expectations the exchange rate and the current account abstract a critical examination is undertaken of the relationship between the exchange rate and the current account in a small open economy theoretically the correlation between the exchange rate and the current account seems to be ambiguous in particular the association between movements in the exchange rate and the current account is likely to depend in an essential manner on the nature of exogenous disturbances affecting the two variables simultaneously lastly the question of the role of an optimal monetary policy and the choice of an exchange rate regime in an uncertain environment is raised

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

migration trends and earnings of free agents in major league baseball 1976 1979 this paper is an empirical investigation of the effect of team characteristics on the migration pattern of free agents in major league baseball during the period 1976 1979 the results indicate that high quality free agents tend to leave winning teams and move to teams in cities with large or rapidly growing populations the compensation paid to free agents is shown to depend on these team characteristics as well as the players personal characteristics and market conditions

can a liberalization of capital outflows increase net capital inflows abstract facing massive capital inflows that put downward pressure on the real exchange rate some policymakers and analysts have recommended a liberalization of capital outflows empirically however the removal of capital outflow controls has apparently stimulated a net inflow of capital in several experiences such as britain since 1979 italy new zealand and spain in the mid to late 1980s and colombia egypt and mexico in the 1990s numerous measures to liberalize capital outflows in chile during the 1990s have not had a noticeable effect in offseting a surge of net capital inflows how can we explain the apparent paradox that reducing controls on capital outflows can actually increase net capital inflows our theoretical model provides one such explanation a liberalization of capital outflows understood here as a reduction in the minimum capital repatriation period for foreign investment reduces the degree of irreversibility of the decision to invest in a given country this in turn lowers the option value of waiting until uncertainty about a possible change in the rules of the game that affect investment in domestic assets is resolved because in this event foreigners investing at home will be stuck with the low return asset for a shorter period of time thus a reduction in the minimum repatriation period is likely to increase not decrease net capital inflows this result has an important policy implication liberalizing capital outflows may have significant benefits on its own but it may not be the appropriate policy to defend the real exchange rate in the presence of massive capital inflows because it is likely to strengthen those very capital inflows

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

an exploration in the theory of exchange rate regimes three exchange rate regimes a float a one sided peg and a cooperative peg are evaluated and compared in terms of efficiency and welfare levels the framework of analysis embodies country specific monies with the money of each country being used to transact in its commodity markets and its currency denominated bonds welfare levels depend only on consumption levels in the presence of perfect foresight all equilibrium allocations are pareto efficient in a floating exchange rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy the same result holds in a one sided peg if the pegging country s exchange rate stabilizing authority breaks even over time in a cooperative peg regime there is a different equilibrium allocation for each combination of exchange rate levels and monetary policies problems of policy coordination and conflicts in desired monetary policies are discussed

the welfare effects of trade and capital market liberalization treatise on the welfare effects of trade and capital market liberalization consquenses of the capital account liberalization in the presence of trade restrictions specifies on the liberalization of trade in the presence of foreign borrowing constraints proves superiority of gradual liberalization of trade to an abrupt liberalization

winning in professional team sports historical moments our aims in this paper are to 1 examine the higher moments of the distribution of winning percentages and 2 discover economic implications of such an examination the results prove useful to both current sports league policy questions and future research we speculate that the institutional differences between north american pro leagues and european soccer leagues will prove fruitful areas for future research on the determination of competitive balance jel c1 l83 z20

ownership of property rights and the allocation of talents under the reserve clause system that assigns the property rights on the major league baseball players services to teams player transfers are negotiated between teams without the involvement of players in contrast under the current free agency system players with free agent status negotiate directly with potential suitors thus the system assigns the property rights to players using data extracted from the baseball archive http baseball1 com this article examines the effect of the change in the property rights assignment on the allocation of talents across teams we find that the change increased large market teams shares of veteran all star players and the concentration of senior players

real exchange rates under alternative nominal exchange rate systems abstract the paper develops an equilibrium model of the determination of exchange rates the relative price of nontraded goods and the current account the focus is on the effects of various real and nominal disturbances and the conditions under which the nominal exchange rate system is neutral with respect to real variables in the economy the model demonstrates an assymetry in the roles of trade and nontraded goods in affecting exchange rates an econometric investigation of the raltion between the exchange rate system and the variability of real exchange rates provides some evidence against the neutrality hypothesis

