r d internationalization and growth of newly listed firms european evidence the initial public offering ipo is an important stage in the life cycle of privately held and entrepreneurial firms for innovative firms eager to capitalize on their technological advances an ipo represents a springboard for a rapid international expansion of sales however there is little research on the longer term post ipo strategic evolution of newly listed companies including their internationalization we build on international entrepreneurship and dynamic capabilities perspectives and examine interrelationships between r d exporting and growth of newly listed firms in the uk germany italy and france using panel data for 1110 ipos during the period 1985 2004 we found that r d intensity is an important antecedent factor for internationalization of sales both r d and export intensities have a positive effect on the sales growth of newly listed firms however r d intensity is path dependent and is determined by levels of accumulated intangible assets and debt in terms of time dynamics the growth of ipo firms is at its highest level just after the float whereas export intensity increases as ipo firms mature we conclude that managers and ipo investors need to take into account not only growth opportunities but also past innovation strategies and financial constraints on managers strategic choices

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

a theory of managed trade this paper proposes a theory that predicts low levels of protection during periods of normal trade volume coupled with episodes of special protection when trade volumes surge this dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game facing volatile trade swings high trade volume leads to a greater incentive to defect unilaterally from cooperative tariff levels therefore as the volume of trade expands the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check copyright 1990 by american economic association

affective decision making a theory of optimism bias abstract optimism bias is inconsistent with the independence of decision weights and payoffs found in models of choice under risk and uncertainty such as expected utility theory subjective expected utility and prospect theory we therefore propose an alternative model of risky and uncertain choice where decision weights affective or perceived risk are endogenous affective decision making adm is a strategic model of choice under risk and uncertainty where we posit two cognitive processes the rational and the emotional process the two processes interact in a simultaneous move intrapersonal potential game and observed choice is the result of a pure strategy nash equilibrium in this game we show that regular adm potential games have an odd number of locally unique pure strategy nash equilibria and demonstrate this finding for affective decision making in insurance markets we prove that adm potential games are refutable by axiomatizing the adm potential maximizers

optimum tariffs and retaliation how country numbers matter abstract this paper identifies a new terms of trade externality that is exercised through tariff setting a north south model of international trade is introduced in which the number of countries in each region can be varied as the number of countries in one region is increased each government there competes more aggressively with the others in its region by lowering its tariff to attract imports from the other region in doing so all countries in a region exert a negative terms of trade externality on each other collectively undermining their own terms of trade and welfare this externality can increase efficiency if the numbers of countries in both regions are increased simultaneously

should banks own equity stakes in their borrowers a contractual solution to hold up problems abstract this paper develops a model to answer the question whether a bank should hold a share of the equity of a borrowing firm the model shows that a small equity stake held by the bank can have a significant and positive impact on the lending relationship the benefit of bank equity participation arises from the reduced ability of the bank to extract rents from the firm in multiple rounds of financing this in turn improves the firm s incentive to make investments in profitable projects that require future outside finance the benefit is likely to be significant for small to medium size firms growth firms and firms with ongoing capital needs the paper addresses from a corporate finance perspective the current debate about whether banks should be allowed to own equity stakes in corporations and how large these equity stakes should be

a cue theory of consumption psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue based complementarities the presence of the cue raises the marginal utility derived from consumption in this paper such dynamic preferences are embedded in a rational choice model behavior that arises from this model is characterized by endogenous cue sensitivities costly cue management commitment and cue based spikes in impatience the model is used to understand addictive habit forming behaviors and marketing the model explains why preferences change rapidly from moment to moment why temptations should sometimes be avoided and how firms package and position goods

required disclosure and the stock market rejoinder irwin friend and randolph xvesterfield s f w comment on my article is appreciated it certainly is desirable that generally respected legislation such as the securities exchange act of 1934 be subjected to scientific analysis and that the analysis be subjected to criticism i shall reply in this rejoinder item by item to the critique presented by f w for the reader s convenience the order of their presentation is followed and the most succinct expression of their criticism wherever possible is quoted for reference

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

size inequality coordination externalities and international trade agreements abstract developing countries now account for a significant fraction of world trade and two thirds of the membership of the world trade organization wto however many are still individually small and thus have a limited ability to bilaterally extract and enforce trade concessions from larger developed economies even though as a group they would be able to do so we show that this coordination externality generates asymmetric outcomes under agreements that rely on bilateral threats of trade retaliation such as the wto but not under agreements extended to include certain financial instruments in particular we find that an extended agreement generates improvements in global efficiency and equity if it includes the exchange of bonds prior to trading but not if it relies solely on ex post fines moreover a combination of bonds and fines generates similar improvements even if small countries are subject to financial constraints that prevent them from posting bonds

