switch to competitors this gives firms a certain degree of market power over their established customers the equilibria we identify under these conditions have the following properties 1 there is a nontrivial size distribution of firms although firms are intrinsically identical 2 larger firms make higher profits 3 larger firms spend more on r d 4 larger firms charge on average lower prices and 5 profits are positively correlated over time these properties match empirical regularities concerning the manufacturing and retail sectors in the u s economy

how the chinese government promoted a global automobile industry the claim by china experts that the chinese state lacks the capability to practice pro active industrial policy throws china s future into doubt this article argues the contrary by examining the development of the chinese automobile industry and the evolution of its industrial policy since 1978 the central state s policy may have been ineffective at first but continued to improve layer by layer by taking into account results of local experiments and being propelled by a strong catch up consensus providing performance standards to establish national industries china s learning process thus renders its industrial policy model effective in the long term copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

liaisons dangereuses increasing connectivity risk sharing and systemic risk the recent financial crisis poses the challenge to understand how systemic risk arises endogenously and what architecture can make the financial system more resilient to global crises this paper shows that a financial network can be most resilient for intermediate levels of risk diversification and not when this is maximal as generally thought so far this finding holds in the presence of the financial accelerator i e when negative variations in the financial robustness of an agent tend to persist in time because they have adverse effects on the agent s subsequent performance through the reaction of the agent s counterparties 2012 elsevier b v all rights reserved

callable bonds a risk reducing signalling mechanism a comment the existence of callable bonds has been somewhat of a puzzle the call feature provides firms with a valuable interest rate option but the value of this option should be exactly offset by the creditor s demand for a higher interest rate as compensation one explanation for the call provision from myers 4 bodie and taggart 3 and barnea haugen and senbet 2 is that callable bonds may be used to reduce some agency costs another explanation from robbins and schatzberg 5 is that callable bonds can signal a firm s better prospects in the presence of asymmetric information one possible problem with the agency cost and signalling explanations of callable bonds is that short term debt may serve the same functions in all four studies indeed short term debt is equivalent to long term debt in the theoretical sections of the agency cost studies however robbins and schatzberg hereafter rs suggest that short term debt fails to provide the risk sharing opportunities inherent in callable bonds thus they suggest that a signalling explanation provides a unique role for callable bonds one limitation of rs s results is that they are based on an example that makes a series of strong assumptions about a two stage lottery faced by good news and bad news firms in order for their model to have general applicability it would be desirable to demonstrate that their results hold under more general assumptions the results of this study suggest that their findings cannot be generalized without further assumptions callable bonds do not yield a separating equilibrium result when only a minor change is made in two of the lottery probabilities suggesting that their results are far from robust to minor changes in assumptions moreover callable bonds may fail to generate a separating equilibrium even for some good news firms that conform to rs s original model because bad news firms that do not meet their assumptions may attempt to mimic good news firms that do the risk sharing result is also very sensitive to the specific assumptions made by robbins and schatzberg specifically callable bonds increase the risk borne by management if one change is made in the numeric values of one of the lottery payouts the paper begins with a review of the relevant portions of robbins and schatzberg s model section ii provides a counterexample in which callable bonds fail to provide a separating equilibrium section iii provides a counterexample in which callable bonds fail to provide risk sharing debt and the paper concludes with a summary

subsidies entry and the distribution of r d investment abstract we analyze the link between entry and r d spending distribution we consider a monopolistic competitive market with free entry in which firms can invest in cost cutting r d by paying a fixed cost first for an intermediate level of fixed cost there is a unique equilibrium in which the market segments into investing and non investing firms we show that the measure of r d investing firms decreases as entry occurs using this result we show how alternative government policies affect the r d spending distribution in particular we characterize the cases in which incentives to promote r d spending can result in exit we show that while subsidy to entry may be welfare neutral from the consumers point of view r d subsidies despite promoting exit sometimes are always welfare improving data motivating these results are drawn from the taiwanese and korean semiconductor industries

