the impact of mandatory disclosure laws on product choices an analysis of the salad dressing market abstract the nutrition labeling and education act nlea requires most food products to include a nutrition label prior to the nlea labeling was voluntary this study uses nutrition label information and supermarket scanner data pre and post nlea to examine the impact of moving from a voluntary to a mandatory labeling regime on consumer product choice the voluntary unraveling of information is shown to be an important market mechanism prior to the nlea all low fat salad dressings had a nutrition label while the majority of the higher fat dressings did not however there remained large variation in fat content among dressings that did not voluntarily label those with the highest fat levels experienced a significant decline in sales after they were required to disclose the results indicate that even in markets with credible low cost mechanisms to disclose mandatory labeling can have an impact on consumer behavior and health

international real interest rate equalization a multivariate time series approach this paper investigates the dynamic behaviour of monthly ex post real interest rates from several countries over the period 1980 to 1991 it is found that real interest rates are stationary over this period and that deviations from real interest parity are significant in the short run but disappear in the long run the latter evidence is established using the concept of co dependent time series proposed by gourieroux and peaucelle 1989 for the analysis of multivariate stationary time series

how integrated are the money market and the bank loans market within the european union abstract this paper estimates cointegration vectors of the time series of money market interest rates and bank lending rates the study includes six member countries of the european union eu and covers a period of 10 years from 1985 to 1994 during this period significant steps were taken that intensified financial integration in the eu including the free flow of capital a system of stable exchange rate parities and the implementation of a single market for banking services we conclude that the domestic money markets are closely linked but the domestic banking markets are segmented preliminary investigation of international differences in the capital structure of firms on the one hand and of domestic business cycle conditions on the other hand do not seem to explain differences in bank spreads across countries the results point to other directions presumably to local market power and to differences in the role of lender monitoring

causes of the forward bias non rational expectations versus risk premia the sources of the systematic forward bias in the foreign exchange market are sought a theoretical framework based on some well known international parity conditions is developed in order to derive testable hypotheses these are a only risk premia account for the observed deviations between forward and future sport rate c anticipated real exchange rate changes explain part of the bias the provided evidence is not consistent with any of these hypotheses which in turn implies that part of the bias may be due to non rational expectations

monetary and fiscal policies in an open economy the central theme of this paper is that international linkages between national economies influence in fundamentally important ways the effectiveness and proper conduct of national macroeconomic policies specifically our purpose is to summarize the implications for the conduct of macroeconomic policies in open economies of both the traditional approach to open economy macroeconomics as developed largely by james meade robert mundell and j marcus fleming and of more recent developments our discussion is organized around three key linkages between national economies through commodity trade through capital mobility and through exchange of national monies these linkages have important implications concerning the effects of macroeconomic policies in open economies that differ from the effects of such policies in closed economies recent developments in the theory of macroeconomic policy have established conditions for the effectiveness of policies in influencing output and employment which emphasize the distinction between anticipated and unanticipated policy actions the importance of incomplete information and the consequences of contracts that fix nominal wages and prices over finite intervals in this paper we shall not analyze how these conditions are modified in an open economy however since our concern is with macro economic policy a principal objective of which is to influence output and employment we shall assume that requisite conditions for such influence are satisfied this abstract was borrowed from another version of this item

information aggregation in common value auctions a key question in information economics and finance is whether prices aggregate information in a competitive environment that is when agents are endowed with private information does competition lead in the limit to prices which would occur if all information were public this paper examines the asymptotic properties of prices in common value auctions when the number of bidders becomes large the main idea in this paper is to separate the issue of information aggregation from the issue of revenue efficiency we also distinguish between the amount of information prices contain and the degree to which prices approximate the asset s value using this approach we get a simple characterization of the limiting distribution of prices we are not only able to answer whether prices converge to the asset s value but also get an explicit form for the limiting distribution prices converge to the expected value of the asset conditional on the information possessed by what we call the pivotal bidder this provides insights on how the auction format and the information structure influence the limiting behavior of prices it shows that the limiting distribution of prices can be derived from the statistical properties of certain order statistics this lets us abstract from the specific equilibrium bidding strategies for example we show that while the first and second price auction have different equilibrium strategies they share a similar limiting distribution of prices these auctions yield different limiting distributions from auctions such as the english auction or kn auction our

evaluating credit risk and loan performance in online peer to peer p2p lending online peer to peer p2p lending has emerged recently this micro loan market could offer certain benefits to both borrowers and lenders using data from the lending club which is one of the popular online p2p lending houses this article explores the p2p loan characteristics evaluates their credit risk and measures loan performances we find that credit grade debt to income ratio fico score and revolving line utilization play an important role in loan defaults loans with lower credit grade and longer duration are associated with high mortality rate the result is consistent with the cox proportional hazard test which suggests that the hazard rate or the likelihood of the loan default increases with the credit risk of the borrowers finally we find that higher interest rates charged on the high risk borrowers are not enough to compensate for higher probability of the loan default the lending club must find ways to attract high fico score and high income borrowers in order to sustain their businesses