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

optimism and pessimism in games this paper considers the impact of ambiguity in strategic situations it extends the earlier literature by allowing for optimistic responses to ambiguity ambiguity is modelled by ceu preferences we propose a new solution concept for players who may express ambiguitypreference then we study comparative statics of changes in ambiguity attitude in games with strategic complements this gives a precise statement of the impact of ambiguity on economic behaviour

competition in japan japan registered a remarkable 6 5 percent rate of economic growth from 1955 to 1990 catching up with high income western countries in its level of economic development during the 1950s 1960s 1970s and into the 1980s japan s share of world exports rose dramatically from 2 9 percent in 1960 to 6 1 percent in 1970 8 2 percent in 1980 and a peak of 9 8 percent in 1985 porter takeuchi and sakakibara 2000 japanese firms were increasingly successful internationally in large visible industries such as automobiles semiconductors and consumer electronics the striking economic success of japan was widely attributed to a set of economic institutions and policies that encouraged collaboration and limited competition the japanese case then called into question many of the bedrock assumptions of competition thinking it seemed to show that there was a different path to economic prosperity this article begins by examining competition in japan and the supporting policies and institutions during the twentieth century many factors seem to suggest that competition in japan has been less intense but there is an awkward complication the empirical evidence about the intensity of competition in japanese industry does not support the conclusion the story clearly is more complicated we seek to reconcile the apparent differences between policy and institutional circumstances and the empirical evidence by examining the types of competition that prevail across japanese industries and the underlying causes japan indeed pursued an array of policies that limited competition but these policies were not applied throughout the economy in fact those industries in which competition

specific and ad valorem tariffs are not equivalent in trade wars abstract this note argues that when two countries choose optimal tariffs in a trade war specific tariffs are not equivalent to ad valorem tariffs even if all markets are competitive in particular it shows that if a country s trading partner switches from a specific tariff to an ad valorem tariff that yields the same revenue at the initial trade point the former country has an incentive to lower its tariff when two identical countries choose the types and magnitudes of tariffs in a two stage game they will choose ad valorem tariffs making the trade war less severe

gradualism in trade agreements with asymmetric countries this paper uses recursive methods to characterize the payoff frontier of self enforcing trade agreements between countries of asymmetric size we show that at points on the frontier where only one country s incentive constraint binds the efficient agreement will be a non stationary one that starts with a positive trade distortion but eventually reaches free trade our analysis illustrates how i relative country size ii consumption smoothing incentives and iii sunk investments affect the form of efficient trade agreements in contrast to previous work on gradualism our results are obtained from a model in which the economic environment is stationary

political and legal restraints on ownership and control of public companies abstract law and politics affect the financial structure of the public corporation perhaps as much as economics law restricts financial institutions from holding large equity blocks and from networking the small blocks they do own impetus for these restrictions came from several sources a public spirited belief that financial stability would be fostered by financial fragmentation american federalism each state created its own insular set of financial institutions rivalries between groups of financial institutions and popular mistrust of powerful private financial institutions the stability of many of these rules also derives from the political resistance that one would expect corporate managers and benefited financial institutions to offer to any change

management buyouts evidence on taxes as a source of value this paper estimates the value of tax benefits in 76 management buyouts of public companies completed in the period 1980 to 1986 the median value of tax benefits estimated at the time the buyout company goes private has a lower bound of 21 and an upper bound of 143 of the premium paid to pre buyout shareholders the estimated value depends on the rate buyout debt is repaid and the tax rate applied to the interest deductions the paper also presents evidence on the actual taxes paid and debt repayment rates by these companies after the buyout the results in this paper suggest that tax benefits are an important source of the wealth gains in management buyouts

do big countries win tariff wars yes it is widely believed that tariffs invite retaliation and that the postretaliation equilibrium l eaves all countries worse off than they would be at free trade the a uthors present a simple pure exchange model with two countries and t wo goods and show which endowment patterns are consistent with this belief they find that if one country is substantially bigger than th e other it can expect to gain from a tariff war despite retaliation the model can be extended to show that the advantage obtained by bei ng part of a large trading unit can help explain the formation of cus toms unions copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

institutional investment patterns and corporate financial behavior in the united states and japan abstract this paper examines the agency problem between shareholders and debtholders of japanese and u s firms whereas u s institutional investors are restricted from doing so japanese financial institutions take large equity positions in firms to which they lend particularly in firms more susceptible to the agency problem debt ratios of u s firms are negatively related to the firm s potential to engage in risky suboptimal investments whereas japanese debt ratios show no such relation the evidence is consistent with the notion that the agency problem is mitigated to a greater degree in japan than in the u s