real vs financial investment can tobin taxes eliminate the irreversibility distortion abstract in the recent past several developing countries have failed to achieve significant real capital investment despite episodes of large capital inflows although there are real projects with seemingly high returns investors prefer to wait for the correct time to invest in this paper we address this issue by considering a two sector economy where investment in real capital is irreversible and debt financed furthermore the interest rate which is determined in the financial sector is random as a result of volatile expectations in this economy the expected return on real capital is above the expected interest rate this is because the option to wait for lower interest rates has a positive value in the presence of rumors taxes on international financial transactions tobin taxes reduce the variance of the domestic interest rate while leaving its mean unchanged as a result they induce more investment in irreversible real capital the model borrows from the irreversible investment literature a difference with other models is that the source of noise is a mean reverting process not just a geometric brownian motion we solve for the optimal decision rule using the girsanov theorem of the maxims of orthodox finance none surely is more anti social than the fetish of liquidity it forgets that there is no such thing as liquidity of investment for the society as a whole the introduction of a substantial government transfer tax on all transactions might prove the most serviceable reform available with a view to mitigating the predominance of speculation over enterprise keynes the general theory

dual exchange rate systems and capital controls an investigation abstract the welfare aspects of dual exchange rate systems are analyzed in this paper the requirement that domestic financial transactions with the rest of the world be undertaken at a special foreign exchange rate is found to be equivalent to levying a tariff on this class of international transactions hence a dual exchange rate system and capital controls are shown to be essentially identical in light of the above statements the dual exchange rate system should be regarded as a form of commercial policy and be evaluated in this context by applying the applicable standard real trade theorems

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

financial liberalization private investment and portfolio choice financialization of real sectors in emerging markets abstract using firm level panel data we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets argentina mexico and turkey employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s we suggest that rather than investing in irreversible long term fixed investments firms may choose to invest in reversible short term financial investments depending on respective rates of returns and the overall uncertainty in the economy the empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments

the coase theorem free agency and major league baseball a panel study of pitcher mobility from 1961 to 1992 a great deal of conceptual and empirical work in the economic analysis of the law and property rights has been directed towards resolving a controversy surrounding the coase theorem many economists and legal scholars interpret the theorem as containing two propositions the first is that in the absence of transactions costs and wealth effects parties will bargain to an efficient outcome the second holds that the same outcome will be achieved regardless of the distribution of property rights the latter is known as the invariance thesis and it has been a source of dispute among scholars and between economic theorists and owners of economic enterprises e g owners of professional sports teams 5 11 16 23 24 25 26 28 29 this paper provides an econometric test of the invariance proposition major league baseball presents a natural experiment consisting of an industry in which there has been an explicit change in the assignment of property rights beginning in 1879 the reserve clause gave monopsony power to team owners a player could negotiate salary only with the team that owned his contract and the team could trade or sell the player as management saw fit in 1976 this system was replaced by the institution of free agency whereby a player with at least six years of major league experience acquired

in search of capital crunch supply factors behind the credit slowdown in japan the seeming failure of loose monetary policy to reactivate japan s economy has led some observers to suggest that the usual credit channels through which monetary policy affects the real economy are blocked and this is because of a pervasive shortage of bank capital that has induced a leftward shift in the supply of bank credit this is the so called capital crunch hypothesis this paper finds support for the hypothesis in the bank data for 1997 a year during which the landscape of the japanese financial system underwent some fundamental changes

socio economic studies on suicide a survey abstract in this paper we review economic theories and empirical studies on the socio economic aspects of suicide through our survey we would like to emphasize the importance of studying suicide by employing a rational approach that complements the medical perspective on suicide we first introduce major economic theories of suicide and then present a summary of a variety of empirical studies from the socio economic perspective to shed light on the mixed empirical evidence we employ a meta regression method to investigate how the existing empirical results vary we have identified a publication bias not highlighted previously in the existing literature with respect to several commonly employed socio economic factors several characteristics of existing studies have been identified as influencing the qualitative outcome we then discuss the recent developments in economic studies on suicide on the basis of the authors ongoing project on suicide in the concluding section we point out some issues for further studies

joint liability borrowing and suicide the case of japan abstract this paper develops a model for joint liability borrowings that facilitates credit market transactions ex ante but may induce the borrower s suicide ex post through the stigma associated with default a japanese suicide survey provides some supportive evidence

