the political economy of corporate control and labor rents in a democracy a political majority can influence both the corporate governance structure and the return to human and financial capital we argue that when financial wealth is sufficiently concentrated there is political support for high labor rents and a strong governance role for banks or large investors the model is consistent with the great reversal phenomenon in the first half of the twentieth century we offer evidence that in several financially developed countries a financially weakened middle class became concerned about labor income risk associated with free markets and supported a more corporatist financial system

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

loss aversion and rationality in the newsvendor problem under recourse option abstract risk neutral assumption in the newsvendor problem under recourse option predicts the order quantity insensitive to the selling price and risk aversion modeled through common utility functions gives decreasing order quantity with increasing selling price in this paper we consider loss aversion to model the choice preference of the decision maker in the newsvendor problem under recourse option and prove that loss aversion predicts the rational ordering behavior of the newsvendor with respect to the changes in price and cost parameters further we find that loss aversion can significantly improve the performance of utility function based models in predicting the rational behavior we extend the analysis to a supply chain setting and establish coordinating contract between a loss averse retailer facing a newsvendor problem and a risk neutral supplier under recourse option we find that the contract parameter does not depend on the loss aversion hence the same contract can be implemented with retailers with different levels of loss aversion

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

why is bank debt senior a theory of asymmetry and claim priority based on influence costs this theory can explain why bank debt is universally senior consistent with the presence of conflict lawyers and absolute priority violations in financial distress better organized banks would more strongly contest priority in financial distress if they were junior because deterrence can reduce creditors total expenses in a priority contest the ex post stronger lobbyist litigant should be senior ex ante for equivalent reasons the theory can advise when public debt should be senior to trade credit and or implicit contracts and can even suggest one rationale for the absolute priority rule apr this article further shows that chapter hi creditor reimbursement procedures can lower overall costs article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

paired comparison and contingent valuation approaches to morbidity risk valuation abstract this research uses an experimental approach for eliciting consumer valuations of morbidity risk reductions associated with safter chemical products and introduces the paired comparison questions approach to non market valuation in four applications the paired comparisons approach yields higher morbidity valuations than the more familiar contingent valuation approach however both methodologies produce large values of morbidity reduction benefits in comparison to estimates derived from wage hedonic studies explanations for the difference in the estimates and their magnitudes are suggested along with the public policy implications

ownership concentration and firm performance in emerging markets a meta analysis the literature concerned with relations between ownership concentration and corporate performance in emerging markets presents conflicting theoretical predications and inconclusive empirical results we use meta analytical techniques to integrate the diverse empirical findings and investigate factors contribute to the inconsistencies in the empirical evidence using 419 correlations collected from 42 primary studies of listed corporations in 18 emerging markets heterogeneity tests show that only a small proportion of the variation in reported ownership concentration performance relations can be attributed to sampling error our meta regressions reveal how population differences researchers modeling choices and inadequate treatment of endogeneity explain a large portion of the true heterogeneity after adjusting for these effects we find ownership concentration has negative relation with firm performance across countries our results emphasize the importance of model specification and methods of addressing endogeneity and support further comparative study of the ownership concentration corporate performance relation between countries with seemingly similar corporate governance environments

the political economy of financial systems evidence from suffrage reforms in the last two centuries initially voting rights were limited to wealthy elites providing political support for stock markets the franchise expansion induces the median voter to provide political support for banking development as this new electorate has lower financial holdings and benefits less from the uncertainty and financial returns from stock markets our panel data evidence covering 1830 1999 shows that tighter restrictions on the voting franchise induce a greater stock market development whereas a broader voting franchise is more conducive towards the banking sector consistent with perotti and von thadden 2006 our results are robust to controlling for other political determinants and endogeneity

does economic structure determine financial structure abstract in this paper we examine the relationship between the structure of the real economy and a country s financial system we consider whether the development of the real economic structure can predict the direction of evolution of a country s financial structure using data for 108 countries we find a significant relationship between real economic structure and financial structure next we exploit shocks to the economies in india finland and sweden and south korea and show that changes in the economic structure of a country influence the evolution of its financial system this suggests that financial institutions and capital markets change in response to the structure of industries