equilibrium in auctions with entry the authors model entry incentives in auctions with risk neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic the presence of too many potential bidders raises coordination costs that detract from welfare the authors show that the seller and society can benefit from policies that reduce market thickness i e the relative abundance of buyers their analysis extends well known revenue equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies e g reservation prices in ways not anticipated by models that ignore entry copyright 1994 by american economic association

beauty and the labor market the authors examine the impact of looks on earnings using interviewers ratings of respondents physical appearance plain people earn less than average looking people who earn less than the good looking the plainness penalty is 5 to 10 percent slightly larger than the beauty premium effects for men are at least as great as for women unattractive women have lower labor force participation rates and marry men with less human capital better looking people sort into occupations where beauty may be more productive but the impact of individuals looks is mostly independent of occupation suggesting the existence of pure employer discrimination copyright 1994 by american economic association

evaluating borrower s default risk in peer to peer lending evidence from a lending platform in china recent years have witnessed the popularity of online peer to peer lending which allows individuals to borrow from and lend to each other on an internet based platform using data from a large p2p

religion and bank loan terms we examine whether religion affects the terms of bank loans we hypothesize that lenders value the traits of religious adherents such as risk aversion ethical behavior and honesty and thus offer favorable loan terms to religious borrowers consistent with this hypothesis we find that corporate borrowers located in counties with a high level of religiosity are charged lower interest rates have larger loan amounts and fewer loan covenants these results suggest that the corporate culture of borrowers influences the availability and cost of bank loans

a note on exchange rate expectations and nominal interest differentials a test of the fisher hypothesis this note tests the hypothesis that nominal interest differentials between similar assets denominated in different currencies can be explained entirely by the expected change in the exchange rate over the holding period this proposition often called the fisher open hypothesis or the hypothesis of perfect asset substitutability has been a major component of recent theories of exchange rate determination and has important implications for monetary policy 1 the fisher hypothesis differs from the covered interest parity theorem enunciated by keynes 11 while covered interest parity equates the nominal interest differential between financial centers to a known premium or discount on forward foreign exchange and is thus in principle riskless fisher parity involves risk in an essential way the two conditions are equivalent only when forward exchange rates equal expected future spot rates recent theoretical work for example that of grauer litzenberger and stehle 8 kouri 12 and frankel 6 shows that this need not be the case when market participants are risk averse thus while covered interest parity must always hold exactly in an informationally efficient asset market with no transactions costs fisher parity need not nominal interest differentials may reflect risk premia in addition to expected exchange rate movements 2 it should be emphasized at the outset that the tests conducted in this paper are really joint tests of the fisher hypothesis and a weak form of foreign exchange market informational efficiency levich 14 has argued that tests of market efficiency are always joint tests involving some hypothesized structure of normal equilibrium returns below we assume informational efficiency and instead test fisher s hypothesized arbitrage condition that nominal interest differentials equal expected percentage changes in exchange rates

a direct test of the lemons model the market for used pickup trucks of the implications of models of markets with asymmetric information in the seminal paper on markets with asymmetric information george akerlof 1970 pointed out two possible outcomes that may occur where sellers have better information about the quality of products than do buyers one possibility is that bad products will drive out good products if buyers cannot distinguish quality until after the purchase has been made there will be no incentive for sellers to provide good quality products and the average quality in the market will decline in the case of cars an often cited example of this phenomenon owners who discover that they have a lemon will attempt to sell it in the used car market to an unsuspecting buyer the owner of a creampuff will not sell his car since it is indistinguishable from a lemon to buyers and must therefore sell for the price of a car of average quality the effect of quality uncertainty is to reduce the volume of transactions in the used car market below the socially optimal level a second possibility suggested by akerlof is that institutions may develop to counteract the effects of quality uncertainty warranties and brand names can be used to give the buyer some assurance of quality these institutions may prevent good products from being driven from the market but they will

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

what s in a picture evidence of discrimination from prosper com abstract we find evidence of significant racial disparities in a new type of credit market known as peer to peer lending loan listings with blacks in the attached picture are 25 to 35 percent less likely to receive funding than those of whites with similar credit profiles despite the higher average interest rates charged to blacks lenders making such loans earn a lower net return compared to loans made to whites with similar credit profiles because blacks have higher relative default rates these results provide insight into whether the discrimination we find is taste based or statistical

a re assessment of the relationship between real exchange rates and real interest rates 1974 1990 abstract this paper uses cointegration techniques and error correction models to re examine the link between real exchange rates and real interest rate differentials the results show that real exchange rates and real interest rates are nonstationary however they are not cointegrated with each other on the other hand the dynamic models indicate that there might be a long run relationship between these variables but this cannot be verified the final conclusion is that there is little empirical evidence in support of a systematic relationship and this result is robust across exchange rates time periods and measures of expected inflation

does real interest parity hold at longer maturities abstract this paper investigates the validity of real interest parity rip for long maturities across the us britain and germany a standard view commonly referred to as the fisher hypothesis is that over long horizons movements in expected inflation dominate movements in nominal interest rates or that real interest rates are equal over the 1973 1991 sample period however rejections of conditional rip occur at all horizons extending from a quarter to five years the evidence indicates that there appears to be no tendency for expected real interest rates to be equalized over longer maturities