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

the role of relative price volatility in the efficiency of investment allocation abstract this paper estimates the impact of relative price volatility on sector level investment allocation using a panel of 65 countries with data for 26 manufacturing industries over the period 1985 2003 results indicate that volatility distorts efficient investment allocation in that investment is not necessarily devoted to relatively more productive sectors especially in emerging market economies that are highly exposed and may lack the necessary institutions to deal with it successfully this is evidence in support of theories suggesting that relative price volatility provides incentives for entrepreneurs to adopt more malleable but less productive production technologies enabling them to accommodate more easily abrupt and frequent changes in relative prices but at the cost of using less productive technologies

a further exploration in the theory of exchange rate regimes in an interesting paper in this journal elhanan helpman 1981 develops a simple two country model to compare the welfare levels that are achieved under different exchange rate regimes in a world characterized by perfect foresight his basic finding is that equilibrium consumption allocations and hence welfare levels are identical under a floating exchange rate system and a one sided peg fixed exchange rate regime this result is due to helpman s assumption that output is determined exogenously which allows a separation of the real and monetary sides of the economy the purpose of this paper is to extend helpman s model by making two alterations in his setup 1 to allow production to be endogenously determined as a function of labor force participation and 2 to allow welfare levels to be dependent on labor service as well as on consumption the main conclusion then obtained is that a country may achieve a higher welfare level under a flexible exchange rate regime than under a fixed exchange rate regime since it is able to choose an optimal rate of inflation or currency depreciation

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

real transfers in fixed exchange rate systems and the international adjustment mechanism abstract fixed exchange rates can be maintained by different types of stabilization schemes this paper takes a look at some alternative institutional settings and shows that there is an inherent redistribution mechanism in some of them that will influence the world allocation of consumption an examination of the global adjustment to monetary disturbances illustrates some interesting implications of the institutional differences between alternative systems the results suggest that the description of the international adjustment mechanism under fixed exchange rates given by the monetary approach to the balance of payments is valid only under quite restrictive assumptions

people on the verge of death evidence from impacts of celebrity suicides we attempt to identify the population who are vulnerable to emotional shocks by exploiting an unprecedented series of celebrity suicides in south korea during the last decade including one of the most famous actresses as well as a former president our conservative estimates show that for 5 out of 11 celebrity suicides observed 1 celebrity suicide on average yielded to more than 10 excessive suicides per day over a time frame of at least 2 weeks the results indicate that a significant number of people are very much mentally unstable to end their life by emotional shocks that should be irrelevant to their economic status

exchange controls capital controls and international financial markets this paper examines the effects of restrictions on international financial m arkets in a general equilibrium rational expectations model of a two country world state contingent financial markets allow households t o allocate wealth optimally across states so that the imposition of e xchange and capital controls has roughly speaking only substitution effects but no wealth effect taxes or quantitative controls on purc hases of foreign currency and on the income from foreign assets reduc e international trade in goods lower ex post welfare in the country in which they are imposed and affect nominal prices and the exchange rate copyright 1988 by american economic association

testing coase theorem the case of free agency in nba this study seeks to test the applicability of the coase theorem to the allocation of players within according to the coase theorem a player s final allocation would be the same no matter who has ownership of his playing rights if there are no transaction costs what ownership affects is just the allocation of wealth using data from the national basketball association nba this article argues that player mobility is likely to be affected by player ownership due to transaction cost imposed by the institution it is also concluded that performance indicators used for value estimation vary by position and that this also affects player transfer

