forward and futures contracts as preharvest commodity marketing instruments empirically significant differences between forward and futures contracts evidence their imperfect substitutability as preharvest marketing instruments certain combinations of market conditions make the two types of contracts complementary rather than interchangeable forwards and futures differ conceptually because of lumpiness marking to market and basis of these differences basis constitutes the most important factor although lumpiness may affect smaller producers it represents an inconsequential detail for larger traders in given years interest income cost resulting from futures margin requirements may reach important absolute amounts relative to size of basis and price changes this factor fails to attain a magnitude of practical significance

futures trading market interrelationships and industry structure futures markets arise as a response to economic uncertainty one goal of this paper is to measure how futures trading in existing contracts changes in response to changes in uncertainty caused by inflation a difficult issue that other researchers have addressed is why only a small handful of all markets have successful futures markets see e g telser and higginbotham although we do not provide a complete answer to this question we make progress toward an answer by investigating the covariance structure of various futures prices this allows us to predict which markets are the least needed and to see whether

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

effects of financial innovations on market volatility when beliefs are heterogeneous abstract consider a model with two logarithmic utility maximizer agents that observe aggregate consumption but disagree about its expected rate of change markets are incomplete we first show that volatility of the interest rate in an economy with additional information is higher in a complete markets economy with no additional information there are two differences in volatility with the previous the first one due to the increase in volatility of the wealth share of the individuals is always positive the second difference is the change in covariance between the components of the interest rate volatility and can be positive or negative

estimating the location of world wheat price discovery the united states may be losing its leadership role in the world wheat market rising trading volume in foreign futures markets and shifting shares of world trade are suggested as evidence of this shift but neither necessitates that futures markets in the united states are any less important for wheat price discovery this paper applies high frequency pricing data and market microstructure methods including the yan and zivot 2010 information leadership share to estimate the proportion of price discovery occurring in wheat futures markets associated with chicago kansas city minneapolis and paris we find united states futures markets remain dominant although the share of price discovery for the paris market increased noticeably in 2010 coinciding with major supply shocks in russia and ukraine prior to august 2010 91 of information about the common fundamental value of wheat was first revealed in united states futures markets in an average month after august 2010 this share dropped to 75

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

information revelation and market incompleteness this paper introduces a theory of market incompleteness based on the information transmission role of prices and its adverse impact on the provision of insurance in financial markets we analyse a simple security design model in which the number and payoff of securities are endogenous agents have rational expectations and differ in information endowments and attitudes toward risk when markets are incomplete equilibrium prices are typically partially revealing while full relevation is attained with complete markets the optimality of complete or incomplete markets depends on whether the adverse selection effect the unwillingness of agents to trade risks when they are informationally disadvantaged is stronger or weaker than the hirshleifer effect the impossibility of trading risks that have already been resolved as new securities are issued and prices reveal more information when the hirshleifer effect dominates an incomplete set of securities is preferred by all agents and generates a higher volume of trade hirshleifer 1971 was the first to point out that revelation of information can reduce risksharing opportunities in insurance markets resulting in a welfare loss in this paper we build on hirshleifer s insight to develop a theory of endogenous market incompleteness we show that in an economy with asymmetric information in which agents learn from prices an incomplete financial structure may be optimal the reason is that less information is revealed by prices when markets are incomplete than in an otherwise identical economy with complete markets 1 paradoxically a greater degree of incompleteness may result in better risk sharing since the only risks that can be traded are those whose resolution is not common knowledge at the time of trade for the same reason incompleteness of markets may also foster a higher volume of trade the connection between security design asymmetric information trading volume and welfare in financial markets is a subtle one and it is important to isolate its various facets the efficacy of security markets in aggregating and transmitting private information depends on the characteristics of the financial structure and especially on the number of tradeable assets indeed within the rational expectations paradigm informational differences disappear in equilibrium generically when the price vector has