callable bonds a risk reducing signalling mechanism a reply robbins and schatzberg 3 hereafter rs argued that callable bonds constitute a risk reducing signalling mechanism wall 6 hereafter wall responds that there exist examples quite similar to the one presented in rs for which short term debt proves to be a superior instrument in wall s first example short term debt can signal good prospects although callable bonds cannot a second example purports to show strictly superior risk reduction capabilities when either short term debt or callable bonds can signal wall contends therefore that the class of problems for which callable bonds serve as a risk reducing signalling mechanism lacks generality in this reply we restrict our notion of what it means for securities offering to be risk reducing at the same time that it signals in doing so we find that wall s first example is one from a broad class of problems for which it is impossible both to reduce risk and to signal the fact that callable bonds are not optimal for this problem is thus quite consistent with the idea that callable bonds constitute a risk reducing signalling mechanism furthermore we demonstrate that no power should be ascribed to wall s second example for it rests upon failure to note a subtle point in rs short term debt is strictly superior in the second example only if we do not allow the firm to overcapitalize its investment project if as in rs we do allow securities offerings that raise excess capital the excess to be placed in a riskless investment opportunity we can obtain a callable bonds contract that equals the performance of short term debt if we introduce new corporate strategic behavior that seeks additional enhancement of the corporate manager s decision making namely selling off risky projects once information about prospects becomes symmetric callable bonds prove strictly superior before providing these results we begin by demonstrating that wall s assertions are automatically questionable because short term debt is equivalent to a degenerate subclass of callable bonds

the development of china s solar photovoltaic industry why industrial policy failed this article studies china s central local government relations in the formation and implementation of an industry policy in china the central government is responsible for policy formation and the local governments are responsible for policy implementation where local governments are allowed ample flexibility in the ways to achieve the policy mandate this arrangement is conducive to local competition but there is no built in mechanism in the system to regulate such competition the system is defective in the execution of an industrial policy in that it fails to discipline the recipients of policy favours and to make efficient exit selections because local competition involves policy resources as well as economic resources the outcome of competition is not necessarily consistent with the comparative advantage of the region the more that policy is emphasised in industrial development the more that competition tends to favour large and rich cities after a certain period of hands off local competition the timing of which is unpredictable but will come when the industry runs into troubles the central government holds the ultimate power to determine the winners the central government typically picks the large and strong firms as the winners which are crowned as a national team and became eligible for further policy support this institutional set up produces a rapidly growing industry which often results in over capacity but not necessarily a competitive industry i use the case of china s solar photovoltaic industry to illustrate these points

is the state led industrial restructuring effective in transition china evidence from the steel sector during the reform era the chinese government has been carrying out strategic industrial policies modelled on those in post war japan and south korea in the hope of transforming its highly fragmented manufacturing sector into one that comprises a small number of internationally competitive big businesses using the evolution of the chinese steel industry structure from the late 1980s to the early 2000s as a case in point this paper finds that the chinese government s consolidation attempts have by and large not been very successful the disappointing policy outcome is interpreted by a detailed examination of the industry policy mechanism in china it is concluded that the institutional framework of the chinese state differs from its counterparts in korea and japan in some fundamental aspects among these the fragmented and uncoordinated chinese bureaucracy contributes significantly to the inefficacy of policy implementation

multiple competing photovoltaic supply chains modeling analyses and policies abstract many large scale photovoltaic pv energy programs have been launched and developed in the world without a thorough sustainable thinking resulting in an on going misalignment between the demand and supply of the pv systems the global pv industry has encountered a serious oversupply problem causing fierce competitions among the pv supply chains and also led to the dumping accusation and anti dumping trade battles between the pv system importing and exporting countries it is critical to develop better policy and business insights to redirect the current business exchanges and the industry policies for the pv supply chain development this paper attempts to examine theoretically and numerically the business dynamics in a multiple pv supply chain system to acquire better insights and propose appropriate industry policy and business strategy directions for both the governments and businesses this study mimics the contemporary pv supply chains with three supply chain game theoretical models examining the equilibrium conditions of the multiple pv supply chains under cournot competition the numerical and sensitivity analyses of the theoretical supply chain models create several valuable findings on the dynamics regarding the economic decisions of the supply chain members in a pure centralized a pure decentralized and a hybrid multiple supply chain system the quantitative analytical results provide a strong support to the contemporary supply chain theory advocating the world of the business competition has altered to supply chains rather than companies several public and business policy directions are proposed it is suggested that the pv supply chain members should find effective means to form partnership and build up their supply chains which would most likely strengthen their competitiveness in their current markets for governments there are opportunities on both the supply side and the demand side of the pv supply chains to regulate or encourage the pv industry to move toward a healthier industrial structure