insulation properties of a two tier exchange market in a portfolio balance model when countries peg their currencies to those of their major trading partners they expose themselves to interest sensitive and speculative capital flows that can undermine their ability both to maintain their exchange rate and to pursue an independent monetary policy some countries notably france italy and the belgo luxembourg economic union bleu experimented with two tier exchange rates in the early 1970s in the hopes of insulating their economies from the effects of international capital flows while at the same time protecting foreign trade from exchange rate fluctuations france and italy soon abandoned the experiment but the bleu continues to maintain separate exchange markets with separate exchange rates for current and capital account transactions the commercial exchange rate which relates to the market for current account transactions is generally pegged by the authorities the financial exchange rate determined in the market for capital account transactions is usually free to fluctuate 1 this paper investigates how well a two tier exchange market insulates a small open economy from foreign disturbances taking into account recent developments in the theory of exchange rate determination work by branson 1977 dornbusch 1976 and kouri 1976 suggests that the short run equilibrium value of the exchange rate is determined along with interest rates by demand and supply in the markets for financial assets this asset market or portfolio balance approach to exchange rate determination is particularly well suited to a study of the two tier exchange market one can view the financial exchange rate as a relative asset price it is among the variables that equilibrate asset markets and it is determined in the short run in those asset markets previous theoretical work on the two tier exchange market has generally been within the mundellian framework the financial exchange rate has been treated as equating a flow demand and supply of foreign exchange the asset market approach has the advantage of carefully distinguishing between stocks and flows in particular it treats demands for assets as stock demands that are realized instantaneously so that actual holdings of assets always reflect the desired composition of the portfolio disturbances to portfolio equilibrium create immediate stock adjustments as portfolios are rebalanced causing instantaneous changes in endogenous market clearing variables in addition disturbances alter the rate of accumulation the flow of financial assets over time portfolio balance models of two tier exchange rates can be found in dornbusch 1976 and decaluwe and steinherr 1976 but they differ from the one presented here dornbusch partitioned the exchange market so that interest income a current account transaction was channelled through the financial market that segmentation yields a different expected rate of return on foreign

screening by the company you keep joint liability lending and the peer selection effect we look at an economic environment where borrowers have some information about the nature of each other s projects that lenders do not we show that joint liability lending contracts similar to those used by credit cooperatives and group lending schemes will induce endogenous peer selection in the formation of groups in a way that the instrument of joint liability can be used as a screening device to exploit this local information this can improve welfare and repayment rates if standard screening instruments such as collateral are unavailable

rule changes and competitive balance in japanese professional baseball i introduction since rottenberg s 1956 classic analysis of baseball s reserve clause economists have been interested in whether the rules for initially allocating players among major league baseball mlb teams affect their final allocation el hodiri and quirk 1971 formalized rottenberg s analysis of player allocation rules for a sports league in which each team independently maximizes its profits within the league s institutional constraints 1 consider the effect of a player draft regime and an open bidding regime on the allocation of new players often called rookies if a player draft allows team a to claim initially a particular new player and that player would generate a higher marginal product with team b then the two teams have incentives to make an exchange and send the player to team b alternatively under an open bidding regime the new player signs with the team presenting the highest offer i e team b with which he generates the highest marginal product assuming that transaction costs of exchanging players are zero el hodiri and quirk showed that the final allocation of players across teams will be the same in both regimes this result that the final allocation of players does not depend on the rules governing the initial allocation of players is baseball s version of the coase theorem following coase s 1960 analysis this invariance result vanishes if there are obstacles to exchanging players after the initial allocation in an open bidding regime players are initially allocated to the team with which they have the highest marginal product thereby eliminating the need for player exchanges since the best players are likely to generate the highest marginal product with teams in cities that have a high demand for winning games in an open bidding regime these teams are likely to have higher winning percentages and win more championships than other teams 2 by contrast in a draft regime the best players are often initially allocated to a team located in a city with a low demand for winning games if there are obstacles to player exchange then players will be allocated more evenly across teams under a draft regime and competitive balance should improve both within a given season and over time 3 empirical studies have used performance data from north american mlb to analyze whether changes in the rules for allocating rookies among teams affect competitive balance fort and quirk s 1995 recent study found that mlb s change in 1965 from an open bidding to a draft regime for allocating new players increased competitive balance in the american league and had little effect on competitive balance in the national league the power of statistical tests conducted with the mlb data is however severely limited due to the small number of observations from the draft regime period this article uses a larger data set from japanese baseball to examine the same rule change that economists have analyzed for mlb remarkable as it may seem the japanese professional baseball league jpbl adopted the same rule change from an open bidding to a draft regime for rookies in the same year 1965 as major league baseball our goal is to examine how the rule change in the jpbl affected competitive balance in its two leagues and to compare the outcomes of these two remarkably similar experiments set in two very different cultures ii studies of north american mlb and japanese jpbl daly and moore 1981 compared player allocation in the two regimes for allocating rookies by examining mlb s 1965 switch from an open bidding to a draft regime they used pre and post 1965 performance data from the american and national leagues to examine several measures of competitive balance in the post 1965 draft regime they found substantially more competitive balance in the american league and somewhat more competitive balance in the national league using different tests for competitive balance fort and quirk 1995 1 282 86 also found evidence for more competitive balance in the american league but found no change in competitive balance in the national league