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

introducing new futures contracts reinforcement versus cannibalism abstract in order to assure survival futures exchanges around the world are in constant search of new futures contracts that will generate a profitable level of trading volume introducing new futures contracts may increase or decrease the volume for those contracts already listed using a multi product hedging model in which the perspective has been shifted from portfolio to exchange management we study these effects using data from two exchanges that differ regarding assets traded and market liquidity amsterdam exchanges versus chicago board of trade we show the usefulness of the proposed method the method may also be used to evaluate the benefits for exchanges that plan to internationalize their activities by merging with another exchange or by cross listing other exchanges futures contracts

a critical evaluation of etzioni s socioeconomic theory implications for the field of business ethics given the pervasive influence of neoclassical economic theory on the field of business the opposition of the standard economists to the inclusion of moral factors in economic decisions provides an intellectual resistance to the ideas of many business ethicists etzioni 1988 offers a theoretical alternative to the neoclassical model an alternative that includes a moral dimension this article 1 highlights the differences between etzioni s proposed model and the neoclassical economic paradigm 2 describes and critically evaluates etzioni s proposed theory in view of his objective of synthesizing the neoclassical paradigm with a duty based morality and 3 discusses the implications of etzioni s proposed paradigm for the field of business ethics

why there are organized futures markets i shall present an explanation of the existence of organized futures markets with more predictive power than the two prevailing rival views my explanation briefly is this an organized futures market facilitates trade among strangers one of the rival prevailing views is a defense of futures trading it asserts that an organized futures market furnishes legitimate businessmen with a means of hedging so that they can obtain insurance against price risk the other prevailing view is an attack on organized futures markets it asserts that such markets enable speculators to manipulate prices to the detriment of outsiders who are less well informed and to the detriment of legitimate businessmen such as farmers the attack on organized futures markets likens them to gambling casinos the defense sees them as a form of insurance neither the attack nor the defense is valid the correct explanation is closely related to why we conduct trade using money instead of by barter

the impacts of exchange rate volatility on vegetable trade flows trade flows of commodities are generally affected by the principles of comparative advantage in a free trade however trade flows might be enhanced or distorted not only by various government interventions but also by exchange rate fluctuations among others this study applies a commodity specific gravity model to selected vegetable trade flows among organization for economic co operation and development oecd countries to determine the effects of exchange rate uncertainty on the trade flows using the data from 1996 to 2002 the results show that while the exchange rate uncertainty significantly reduces trade in the majority of commodity flows there is evidence that both short and long term volatility have positive effect on trade flows of specific commodities this study also tests the regional preferential trade agreements such as the north american free trade agreement nafta the asia pacific economic cooperation apec and the eu and their different effects on commodities

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

optimal financial market integration and security design 1 we study 2 period pure exchange capital asset pricing model capm economies with incomplete financial markets and restricted participation we characterize the optimal financial market structure and efficient innovations consisting of both the introduction of new assets and the integration of segmented markets welfare gains from innovations are maximal when the endowments of affected agents are negatively correlated uncoordinated innovations lead to efficient market structures if all assets have identical participation structure or the markets being integrated trade identical assets however coordination failure in the introduction of new assets may result when assets have participation structures that overlap only partially

the significance of the market portfolio the market portfolio is in one sense the least important portfolio to provide to investors in an j agent one period stochastic endowment economy where preferences are quadratic a social welfare minded contract designer would never create a contract that would allow trading the market portfolio even the complete set of contracts all j 1 of them which achieve a first best solution never span the market portfolio these conclusions rely on the assumption that the contract designer has perfect information about agents utilities we also show that as the contract designer s information about agents utilities becomes more imperfect the optimal contracts approach contracts that weight individual endowments in proportion to elements of eigenvectors of the variance matrix of endowments then if there is a strong enough market component to endowments a portfolio approximating the market portfolio may be the most important portfolio

the business responsibility for wealth distribution in a globalized political economy merging moral economics and catholic social teaching if it is accepted that the real marketplace does not necessarily distribute wealth in the manner that the ideal market would have done and that societal institutions have an obligation to bring the real and ideal market distributions into accord then it can be argued that economic actors have a responsibility to consider the effects of their activities on the distribution of wealth in society this paper asserts that businesses have a responsibility to consider the wealth distribution effects of their wealth creating decisions we use arguments from moral economics and catholic social teaching to support this assertion deriving decision principles that we apply to the starbucks fair trade coffee case

how sensitive are malaysia s bilateral trade flows to depreciation in an attempt to assess the impact of currency depreciation on the trade balance recent studies are employing disaggregated trade data to avoid aggregation bias however since import and export prices are not available at disaggregated level recent studies are using export and import values rather than their volumes so that they can establish direct relation between inpayments and the exchange rate as well as between outpayments and the exchange rate this study explores the experience of malaysia bilateral inpayments and outpayments models are estimated between malaysia and her 14 trading partners using quarterly data and bound testing approach to cointegration the results show that while real depreciation of the ringgit has short run effects in the long run it increases malaysia s inpayments from only five trading partners