is full banking integration desirable abstract we analyze the links between banking integration and economic development for a sample of oecd countries we measure banking integration considering indicators that merge not only openness but also connectedness with other banking systems we plug these indicators into income regressions also controlling for other relevant variables considered by the literature in contrast to previous initiatives this second stage explicitly takes into account the differing levels of economic development of the countries in our sample since the benefits of enhanced banking integration might not be generalizable to this end we implement quantile regression also considering the presence of endogenous regressors results show that bank connectedness is more important for economic development than bank openness but the combined effect i e banking integration overall is positive and significant the quantile regression models used in the second stage show that the effects are stronger for the poorest economies

local governments as industrial firms an organizational analysis of china s transitional economy despite widespread skepticism about government ownership in transitional economies china s rapid industrial growth has been led by public enterprises kornai s theory of soft budbet constraints born of the failure of earlier hungarian reforms fosters such skepticism but it assumes as fixed organizational characteristics that in fact vary widely across government jurisdictions local governments with smaller industrial bases have clearer financial incentives and constraints fewer nonfinancial interests in enterprises and a greater capacity to monitor them in china s vast public sector the fastest growth in output and productivity has occurred where government ownership rights are clearest and most easily enforced which enables officials to manage public industry as a diversified market oriented firm

the great entanglement the contagious capacity of the international banking network just before the 2008 crisis abstract systemic risk among the network of international banking groups arises when financial stress threatens to crisscross many national boundaries and expose imperfect international coordination to assess this risk we consider three decades of data on the cross border interbank market we use rosvall and bergstrom s 2008 information theoretic map equation to partition banking groups from 21 countries into modules that reveal the contagious capacity of the network we show that in the late 1980s four important financial centers formed one large super cluster that was highly contagious in terms of transmission of stress within its ranks but less contagious on a global scale but the expansion leading to the 2008 crisis left more transmitting hubs sharing the same total influence as a few large modules had previously we show that this greater entanglement meant the network was more broadly contagious and not that risk was more shared thus our analysis contributes to our understanding as to why defaults in us sub prime mortgages spread quickly through the global financial system

callable bonds a risk reducing signalling mechanism the theory of financial economics has failed to distinguish advantages of callable bonds from those of short term debt this paper shows that either type of borrowing can signal a firm s better prospects but that short term debt does so at the cost of weakened risk sharing with capital markets by issuing either equity or long term non callable debt a firm with poor investment opportunities will not pool its prospects with those of a better firm but equity produces superior risk sharing perhaps this explains the almr ost complete absence of long term non callable bonds from observed corporate capital structures financial theory has found only moderate success in explaining the routine inclusion of call provisions among the covenants of corporate bonds in the absence of market imperfections or incompleteness the incremental compensation promised to bondholders should exactly offset the value of the call provision retained by equityholders indifference should obtain 1 nevertheless it is hard to accept indifference as an explanation given the near universality of call provisions in corporate bond contracts in this paper we argue that in the presence of asymmetric information about investment quality corporate managers can signal their firm s better prospects by issuing bonds that include call provisions our major result shows that this signalling mechanism can be more attractive to risk averse managers than would be the choice of short term debt which could also serve to signal furthermore we demonstrate that non callable corporate debt is a dominated security that is both it and equity signal bad news but equity provides risk sharing this finding helps to explain the relative absence of long term non callable debt from corporate financial markets previous attempts to explain the prevalence of call provisions in corporate bond contracts fall into four categories two categories involve pure wealth transfers from bondholders to stockholders in these constant sum environments a gain to one group constitutes a loss to the other in the first category managers possess private information with regard to future interest rate movements issuing callable bonds will capture gains for stockholders when anticipated drops