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

capture and ideology in the economic theory of politics the economic theory of regulation long ago put public interest theories of politics to rest these theories have correctly been viewed as normative wishings rather than explanations of real world phenomena they have been replaced by models of political behavior that are consistent with the rest of microeconomics anthony downs 1957 james buchanan and gordon tullock 1965 george stigler 1971 sam peltzman 1976 recently however debate has arisen over whether some version of a public interest theory of regulation will have to be readmitted to our thinking about actions and results in the political arena what is at issue is the empirical importance of the altruistic publicly interested goals of rational actors in determining legislative and regulatory outcomes james kau and paul rubin 1979 kalt 1981 peltzman 1982 this study assesses the nature and significance of publicly interested objectives in a particular instance of economic policymaking u s senate voting on coal strip mining regulations the existence of such objectives is of course no contradiction of the economic view of human behavior kenneth arrow 1972 gary becker 1974 and may well be rooted in genetic biological history becker 1976 jack hirshleifer 1978 generally however individuals altruistic publicly interested goals have been given little attention this reflects the judgment that such goals are so empirically unimportant as to allow the use of occam s razor in positive models or well founded apprehensions that these goals are unusually difficult to identify measure and analyze notwithstanding the latter problem we find that approaches which confine themselves to a view of political actors as narrowly egocentric maximizers explain and predict legislative outcomes poorly the tracking and dissecting of the determinants of voting on coal strip mining policy suggest that the economic theory of politics has been prematurely closed to a broader conception of political behavior

the discourse of bounded rationality in academic and policy arenas pathologising the errant consumer this article draws on perspectives in philosophy and the sociology of knowledge to critically review the discourse of bounded rationality within contemporary economics it is argued that the discourse pathologises consumers who are susceptible to sub optimal market outcomes treating their behaviour as abnormal and treating individuals as deviants in need of rehabilitation it is claimed that by this means new forms of policy are legitimated specifically behavioural remedies designed to draw apparently errant consumers towards behaviour that conforms more closely to the standard that is neoclassical model of decision making it is argued that the upsurge of interest in these behavioural remedies distracts attention from facets of the individual s environment such as the characteristics of markets and the behaviour of firms and also the set of norms and beliefs underpinning the economic system copyright oxford university press

welfare without happiness normative analysis asks how we as a society should make trade offs between individuals behavioral welfare economics extends the scope of this analysis to a single individual asking how the individual should trade off potential motives we argue that any faith in economists behavioral or otherwise abilities to resolve such problems in moral philosophy cannot be based on past accomplishments of welfare economics and that the best way to understand welfare economics is to view it as a part of positive economics with no normative content we distinguish three types of welfare analysis we refer to them as welfare i ii and iii welfare i identifies pareto efficient outcomes within a particular model and relates those to equilibrium outcomes welfare i includes results such as the first theorem of welfare economics or the myerson and satterthwaite theorem on two sided bargaining results that show when an efficient outcome must or cannot be attained in equilibrium such results are used to explain the persistence of certain economic institutions such as competitive markets or derive limitations on what can be achieved within any institutional framework such as bargaining or auctions welfare ii posits an objective function for a policymaker and evaluates different policies or institutions according to that objective function in other words welfare ii analyzes the implications of a policymaker s preferences policymakers often pursue sophisticated objectives that cannot be captured by the standard functional forms used to describe simple selfinterested economic agents moreover evidence regarding policymakers preferences is typically limited hence discussions of policymaker

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

safeguards and retaliatory threats abstract this is the first empirical article to analyze the response of shareholders to the threat of retaliatory tariffs authorized by the world trade organization wto we use event study methodology to gauge the impact of european union eu retaliatory threats stemming from the 2002 imposition of u s steel safeguards results indicate that the u s stock returns of firms slated for wto authorized tariffs reacted negatively to the announcements signaling an increased likelihood of retaliation shareholders also generally responded positively to the early cancellation of the safeguards which removed the risk of retaliation industry level analysis indicates that producers of apparel tobacco and transportation equipment were particularly affected by the threat of retaliatory tariffs second stage estimates suggest that retaliatory threats have a more negative impact on firms with a higher export share to the eu greater profit growth and low research and development intensity

banks equity stakes and lending evidence from a tax reform abstract we study how a bank s equity stake in a borrowing firm affects lending to that firm similar to prior papers we find a positive association between a bank s equity stake in a borrowing firm and lending to that firm while such a positive cross sectional correlation may be due to equity stakes benefiting lending it may also be driven by endogeneity to distinguish the two explanations we study a german tax reform that permitted banks to sell their equity stakes tax free after the reform many banks sold their equity stakes but did not reduce lending to the firms this observation is robust to several alternative model specifications control groups and time windows our findings suggest that banks equity stakes may be less important for lending than previously thought