productivity and distribution effects of codetermination in an efficient bargaining model codetermination can be regarded as an extreme regulatory intervention of the legislator in the labor market which might affect the efficiency of production and the bargaining power of labor based on a model that covers both efficient bargaining and employment bargaining a simple equation is derived that is suited to empirical testing the empirical test is based on german data and includes years before and after the extension of german codetermination law in 1976 the estimates determine the productivity of labor and relative bargaining power of capital and labor it turns out that codetermination does not affect productivity but leads to a significant increase in workers bargaining power and the distribution of rents

modeling a multi attribute utility newsvendor with partial backlogging abstract traditional newsvendor models usually focus on single profit maximization or cost minimization approaches however making a monetary estimate of the consequences of lost sales as a result of shortages is often a difficult task for many practitioners besides there is still a lack of an explicit account of decision making judgments on the multiple consequences of making decisions with regard to order quantities in order to deal with this problem this paper presents a multi attribute utility model for the newsvendor problem with regard to profit the impacts of service level on corporate image and on customers goodwill and the impact on the environment arising from the disposal of unsold products demand is partially backlogged according to a decreasing exponential function of the waiting time the fundamental principles and limitations related to the application of the model built are also discussed

strategic transparency and informed trading will capital market integration force convergence of corporate governance dominant investors can influence the publicly available information about firms by affecting the cost of information collection under strategic competition transparency results in higher variability of profits and output thus lenders prefer less transparency since this protects firms when in a weak competitive position while equity holders prefer more market interaction creates strategic complementarity in gathering information on competing firms thus entry by transparent competitors will improve price informativeness moreover as the return to information gathering increases with liquidity increasing global trading may undermine the ability of bank control to keep firms opaque

political intervention in debt contracts this paper develops a dynamic general equilibrium model of an agricultural economy in which poor farmers borrow from rich farmers because output is stochastic we allow for idiosyncratic and aggregate shocks there may be default ex post we compare equilibria with and without political intervention intervention takes the form of a moratorium and is decided by voting when bad economic shocks are highly likely state contingent debt moratoria always improve ex post efficiency and may also improve ex ante efficiency moreover the threat of moratoria enhances efficiency when adverse macro shocks are unlikely state contingent moratoria always improve ex ante welfare by completing incomplete debt contracts

law and finance at the origin what are the key determinants of financial development and growth a large literature debates the relative importance of countries legal and political environment in this paper i present evidence from ancient rome where an early form of shareholder company the societas publicanorum developed i show that the societas publicano rum flourished in a legally underdeveloped but politically supportive environment roman republic and disappeared when roman law reached its height of legal sophistication but the political environment grew less supportive roman empire in the roman case legal development appears to have mattered little as long as the law as practiced was flexible and adapted to economic needs the law as practiced in turn reflected prevalent political interests after discussing parallels in more recent history i provide a brief overview of the literature on law and finance and on politics and finance the historical evidence suggests that legal systems may be less of a technological constraint for growth than previously thought at least at the origin

valuing environmental commodities some recent experiments a general model of consumer behavior is proposed to assess six recent experiments that have attempted to reveal preferences for environmental goals each experiment used a mix of both the techniques and the theory of demand for non market commodities and each was designed to estimate a non market attitude associated with the environment and to analyze potential biases in the techniques the six cases show some consistency in results the linkage within the contingent market between the environmental attribute institutional setting and the bidding instrument must be realistic and accepted by the respondent to avoid biased results possibly the most important result is the replication of results using a traditional property value study and a contingent bidding approach all evidence obtained to date suggests that hedonic studies of property values or wages travel costs and survey techniques all yield values well one order of magnitude in accuracy 41 references 2 tables

social insurance commitment and the origin of law interest bans in early christianity abstract despite the historical importance of ideology based economically inhibitive laws we know little about the economic factors underlying their origin this paper accounts for the historical emergence of one such law the christian ban on taking interest a doctrine that shaped the evolution of numerous financial contracts and related organizational forms a game theoretic analysis and historical evidence suggest that the church s commitment to providing social insurance for its poorest constituents encouraged risky borrowing which the church attempted to limit by banning interest the analysis highlights the applicability of the rational choice framework to seemingly irrational actions and laws the role of nonmonetary sanctions in circumventing commitment problems and the importance of economic forces vis a vis ideology