the structure of sunspot equilibria the role of multiplicity this paper examines the structure of sunspot equilibria in a standard two period exchange economy with real assets we show that for a generic choice of utility functions and endowments there exists an open set of real asset structures whose payoffs are independent of sunspots such that the economy with this asset structure has a regular sunspot equilibrium an important implication of our result is that the multiplicity of non sunspot equilibria is not necessary for the existence of sunspot equilibria our technique is general and can be applied to show the existence of sunspot equilibria in other frameworks this paper analyses the structure of sunspot equilibria in a standard two period competitive exchange economy with more than one consumption good in each period and a real asset which pays a bundle of commodities there is no uncertainty except for sunspots we show that for an open and dense subset of the set of utility functions and endowments there exists an open set of real asset structures with payoffs independent of sunspots such that the resulting economy with an asset structure in this set has a regular sunspot equilibrium we also show that this result is tight in the space of utility functions endowments and asset structures there is in fact an open set of economies for which sunspot equilibria do not exist moreover our argument provides a systematic method which allows us to find generically all the sunspot equilibria of a given economy thus it can be used as a tool for studying the global structure of the set of sunspot equilibria not just the existence of a sunspot equilibrium the dependence of the existence of sunspot equilibria on the particular specification of the payoff of the asset provides an interesting contrast with the fact that the set of equilibrium allocations of the underlying certainty economy does not depend on the asset structure recall that when markets are complete preferences and endowments completely determine the set of competitive equilibria in our setting markets are complete in the underlying certainty economy so if payoffs change the price of the asset will change accordingly but there is no effect on the equilibrium consumption of the certainty economy thus the fundamentals of the certainty economy are the distribution of endowments and preferences among consumers and our result implies that the existence of sunspot

trading in derivatives when the underlying is scarce abstract regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security when these constraints bind we refer to the security as scarce and its price becomes distorted relative to its value in a frictionless market we show that an otherwise redundant derivative can reduce the price distortion of the underlying security by relaxing its scarcity we also show that it is especially important to analyze the underlying and derivative markets jointly when evaluating the impact of regulation such as short sales bans and position limits in derivatives that restricts trade

does economic diplomacy work a meta analysis of its impact on trade and investment we review the literature on economic diplomacy and provide a meta analysis of 32 empirical studies published in 1986 2011 that deal with the trade and investment impact of economic diplomacy embassies consulates other diplomatic facilities investment and export promotion offices trade and state visits controlling for differences in research design methodology time frame and manner of data we find a positive and significant effect of economic diplomacy on international economic flows with the exception of state visits and that this is true in a sample of 627 t statistics analysed with ols and for a larger sample of 963 reported significance levels analysed with logit thus illustrating robustness with respect to sample and estimation technique our analyses show that reported effects of economic diplomacy on trade and investment in individual studies are sensitive to model specification the primary studies that investigate only one source country are less likely to report significant positive effects compared to other sciences economic studies are less likely to report significantly positive effects of economic diplomacy primary studies lump embassies and consulates general into one indicator miss that these instruments differ significantly embassies consulates and agencies should thus be included as separate instruments in future research

the division of markets is limited by the extent of liquidity spatial competition with externalities liquidity considerations will limit the number of markets in a competitive economy welfare implications are ambigious since liquidity is a positive externality there may be too little liquidity per market at a noncooperative equilibrium and too many markets compared to the surplus maximizing market structure but liquidity is also self reinforcing given an existing equilibrium new markets may not open because nobody wants to use a new market with low liquidity there may be too few markets to achieve efficiency a nondiscriminating monopolist will operate smaller and more numerous markets compared to optimality as well as to the equilibrium of independent auctioneers copyright 1988 by american economic association