bureaucratic discretion or congressional control regulatory policymaking by the federal trade commission this paper extends stigler and peltzman s approach to regulation by incorporating a legislature the model yields comparative statics results and hence testable implications the paper then tests between two opposing approaches about regulatory agency behavior the first assumes agencies operate independently of the legislature and hence exercise discretion the second assumes that congress controls agency decisions the recent behavior of the federal trade commission provides the empirical setting substantial evidence is found for the specific predictions of the model including the hypothesis of systematic congressional influence over ftc decisions

the industrial organization of congress or why legislatures like firms are not organized as markets this paper provides a theory of legislative institutions that parallels the theory of the firm and the theory of contractual institutions like market institutions legislative institutions reflect two key components the goals or preferences of individuals here representatives seeking reelection and the relevant transactions costs we present three conclusions first we show how the legislative institutions enforce bargains among legislators second we explain why given the peculiar form of bargaining problems found in legislatures specific forms of nonmarket exchange prove superior to market exchange third our approach shows how the committee system limits the types of coalitions that may form on a particular issue

extending the sectoral coverage of an international emission trading scheme in a model inspired by the eu emissions trading scheme non cooperative countries allocate their emissions to internationally trading and non trading sectors each country is better off with trading than without and aggregate welfare is maximized with all sectors in the trading scheme we analyze the effects of extending the sectoral coverage of the trading scheme in a two country model with quadratic abatement costs if only the original trading sector is asymmetric between countries the welfare change is always positive and the same in both countries if the original and additional trading sectors are asymmetric one country might lose but there is an aggregate welfare gain if the original trading sector and the non trading sector are asymmetric both countries always gain

banking corporate finance and monetary policy an empirical perspective traditional theories of corporate finance and macroeconomics give no independent role to bank credit in real behavior implicitly assuming perfect capital markets however most recent theoretical work in corporate finance stresses capital market imperfections which limit access to finance for certain borrowers banks are seen as means to overcome these difficulties implying a comparative advantage over securities markets and that bank lending may have real effects empirical results at a micro level tend to support many of these theories based on asymmetric information and incomplete contracts albeit often also being consistent with other hypotheses equally some progress had been made relating recent developments in banking and corporate finance to macroeconomic developments the so called credit channel of monetary transmission the central banks are showing a greater interest in credit as an indicator and component of the monetary policy transmission mechanism partly in the light of this body of research copyright 1994 by oxford university press

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

capital market information and industrial performance the role of west german banks in orthodox theory external capital markets play a dual role supplying various forms of investment finance and disciplining firms which are inefficient or fail to pursue profit goals an extensive literature speaks of the efficiency of external capital markets meaning that firms can make production investment decisions and investors can choose among the securities that represent ownership of firms activities under the assumption that security prices at any time fully reflect all available information fama i970 1 however this concept of efficiency is purely technical it depends critically on what information is available and we know there are problems of appropriability and failure in information markets deriving ultimately from certain peculiarities of information as a commodity arrow i962 thus another growing literature focusses on problems of achieving equilibrium in markets where agents are imperfectly or asymmetrically informed amongst other things this literature shows that informational failures of the kind in question can lead to capital rationing in loan and credit markets and the use of strict collateral requirements as screening devices jaffee and russell i976 stiglitz and weiss i98i cable and turner i983 these may then be expected to affect the efficiency of individual firms and the system as a whole capital shortage implies that some profitable investment opportunities are foregone and production choices may also be distorted by the need to satisfy additional financial constraints contrived to elicit signals of creditworthiness of the firms undertaking them similarly the disciplining role of external capital markets can be impaired by information impactedness williamson i975 and the costs of mobilising and giving effect to shareholders preferences thus in the principal agent framework developed by jensen and meckling i976 and fama i980 the degree of constraint on managerial pursuit of non profit goals as posited by managerial theorists depends on the transactions costs of stock owner intervention the result is an optimal degree of departure from cost minimising profit maximising behaviour determined by the level of transactions costs institutional factors which affect the way information is distributed amongst agents can therefore have an important bearing on allocative and technical efficiency and the west german system of industrial finance provides an in

managerial objectives capital structure and the provision of worker incentives worker incentive schemes are invariably assumed to be administered by an owner entrepreneur who has an incentive to understate worker performance after the event while tournaments can overcome this problem they discourage cooperation between workers we show that a professional manager concerned with equality between workers and with avoiding bankruptcy rather than maximizing shareholder wealth will conduct a tournament that preserves individual effort incentives while promoting cooperation between workers the theory predicts lower debt levels and more compressed pay scales as cooperation becomes more important in the limit this becomes a group bonus scheme supported by blue chip debt