interest rate restrictions in a natural experiment loan allocation and the change in the usury laws in 1714 this article studies the effects of interest rate restrictions on loan allocation the british government tightened the usury laws in 1714 reducing the maximum permissible interest rate from 6 to 5 a sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly while access to credit worsened for those with little social capital collateralised credits which had accounted for a declining share of total lending returned to their former role of prominence our results suggest that the usury laws distorted credit markets significantly we find no evidence that they offered a form of pareto improving social insurance almost since the beginning of recorded history usury restrictions have been widely used the laws of hammurabi from the 2nd millennium bc regulated interest rates as did the old testament and the catholic church while early rules often outlawed the taking of interest altogether later restrictions stipulated maximum permissible interest rates to the present day many developing and islamic countries and us states impose limits on private loan contracts to stamp out predatory lending by credit sharks only recently italy re introduced a law against usurious credit contracts glaeser and scheinkman 1998 blitz and long 1965 homer and sylla 1996 the effects of usury regulation have remained controversial numerous scholars have argued that they had damaging consequences and that this conclusion applies to both

the effects of usury laws evidence from the online loan market abstract usury laws cap the interest rates that lenders can charge using data from prosper com an online lending marketplace i investigate the effects of these laws the key to my empirical strategy is that there was initially substantial variability in states interest rate caps ranging from 6 to 36 a behind the scenes change in loan origination however suddenly increased the cap to 36 the main findings of the study are that higher interest rate caps increase the probability that a loan will be funded especially if the borrower was previously just outside the money i do not find however changes in loan amounts and default probability the interest rate paid rises slightly probably because online lending is substantially yet imperfectly integrated with the general credit market

finance firm size and growth the authors examine whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth they define an industry s technological firm size as the firm size implied by industrial specific production technologies including capital intensities and scale economies using cross industry cross country data the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms this suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications

employment protection and takeovers labor restructuring is a key driver of takeovers and the associated synergy gains worldwide in a difference in differences research design we show that major increases in employment protection reduce takeover activity by 14 27 and the combined firm gains synergies by over half consistent with the labor channel behind these effects deals with greater potential for workforce restructuring show a greater reduction in volume number and synergies the reforms do impede layoffs and the associated wage costs match the magnitude of synergy losses offer prices are not fully adjusted with both bidders and targets exhibiting lower returns following the reforms

stock market development and cross country differences in relative prices abstract we document a positive correlation between stock market capitalization and price levels wages within the group of countries with poorly developed stock markets and a negative correlation between these two variables within the group of countries with more developed stock markets this paper argues that there is a causal relationship behind these correlations stock markets initially stimulate growth pushing the demand for nontradables and increasing prices and wages stock markets also promote a shift toward more capital intensive technologies in the tradable sector increasing the migration of workers to services and eventually putting downward pressure on wages and prices

ordering policy and coordination of a supply chain with two period demand uncertainty abstract we develop a two period game model of a one manufacturer and one retailer supply chain to investigate the optimal decisions of the players where stock out and holding costs are incorporated into the model the demand at each period is stochastic and price sharply drops in mid life we assume the retailer has a single order opportunity and decides how much inventory to keep in the middle of selling season we show that both the price protection mid life and end of life returns pme scheme and the only mid life and end of life returns me scheme may achieve channel coordination and access a win win situation under some conditions the larger the lowest expected profit of the retailer the lower the possibility of win win situation will be combined with the analysis of feasible regions for coordination policies we find that pme scheme is not always better than me scheme from the perspective of implementable mechanism finally we find that adopting the dispose down to ddt policy can bring a larger improvement of the expected channel profit in the centralized setting and it is interesting that by using ddt policy double marginalization occurs only at period 1 and however does not plague the retailer in period 2

conflicts of interest the ethics of usury social attitudes toward usury here defined using the archaic meaning as the taking of interest on loans have changed dramatically over the centuries from antiquity until the protestant reformation usury was regarded as an inherently evil activity today with few exceptions usury is met with moral indifference modern objections to usury are limited to protest against excessive interest rates rather than interest per se with this change in focus the very meaning of the term usury has also changed many early pronouncements against the taking of interest emphasized the plight of the poor but ironically the poor actually pay the highest rates of interest in the modern american economy despite the universality of usury some socio economic subcultures still manage to avoid the taking or giving of interest orthodox branches of both judaism and islam have maintained bans on usury throughout the centuries and up to the present time this is especially interesting in the case of judaism given the popular cultural image of the jew as usurer jewish free loan systems may actually offer a model for modern loan programs that can be designed to aid poor borrowers who are frequently shut out of mainstream financial services