political oil import diversification by financial and commercial traders abstract international politics affects the oil trade but do financial and commercial traders who participate in spot oil trading also respond to changes in international politics we construct a firm level dataset for all u s oil importing companies over 1986 2008 to examine how these firms respond to increases in political distance between the u s and her trading partners measured by divergence in their un general assembly voting patterns consistent with previous macro evidence we first show that individual firms diversify their oil imports politically even after controlling for unobserved firm heterogeneity however the political pattern of oil imports is not entirely driven by the concerns of hold up risks which exist when oil transactions via term contracts are associated with backward vertical fdi that is subject to expropriation in particular our results indicate that even financial and commercial traders significantly reduce their oil imports from u s political enemies interestingly while these traders diversify their oil imports politically immediately after changes in international politics other oil companies reduce their oil imports with a significant time lag our findings suggest that in designing regulations to avoid harmful repercussions on commodity and financial assets policymakers need to understand the nature of political risk

adam smith and the ethics of contemporary capitalism this paper presents a theoretical elaboration of the ethical framework of classical capitalism as formulated by adam smith in reaction to the dominant mercantilism of his day it is seen that smith s project was profoundly ethical and designed to emancipate the consumer from a producer and state dominated economy over time however the various dysfunctions of a capitalist economy e g concentration of wealth market power became manifest and the utilitarian ethical basis of the system eroded contemporary capitalism dominated as it is by large corporations entrenched political interests and persistent social pathologies bears little resemblance to the system which smith envisioned would serve the common man most critiques of capitalism are launched from a marxian based perspective we find however that by illustrating the wide gap between the reality of contemporary capitalism and the model of amoral political economy developed by smith the father of capitalism proves to be the most trenchant critic of the current order

strategic financial innovation in segmented markets rohit rahi obtained his ph d in economics from stanford university in 1993 he is a reader in finance and economics and a member of the financial markets group at the london school of economics his research interests are in the theory of financial markets in particular arbitrage in segmented markets security design and asset pricing with asymmetric information and in general equilibrium theory with incomplete markets he has published articles in the review of economic studies journal of economic theory and journal of business he served a nine year term on the editorial board of the review of economic studies jean pierre zigrand is a lecturer at the london school of economics his research interests are asset pricing financial intermediation theory and general equilibrium theory any opinions expressed here are those of the authors and not necessarily those of the fmg the research findings reported in this paper are the result of the independent research of the authors and do not necessarily reflect the views of the lse

spreading currency forwards why and how abstract in this paper we have adopted a continuous time framework in which a hedger has a currency risk sensitive non traded cash position the hedger has the opportunity to hedge against risk by using two currency forward contracts that differ only in their maturities the hedger is able to reach a perfect hedge of his non traded position by using only two currency forward contracts with different maturities even though four sources of uncertainty drive the international economy this perfect hedge is reached by spreading forward contracts where the hedger is short in the nearby contract and long in the deferred contract this strategy is easy to implement since no parameter has to be estimated empirically when the hedger is a price taker finally the analysis has been extended to currency futures contracts we show in explicit terms how the marking to market of futures positions affects the spreading strategy

determinants of bilateral trade flows what factors influence the level of trade flows that occur between nations past studies have answered this question primarily in terms of distance and economic size the present study considers additional variables as potential determinants of trade relations between nations also trade flows are analyzed by the type of products being exported and imported the findings show that several additional variables are significant determinants of the level of bilateral trade relations between nations in addition it is found that models of trade flows are more appropriate for manufactured goods than they are for basic commodities

the political economy of administered protection trade restrictions are hardly ever voted directly by congress though the threat of direct congressional action is frequently present pressure for protection is usually applied through the major instruments for the administrative regulation of imports the antidumping and countervailing duty procedures and the escape clause mechanism in this paper we will examine these instruments for the administrative regulation of imports the form of the paper is not novel a theory of how these mechanisms work is developed then operational implications of this theory are deduced and tested over the record of countervailing duty antidumping and escape clause cases decided from 1975 through 1979 this is the period over which the trade act of 1974 was in force because the nature of these mechanisms is relatively unfamiliar a relatively large amount of institutional information is provided

economic growth with standardized contracts this paper is motivated by the observation that individuals sometimes tend to use a contract just because others have done so before to put it more technically the cost of executing a transaction under an existing standard seems to be much lower than doing so under a new innovation the economic consequences of contract standardization are analyzed within an ordinary overlapping generations model the main implications of contract standardization are that i financial history matters in the growth process ii early formation of the system may create a drag on economic growth and iii the effect may be non monotonic because the system may be modernized at some point

