substitutability and the welfare effects of endowment increases abstract mas colell has conjectured that if all commodities are normal goods for a certain consumer and if the aggregate excess demand function of the other consumers satisfies the condition of gross substitutability then an increase in his initial endowments will lead to a new equilibrium allocation which will be preferred by him this excludes the immiserizing growth paradox it is shown that a sufficient condition is that commodities be also net substitutes for the consumer that has been singled out

does institutional shareholder activism stimulate corporate information flow abstract activist shareholders have an incentive to communicate and cooperate with other major shareholders however the impact of their activity on information flow surrounding targeted firms is largely unknown we explore this aspect using a prolific proponent labor unions following the mailing of proxies containing union sponsored shareholder proposals trading volume increases significantly and at issue bond yield spreads of targeted firms are lower compared to matched firms subsequent difference in differences analyses show that stock prices of targeted firms become more informative as a result of activism affirming the intuition that activism results in a reduction of differential information between outside investors

foreign ownership and the theory of trade and welfare some standard topics in the theory of international trade are reconsidered in this paper by distinguishing between national and aggregate income when fixed supplies of foreign inputs are present within the home country under conditions that would ensure a national welfare gain if foreign ownership were absent international transfer economic growth or tariff policy might cause a national welfare loss in the presence of foreign ownership the techniques developed could be applied to other domestic distinctions such as those based on race sex age or ethnicity and to the theory of customs unions in a three country world

the volcker rule and corporate bond market making in times of stress abstract focusing on downgrades as stress events that drive the selling of corporate bonds we show that the illiquidity of stressed bonds has increased after the volcker rule dealers regulated by the rule have curtailed their market making activities and non volcker affected dealers have not offset the decreased activities of volcker affected dealers furthermore even volcker affected dealers that are not constrained by basel iii and comprehensive capital analysis and review regulations change their behavior inconsistent with the effects being driven by these other regulations because volcker affected dealers have been the main liquidity providers bonds have become less liquid during times of stress due to the volcker rule

quality of service efficiency and scale in network industries an analysis of european electricity distribution quality of service qos is of major economic significance in natural monopoly infrastructure industries in this article we present an efficiency analysis of electricity distribution networks from seven european countries we apply the stochastic frontier analysis method to multi output translog input distance function models to estimate cost efficiency and scale economies we show that introducing the quality dimension into the analysis affects estimated efficiency significantly especially that smaller utilities efficiency seems to decrease our results emphasize that qos should be an integrated part of efficiency and economic analysis of regulated natural monopolies

a result on the transfer problem in international trade theory abstract the purpose of this paper is to provide a result on the welfare effect of a transfer in a general equilibrium exchange model with no arbitrary restrictions on either the number of commodities traded or the number of countries our result can be stated as follows the donor country is worse off after a transfer if a all goods are net substitutes for the donor b all goods are gross substitutes for the other countries and c all goods are normal for all countries

taxes and bank capital structure this paper shows that a reduction in tax discrimination between debt and equity funding leads to better capitalized financial institutions the paper exploits exogenous variation in the tax treatment of debt and equity created by the introduction of a tax shield for equity the results demonstrate that a more equal treatment of debt and equity increases bank capital ratios driven by an increase in common equity the change also leads to a significant reduction in risk taking for ex ante low capitalized banks overall the findings suggest that tax shields could be a valuable and innovative policy tool for bank regulators

how bank capital buffers vary across countries the influence of cost of deposits market power and bank regulation abstract this paper analyzes the bank and country determinants of capital buffers using a panel data of 1337 banks in 70 countries between 1992 and 2002 after controlling for adjustment costs and the endogeneity of explanatory variables the results show that capital buffers are positively related to the cost of deposits and bank market power although the relations vary across countries depending on regulation supervision and institutions their impact is the result of two generally opposing effects restrictions on bank activities and official supervision reduce the incentives to hold capital buffers by weakening market discipline but at the same time they promote higher capital buffers by increasing market power institutional quality has the two opposite effects better accounting disclosure and less generous deposit insurance however have a clear positive effect on capital buffers by both strengthening market discipline and making charter value better able to reduce risk taking incentives

bias and precision in the dea two stage method in data envelopment analysis dea the two stage method is a popular procedure for accounting for exogenous influences on efficiency with the conventional two stage method a dea is first conducted using only traditional endogenous inputs and outputs then the first stage dea scores are regressed on the environmental contextual exogenous inputs of interest the regression outcomes are used to identify exogenous inputs that influence the first stage dea scores to a statistically significant degree and to adjust dea scores to account for these influences herein it is demonstrated empirically that the conventional method exhibits substantial bias and low precision with the degree of bias and precision affected by input variance and correlation a reverse two stage procedure that yields estimates without the bias and precision problems that compromise the validity of the conventional method s estimates is suggested

dealer balance sheets and bond liquidity provision abstract do regulations decrease dealer ability to intermediate trades using a unique dataset of dealer bond level transactions we link changes in liquidity of individual u s corporate bonds to dealers transaction activity and balance sheet constraints we show that prior to the financial crisis bonds traded by more levered institutions and institutions with investment bank like characteristics were more liquid but this relationship reverses after the financial crisis in addition institutions that face more regulations after the crisis both reduce their overall volume of trade and have less ability to intermediate customer trades

managing efficient capital allocation with emphasis on the chinese experience responsible risk management is central to banking ethics with the 1999 publication of the basel committee s proposal basel ii for a new capital accord to replace the 1988 agreement basel i an attempt has been made to address the problem of correlating banks risk management with their capital requirements the basel ii framework finalised in june 2004 is designed to improve risk management by using models based on past performance to help set the amount of capital banks are required to hold by regulators with the purpose of improving the efficiency of capital allocation the objectives of this study are to investigate how banks generally but particularly those located in china could improve their risk management systems and what the implications of these new regulations are for them three relevant propositions were formulated namely basel ii will improve risk management basel ii will improve capital allocation efficiency and compliance with advanced risk management systems is biased in favour of the large banks evidence was assembled with which to evaluate these three propositions by gathering relevant primary data by means of a representative survey of chinese banking executives involved in risk management the findings strongly support the first two of the above propositions and partly support the third proposition

the generalized theory of transfers and welfare bilateral transfers in a multilateral world paul samuelson s 1952 1954 classic papers on the transfer problem addressed two separate analytical issues the positive effect of a transfer on the terms of trade and the welfare effect of the transfer on the donor and the recipient since then a considerable body of literature has grown up on the positive analysis while samuelson 1954 himself had extended the 2 x 2 x 2 free trade analysis to allow for tariffs and transport costs subsequent writers have analyzed other extensions of the model for example to allow for nontraded goods as with leisure in samuelson 1971 or general nontraded goods in john chipman 1974 and ronald jones 1970 1975 remarkably however the welfare analysis of transfers has not paralleled these developments since wassily leontief 1936 produced an example of immiserizing transfer from abroad and samuelson 1947 argued that the example required market instability the proposition that has monopolized attention has been that a transfer in the conventional 2 x 2 x 2 model in its free trade version cannot immiserize the recipient or enrich the donor as long as world markets are stable in the walras sense interestingly samuelson 1954 who did extend the positive analysis to include tariffs did not go on to ask whether immiserization of the transfer recipient and hence symmetrically enrichment of the donor in a two country model could now arise consistent with market stability recently the welfare analysis of transfers has been extended in two different directions both apparently unconnected and both yielding the conclusion that transfers from abroad can be immiserizing and that the donor may improve its welfare despite market stability one route to this conclusion has been the introduction of a third economic agent or country that is outside of the transfer process in the appendix of his 1960 paper analyzing the interaction between trade policy and income distribution harry johnson discussed the possibility of welfareparadoxical redistribution between two factor income classes capital and labor in an open economy thereby providing what can be interpreted as a treatment of the threeagent transfer problem for the case in which donor and recipient are both completely specialized in the ownership of a single different factor an independent analysis of the three agent transfer problem using a restrictive model with given endowments of goods and fixed coefficients in consumption was also undertaken in an important paper by david gale 1974 2 brecher and bhagwati bhagwati department of economics columbia university new york ny 10027 brecher department of economics carleton university ottawa on kis 5b6 hatta department of political economy the johns hopkins university baltimore md 21218 we thank the national science foundation grant no 524718 for partial financial support of the research underlying this paper the paper was written when brecher and hatta were visiting columbia university 1981 82 gratefully acknowledged are helpful comments and suggestions from john chipman avinash dixit jacques dreze robert feenstra jacob frenkel ronald jones murray kemp andreu mas colell michael mussa john riley lars svensson and robert willig from anonymous referees and from seminar participants at berkeley harvard minnesota rochester chicago and the university of california los angeles after the present paper was submitted for publication and following its presentation at rochester our attention was drawn to this appendix which was noticed by a student of ronald jones subsequently we learned from makoto yano that motoshige itoh had pointed out an important related paper by ryuotaro komiya and t shizuki 1967 whose condition 11 for the johnson case anticipated our equation 12 below we are grateful for having both of these references brought to our attention 2 gale constructs an example in which the donor is enriched along with the recipient furthermore this immediately implies that a reverse transfer will immis

information spillovers in asset markets with correlated values we study information spillovers in a dynamic setting with privately informed traders and correlated asset values a trade of one asset or lack thereof can provide information about the value of other assets the information content of trading behavior is endogenously determined in equilibrium we show that this endogeneity leads to multiple equilibria when the correlation between asset values is suciently high the

financial regulatory reform after the crisis an assessment this is a survey of progress with the postcrisis global g20 reform of the financial system in five key areas of new regulation 1 making financial institutions more resilient 2 ending too big to fail 3 making derivatives markets safer 4 transforming shadow banking and 5 improving trade competition and market transparency the resiliency reforms particularly bank capital regulations have been increasingly successful in improving financial stability but have been accompanied by some reduction in secondary market liquidity i review specific areas where reforms are far from complete or have even been counterproductive this paper was accepted by gustavo manso finance conflict of interest statement the author s webpage at http www stanford edu duffie provides related research and disclosure of potential conflicts of interest

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

corruption soundness of the banking sector and economic growth a cross country study abstract this paper explores the impact of corruption on both the banking sector and economic growth we determine the impact using 76 macroeconomic data from various countries over the period 2002 2004 the results of various cross sectional regressions provide substantial evidence that corruption significantly aggravates the problems with bad loans in the banking sector in this study we also find some evidence of a new channel through which corruption lowers economic growth corruption distorts the allocation of bank funds from normal projects to bad projects which decreases the quality of private investments hence it decreases economic growth

efficiency effects of observed and unobserved heterogeneity evidence from norwegian electricity distribution networks abstract since the 1990s efficiency and benchmarking analysis has increasingly been used in network utilities research and regulation a recurrent concern is the effect of observable environmental factors that are beyond the influence of firms and unobserved factors that are not identifiable on measured cost and quality performance of firms this paper analyses the effect of observed geographic and weather factors and unobserved heterogeneity on a set of 128 norwegian electricity distribution utilities for the 2001 2004 period we utilise data on 78 geographic and weather variables to identify real economic inefficiency while controlling for observed and unobserved heterogeneity we use the factor analysis technique to reduce the number of environmental factors into few composite variables and to avoid the problem of multicollinearity in order to identify firm specific inefficiency we then estimate a pooled version of the established stochastic frontier model of aigner et al 1977 and the recent true random effects model of greene 2004 2005a b without and with environmental variables the results indicate that the observed environmental factors have a rather limited influence on the utilities average efficiency and the efficiency rankings moreover the difference between the average efficiency scores and the efficiency rankings among the pooled and the true random effects models imply that the type of sfa model used is highly influencing the efficiency estimates

heteroscedasticity or production risk a synthetic view two veins of literature namely production risk literature and stochastic frontier analysis are examined both fields are concerned of output variation the former due to exogenous shocks the latter due inefficiency by covering the literature from both the fields this review suggests that the concept of heteroscedasticity can be utilized to build a synthesis between these mainly separate branches of literature however the synthetic approach brings a challenge how to differentiate between different sources of output variation this challenge is identified as the main obstacle to meaningfully combine the two approaches

markets transparency and the corporate bond market for decades corporate bonds primarily traded in an opaque environment quotations which indicate prices at which dealers are willing to transact were available only to market professionals most often by telephone prices at which bond transactions were completed were not made public the u s corporate bond market became much more transparent with the introduction of the transaction reporting and compliance engine trace in july 2002 beginning that date bond dealers were required to report all trades in publicly issued corporate bonds to the national association of security dealers which in turn made transaction data available to the public in this paper we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market we review how trace has affected the costs that corporate bond investors paid to bond dealers for their transactions we canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market

welfare aspects of the transfer problem using the standard trade model with three countries and allowing for substitutability in both production and consumption this paper demonstrates that a country may gain by giving a transfer that the receiver may lose and that these two phenomena may appear at the same time this result is an extension of gale s example in a fixed coefficient model where he shows both transferer and transferee may become better off harming the third country and it is contrasted with the traditional welfare proposition whereby a giver is immiserized and a recipient is enriched

sell side debt analysts and debt market efficiency we explore sell side debt analysts contributions to the efficiency of securities markets we document that debt returns lag equity returns less when debt research coverage exists which is consistent with debt analysts facilitating the process by which available information is impounded in debt prices the effect of debt research on the debt market s lag is incremental to but comparable in magnitude to hedge fund ownership s effect no such effect exists for credit rating agencies we also find that the dissemination of debt reports has an immediate effect on return volatility in both markets which is consistent with debt analysts providing new information to securities markets increased return covariation suggests that this information impacts the pricing of debt and equity in the same direction a large percentage of debt reports do not induce any immediate debt market return reaction but do induce an equity return reaction which is consistent with new information being provided despite the absence of a debt market reaction finally there is a systematic variation in the debt market s trading and return reactions to debt research timely reports and those by high reputation brokers induce a quicker trading response thus enhancing liquidity whereas only timely reports induce a greater return response this study illuminates the institutional underpinnings of debt market efficiency and it has important implications for information content tests in the debt market where trading is limited

do mergers improve efficiency evidence from restructuring the us electric power sector abstract this paper analyses the performance impact of the merger wave which took place in the us electricity industry during the period 1994 2003 it does so by analyzing the impact on operating and total cost in electricity distribution while there are past studies of efficiency and productivity effects as well as of prices profits and other outcomes this study differs in several ways first the database consists of many merging and non merging firms rather than only a few on which to base inferences second all of these mergers arise in a single industry greatly facilitating controlled comparison third we have data on the several years of pre merger and post merger efficiency of the specific merging units unlike virtually all past studies finally we employ a powerful nonparametric technique data envelopment analysis to measure the efficiency of each operating unit the results indicate that electricity mergers are not consistent with improved cost performance

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

benchmarking and incentive regulation of quality of service an application to the uk electricity distribution networks abstract quality of service has emerged as an important issue in post reform regulation of electricity distribution networks regulators have employed partial incentive schemes to promote cost saving investment efficiency and service quality this paper presents a quality incorporated benchmarking study of the electricity distribution utilities in the uk between 1991 92 and 1998 99 we calculate technical efficiency of the utilities using data envelopment analysis technique and productivity change over time using quality incorporated malmquist indices we find that cost efficient firms do not necessarily exhibit high service quality and that efficiency scores of cost only models do not show high correlation with those of quality based models the results also show that improvements in service quality have made a significant contribution to the sector s total productivity change in addition we show that integrating quality of service in regulatory benchmarking is preferable to cost only approaches

cost efficiency of electric grid utilities in china a comparison of estimates from sfa mle sfa bayes and stoned cnls with the purpose of estimating the range of cost efficiency levels of the power grid sector in china we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the sfa mle sfa bayes and stoned cnls methodologies empirical results show that the average values of efficiency from different models vary from 0 85 to 0 92 depending especially on the assumptions underlying inefficiency content further results demonstrate that there is exogenous technical progress during the sample period and per capita gdp of the province is negatively related to the costs of the electric grid company located in the corresponding province we hope this empirical study will contribute to the debate on an efficiency based regulation scheme which was introduced to the chinese electric grid sector on a pilot base in 2014

learning and price discovery in a search market we introduce learning into an otherwise standard two sided search and bargaining market there is uncertainty about the price distribution due to uncertainty about an underlying exogenous state of relative demand in the high state buyers are on the long side otherwise they are on the short side in equilibrium prices are on average higher in the high state individual agents learn about the distribution while searching agents typically start out by experimenting with a tough bargaining position buyers may initially insist on a low price and sellers on a high price after successive failures to trade agents become increasingly pessimistic about the market conditions and soften their bargaining stance when frictions are small equilibrium transaction prices are approximately market clearing despite aggregate demand being unknown thus the search and bargaining procedure enables price discovery in a decentralized market

electric power distribution economies of scale mergers and restructuring electricity distribution is generally viewed as a natural monopoly and therefore as having the least potential for the kinds of reforms that have swept the electric power sector in many countries mergers among distribution companies and efforts at retail competition have nonetheless altered the operation of the distribution stage this research into us electric utilities uses a much larger and less selective data base than previously available to examine the scale properties of distribution with respect to output distance and customer numbers and for different functions within distribution it finds significant economies at low output levels holding system size and customer density constant but the cost gradient is otherwise modest it also finds that geographic size and customer numbers are quite important and that economies are significantly stronger for the infrastructure or wires business than for the marketing function performed by distribution utilities these results lend credence to effort

the informational role of bond analysts this study uses a large sample of sell side bond analysts reports to examine the properties of recommendations provided by bond analysts and the impact of these recommendations on bond securities first we document that the distribution of bond analysts buy hold and sell recommendations is skewed positively but less so than the distribution of equity analysts recommendations the positive skewness in bond analysts recommendations is greater for

intermediary asset pricing abstract we model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary intermediaries face an equity capital constraint risk premia r

inequality and welfare in market economies abstract atkinson 1970 and kolm 1969 have shown how lorenz ranking of distributions of a fixed amount of income or a single commodity may correspond to social welfare rankings lower inequality indicates higher social welfare atkinson and bourguignon 1982 and kolm 1977 offer two ways of extending this result to multi commodity environments we investigate an alternative approach based on the existence of markets and market prices at which agents maximize utility our main result offers a welfare based method of making real national income comparisons which takes into account the distribution of individual welfare

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

the financial crisis and bank client relationships foreign ownership transparency and portfolio selection abstract using a unique dataset that matches banks with their client firms we investigate the differences between foreign and domestic banks in a developing country in particular we are interested in examining how foreign banks solve the information asymmetries that characterize lending relationships and whether those relationships have changed since the financial crisis of 2008 foreign banks are likely to limit their lending activity to larger firms or more transparent firms because they are at an informational disadvantage relative to domestic banks we find that foreign banks focus on relationships with foreign listed and larger firms in addition their portfolio is more heavily weighted towards firms in less competitive industries and exporting firms comparing outcomes for 2006 and 2009 we find that banks are more concerned with leverage in 2009 and have reduced the number of firms in their portfolio post crisis

a simple approach to better deposit insurance pricing abstract we examine the ability of simple insurance pricing schedules to match premiums with the values derived from a contingent claim model of deposit insurance we use a quadratic loss function to compare a flat rate pricing system to alternative pricing schedules incorporating measures of risk a simple two bracket schedule that distinguishes between high and low capitalization is a substantial improvement a pricing schedule under which the rate paid by low capital banks depends on their degree of undercapitalization is better still in addition the gains from using market value measures of capital rather than book value are great

what is the best practice for benchmark regulation of electricity distribution comparison of dea sfa and stoned methods electricity distribution is a natural local monopoly in many countries the regulators of this sector apply frontier methods such as data envelopment analysis dea or stochastic frontier analysis sfa to estimate the efficient cost of operation in finland a new stoned method was adopted in 2012 this paper compares dea sfa and stoned in the context of regulating electricity distribution using data from finland we compare the impacts of methodological choices on cost efficiency estimates and acceptable cost while the efficiency estimates are highly correlated the cost targets reveal major differences in addition we examine performance of the methods by monte carlo simulations we calibrate the data generation process dgp to closely match the empirical data and the model specification of the regulator we find that the stoned estimator yields a root mean squared error rmse of 4 with the sample size 100 precision improves as the sample size increases the dea estimator yields an rmse of approximately 10 but performance deteriorates as the sample size increases the sfa estimator has an rmse of 144 the poor performance of sfa is due to the wrong functional form and multicollinearity

fairly priced deposit insurance and bank charter policy the thrust of current deposit insurance reform risk based insurance premiums and capital requirements is an effort to price deposit insurance more fairly fairly pricing deposit insurance eliminates inequitable wealth transfers but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy results in an efflcient separating equilibrium this article analyzes the effect of alternative charter policies when deposit insurance is fairly priced the thrust of current deposit insurance reformrisk based capital requirements 1988 and risk based insurance premiums 1994 is an effort to price deposit insurance more fairly chan greenbaum and thakor s 1992 seminal paper dramatically illustrated that fairly pricing deposit insurance is not enough to solve the deposit insurance problem in their model when banks hold nontraded private information assets no equilibrium exists with fairly priced deposit insurance unless banks earn rent or are subsidized fairly pricing deposit insurance eliminates inequitable transfers of wealth but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy gives an efficient separating equilibrium the separating equilibrium segregates the market for insured transactions deposits from private information financial intermediation the analysis in this article provides support for the deposit insurance reform proposal in the recent 1993 national commission on financial institution reform recovery and enforcement ncfirre report to the president and congress and for merton and bodie s 1993 proposal both proposals impose a separating equilibrium that isolates insured transactions accounts and the public information traded assets that secure them from private information assets in the bank s portfolio the formal model developed here is designed to demonstrate the effect of charter policy on the efficiency of market equilibrium in an uncomplicated setting but the main result that a separating equilibrium is more efficient is extremely robust with respect to the model specification the model has two types of financial intermediaries intermediaries that hold nontraded private

incentive regulation of electricity distribution networks lessons of experience from britain this paper reviews the recent experience of the uk electricity distribution sector under incentive regulation the uk has a significant and transparent history in implementing incentive regulation in the period since 1990 we demonstrate the successes of this period in reducing costs prices and energy losses while maintaining quality of service we also draw out the lessons for other countries in implementing distribution sector reform we conclude by discussing the place of incentive regulation of networks within the wider reform context the required legislative framework the need for appropriate unbundling the importance of quality of service incentives the regulatory information requirements and the role of sector rationalisation

capital and risk in property liability insurance markets abstract this paper investigates the capital and portfolio risk decisions of property liability insurance firms a theoretical model based on option pricing theory is developed which predicts a positive relationship between insurer capital and risk as firms balance these two factors to achieve their desired overall insolvency risk the implications of the model are then tested empirically using a simultaneous equations methodology the results support the predictions of the model they also provide evidence that managerial incentives play a role in determining capital and risk in insurance markets the findings have significant implications for insurance solvency regulation

specification of merger gains in the norwegian electricity distribution industry electricity distribution often exhibits economies of scale in norway a number of smaller distribution system operators exist and thus there is potential to restructure the industry possibly through mergers however the revenue cap regulatory model in norway does not incentivize firms to merge as merging leads to a stricter revenue cap for the merged company thus the regulator compensates the firms in order to create such incentives the amount of compensation is based on the potential gains of the merger estimated using a data envelopment analysis dea based frontier approach introduced by bogetoft and wang journal of productivity analysis 23 145 171 2005 dea is however only one of many possible frontier estimators that can be used in estimation furthermore the returns to scale assumption the operating environment of firms and the presence of stochastic noise and outlier observations are all known to affect to the estimation of production technology in this paper we explore how varying assumption under two alternate frontier estimators shape the distribution of merger gains within the norwegian distribution industry our results reveal that the restructuring policies of the industry may be significantly altered depending how potential gains from the mergers are estimated

capital regulation heterogeneous monitoring costs and aggregate loan quality abstract this paper develops a banking sector framework with heterogeneous loan monitoring costs banks are exposed to the moral hazard behavior of borrowers and endogenously choose whether to monitor their loans to eliminate this exposure after analyzing an unregulated banking system we examine several cases in which regulatory capital requirements bind the notional loan supplies of various subsets of banks to gauge the impact of capital requirements we define loan quality in terms of either the ratio of monitored to total loans or the ratio of monitoring banks to total bank population under the assumption of a specific cross sectional distribution of banks our simulations show that the imposition of binding capital requirements on a previously unregulated banking system unambiguously increases the market loan rate and reduces aggregate lending but has an ambiguous effect on loan quality nevertheless once capital requirements are in place the simulations indicate that regulators can contribute to higher overall loan quality by toughening capital requirements

stochastic semi nonparametric frontier estimation of electricity distribution networks application of the stoned method in the finnish regulatory model abstract electricity distribution network is a prime example of a natural local monopoly in many countries electricity distribution is regulated by the government many regulators apply frontier estimation techniques such as data envelopment analysis dea or stochastic frontier analysis sfa as an integral part of their regulatory framework while more advanced methods that combine nonparametric frontier with stochastic error term are known in the literature in practice regulators continue to apply simplistic methods this paper reports the main results of the project commissioned by the finnish regulator for further development of the cost frontier estimation in their regulatory framework the key objectives of the project were to integrate a stochastic sfa style noise term to the nonparametric axiomatic dea style cost frontier and to take the heterogeneity of firms and their operating environments better into account to achieve these objectives a new method called stochastic nonparametric envelopment of data stoned was examined based on the insights and experiences gained in the empirical analysis using the real data of the regulated networks the finnish regulator adopted the stoned method in use from 2012 onwards

eco efficiency outcomes of mergers and acquisitions in the european electricity industry abstract the european electricity industry was recently liberalized in response there was a surge of mergers and acquisitions m as this study addresses the effects of m as on the eco efficiency of european electricity producers in 2005 2013 the environmental production technology comprises co2 emissions as an undesirable output i compute eco efficiency using data envelopment analysis dea and the malmquist luenberger productivity index which are both based on radial directional distance function i observe a decreasing trend in average eco efficiency which contradicts the previously documented moderate efficiency gains of liberalization the effects of m as are isolated using second step fractional regression the domestic horizontal m as which are systematically regulated by the european commission have no impact although one cross border horizontal deal has a same year effect of roughly 3 this effect becomes approximately 1 5 over a two year timespan vertical domestic m as have a short run negative impact of 3 6 that does not persist over time vertical international m as reduce the eco efficiency by 2 1 two years after their completion limited evidence suggests that the conglomerate deals are at least not harmful the policy implication is that the merger regulation should be based on dea eco efficiency measures regulators should devote more attention to cross border m as and particularly to vertical deals

regional differences in electricity distribution costs and their consequences for yardstick regulation of access prices abstract in this paper we estimate an average cost function for a panel of 59 swiss local and regional electricity distribution utilities as a basis for yardstick regulation of the distribution network access prices shleifer 1985 proposed yardstick competition in terms of price to regulate local monopolies producing a homogeneous good the regulated price for the individual firms depends on the average costs of identical firms the yardstick competition concept can also be applied to firms that produce heterogeneous goods if these goods differ only in observable characteristics to correct the yardstick for heterogeneity the regulator can use a multivariate estimation of an average cost function in the case of electricity distribution the heterogeneity of output consists mainly of different characteristics of the distribution service areas in this paper we follow shleifer s suggestion to estimate a multivariate average cost function that can be employed by the regulatory commission to benchmark network access prices at the distribution level several exogenous variables measuring the heterogeneity of the service areas were included in the cost model specification we find that the regional differences of the service areas e g area shares of forests agricultural areas or unproductive land and population density significantly influence electricity distribution costs

capital regulation and bank risk taking a note abstract this paper examines theoretically the effects of more stringent capital regulation on bank asset portfolio risk the analysis shows that for a value maximizing bank incentives to increase asset risk decline as its capital increases thus as long as regulatory efforts to contain asset risk and size are not reduced more stringent capital regulation unambiguously reduces the expected liability of the deposit insurance system

capital bias in the nordic revenue cap regulation averch johnson critique revisited abstract nordic energy market reform and the regulation of local monopolies in electricity transmission and distribution sectors have served as role models for many other countries worldwide the first contribution of this paper is to clarify the conceptual distinction between the nordic revenue cap approach and the british revenue cap regulation our second contribution is to show that the nordic revenue cap is similar to the u s style rate of return regulation in that both are subject to capital bias known as the averch johnson effect the third contribution of this paper is to examine the magnitude of the capital bias and its welfare effects by means of numerical simulations we show that the nordic revenue cap generally decreases the monopoly profit increases the output decreases the price and hence increases consumer surplus compared to the unregulated monopoly the simulation results prove robust to changes in the parameter values and the functional form of the production function our numerical simulations reveal that relatively light handed regulation suffices to yield the main benefits

transfers the terms of trade and capital accumulation in the context of a two sector overlapping generations model it is demonstrated that a steady state transfer paradox may arise under commodity trade with stability and without distortions or bystanders the existence of the paradox is due to the effect of the transfer on world capital accumulation which is shown to always i e for any ranking of factor intensities and savings rates improve the donor s terms of trade transfers may also improve steady state welfare for both donor and recipient and produce paradoxical welfare results along the transition path la litterature en statique du commerce international a conclu que en l absence de distorsions ou de tierces parties les mouvements des termes d echange induits par les transferts ne peuvent pas etre suffisamment importants quand il y a stabilite walrasienne pour engendrer le paradoxe du transfert on a tire la conclusion de modeles dynamiques a un secteur que le paradoxe du transfert est possible mais en comptant sur la mobilite internationale du capital et sur les mouvements dans le niveau mondial du taux d interet plutot que sur les prix et les marches des biens dans un modele dynamique a deux secteurs ou les generations se chevauchent ce qui permet des effets a la fois statiques et intertemporels dans les termes d echange le commerce des biens peut engendrer un paradoxe du transfert en regime permanent quand il y a stabilite walrasienne sans distorsions et tierces parties l existence du paradoxe est attribuable a l effet du transfert sur l accumulation du capital qui toujours pour tout ordre des intensites de facteur et des taux d epargne ameliore les termes d echange du donneur les transferts peuvent aussi ameliorer le bien etre du donneur et du recipiendaire en regime permanent et produire des resultats paradoxaux de bien etre dans le sentier de transition

transparency and liquidity a study of block trades on the london stock exchange under different publication rules this article examines whether reducing a market s transparency by delaying the publication of prices for block trades has any impact on liquidity the analysis uses a sample of 5987 blocks from the london stock exchange that cover three different publication regimes immediate 1987 88 90 minutes 1991 92 and 24 hours 1989 90 delaying publication does not affect the time taken by prices to reach a new level which is rapid under all regimes spreads differ across years but their size relates more closely to market volatility than to speed of publication there is therefore no gain in liquidity from delayed publication

immiserizing growth in a many commodity setting abstract mathematical economists have recently shed new light on the phenomenon of immiserizing growth independently of the trade theoretic literature on this subject the present paper aims to build a beidge between the two literatures in particular mantel s set of sufficient conditions for non immiserizing growth is extended to a trade theoretic model with a smooth production frontier and bhagwati s trade theoretic set of sufficient conditions to an n commodity framework it is shown that the condition of normality in consumption in the former substitutes for the stability condition in the latter the concept of the semi compensated substitutability condition plays an essential role in our analysis

experiments on percolation of information in dark markets in dark markets order submissions are bilateral and transaction prices are known only to the trading counterparties here we study to what extent the information aggregation theory proposed by duffie and collaborators predicts outcomes in a laboratory version of such markets we find that prices aggregate the available information but not in the strict sense of the theory where prices converge exponentially fast to average private signals prices instead fluctuate within bands around this average the band widths reflect in the best case the precision of the average signal and otherwise the precision of a single private signal

industry structural inefficiency and potential gains from mergers and break ups a comprehensive approach an efficiency indicator of industry configuration allowing for entry exit of firms is presented which accounts for four sources components 1 size inefficiencies arising from firms which can be conveniently split into smaller units 2 efficiency gains realized through merger of firms 3 re allocation of inputs and outputs among firms 4 technical inefficiencies the indicator and its components are computed using linear and mixed integer programming data envelopment analysis models a method to monitor the evolution of these components in time is introduced data on hospitals in australia show that technical inefficiency of hospitals accounts for less than 15 of total industry inefficiency with 40 attributable to size inefficiencies and the rest to potential mergers and re allocation effects

corporate bond market transaction costs and transparency using a complete record of u s over the counter otc secondary trades in corporate bonds we estimate average transaction costs as a function of trade size for each bond that traded more than nine times between january 2003 and january 2005 we find that transaction costs decrease significantly with trade size highly rated bonds recently issued bonds and bonds close to maturity have lower transaction costs than do other bonds costs are lower for bonds with transparent trade prices and they drop when the trace system starts to publicly disseminate their prices the results suggest that public traders benefit significantly from price transparency