efficient supply contracts for fashion goods with forecast updating and two production modes we examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion seasonal products operating in a two mode production environment the first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround we focus on contracts of the form w1 w2 b wherewi is the wholesale price offered for production modei andb is a return price offered for items left over at the end of the season we find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel the pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer s access to forecast information we also examine whether these conditions ensure a pareto optimal solution with respect to two traditional production settings

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

the loss averse newsvendor model with backordering abstract in this paper we study the optimal order quantity in the loss averse newsvendor model with backordering we first obtain the optimal order quantity to maximize the expected utility to hedge against the risk arising from the uncertainty of market demand we introduce the conditional value at risk cvar measure and derive the optimal order quantity to maximize the cvar objective about utility it is found that the optimal order quantity with the cvar objective is decreasing in the confidence level and thus is smaller than the optimal order quantity to maximize the expected utility it is proved that under the optimal order quantity with the cvar objective the loss averse newsvendor s expected utility is decreasing in the confidence level it further confirms that high risk implies high return and low risk comes with low return

the application of laboratory experimental economics to the contingent valuation of public goods we have implicitly argued in the last section that a dynamic iterative survey mechanism may well need to be employed in the design of contingent valuation survey instruments in order to improve the accuracy of responses furthermore due to the current inaccuracy of hedonic and travel cost approaches for valuing public goods the least cost method in our view for establishing anchor or true individual values for testing alternative survey instruments is to use laboratory experiments the objective of these experiments should be the development of the most simple survey design which gives accurate responses subject to the budget of the investigator is a complex iterative voting procedure required how fast will such a procedure converge to true values what is the effect on incentives of relaxing the unanimity voting feature for large groups all of these operational questions can at least qualitatively be answered in an experimental laboratory setting

club goods and group identity evidence from islamic resurgence during the indonesian financial crisis this paper tests a model in which group identity in the form of religious intensity functions as ex post insurance i exploit relative price shocks induced by the indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity koran study and islamic school attendance that is weaker for other forms of group identity consistent with ex post insurance credit availability reduces the effect of economic distress on religious intensity religious intensity alleviates credit constraints and religious institutions smooth consumption shocks across households and within households particularly for those who were less religious before the crisis

in defense of usury laws usury law is often criticized by economists for curtailing lending and thus creating deadweight costs this paper shows that if moral hazard leads to credit rationing a just binding usury law creates a deadweight gain this property also holds in most market clearing equilibria independent of social insurance benefits or curbing present biased preferences interest rate caps have merit

the impact of interest rate ceilings on households credit access evidence from a 2013 chilean legislation abstract this study analyzes the impact of a legislation introduced in chile in 2013 which gradually reduced the maximum legal interest rate for consumer loans from 54 to 36 using a representative sample of households that matches survey data and banking loan records i compare consumers with risk adjusted interest rates slightly above and slightly below the legal interest rate ceiling two groups of similar characteristics but who are differently affected by the law after accounting for both macroeconomic shocks and unobserved household heterogeneity the results show that being above the interest rate cap reduces the probability of credit access by 8 7 on average a counterfactual exercise shows that the new legislation excluded 9 7 of the borrowers from banking consumer loans the law s impact was strongest on the youngest least educated and poorest families finally i show that the new law affected all lenders of consumer loans in chile not just banks

banking on politics this paper presents new data from 150 countries showing that former cabinet members central bank governors and financial regulators are many orders of magnitude more likely than other citizens to become board members of banks countries where the politician banker phenomenon is more prevalent have higher corruption and more powerful yet less accountable governments but not better functioning financial systems regulation becomes more pro banker where this happens more often furthermore a higher fraction of the rents that are created accrue to bankers former politicians are not more likely to be directors when their side is in power and banks are more profitable without being more leveraged rather than supporting a public interest view the evidence is consistent with a capture type private interest story where in exchange for a non executive position at a bank in the future politicians provide for beneficial regulation