financial innovation the last twenty years and the next the word revolution is entirely appropriate for describing the changes in financial institu tions and instruments that have occurred in the past twenty years the major impulses to successful financial innovations have come from regulations and taxes the outlook for the future is for a slowing down of the rate of financial innovation but much growth and improvement are still in prospect

optimal spreading when spreading is optimal abstract this paper assumes an investor who has a non traded position operating in a stochastic interest rates environment the investor trades continuously either distinct futures contracts or distinct forward contracts in order to maximize his expected utility of terminal wealth in order to reach the welfare level of the first best optimum the investor must incorporate into his portfolio either two distinct futures contracts or two distinct forward contracts the optimal forward contracts dynamic spreading strategy has two components a speculative component and a minimum variance hedging component the minimum variance hedging component is composed of a short position in the nearby contract and a long position in the deferred contract the speculative component serves to replicate the growth optimum portfolio the speculative component is composed of a short position in the contract which is the most negatively correlated with the growth optimum portfolio and a long position in the other contract the marking to market procedure of the futures positions forces the investor to hold less futures contracts than the corresponding forward contract positions the analysis is also extended to incomplete markets and to inter market spreading

speculation and risk sharing with new financial assets while the traditional view of nancial innovation emphasizes the risk sharing role of new nancial assets belief disagreements about these assets naturally lead to speculation which represents a powerful economic force in the opposite direction this paper investigates the eect of nancial innovation on portfolio risks in an economy when both the risk sharing and the speculation forces are present financial assets provide hedging services but they are also subject to speculation because traders do not necessarily agree about their payos i de ne the average variance of traders net worths as a measure of portfolio risks for this economy and i decompose it into two components the uninsurable variance de ned as the average variance that would obtain if there were no belief disagreements and the speculative variance de ned as the residual variance that results from speculative trades based on belief disagreements financial innovation always decreases the uninsurable variance because new assets increase the possibilities for risk sharing my main result shows that nancial innovation also always increases the speculative variance this is true even if traders completely agree about the payos of new assets the intuition behind this result is the hedge more bet more eect traders use new assets to hedge their bets on existing assets which in turn enables them to place larger bets and take on greater risks my second set of results concern endogenous nancial innovation when belief disagreements are su ciently large a pro t seeking market maker introduces assets that maximize the average variance among all possible choices completely disregarding the risk sharing motive for nancial innovation my third set of results concern a calibration of the model in the context of the gdp indexed assets proposed by athanasoulis and shiller 2001 when traders have reasonable amounts of belief disagreements these assets would have the unintended consequence of increasing their consumption risks

alliances preferential trading arrangements and international trade c oncerns about the stability of the international trading system have become widespread in recent years many observers feel that the relatively liberal system forged after world war ii is being undermined by the proliferation of preferential trading arrangements these concerns have spawned a great deal of empirical research much of which has found that such arrangements exert a substantial effect on trade flows yet these studies have neglected the role political military alliances play in shaping patterns of commerce this omission is important because there is ample reason to expect that alliances guide trade flows and preferential trading arrangements often are comprised of allies as a result extant analyses risk confusing the effects of alliances and preferential trading arrangements on commerce and systematically overstating the effects of the latter in this study we analyze the effects of alliances and preferential trading arrangements on bilateral trade flows both factors are likely to promote trade among members but we argue that the interaction between them is central to explaining patterns of commerce the combination of an alliance which creates political incentives for participants to engage in trade and a commercial institution which liberalizes trade among members is expected to provide a considerable impetus to commerce among parties to both 1

an evolutionary approach to financial innovation the purpose of this paper is to explain why some markets for financial products take off while others vanish as soon as they have emerged to this end we model an infinite sequence of capm economies in which financial products can be used for insurance purposes agents participation in these financial products however is restricted consecutive stage economies are linked by a mapping transition function which determines the next period s participation structure from the preceding period s participation the transition function generates a dynamic process of market participation which is driven by the percentage of informed traders and the rate at which a new asset is adopted we then analyse the evolutionary stability of stationary equilibria in accordance with the empirical literature on financial innovation it is obtained that the success of a financial innovation a mutation depends on a sufficiently high trading volume marketing and new and differentiated hedging opportunities in particular a set of complete markets forming a stationary equilibrium is robust with respect to any further financial innovation while this is not necessarily true for a set of incomplete markets