are preferential trade agreements with non trade objectives a stumbling block for multilateral liberalization in many preferential trade agreements ptas countries exchange not only reductions in trade barriers but also cooperation in non trade issues such as labor and environmental standards intellectual property etc we provide a model of ptas motivated by cooperation in non trade issues and analyze its implications for global free trade and welfare we find that such ptas increase the cost of multilateral tariff reductions and thus cause a stumbling block to global free trade this occurs because multilateral tariff reductions decrease the threat that can be used in ptas and thus the surplus that can be extracted from them by explicitly modeling the interaction between preferential and multilateral negotiations we derive a testable prediction and provide novel econometric evidence that supports the model s key prediction the welfare analysis shows that the current wto rules allowing this type of ptas may be optimal for economically large countries thus the model can predict the rules we observe we also analyze alternative rules that constitute a pareto improvement

debt and taxes abstract the extreme reliance on debt that has been a persistent feature of corporate finance in contemporary japan is at least partially due to low personal tax rates this statement is supported by comparison of japan and u s taxes based on the taxes and failure cost theory of finance

the gatt and gradualism abstract this paper shows how the institutional rules imposed on its signatories by the gatt created a strategic incentive for countries to liberalize gradually trade liberalization must be gradual and free trade can never be achieved if punishment for deviation from an agreement is limited to a withdrawal of equivalent concessions and if initial deviation from an agreement is also limited the paper shows how sufficiently patient countries have an incentive to deviate in a limited way when operating under gatt dispute settlement procedures

the size of trading blocs market power and world welfare effects abstract we construct an n country n commodity trade model to analyze the implications of bloc size for nash equilibrium tariffs and welfare the relationship between the absolute size of symmetric trading blocs and their market power is ambiguous and we illustrate how this relationship varies with model parameters in contrast sufficiently large increases in the relative size of a bloc enhance its relative market power and cause the welfare of its country members to rise above the free trade level we establish the existence of an optimal bloc size and study the dependence of optimal size on the parameters of the model

can neuroscience inform economics rationality emotions and preference formation the interaction between neuroscience and economics has gained much prominence recently leading to the emergence of the new and expanding field of neuroeconomics i will argue that although there is much insight to be gained from the interaction between neuroscience and economics the implications of recent developments in neuroscience and neuroeconomics for the deductivist methodology of mainstream economics and its emphasis on prediction of events have not been sufficiently addressed in fact much research on neuroeconomics has contributed to the formulation of deductivist models aimed at the prediction of events when the more fruitful use of neuroscience in economics consists rather in the utilisation of its insights for the development of an explanation of social behaviour that moves beyond the mainstream deductivist methodology the somatic marker hypothesis developed by damasio and others working closely with him will be suggested as an alternative framework for conceptualising the emergence of social behaviour from a neurobiological substrate

a theory of capital controls as dynamic terms of trade manipulation we develop a theory of capital controls as dynamic terms of trade manipulation we study an infinite horizon endowment economy with two countries one country chooses taxes on international capital flows in order to maximize the welfare of its representative agent while the other country is passive we show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows although our theory of capital controls emphasizes interest rate manipulation the pattern of borrowing and lending per se is irrelevant

optimum tariffs and retaliation revisited how country size matters in his seminal work on tariff retaliation johnson review of economic studies 21 1953 1954 showed that a country will win a bilateral tariff war if its relative monopoly monopsony power in world trade is sufficiently large however it is unclear from johnson s analysis and from subsequent research on the subject how this power is determined in general economic environments an important goal of this paper is to address this issue with the help of a neoclassical trade model in which country size is at centre stage it is shown that a sufficient condition for a country to prefer a non cooperative nash tariff equilibrium retaliation over free trade is that its relative size be sufficiently large the paper also refines the structure of the general trade model and generates additional characterization results on the importance of country size for best response tariff functions retaliatory tariffs and welfare

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

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

a note on the optimal tariff retaliation and the welfare loss from tariff wars in a framework with intraindustry trade abstract this paper uses krugman s 1980 model of trade with product differentiation and monopolistic competition to examine the effects of a uniform ad valorem tariff the main results are there exists an optimal tariff even for a small economy and the optimal tariff rate is an increasing function of the size of the economy and the degree of production differentiation under reasonable parameter assumptions a tariff war between two countries of equal size in which each country retaliates by imposing its own optimal tariff causes a welfare loss equivalent to a drop in income of about 4 percent

evidence on the impact of the agency costs of debt on corporate debt policy in the last several years there has been increased theoretical emphasis on the agent principal problem as it applies to corporate finance this paper is an attempt to empirically test for the presence of the agency costs and their relation to the debt policy of corporations we find that firms with higher insider ownership have greater debt ratios than firms with lower insider ownership which may be explained by the agency costs of debt and or the agency costs of equity other regression results tend to confirm the theoretically optimal relationships put forth by myers we find that high growth firms use less debt rather than more debt high operating risk firms use more debt rather than less debt and firm size appears to be uncorrelated to the level of debt