islamic banks and investment financing islamic law prohibits charging interest we study financial instruments used by islamic banks and find that most are not based on profit and loss sharing equity but instead are very debt like in nature we see some bias against providing financing for agriculture and industry long term financing is rarely offered to entrepreneurs our model shows that debt like instruments are a rational response by islamic banks to their contracting environments as agency problems become more severe debt becomes the dominant instrument of finance we give conditions under which banning debt increases social welfare as well as conditions under which banning debt decreases social welfare

valuing public goods a comparison of survey and hedonic approaches although the theory of public goods has progressed rapidly since paul samuelson s seminal article the empirical measurement of the value of demand for public goods only recently has received increased attention perhaps the best known and most widely accepted empirical approach has been the use of hedonic prices wherein for example it is assumed that either wages or housing values reflect spatial variation in public good characteristics of different communities this indirect approach based on theoretical work of charles tiebout kelvin lancaster sherwin rosen and others has proven quite successful among public goods or bads which have been valued using the hedonic approach are climate i hoch air pollution robert anderson and thomas crocker d harrison and d rubinfeld social infrastructure r cummings et al and other community characteristics such as noise level j nelson and ethnic composition ann schnare an alternative approach is to directly ask households or individuals to state their willingness to pay for public goods using survey techniques despite arguments that strategic bias will invalidate survey results there exists the need for an alternative to the hedonic approach as an example consider the case of a remote and unique scenic vista valuable to recreators which is threatened by air pollution from a proposed coal fired plant a typical situation in the western united states although it is possible in principle to impute the value of clean air and visibility from the relative decline in local visitation which might follow construction of a power plant information on the value of visibility at the site is needed prior to construction for socially optimal decision making on plant location and pollution control equipment the hedonic approach is unavailable both because the scarcity of local population as opposed to recreators makes use of wage or property value data impossible and because scenic vistas may themselves be unique for these reasons a randall et al first applied survey methods for valuing visibility and other environmental effects of large coal fired power plants in the four corners region of new mexico since this initial application the survey approach has been widely used to value environmental commodities where market data for hedonic analysis is difficult to acquire see for example brookshire ives and schulze rowe et al brookshire et al other early attempts to value public goods using the survey approach include r davis peter bohm and j hammack and g brown although results of using the survey approach for estimating the value of public goods appear to be internally consistent replicable and consistent with demand theory see schulze et al little work on external validation has been reported thus the purpose of this paper is to report on an experiment designed to validate the survey approach by direct comparison to a hedonic property value study the los angeles metropolitan area was chosen for the experiment because of the well defined air pollution problem and be assistant professor university of wyoming assistant professor university of missouri rolla associate professor university of wyoming and professor university of wyoming respectively the research reported here was funded under a grant methods development for assessing air pollution control benefits from the u s environmental protection agency we would like to give special thanks to alan carlin and shelby gerking for their helpful suggestions and contributions additional helpful comments were received from a myrick freeman iii john tschirhart and james murdoch all conclusions are of course our sole responsibility

a general equilibrium analysis of personal bankruptcy law we analyze an economy where principals lenders asset owners franchisors and agents borrowers tenants franchisees match and contract subject to moral hazard bankruptcy law defines the limited liability constraint in these contracts we provide a walrasian characterization of stable allocations and use it to analyze the distributional impact of changing bankruptcy law we show i weakening liability law leads to a redistribution of debt from poor to rich agents ii it makes rich agents better o and poor agents and principals worse o iii exemption limits pareto dominate other bankruptcy laws if project size is fixed and iv means testing as used in the new us bankruptcy law which is ex post pro poor in intent makes the poor worse o ex ante

sovereign debt auctions uniform or discriminatory abstract many financial assets especially government bonds are issued by an auction an important feature of the design is the auction pricing mechanism uniform versus discriminatory theoretical papers do not provide a definite answer regarding the dominance of one type of auction over the other we investigate the revealed preferences of the issuers by surveying the sovereign issuers that conduct auctions we find that the majority of the issuers countries in our sample use a discriminatory auction mechanism for issuing government debt we use a multinomial logit procedure and discriminatory analysis to investigate the mechanism choice it was interesting to find that market oriented economies and those that practice common law tend to use a uniform method while economies who are less market oriented and practice civil law tend to use discriminatory price auctions

can foreign stock investors influence policymaking foreign portfolio stock investors fpsis often attach political criteria to their investment choices sometimes in the hope of pressuring policymakers in boycotted markets to adjust their policies