trade benefits under the eec generalized system of preferences the purpose of the paper is to test for the existence of a statistically significant effect of the eec generalized system of preferences on actual trade flows between developing countries and the eec using a gravity type model we estimate the gross trade creation effect of the eec generalized system of preferences on the eec imports from 10 major developing countries estimation on a yearly basis for the period 1967 1978 indicates the presence of a statistically significant effect it would appear that gross trade creation amounted to about s2 billion for these 10 countries in 1978 in addition to these calculations the paper reviews the eec generalized system of preferences in detail and offers comments on its future impact on exports from developing countries

trade and market thickness effects on organizations globalization by raising the number of buyers available to each seller and the number of sellers available to each buyer raises the thickness or the effective number of participants of every market market thickness can have subtle effects on incentives and organizations alleviating hold up problems resulting in less vertical integration more informal contracting and more cooperative and innovative relationships with subcontractors however it can also weaken long run relationships distorting relationship specific investments and risk sharing this paper surveys the theory and empirical evidence indicating when market thickness helps and when it hurts jel f15 l14 l22

financial innovation and the role of derivative securities an empirical analysis of the treasury strips program the role that financial innovation plays in financial markets is very controversial to provide insight into this role we examine how market participants use the highly successful treasury strips program we find that investors use the option to create treasury derivative strips primarily to make markets more complete and take advantage of tax and accounting asymmetries although liquidity related factors help explain differences in the prices of treasury bonds and strips we find little evidence that the option to strip and reconstitute securities is used for speculative or arbitrage related purposes the role of financial innovation is a central issue for both policymakers and researchers in finance 1 critics argue that financial innovations often have no economic role beyond allowing some investors to take highly leveraged speculative or arbitrage related positions in contrast advocates argue that the introduction of new products makes financial markets more complete reduces frictions and transaction costs and leads to a more optimal allocation of risk in the economy to better understand the role played by financial innovation this paper examines how investors use the successful separate trading of registered interest and principal of securities strips program of the u s treasury this program allows investors to strip treasury notes and bonds to create separate discount bonds and to reconstitute previously stripped notes and

bilateral trade flows the linder hypothesis and exchange risk bilateral trade flows are used to examine the linder hypothesis and the effect of exchange rate variability in a gra vity type trade model derived from an underlying demand and supply mo del a behavioral model is used to justify examining these issues joi ntly the model performs well empirically using a sample of seventeen countries for the period 1974 82 the authors find overwhelming supp ort for the linder hypothesis and this version of the gravity model moreover they find strong support for the hypothesis that increased exchange rate variability affects bilateral trade flows copyright 1987 by mit press

optimal futures innovation in a dynamic economy the discrete time case abstract we study the optimal futures innovation in a dynamic economy and investigate how the results obtained in a static economy should be modified due to the possibility of dynamic trading we analyze three different notions of ex ante optimality depending on the authority s ability to redistribute wealth among the investors and characterize the optimal futures innovation in each sense journal of economic literature classification numbers d52 d60 g10

competition among exchanges does competition among e nancial intermediaries lead to excessively low standards to examine this question we construct a model where intermediaries design contracts to attract trading volume taking into consideration that traders differ in credit quality and may default when credit quality is observable intermediaries demand the right amount of guarantees a monopolist would demand fewer guarantees private information about credit quality has an ambiguous effect in a competitive environment when the cost of default is large small private information leads to higher lower standards we exhibit examples where private information is present and competition produces higher standards than monopoly does i introduction in spite of the general acceptance of the competitive mechanism as an allocation scheme many observers consider e nancial intermediation an exception competition is thought to lead to a race to the bottom in which e nancial intermediaries settle for excessively low levels of contractual guarantees in an attempt to increase volume evaluating futures exchanges a joint report from the treasury and the federal reserve board written in the wake of the 1987 crash states that t here is sufe cient possibility that at some point sros self regulatory organizations might establish margins that were inconsistent enough to present market problems or set them at levels that might present potential costs to other parties that regulatory approval should be established in all markets 1