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

cross holdings estimation issues biases and distortions cross holding occurs when listed corporations own securities issued by other corporations we analyze the effect of cross holdings on market capitalization and return measures as well as implications for econometric testing of asset pricing theories we show that cross holdings generally distort standard market return and risk measures the magnitudes of such distortions are calculated for simulated economies by using a variety of crossholding patterns in addition cross holdings are shown to induce nonstationarity in the covariance matrix of security returns we examine the effect of this nonstationarity for estimating efficient frontiers and factor structures we also discuss the implications for risk return estimates in equilibrium asset pricing models article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information externalities share price based incentives and managerial behaviour abstract we survey recent theoretical research on the effects of short term share price based managerial incentive schemes such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts these problems arise from informational asymmetries managers take actions to manipulate the information flow rather than to maximize firm value more generally imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties interests are aligned

does the japanese governance system enhance shareholder wealth evidence from the stock price effects of top management turnover this article examines the stock price effects of top management turnover announcements for 432 japanese corporations from 1985 to 1990 we find that these announcements are associated with significantly positive abnormal returns the returns are greater when turnover is forced than when turnover represents normal succession the stock price effects are also significantly positive when turnover is forced and the successor is appointed from outside the firm we find that large shareholders play an important role during outside succession this evidence suggests that the disciplinary decisions of japanese governance mechanisms are consistent with shareholder wealth maximization article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

shareholding in the keiretsu japan s financial groups largest debtholders in keiretsu member companies hold more stock if the companies have high debt to equity ratios or have weaker collateral greater prospects of growth or unique aspects all are factors associated with the agency problems of debt that stockholding by a debtholder can help to resolve the stockholding also induces greater borrowing by these same companies ceteris paribus copyright 1993 by mit press

the congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

optimal tariff calculations in alternative trade models and some possible implications for current world trading arrangements in this paper we report calculations of optimal tariffs both with and without retaliation in a sequence of 2 2 trade models we extend the earlier calculations by johnson 1954 1961 and gorman 1957 which assume constant elasticity offer surfaces by using functional forms from the cobb douglas ces les family for utility functions and by also incorporating production into our calculations results indicate that the most critical parameters in any such calculations for a 2 2 model are the import prices elasticities and we briefly survey the empirical evidence as to their values our major conclusion is that these models confirm the suggestion from casual inspection of reported trade elasticities that current levels of tariff protection are some distance from optimal tariffs and that the margin for tariff retaliation in a worldwide trade war is potentially large other implications of the results are explored in the text

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

on the costs of a bank centered financial system evidence from the changing main bank relations in japan we examine the effects of bank firm relationships on firm performance in japan when access to capital markets is limited close bank firm ties increase the availability of capital to borrowing firms but do not lead to higher profitability or growth the cost of capital of firms with close bank ties is higher than that of their peers this indicates that most of the benefits from these relationships are appropriated by the banks finally the slow growth rates of bank clients suggest that banks discourage firms from investing in risky profitable projects however liberalization of financial markets reduces the banks market power the close relationship between manufacturing firms and financial institutions in japan has recently been at the center of the debate on the appropriate financial system for the reforming economies of eastern europe as opposed to the anglo saxon separation of finance and industry long term ties between main banks and their client firms involving bank loans bank equity holding and some bank appointed personnel which are common in japan and germany have often been described as a growth oriented financial system that could serve the needs of developing and reformed economiies better than anonymous capital markets modeled after the arnerican and british financial systems the claim that close ties between investmentoriented banks and industrial firms could help overcome the difficulties of relative backwardness dates back to gerschenkron 1962 who investigates european development rosovsky 1961 applies gerschenkron s framework to the analysis of japanese growth more recently aoki patrick and sheard 1994 hoshi kashyap and loveman 1994 and teranishi 1993 among others portray the close ties between finance and industry in japan as an important factor in the international competitiveness of modern japanese

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

a strategic and welfare theoretic analysis of free trade areas abstract we construct a three country model to determine how the formation of free trade areas ftas affects optimal tariffs and welfare we find that at constant rest of the world row tariffs the adoption of internal free trade induces union members to reduce their external tariffs below the kemp wan j int econom 6 1976 95 97 level and causes row s terms of trade to improve and its welfare to rise when row also behaves optimally its policy response to the formation of the fta is to raise tariffs generally fta members prefer to liberalize internal trade partially and find regional integration appealing only if their collective size is sufficiently large we also demonstrate how ftas may undermine the attainment of global free trade

an agency model to explain trade credit policy and empirical evidence this article explains trade credit policy based on the agency theory according to this theory we have developed an agency model based on the adverse selection and moral hazard phenomena arising from the relation between sellers and buyers this model has been estimated by using panel data methodology applied to uk companies our findings strongly support the model proposed we find that smaller firms those with a smaller proportion of fixed assets and those that are less profitable extend more trade credit whereas firms with a high proportion of variable costs and high percentage of bad debts extend less