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

on the political origin of corporate governance species although economies business practices and living standards have converged since wwii corporate structures continue to differ among the advanced economies of the world looking at the diversity of corporate structures of large sized firms around the world and over time would fascinate charles darwin this work develops a critical review of the literature on political determinants of corporate governance through the darwinian theory including some lamarckian aspects as darwin in his work on the origin of species explicates the diversity of species of tortoises finches and iguanas of the galapagos islands so darwinism may contribute in understanding the origin and the persistence of corporate diversity in particular this article takes into account politics driven variations their inheritances and the subsequent selection of advantageous corporate attributes

reordering strategies for a newsboy type product abstract this paper considers the very common situation in which a single period newsboy type product may be ordered or produced twice during a season period we show that the explicit consideration of this reorder opportunity makes the newsboy problem very much richer the specific version considered in this paper allows a reorder during mid season after the early season demand has been observed and this reorder arrives after a given lead time the demand distributions during the various portions of the season may have very general distribution forms also the late season and early season demands may be dependent solution procedures are developed to find the best way to exploit this reorder opportunity and our numerical solutions indicate that this reorder opportunity can improve profits considerably as long as the product s profit margin is not very high other real world variations of this two order newsboy problem are briefly discussed

the role of law in economic growth a literature review abstract compared with other explanatory variables such as capital accumulation technological innovations geographical endowments economic openness and cultural factors institutions especially legal institutions have been regarded as a crucial condition for economic growth in recent years the importance of legal rules is systematically revealed by a series of cross country econometric studies conducted by la porta et al who claim that legal origins are central to understanding the divergence in living standards across the regions and countries of the world and compared with civil law countries especially those countries with french civil law tradition common law countries have enjoyed superior economic outcomes the controversies set off by la porta et al s proposition indicate that there are a number of questions that are difficult to explain by la porta et al s theory and hence call for more work on comparative analysis of different legal families before a consensus can be reached

neither a borrower nor a lender be an economic analysis of interest restrictions and usury laws interest rate restrictions are pervasive and important regulations this article suggests that these restrictions served in part as a primitive means of social insurance lowering the rate of interest effectively transfers income to states of the world where individuals have a high marginal utility of income and are borrowers from states of the world where individuals have a low marginal utility of income and are lenders the model predicts that interest rate restrictions will be tighter when income inequality is high and impermanent and when growth rates are low furthermore loan supply must be somewhat inelastic data from u s states support a connection between inequality income shocks and tighter usury laws usury laws were also stricter in older more stable communities the history of usury laws suggests that this social insurance mechanism is one reason usury laws exist and persist but this history also suggests that usury laws have played many roles across time and that no one theory can po

impacts of interest rate caps on the payday loan market evidence from rhode island abstract interest rate caps are the most common form of payday loan regulation yet little academic research has examined their consequences i investigate the impacts of tightening the cap from 15 to 10 in rhode island using a difference in difference framework and a unique proprietary dataset of payday loans issued by major nationwide lenders between 2009 and 2013 lenders always charge the prevailing cap creating a sharp and clean variation in interest rate i show that loan usage increases at the extensive and intensive margins amounting to elasticity estimates in the range of 0 7 1 0 i also find that loan sequences become longer and more likely to end with default no lenders exit the market implying that market power existed furthermore i find no evidence of credit rationing as a result of the lower cap these changes imply an upper bound of 3 3 million per year for neoclassical consumer surplus however i show that behavioral consumers can be worse off by the policy if more than half of the increase in demand is due to overborrowing