arbitrage short sales and financial innovation the authors describe a model of general equilibrium with incomplete markets in which firms can innovate by issuing arbitrary costly securities when short sales are prohibited firms behave competitively and equilibrium is efficient when short sales are allowed these classical properties may fail if unlimited short sales are allowed imperfect competition may persist even when the number of potential innovators is large if limited short sales are allowed perfect competition may obtain in the limit but equilibrium can be inefficient because of the presence of an externality the private benefits of innovation for firms differ from the social benefits copyright 1991 by the econometric society

the role of liquidity in futures market innovations i characterize the optimal design of a new futures market an innovation by an exchange in the presence of market frictions futures markets am characterized by both the contract and the level of trader participation both can be determined by an exchange a game in which exchanges simultaneously design markets is c onsidered and a particular equilibrium not necessarily unique is constructed a game in which exchanges sequentially design markets and incur design costs is also considered and the generically unique equilibrium is constructed the nature of equilibrium with multiple exchanges is discussed in these simultaneous and sequential settings illustrating the role played by liquidity considerations both in market design and in the nature of competition between exchanges

the ethical wealth of nations michael porter argues that some nations manifest a competitive advantage deriving from key elements of their economic structure some nations are thus disposed by structure to possess what porter calls a competitive advantage of nations porter 1990 in this paper i examine the prospect of an ethical advantage of nations and in particular of a set of advantages that extend far beyond the simple dimension of trust so often discussed i consider further how such a range of ethical features would be structured and what the implications of those features would be three conclusions are reached 1 morality may create economic advantages for nations in ways that extend beyond the notion of an idealized market 2 in order for ethics to drive economic advantage ethical concepts must rise to the status of intrinsic value and 3 if claims for national ethical success factors are true then nations should attend to the issue of moral education

a political economic model of u s bilateral trade a bstract interrelationships between economics and politics have long been recognized by scholars in the field of international relations this paper attempts to identify and quantify the factors aflecting bilateral trade flows between the united states and other countries by developing a gravity type model the model includes economic and political variables and is tested using data for sixty six u s trading partners results indicate that pure economic variables which reflect market forces are not the only factors affecting u s bilateral trade semi cconomic and international political factors are also important

some results in the capm with nontraded endowments the paper establishes a positive security market line in the capm with nontraded endowments the effects of a market structure change on the security market line are analyzed when the equilibrium allocation is affected by the change

collateral motivated financial innovation collateral frictions have a profound effect on our economic landscape ranging from the design of financial securities laws and institutions to various rules and regulations we analyze a model with disagreement where securities and collateral requirements are endogenous it shows that the security that isolates the variable with disagreement is optimal in the sense that alternative securities cannot generate any trading in an economy with n states investors may introduce more than n securities and markets are still incomplete the model has several novel predictions on the behavior of basis the spread between the prices of an asset and its replicating portfolio

production flexibility stochastic separation hedging and futures prices we study a dynamic model where uncertainty about interim output adjustments causes producers to face price cost and output uncertainty stochastically separable production decisions are independent of the producer s risk preferences and expectations and are based on the prevailing futures price as a certain output price conditions under which futures contracts achieve stochastic separation are established optimal hedging and maturity structure of futures contracts equilibrium futures prices and the effects of futures trading on output are studied the systematic risk premium depends on the product of the futures beta and the covariance of the market return with production revenues article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

international politics and import diversification abstractthis paper examines how international politics affects trade in the absence of empires or wars we first show that deterioration of relations between the united states and another country measured by divergence in their united nations general assembly voting patterns reduced u s imports from that country during 1962 2000 though statistically significant the magnitude of the effect of political distance on trade is small indeed we show that except for petroleum and some chemical products u s imports are not affected by international politics american firms however diversify their oil imports significantly away from political opponents of the united states oil trade is often associated with backward vertical foreign direct investment that is subject to the expropriation risk in contrast to the usual claim that oil is a strategic commodity we provide suggestive evidence that trade in products when rents are appropriable is more likely to be affected by international politics

a gravity model analysis of meat trade policies abstract the conventional gravity model is revised for a single commodity and applied to meat markets to determine factors affecting trade flows of meat this study demonstrates that the gravity model for a single agricultural commodity can be parameterized more effectively by using time series and cross section data rather than cross section data alone this study reveals that trade policies and subsidies used by exporting and importing countries livestock production capacity in countries and distances play an important role in determining trade flows of meat long term agreements achieve the highest performance toward enhancing international meat trade import quotas and the hoof and mouth disease on beef greatly impair meat trade