structural change in mlb competitive balance the depression team location and integration no detectable break points in within season competitive balance 1901 99 occur after 1937 in the national league or after 1962 in the american league despite expansion free agency and the growth of local tv revenue disparity since then instead a continual improvement in competitive balance has occurred since those years associated with break points prior to these years 1 the al emerged from the depression much more unbalanced than the nl 2 team movement and league expansion alter balance in well known ways and 3 discriminatory preferences were stronger in larger revenue markets than in smaller revenue markets in both leagues jel c32 l83

free agency competitive balance and diminishing returns to pennant contention e woodrow eckard this article argues that the 1976 introduction of free agency increased competitive balance in major league baseball the evidence is based on a new empirical measure that captures the key dynamic element of balance year to year fluctuations in team performance my hypothesis is that diminishing returns to each additional year s production of a pennant contending team reduces the incentive to bid continually for top players free agency allows talent to be reallocated more readily to potential new contenders given that player sales had been restricted prior to 1976 the hypothesis is supported by evidence of declining attendance during contending streaks jel l83 i introduction since the inception of free agency in major league baseball mlb over 20 years ago its effect on competitive balance has been controversial for almost a century the reserve system had assigned de facto property rights in players services to mlb teams this changed after 1976 when veteran players were allowed to unilaterally sell their services to the highest bidder team owners predicted a consequent decline in competitive balance arguing that large market clubs would outbid others for talent and come to dominate this claim is still made today as the basis for major restructuring proposals such as new restrictions on player salaries and mobility team payroll caps and various cross subsidization schemes 1 economists have examined the issue from both theoretical and empirical angles theorists such as el hodiri and quirk 1971 implicitly agree with the owners that the best players concentrate where their marginal revenue products mrps are the highest that is in high demand cities that also may be the most populous debate has revolved instead around rottenberg s 1956 invariance proposition which states that the distribution of playing talent will be the same under both systems if player sales are unrestricted teams where mrps are the highest purchase the services of the best players whether from other low mrp clubs or directly from the players themselves free agency therefore should not affect competitive balance critics such as daly 1992 argue that before 1976 first line players seldom were sold so the invariance proposition does not apply several studies examine empirically the effect of free agency on competitive balance taken together the results are consistent with the invariance proposition namely balance did not change this article argues that these studies use balance measures that ignore a critical aspect of competition namely year to year changes in a team s position in league standings using empirical measures that capture this dynamic i report new evidence that balance improved after free agency i then extend the existing theory of sports leagues to explain why free agency might cause such an outcome and provide an independent test of the theory specifically there are diminishing marginal returns to each additional year s production of a pennant contending team reducing the incentive to bid continually for top players this allows also rans to obtain the talent necessary to improve their performance and become contenders i also provide evidence that quality players were seldom sold under the old reserve system ren dering the invariance proposition moot the article is organized as follows the next section reviews the relevant theoretical and empirical literature section iii describes my measures of competitive balance and section iv presents empirical results comparing balance in mlb before and after free agency section v provides evidence that sales of first line players were sufficiently rare as to nullify the invariance proposition section vi presents the theoretical argument linking free agency to an improvement in balance followed by a supporting empirical test in section vii section viii summarizes and concludes the article

tariffs as insurance optimal commercial policy when domestic markets are incomplete free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile ex post and markets for contingent claims are incomplete the government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti trade bias we also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context this abstract was borrowed from another version of this item