determinants of bilateral trade protection in this paper determinants of bilateral protection levels are empirically identified when controlling for multilateral trade regulation and importing country specific factors strong empirical support is provided of that three bilateral factors are influencing the bilateral protection level specifically a country s protection level on goods from a trade partner is positively affected by the domestic import penetration of goods produced by the trade partner negatively influenced by the intra industry traded share of these imports and positively affected by the trade partner s protection level on domestic goods moreover very high explanatory values are provided in the cross section estimations indicating that these determinants policy regulations and importer specific factors jointly explain almost all of the variation in bilateral protection levels the results are general in the sense that estimations are performed for a large sample of bilateral trade relations including 22 trade partners that are highly differentiated in terms of country characteristics the overall results indicate that to the extent that policy makers can affect bilateral protection levels under multilateral trade regulation they act on political economy rather than economic goals

myopic corporate behaviour with optimal management incentives existing models in which stock markets lead to corporate short termism rely on an exogenously imposed objective for top managers this paper endogenizes both managers concern for short term stock prices and the resulting distortions we show that when the manager can trade on her own account on the stock market in a way that is observable to market participants but which is not verifiable in court shareholders will choose an incentive contract which induces a bias towards short term returns consistent with recent evidence the short term bias is greater when the optimal contract provides low powered management incentives

trade imbalance and the endogenous optimal tariff endogenous tariff literatures reveal empirically that trade imbalance is negatively related with import tariff this article gives a theoretical evidence and explanation to support this finding wit

arming in the global economy the importance of trade with enemies and friends abstract we analyze how trade openness matters for interstate conflict over productive resources our analysis features a terms of trade channel that makes security policies trade regime dependent specifically trade between two adversaries reduces each one s incentive to arm given the opponent s arming if these countries have a sufficiently similar mix of initial resource endowments greater trade openness brings with it a reduction in resources diverted to conflict and thus wasted as well as the familiar gains from trade although a move to trade can otherwise induce greater arming by one country and thus need not be welfare improving for both aggregate arming falls by contrast when the two adversaries do not trade with each other but instead trade with a third friendly country a move from autarky to trade intensifies conflict between the two adversaries inducing greater arming with data from the years surrounding the end of the cold war we exploit the contrasting implications of trade costs between enemies versus trade costs between friends to provide some suggestive evidence in support of the theory

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

top executive rewards and firm performance a comparison of japan and the united states this paper studies top executive turnover and compensation and their relation to firm performance in the largest japanese and u s companies japanese executive turnover and compensation are related to earnings stock returns and to a lesser extent sales performance measures the fortunes of japanese top executives therefore are positively correlated with stock performance and current cash flows or with factors contributing to such performance the relations for the japanese executives are generally economically and statistically similar to those for their u s counterparts there is some evidence however that the fortunes of japanese executives are more sensitive to low income but less sensitive to stock returns than those of u s executives

compensation turnover and top management incentives historical evidence the authors find that the rate of top management turnover and the sensitivity of turnover to stock returns for a sample of large industrial firms from 1933 to 1941 was significantly smaller than estimates reported for modern panels they present evidence that management compensation has become more sensitive to firm performance since the 1930s in contrast to the conclusions of michael c jensen and kevin j murphy 1990 and others the authors findings indicate that management incentives under control of the board have become stronger rather than weaker over the past half century these findings are consistent with internal and external control mechanisms functioning as complements copyright 1997 by university of chicago press

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

financial intermediaries ownership structure and monitored finance evidence from japan this paper introduces new and unique data from 127 japanese private equity funds that enable a first ever direct comparison of individual owner manager structures versus financial intermediation structures in terms of the governance provided to investee companies through private equity funds the data indicate individual owner manager structures financial disintermediation give rise to much smaller portfolios of entrepreneurial firms and more advice to entrepreneurs across the scope of different financial intermediation structures including banks life insurance companies securities firms corporations and government bodies there are further differences in the provision of governance and value added advice provided to investees the data further indicate us affiliated funds in japan are more likely to have smaller portfolios and provide more advice to entrepreneurial companies possibly due to a greater skill set in providing advice to facilitate the development of small entrepreneurial firms

subordination of american capital abstract to economists agency problems present challenges that can be resolved through optimal contracting or incentive mechanisms to politicians agency problems represent entitlements to be allocated among favored constituencies corporate management constitutes a powerful constituency independent of the interests of workers local communities and other corporate stakeholders the political process has for politically rational but economically dabatable reasons systematically subordinated investors desire to resolve agency problems to managers desire to be protected from capital market discipline politically explicit modes of analysis thus complement traditional tools of finance theory and improve our ability to explain capital market structure and behavior

neuroeconomics why economics needs brains neuroeconomics uses knowledge about brain mechanisms to inform economic theory it opens up the black box of the brain much as organizational economics opened up the theory of the firm neuroscientists use many tools including brain imaging behavior of patients with brain damage animal behavior and recording single neuron activity the key insight for economics is that the brain is composed of multiple systems which interact controlled systems executive function interrupt automatic ones brain evidence complicates standard assumptions about basic preference to include homeostasis and other kinds of state dependence and shows emotional activation in ambiguous choice and strategic interaction