manufacturer buyer coordination for newsvendor type products with two ordering opportunities and partial backorders abstract in a recent paper weng z k 2004 coordinating order quantities between the manufacturer and the buyer a generalized newsvendor model european journal of operational research 156 148 161 a newsvendor type coordination model was developed for a single manufacturer single buyer channel with two ordering opportunities this paper further extends the model to the case where the excess demand after the first order is partially backlogged and both parties share the manufacturing setup cost of the second order if happened we show that the decentralized system would perform best if the manufacturer covers utterly the second production setup cost which is opposite to that obtained in weng 2004 another extension in the present paper is that in the centralized system the second order decision is made by the buyer based on the channel s benefit rather than based on the buyer s benefit as in weng 2004 it is proved that the expected profit of the system in our paper is always larger than that in weng 2004 in order to maximize the expected profit of the channel two coordinated policies are proposed to achieve perfect coordination a two part tariff policy for the special case that the buyer pays all the manufacturing setup cost and a revised revenue sharing contract for the case that two parties share the manufacturing setup cost

labor protection and leverage this paper exploits inter temporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms capital structure decisions over the 1985 2007 period we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage we interpret this finding to suggest that employment protection increases operating leverage crowding out financial leverage this result is robust across measures of employment protection and leverage and does not appear to be due to pre treatment differences between treated and control firms omitted variables unobserved changes in regional economic conditions and reverse causality heterogeneous treatment effects are consistent with our economic intuition we find that the negative effect is more pronounced in firms that are subject to frequent hiring and firing

investigating capitalism aversion capitalism aversion there are two non mutually exclusive theories of individual variations in pro capitalism opinions the first theory views pro capitalism opinions as self serving individuals are opposed to market forces when they threaten their economic rents the second theory views differences in such opinions as reflecting genuine disagreement on the efficiency of various economic systems using individual data we investigate the validity of both theories focusing on attitudes toward private ownership private profit and competition we find evidence that the first theory explains some of the variations in attitudes however consistent with the second theory we also find evidence of individual learning about the comparative virtues of economic systems the learning is slow home biased and path dependent long run cultural and historical determinants of pro market attitudes such as religion and legal origins explain more than 40 of the cross country variations in capitalism aversion last we provide tentative evidence that at the country level pro market opinions affect the nature of economic institutions our results suggest that the feasibility of economic reform does not depend solely on its impact on the distribution of rents ideological a prioris are likely to be important as well

note the role of returns policies in pricing and inventory decisions for catalogue goods manufacturers often use returns policies to encourage retailers to stock and price items more aggressively we focus on the effect that such policies have on both a retailer s and a manufacturer s profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item such a commitment is often necessary for retailers who sell primarily through catalogues

retrospectives from usury to interest since the middle ages each epoch has participated in the debate over the conditions in which lending should be prohibited as usury while disagreements over the definition of usury remain the debate came to its modern climax on the eve of the industrial revolution in a well known interchange between jeremy bentham and adam smith in the late 1780s smith for all his faith in a system of natural liberty proved unwilling to let the interest rate float bentham argued anything else must reduce total welfare from a superficial perspective the entire affair amounts to nothing more than a modest dispute between a failing master smith died in 1790 and an over eager disciple bentham acknowledged in the defence that all he knew of political economy originated in smith s works yet the argument struck a fundamental chord gilbert k chesterton identified bentham s essay on usury as the very beginning of the modern world i tend to agree

business groups and the natural state abstract recent revisionist accounts of corporate governance in both business history and finance are challenging the tradition narrative associated with berle and means 1932 and chandler 1977 in which the american model of diffuse ownership and coherent diversification is both an inevitable outcome of economic development and perhaps a normative standard for the world to follow this essay is an attempt to rethink that narrative in light of the continued significance of the pyramidal business group as a governance structure around the world i argue that business groups arise in response both to inadequacies in arm s length markets and to the needs of what north et al 2009 call the natural state in this view the quality of markets and the demands of the state are tightly interconnected phenomena such a perspective explains the emergence of business groups in developing countries as well as their persistence even in wealthy and sophisticated polities apart from the u s and the u k in the end moreover i endorse the view that the much discussed and oft misunderstood exceptionalism of the u s in corporate governance arises not only from the sophistication of american markets but also importantly from government policies toward corporate taxation and securities regulation policies that arose from the unique public choice problem posed by the differential effect on the u s of the collapse of globalization during the middle years of the twentieth century