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

international interest rate linkages and the exchange rate regime abstract return differentials between instruments denominated in canadian dollars and instruments denominated in american dollars are investigated the study compares the properties of return differentials in the period of fixed exchange rates during the 1960s and in the period of flexible exchange rates during the 1970s and 1980s both real and nominal return differentials are investigated the results indicate that the change in exchange rate regime is not associated with a change in the average level of ex post return differentials between canada and the united states models which predict ex ante return differentials from available information in a rational expectations framework show a surprisingly large amount of structural stability across the regime change the major impact of the flexible exchange rate regime is on the variance of ex post return differentials and not on the average level of ex post or ex ante return differentials jel e42 e58 g15

are real interest rates equal across countries an empirical investigation of international parity conditions this paper conducts empirical tests of the equality of real interest rates across countries the empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative ppp or the unbiasedness of forward rate forecasts and ex ante relative ppp the evidence suggests that it is worth studying open economy macroeconomic models which allow 1 domestic real rates to differ from world rates 2 time varying risk premiums in the forward market or 3 deviations from ex ante relative ppp the relationship of real interest rates across countries is of central importance to our understanding of open economy macroeconomics in some models where there is costless international arbitrage in goods and financial assets real interest rates for comparable securities should be equal across countries this has been a feature of much of the early research in the monetary approach to exchange rates e g frenkel 11 and bilson 2 on the other hand finance theory indicates that risk premia may well differ for comparable securities denominated in different currencies solnick 27 roll and solnick 26 stulz 28 fama and farber 7 hansen and hodrick 17 and dornbusch 6 and more recent theoretical models in the exchange rate literature such as dornbusch 5 frankel 10 and mussa 24 depend on real rates differing between countries in the short run the proposition that real rates are equal across countries is worth studying

causality cointegration and control abstract the first sections of the paper show that causality tests can be relevant when considering the effectiveness of a control mechanism rejecting some results in earlier papers the relevance comes from a more careful consideration of what information is available to whom and when compared to previous work the final section of the paper extends this analysis to cointegrated variables when causality is a necessary consequence

news management and the value of firms the literature on asymmetric information has been concerned mainly with the problem of the informed party lying to the uninformed parties however in many cases the informed party will stop short of lying but will seek to gain from private information by managing the disclosure of news this article examines the pricing of a firm when there is such manipulation of news i model this situation as a variant of the persuasion game of milgrom and roberts 1986 in which i can parameterize the notion of the degree of credence placed by the market on the disclosures of the informed party an empirical hypothesis thrown up by the theory is that for otherwise identical firms a low price earnings ratio will be associated with a greater degree of positive skewness of the disclosure strategy

information disclosure as a matching mechanism theory and evidence from a field experiment market outcomes depend on the quality of information available to its participants we measure the effect of information disclosure on market outcomes using a large scale field experiment that randomly discloses quality information in wholesale automobile auctions we argue that buyers in this market are horizontally differentiated across cars that are vertically ranked by quality this implies that information disclosure helps match heterogeneous buyers to cars of varying quality causing both good and bad news to increase competition and revenues the data confirm these hypotheses these findings have implications for the design of other markets including e commerce procurement auctions and labor markets jel c93 d44 d82 l15

overconfidence in the markets for lemons we extend akerlof s 1970 market for lemons by assuming that some buyers are overconfident buyers in our model receive a noisy signal about the quality of the good that is at display for sale overconfident buyers do not update according to bayes rule but take the noisy signal at face value the main finding is that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection this stabilization however comes at a cost rational buyers are crowded out of the market

sources of variation in international real interest rates this paper analyses the effects of inflation on ex post real interest rates in an international framework a dynamic factor model is estimated in which real interest rates are influenced by real interest and inflation factors that are common to all the countries and by country specific factors we find that the source of domestic inflation is an important determinant of the effect of inflation on real interest rates a common inflation factor has a negative effect on ex post real interest rates lending support to a form of the mundell tobin effect in international real interest rates and that a country specific inflation factor tends to have a positive effect

real interest rate equalization some empirical evidence from the three major world financial markets this article examines the linkage of real interest rates of the three major world financial markets usa japan and the uk with the use of cointegration methods unlike previous works the investigation uses a trivariate vector autoregressive var model in which a constant term in the common stochastic trends space is excluded based on data generated after the liberalization of japan s foreign exchange market at the end of 1980 1981 1 1998 12 the article finds some empirical evidence indicating that the extent of the departure from the long run real interest rate equalization rie is not very large although the null hypothesis of the long run rie is rejected in most cases

the effect of information on product quality evidence from restaurant hygiene grade cards this study examines the effect of an increase in product quality information to consumers on e rms choices of product quality in 1998 los angeles county introduced hygiene quality grade cards to be displayed in restaurant windows we show that the grade cards cause i restaurant health inspection scores to increase ii consumer demand to become sensitive to changes in restaurants hygiene quality and iii the number of foodborne illness hospitalizations to decrease we also provide evidence that this improvement in health outcomes is not fully explained by consumers substituting from poor hygiene restaurants to good hygiene restaurants these results imply that the grade cards cause restaurants to make hygiene quality improvements

the determinants of attitudes towards strategic default on mortgages we use survey data to measure households propensity to default on mortgages even if they can afford to pay them strategic default when the value of the mortgage exceeds the value of the house the willingness to default increases in both the absolute and the relative size of the home equity shortfall our evidence suggests that this willingness is affected by both pecuniary and non pecuniary factors such as views about fairness and morality we also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

auctioning risky conservation contracts conservation auctions have the potential to increase the efficiency of payments to farmers to adopt conservation friendly management practices by fostering competition among them the literature considers bidders that have complete information about the costs of adoption and optimal bidding behavior reflects this information advantage farmers seek information rents and bids decrease when risk aversion increases because farmers are more averse to losing the auction we contribute to the literature by allowing for cost risk our paper shows that farmers must balance the risk of losing the auction thus foregoing information rent with the risk of submitting a bid that is not high enough to pay the costs of adopting conservation practices thus incurring losses we design an experiment to trade off these two risks and examine how risk aversion affects bidding behavior when participants face different sources and levels of risk our experiment contributes to a small literature on experimental auctions with risky product valuations we find that participants decrease their bids as risk aversion increases even in auctions with cost risk suggesting that the risk of losing the auction dominates these findings uncover new challenges for the practical implementation of conservation auctions as an efficient policy instrument

real interest rate equalization and the integration of international financial markets abstract this paper argues that conventional regression tests of real interest rate equality may be misleading because they neglect to consider transactions costs a transactions cost band may inhibit the one to one correspondence between changes in real rates in alternative countries that is presumed by conventional tests statistical problems which may lead to incorrect inferences in conventional tests are also discussed alternative tests which overcome these limitations are developed and applied to real interest rates for ten different countries the alternative tests generate much stronger support for interest parity than is found in the existing literature

interest rates inflation and taxes the foreign connection abstract in this note it is shown that the existence of taxes on nominal interest receipts in an international setting introduces a non neutrality in that a change in expected inflation in one country must change at least one expected real interest rate or the path of the real exchange rate

pricing in the online invoice trading market first empirical evidence abstract in recent years online invoice trading has gained importance in providing smes with short term financing in this paper we present first empirical evidence concerning the question whether the risk of payment difficulties is appropriately reflected in the pricing variables to this end we investigate predictors of default of online invoice trading platforms we analyze both the probability of default and the loss rate and find that the interest rate the duration and the percentage funded have good predictive power furthermore we show that the pricing mechanism auction vs fixed prices helps to explain defaults on online invoice trading platforms

why are real interest rates not equalized internationally 1 introductioninternational financial economists are intensely concerned with several parity conditions that relate goods prices and asset returns across countries these include purchasing power parity ppp interest rate parity irp and variations of these two such as relative ppp ex ante ppp and real interest rate parity rip each of these parity conditions measures a degree of integration between the economies of the world the greater the economic integration across countries the greater the likelihood that the more restrictive of these parity conditions will have empirical support for example the strict ppp hypothesis implies that aggregate price levels will be equal in terms of a common currency this condition is very stringent because it does not allow for even temporary deviations from the equilibrium condition 1 a less restrictive version is long run ppp where price levels measured in a common currency across countries converge over some period of time may be a very long period of time recognizing all of the impediments that keep strict ppp from holding economists have put their efforts in studying the long run version of this equilibrium condition there is a relatively large literature examining the equality of real interest rates internationally 2 in all of these studies the real interest rate is defined by the fisher equation these studies then go on to estimate and test for the simultaneous existence of uncovered interest parity uip which is also called the open economy fisher relation and ex ante ppp eappp the other conditions sufficient for rip the problem in this strategy is that the fisher equation may not hold many studies have been devoted to examining the validity of the fisher relationship for both the u s and other economies 3 the results of this line of inquiry have been decidedly mixed even if the fisher relation does hold it is unlikely that the fisher effect will be one for one as implied by defining the real interest rate from the simple fisher equation both mundell tobin and tax effects can drive a wedge between inflation expectations and the effect on nominal interest rates 4 it would seem more appropriate to treat the fisher relation as another testable parity condition than as an assumption in this study we examine the underlying parity conditions sufficient for rip treating them as hypotheses to be tested the four parity conditions or equilibrium relationships upon which rip is predicated uncovered interest parity uip ex ante ppp eappp the fisher relation in each country i e the fisher relation in country a and the fisher relation in country b imply time series implications for the observable variables specifically if any of the nominal interest rates or inflation rates can be characterized as integrated variables evidence of which we will provide then the four parity conditions imply one common stochastic trend between them therefore an initial examination of the sufficient conditions for rip should include a test for a unit root in the observable variables and then a test for the number of common stochastic trends in a given rip system because the power of univariate unit root and stationarity tests is notoriously low many exploit the power gains available by using panel tests however there are serious drawbacks to some of these panel unit root tests for example o connell 1998 taylor and sarno 1998 and breuer mcnown and wallace 2001 we overcome these drawbacks by taking advantage of recent innovations in univariate and multivariate unit root tests that have substantially greater power to reject a false null but are not subject to the size distortions associated with some popular panel based tests our use of these methods leads us to conclude that each rip system analyzed can be characterized to some degree as a system of integrated variables that share more than one common trend

searching for a break in gnp it has been suggested that existing estimates of the long run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in postwar u s gross national product data this article shows that the statistical evidence does not warrant abandoning the no trend break null hypothesis a key part of the argument is that conventionally computed p values overstate the likelihood of the trend break alternative hypothesis this is because they do not take into account that in practice the date is chosen based on pretest examination of the data

the real interest rate a multi country empirical study how real interest rates behave over time is critical to our understanding of many macroeconomic issues and much recent research has pursued this question very little of the research however has focused on real interest rates outside the united states this paper is an empirical exploration of real interest rate movements in seven oecd countries from 1967 ii to 1979 ii further research is needed on real rates in other countries for several reasons not only are measures of foreign real rates of interest in their ownright but extending an analysis of real rates to other countries also has the following additional benefits it can generate more powerful statistical tests of propositions previously tested on u s data and yield information on whether results found for the u s hold up in other countries this study pursues several questions that have arisen naturally from this earlier work is the hypothesis that the real rate is constant rejected when the analysis is extended to other countries does the real rate decline with increased inflation and money growth in other countries besides the united states how reliable is the fisher effect in which nominal interestrates reflect changes in expected inflation are movements in nominal interest rates a reliable indicator of movements in real rates what kind of variationsin real interest rates are there in different countries have real rates declined from the 60s to the 70s for other countries besides the u s this abstract was borrowed from another version of this item

charity as a substitute for reputation evidence from an online marketplace consumers respond positively to products tied to charity particularly from sellers that are relatively new and hence have limited alternative means for assuring quality we establish this result using data from a diverse group of ebay sellers who experiment with charity by varying the presence of a donation in a set of otherwise matched product listings most of charity s benefits accrue to sellers without extensive ebay histories consistent with charity serving as a quality signal we find fewer customer complaints among charity intensive sellers

adverse selection in the used car market evidence from purchase and repair patterns in the consumer expenditure survey we analyze adverse selection in the used car market using a new approach that considers a car as an assemblage of parts some with symmetric information and others with asymmetric information using data from the consumer expenditure survey and consumer reports we examine turnover and repair patterns we find evidence of adverse selection due to the conditions of the transmission engine and during colder months air conditioning and sorting due to the conditions of the vehicle body and during warmer months air conditioning our quantification exercises indicate that adverse selection may have a meaningful effect on trade volume and quality in the secondhand market

monetary policy targets and the stabilization objective a source of tension in the ems abstract this paper evaluates two different monetary regimes in the ems an asymmetric regime with ems monetary policy oriented towards german targets and a symmetric regime with ems wide targets deterministic and stochastic simulations of a macroeconometric model are used to study spillovers adjustment and stabilization in ems economies they show that there exists a significant trade off between the two regimes in terms of output and price deviations from target while germany enjoys more stability under the asymmetric regime the other ems economies are stabilized more effectively by a symmetric target the resulting tension must have been at least partly responsible for the recent ems crises

real interest rate parity new measures and tests abstract international financial theory implies that for international comparisons the appropriate measure of the real interest rate is one defined in terms of traded goods prices alone new measures of the real interest rate are constructed using changes in price indexes for traded goods as deflators these new measures are tested for international real rate equality and the results are compared to those of similar tests using measures based on the change in the cpi and the wpi there are important differences between the traded goods real rate measures and those based on either the cpi or the wpi however in general the tests support the hypothesis that the real interest rate is approximately measured in terms of traded goods jel f30

the value of the voting right a study of the milan stock exchange experience i study the large premium 82 percent attributed to voting shares on the milan stock exchange the premium varies according to the ownership structare and the concentration of the voting rights and it can be rationalized in the presence of enormous private benefits of control a case study seems to indicate that in italy private benefits of control can easily be worth more than 60 percent of the value of nonvoting equity a tentative explanation for these findings is provided traditional finance theory disregards the value of voting rights in pricing common stock in most cases this omission does not seem harmful many studies of differential voting stocks in different countries have indicated that voting rights are generally worth between 10 percent and 20 percent of the value of common stock the italian evidence i present differs sharply from this view in italy voting shares that have inferior dividend rights trade at an average premium

why beauty matters we decompose the beauty premium in an experimental labor market where employers determine wages of workers who perform a maze solving task this task requires a true skill which we show to be unaffected by physical attractiveness we find a sizable beauty premium and can identify three transmission channels a physically attractive workers are more confident and higher confidence increases wages b for a given level of confidence physically attractive workers are wrongly considered more able by employers c controlling for worker confidence physically attractive workers have oral skills such as communication and social skills that raise their wages when they interact with employers our methodology can be adopted to study the sources of discriminatory pay differentials in other settings

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

face value information and signaling in an illegal market author affiliation trevon d logan the ohio state university and nber 410 arps hall 1945 north high street columbus oh 43210 usa e mail logan 155 osu edu corresponding author manisha shah dagger university of california los angeles and nber 3250 public affairs building los angeles ca 91195 e mail manishashah ucla edu acknowledgment we would like to thank george akerlof rodney j andrews raj arunachalam andrea a cann lisa d cook brahima coulibaly scott cunningham angus deaton avinash dixit claudia d goldin karla hoff joseph kaboski simon loertscher joseph m newhard christina paxson john pepper ruth peterson patricia reagan seth sanders ebonya washington nathan woodfork three anonymous referees and numerous seminar participants who provided helpful suggestions the usual disclaimer applies 1 introductionformal enforcement is often seen as the cornerstone of contract design while information can overcome the problems of asymmetric information akerlof 1970 spence 1973 principals are unlikely to engage agents unless the information conveyed is credible and verifiable while the use of formal institutions such as courts is rare relative to the volume of transactions the standard argument is that the presence of formal institutions gives contracts their authority in schelling s 1960 classic terminology the power to sue and be sued gives parties the ability to make credible enforceable commitments a prerequisite to most transactions without means of redress the information that principals and agents share would a priori have little value numerous studies have documented how informal networks long term relationships and reputations overcome problems of asymmetric information indeed researchers have developed large literatures that look at limited contractibility hart 1995 tirole 1999 and situations in which formal enforcement is costly greif 1993 to consider the additional mechanisms that must be in place if existing institutions are lacking or unable to mediate disputes however the literature has not developed an empirical answer to whether the value of information without formal enforcement approaches its value when formal enforcement is present in this article we ask two questions i are formal enforcement mechanisms necessary for the information that principals and agents share to have value ii if not then what is the value of information in an environment without formal enforcement ideally we would like to analyze an illegal market to answer these questions illegal markets rule out the possibility that market function or variation in the information environment is due to the presence of formal enforcement similarly in an illegal market the information that principals and agents convey to one another may not be credible or verifiable and misrepresentation is not likely to be punished the problem is that most illegal markets have coarse information environments it is therefore challenging to obtain information on prices quantities and consumer and producer behavior making empirical answers to these questions especially difficult we overcome these problems by analyzing an illegal market with a rich information structure the online market for male sex work we begin with a general description of this seldom studied market we then document the ways in which the clients of male sex workers informally police the market by informing other clients of deceptive sex workers and by reviewing sex workers on independent client owned web sites the informal policing in the market raises the cost of misrepresentation for would be fraudulent escorts and rewards the truthful self disclosure of honest escorts encouraging truthful self disclosure we further exploit this institutional knowledge to identify the specific information clients treat as signals of escort quality

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

social capital and the cost of equity abstract we find that a firm s cost of equity is inversely related to the level of social capital in the state where the firm is headquartered further the cost of equity declines when firms move their headquarters from a low social capital state to a state with higher social capital the negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product market competition and is not significant for firms with good firm specific reputations we interpret these findings as indicating that social capital serves as a societal monitoring mechanism and can be value enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring

asymmetric information adverse selection and online disclosure the case of ebay motors since the pioneering work of akerlof 1970 economists have been aware of the adverse selection problem that information asymmetries can create in used goods markets the remarkable growth in online auctions of used goods where buyers generally purchase sight unseen therefore poses a puzzle i argue that given a means for credible information disclosure sellers will voluntarily disclose their private information to buyers through online media this limits information asymmetries and adverse selection to test this theory i examine the role of information in a large online used car market ebay motors i nd that sellers selectively disclose information that information asymmetries are reduced by these disclosures and that online media such as photos text and graphics provide a rich environment for information disclosure

price discontinuities in an online market for used cars we study the price setting behavior in a competitive market for used cars and provide empirical evidence for coarse information processing based on detailed field data from one of europe s largest online marketplaces for automotive vehicles we document systematic and sizable price discontinuities at salient car age and mileage thresholds the price difference between two otherwise identical cars across registration years where one was first registered in january and the other in december of the previous year is up to five times larger than that between two cars first registered in any two subsequent months within a registration year a similar pattern can be observed in the mileage dimension at 10 000 km odometer marks which is in line with earlier findings in the literature being able to study discontinuities along two dimensions of the same good allows us to further our understanding toward a more general notion of inattentive behavior while our results are compatible with a behavioral model of l

product aggregation market integration and relationships between prices an application to world salmon markets relationships between prices of goods offer motives of interest in at least two areas market integration and product aggregation there is a close relationship between market integration and aggregation which may increase the usefulness of market integration studies in this article these relationships are developed and illustrated by an application to the world salmon market it is shown that the law of one price holds for an international market with five salmon species this result has significant implications for the world salmon market regarding both product aggregation in demand analyses and international trade policy

quality disclosure and certification theory and practice this essay reviews the theoretical and empirical literature on quality disclosure and certification after comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure we address two sets of theoretical issues first why don t sellers voluntarily disclose through a process of unraveling and given the lack of unraveling is it desirable to mandate seller disclosure second when we rely on certifiers to act as the intermediary of quality disclosure do certifiers necessarily report unbiased and accurate information we further review empirical evidence on these issues with a particular focus on healthcare education and finance the empirical review covers quality measurement the effect of third party disclosure on consumer choice and seller behavior as well as the economics of certifiers jel d18 k32 l15 m31

beauty weight and skin color in charitable giving abstract this paper examines bias in online charitable microfinance lending we find that charitable lenders on a large peer to peer online microfinance website appear to favor more attractive lighter skinned and less obese borrowers borrowers who appear more needy honest and creditworthy also receive funding more quickly these effects are quantitatively significant borrowers with beauty one standard deviation above average are treated as though they are requesting approximately 11 less money statistical discrimination does not appear to explain our findings as these borrower attributes are uncorrelated with loan performance or borrower enterprise performance the evidence suggests implicit bias could explain our findings more experienced lenders who may rely less on implicit attitudes appear to exhibit less bias than inexperienced lenders

rational herding in microloan markets microloan markets allow individual borrowers to raise funding from multiple individual lenders we use a unique panel data set that tracks the funding dynamics of borrower listings on prosper com the largest microloan market in the united states we find evidence of rational herding among lenders well funded borrower listings tend to attract more funding after we control for unobserved listing heterogeneity and payoff externalities moreover instead of passively mimicking their peers irrational herding lenders engage in active observational learning rational herding they infer the creditworthiness of borrowers by observing peer lending decisions and use publicly observable borrower characteristics to moderate their inferences counterintuitively obvious defects e g poor credit grades amplify a listing s herding momentum as lenders infer superior creditworthiness to justify the herd similarly favorable borrower characteristics e g friend endorsements weaken the herding effect as lenders attribute herding to these observable merits follow up analysis shows that rational herding beats irrational herding in predicting loan performance this paper was accepted by pradeep chintagunta marketing

does standardized information in online markets disproportionately benefit job applicants from less developed countries abstract we examine trade in services between employers from developed countries dcs and workers from less developed countries ldcs on an online platform for contract labor we report evidence that 1 dc employers are less likely to hire ldc compared to dc workers even after controlling for a wide range of observables 2 workers with standardized and verified work history information are more likely to be hired and 3 information on verified work history disproportionately benefits ldc contractors the ldc premium also applies to additional outcomes including wage bids obtaining an interview and being shortlisted in addition the evidence suggests that informational limits to trade may be addressed through a variety of market design approaches for instance an online monitoring tool substitutes for verified work history information

some evidence on the international inequality of real interest rates abstract this paper undertakes econometric tests of the hypothesis that ex ante real interest rates are equal across countries with highly integrated capital markets the issue is of practical importance because the violation of real rate equality is a necessary condition for monetary policy to influence the open economy through the real interest rate channel although an empirical literature concerning real rate equality already exists previous investigators have focused on pre tax real rates this paper contributes to the literature by attempting to incorporate the effects of taxation into the analysis

efficiency of purchasing and selling agents in markets with quality uncertainty the case of illicit drug transactions abstract since akerlof s theory of lemons economists have viewed quality uncertainty as an informational advantage for sellers drawing on frontier techniques we propose in this paper a simple method for measuring inefficiency of both sellers and buyers in markets for goods with different levels of quality we apply a non parametric robust double frontier framework to the case of illicit substance markets which suffer from imperfect information about drug quality for purchasers and to a lesser extent for sellers we use unique data on cannabis and cocaine transactions collected in france that include information about price quantity exchanged and purity we find that transactional inefficiency does not really benefit either dealers or purchasers furthermore information influences the performance of agents during market transactions

investor churn analysis in a p2p lending market this study aims to determine why investors leave a peer to peer p2p lending market and the pathways through which several factors affect investor churn to this end this study performed cox pro

estimation in english auctions with unobserved heterogeneity we propose a framework for identification and estimation of a private values model with unobserved heterogeneity from bid data in english auctions using variation in the number of bidders across auctions and extend the framework to settings where the number of bidders is not cleanly observed in each auction we illustrate our method on data from ebay motors auctions we find that unobserved heterogeneity is important accounting for two thirds of price variation after controlling for observables and that welfare measures would be dramatically misestimated if unobserved heterogeneity were ignored

increasing competition and the winner s curse evidence from procurement we assess empirically the effects of the winner s curse which in common value auctions counsels more conservative bidding as the number of competitors increases first we construct an econometric model of an auction in which bidders preferences have both common and private value components and propose a new monotone quantile approach which facilitates estimation of this model second we estimate the model using bids from procurement auctions held by the state of new jersey for a large subset of these auctions we find that median procurement costs rise as competition intensifies in this setting then asymmetric information overturns the common economic wisdom that more competition is always desirable

trust us to repay social trust long term interest rates and sovereign credit ratings this paper asks whether the sensitivity of market long term interest rates and credit ratings is associated with cross country differences in informal institutions measured by social trust we note a number of theoretical mechanisms that could imply that similar objective problems are more likely to be effectively dealt with in higher trust societies a set of panel estimates across middle and high income countries reveal that interest rates and ratings are substantially more sensitive to inflation and growth problems in low trust countries this finding sheds light on the differential market reactions to economic problems in seemingly comparable countries jel codes g12 a13

trust and credit the role of appearance in peer to peer lending although it is well known that appearance based impressions affect labor market and election outcomes little is known about the role appearance plays in financial transactions we address this question using photographs of potential borrowers from a peer to peer lending site consistent with the trust intensive nature of lending we find that borrowers who appear more trustworthy have higher probabilities of having their loans funded moreover borrowers who appear more trustworthy indeed have better credit scores and default less often overall our findings suggest that impressions of trustworthiness matter in financial transactions as they predict investor as well as borrower behavior a man i do not trust could not get money from me on all the bonds in christendom john pierpont morgan 1913 the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

fat tax subsidy or both the role of information and children s pester power in food choice abstract using a discrete choice experiment with real economic incentives this paper studies how food fiscal policies and external influences such as pestering and information can affect parental choice of food for their child using pairs of a parent and child the experimental design varies the food prices of healthier and unhealthier alternatives of food products for children as part of specific food fiscal policies we then examine the interplay of children s pester power as well as information about the fiscal policies the results from our lab experiment suggest that a implementing a fat tax and a subsidy simultaneously can shift parental behavior to healthier food products to a greater degree than a fat tax or a subsidy alone b providing information regarding the food fiscal policies can further increase the impact of the intervention and c child pestering is one of the causes of the moderate effectiveness of the policies as it strongly affects parents in making unhealthier choices

international expected real interest rates new tests of the parity hypothesis and u s fiscal policy effects abstract this paper investigates the links among expected real interest rates across countries and also those between international expected real interest rates and u s fiscal policy we analyze the cross sectional mean of international ex post real interest rates as an estimator for the mean international expected real interest rate our results strongly reject the international expected real interest rate parity hypothesis reveal that u s budget deficits have no independent effects on international real rates given the impact of u s government defense spending and suggest that forces other than u s fiscal policy account for the post 1980 rise in international real rates

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

there goes gravity ebay and the death of distance we compare the effect of geographic distance on ebay and total international trade flows we consider the same 61 countries and basket of goods for both types of transactions we find the effect of distance to be on average 65 smaller on ebay we argue this difference is due to a reduction in search costs it increases with product differentiation and is higher when trade partners speak different languages when corruption in the exporting country is high and when uncertainty avoidance is high in the importing country moreover ebay s seller rating technology further reduces the distance effect on ebay

gender gap in peer to peer lending evidence from china abstract this paper documents and analyzes the gender gap in the online credit market using data from renrendai a leading peer to peer lending platform in china we show that lending to female borrowers is associated with better loan performance including a lower probability of default a higher expected profit and a lower expected loss than for their male peers however despite the higher creditworthiness we don t find any measurable gender impact on funding success rate meaning that female borrowers have to compensate lenders by providing higher profitability to achieve a similar funding probability these evidences indicate the existence of a gender gap that discriminate against female borrowers further analysis implies that this gender gap is independent of the amount of information disclosed by borrowers

sex and credit do gender interactions matter for credit market outcomes abstract this paper studies the effects of gender interactions on the supply of and demand for credit using data from a large albanian lender we document that first time borrowers assigned to officers of the opposite sex are less likely to return for a second loan the effect is larger when officers have little prior exposure to borrowers of the other gender and when they have more discretion to act on their gender beliefs as proxied by financial market competition and branch size we also find that first time borrowers matched with opposite sex officers pay higher interest rates and receive smaller and shorter maturity loans but do not experience higher arrears our results are consistent with the existence of a gender bias and learning effects that lead to the disappearance of the bias

testing for the lop under nonlinearity an application to four major eu pork markets this article develops an econometric procedure to test the validity of the law of one price lop under nonlinearity and to distinguish between its strong and its weak version the procedure is applied to four major eu pork markets using weekly prices from 1991 to 2008 the empirical results suggest that the markets are well integrated with deviations from the steady state price differentials corrected nonlinearly the lop is valid for all market pairs and for the pair germany spain it holds in its strong version

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking

tests of three parity conditions distinguishing risk premia and systematic forecast errors abstract this study provides evidence that uncovered interest differentials between currencies cannot be attributed to either risk premia or systematic forecast errors alone the evidence is based on developing joint tests of three parity conditions uncovered interest parity purchasing power parity and real interest parity the study tests parameter restrictions based on knowing that risk premiums only affect nominal and real interest differentials but not inflation differentials while systematic errors in forecasting exchange rates only affect nominal interest differentials and inflation differentials but not real interest differentials the study finds a variety of cases where deviations from some or all of the parity conditions can be systematically related to variables currently known to investors and borrowers the most intriguing evidence is that for some currencies these deviations from parity are perfectly correlated as if they were driven by a common factor

stature obesity and portfolio choice using multiple u s and european data sources we show that observed physical attributes are related to participation in financial markets specifically we find that individuals who are relatively tall and of normal weight are more likely to hold stocks in their financial portfolios we consider several potential mechanisms that could drive the relation between physical attributes and portfolio decisions we find that teenage social experiences as well as genetic and prenatal endowments that are fixed at birth are the two channels through which height affects financial decisions furthermore we find that the relation between body mass index and portfolio decisions is largely driven by education and race data as supplemental material are available at http dx doi org 10 1287 mnsc 2016 2508 this paper was accepted by wei jiang finance

the winner s curse reserve prices and endogenous entry empirical insights from ebay auctions internet auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce we examine a unique data set of ebay coin auctions to explore the determinants of bidder and seller behavior we begin by documenting a number of empirical regularities in our data set of ebay auctions next we specify and estimate a structural econometric model of bidding on ebay using our parameter estimates from this model we measure the extent of the winner s curse and simulate seller revenue under different reserve prices