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

sec trading suspensions empirical evidence this article explores the price behavior of a sample of corporate securities in which trading was temporarily suspended by the sec suspensions are found to coincide with substantial devaluations of the suspended securities further significant and prolonged negative abnormal returns are observed in the postsuspension period an apparent violation of semistrong form market efficiency

on tariff preferences and delegation decisions in customs unions a heckscher ohlin approach this paper studies preferences of customs union cu members over common external tariff cet levels and extends the literature on delegation decisions over trade policy in models with production in a model with similar cu members we prove that most preferred cets can be ranked with the help of compensated price elasticities of import demand functions in the heckscher ohlin trade model we show these elasticities depend on inter country differences in relative factor endowments and inter sectoral differences in technology this helps identify the optimal policy maker in a cu and demonstrates delegation decisions over trade policy can be integrated into mainstream trade theory the proliferation of preferential trade agreements ptas in the 1990s has presented policy analysts with a dual challenge to identify how these arrangements affect policy makers incentives to intervene in trade and to predict their implications for welfare economists responded to this challenge vigorously thanks to their research efforts a substantial body of work is now available addressing these issues under alternative assumptions regarding the theoretical environment considered including the objectives of policy makers the nature of their interactions the gatt rules that might constrain these interactions market structure the process of coalition formation etc 1 still while undeniably valuable the recent literature on regionalism has shed limited light on an important issue how heterogeneity among partners in a pta shapes their national preferences over external tariff levels and how these preferences in turn manifest themselves in the formation of actual trade

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

tariff wars in the ricardian model with a continuum of goods this paper describes strategic tarichoices within the ricardian framework of dorn busch fischer and samuelson 1977 using ces preferences the optimum tarischedule is uniform across goods and inversely related to the import demand elasticity of the other country in the nash equilibrium of taris larger economies apply higher tarirates pro ductivity adjusted relative size gdp ratio is a su cient statistic for absolute produc tivity advantage and the size of the labor force both countries apply higher tarirates if specialization gains from comparative advantage are high and transportation cost are low a su ciently large economy prefers the ine cient nash equilibrium in taris over free trade due to its quasi monopolistic power on world markets the required threshold size is increasing in comparative advantage and decreasing in transportation cost i discuss the implications of the static nash equilibrium analysis for the sustainability and structure of trade agreements

a political theory of regulation with some observations on railway abandonments one of the main themes of partisan dispute in the recent past and doubtless in the foreseeable future is whether or not the value of detailed governmental regulation of the economy exceeds the cost this is exactly the kind of dispute that might be resolved by raising it from the level of mere partisan interest to the level of economic and political science unfortunately however it has not been raised because we do not have the necessary intellectual apparatus namely a theory about the motivation for the operation of and the consequences of regulation as a result most of the discussion consists of biased ad hoc explanations of particular cases with little effort to formulate and test alternative generalizations we have therefore nothing but unresolved and unresolvable disputes about a more or less random collection of stories and some contradictory recipes about cause and effect

a theory of the optimal cost barrier to corporate takeovers this paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation supported by governance structures that allow managers to resist hostile takeovers more vigorously this effect is most pronounced in firms where workers pay for their job by accepting low wages early in their careers firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the brain as a hierarchical organization based on recent neuroscience evidence we model the brain as a dual system organization subject to three conflicts asymmetric information temporal hori zon and incentive salience under the first and second conflicts we show that the uninformed system imposes a positive link between consumption and labor at every period furthermore decreasing impatience endogenously emerges as a consequence of these two conflicts under the first and third conflicts it becomes optimal to set a consumption cap finally we discuss the behavioral implications of these rules for choice bracketing and expense tracking and for consumption over the life cycle jel dil d74 d82 d87 d91

mutual fund activism and market regulation during the pre ifrs period the case of earnings informativeness in china from an ethical perspective this paper investigates the emerging effect of mutual fund involvement on the agency problem between majority and minority shareholders during the pre ifrs period in china indicated by earnings informativeness from an ethical perspective we find that the presence of mutual fund hampers earnings informativeness implying that mutual funds in general at their early stage in china are not yet capable of serving as an effective monitor this finding is in sharp contrast to the role of institutional investors in mature markets as documented in the literature however mutual funds affiliated with banks have been found to be effective to improve earnings informativeness of chinese listed companies and the impact is more pronounced among those affiliated with joint equity banks compared to their counterparts affiliated with state owned banks