the political economy of the us mortgage default crisis we examine the effects of constituents special interests and ideology on congressional voting on two of the most significant pieces of legislation in us economic history representatives whose constituents experience a sharp increase in mortgage defaults are more likely to support the foreclosure prevention act especially in competitive districts interestingly representatives are more sensitive to defaults of their own party constituents special interests in the form ofhigher campaign contributions from the financial industry increase the likelihood of supporting the emergency economic stabilization act however ideologically conservative representatives are less responsive to both constituent and special interests jel d72 g21 g28

when and why usury should be prohibited usury ceilings seem indefensible their opponents insist these caps harm the consumers they are intended to help low ceilings are said to prevent the least advantaged agents from accessing legal credit and drive them into the black market where prices are higher and collection methods are harsher but in this paper i challenge these arguments and show that the benefits of interest rate limitations in the most expensive credit markets clearly outweigh the costs the test case is payday lending deregulated pricing in this market produces negative externalities that justify usury restrictions unless prices are capped the more solvent majority of borrowers is compelled to cross subsidize the least solvent debtors who have a high rate of default rationing the riskiest debtors out of this market by means of a moderate usury cap puts an end to this unfairness and produces fewer bad consequences than the advocates of deregulated pricing recognize i argue that only an extreme principle like maximizing the minimum could justify a free market in payday credit

optimal ordering decisions with uncertain cost and demand forecast updating we determine the optimal ordering policy for a retailer who has two instants to order a seasonal product from a manufacturer prior to a single selling season while the demand is uncertain the retailer can improve the forecast by utilizing the market signals observed between the first and second instants however because of the nature of the manufacturing environment the unit cost at the second instant is uncertain and could be higher or lower than the unit cost at the first instant to determine the profit maximizing ordering strategies at both instants the retailer has to evaluate the trade off between a more accurate forecast and a potentially higher unit cost at the second instant we present a nested newsvendor model for determining the optimal order quantity at each instant and characterize the conditions under which it is optimal for the retailer to delay its order until the second instant

household inequality entrepreneurial dynamism and corporate financing economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism to empirically investigate its impact we construct local measures of household wealth inequality based on financial rents home equity and 1880 farmland we identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 homestead act or us states removal of death taxes wealth inequality decreases firm entry and exit and the proportion of high tech businesses across metropolitan statistical areas there is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary income per capita consequently grows more slowly

how islamic is islamic banking abstract islamic banks hold well over us 700 billion in assets and are growing at over 15 p a islamic banking and finance ibf involves wider ethical and moral issues than simply interest free transactions its advocates argue that these make it more economically efficient than conventional banking and promote greater economic equity and justice to what extent then do actual islamic banking practices live up to the ideal and how different are they from conventional banking a preliminary investigation shows that three decades after its introduction there remain substantial divergences between ibf s ideals and its practices and much of ibf still remains functionally indistinguishable from conventional banking this runs counter to claims by ibf advocates that it would rapidly differentiate itself from conventional banking however despite not providing an alternative to conventional banking and finance ibf does strengthen a distinctly islamic identity by providing the appropriate islamic terminology for de facto conventional financial transactions

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

test retest reliability of the contingent valuation method a comparison of general population and visitor responses the reliability of the contingent valuation method is evaluated by resurveying the same general households and visitors nine months after their original survey test retest correlations on willingness to pay are statistically significant and ranged from 422 for the general population sample to 782 for the visitor sample using a paired t test there was no statistical difference between an individual s first and second reported willingness to pay chow tests comparing the original and resurvey willingness to pay functions showed no statistical difference at the 01 level reported willingness to pay is reasonably stable over the time period surveyed

the political economy of financial regulation evidence from u s state usury laws in the 19th century financial regulation was as hotly debated a political issue in the 19th century as it is today we study the political economy of state usury laws in 19th century america exploiting the wide variation in regulation enforcement and economic conditions across states and time we find that usury laws when binding reduce credit and economic activity especially for smaller firms we examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents particularly when they have more voting power the evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved we examine the motives and consequences of financial regulation to better understand the implications of regulation for financial development and economic growth while the current global financial crisis has reinvigorated the debate on financial regulation s effects and motives there is a long history of financial regulation and development we can examine to shed light on these issues specifically we study the political economy of financial regulation and its consequences through the lens of usury laws in 19th century america usury laws are arguably the oldest form of financial regulation mentioned in both the bible and the koran and dating back to ancient rome having long been

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational