the role and growth of new car leasing theory and evidence abstractthere has been substantial growth in rates of new car leasing over the last few decades building on recent theoretical research we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs but moral hazard limits its use in our model the prevalence of leasing is related to new car reliability which suggests that the recent growth in leasing is at least partly due to improvements in new car reliability we use this model to derive testable implications and then conduct an empirical analysis to investigate whether the operation of the new and used car markets is consistent with the predictions of this theoretical approach our empirical results support the theoretical predictions of our model in particular we provide direct evidence that leasing mitigates adverse selection and that an important factor in the growth in new car leasing rates has indeed been the growth of new car reliability

annual miles drive used car prices this paper investigates whether the net benefits from owning a vehicle proxied by annual miles driven explain the price declines observed over a vehicle s life we first model the household decision on how much to drive each of its vehicles then we empirically establish that variation in household annual miles across brands explains observed price declines furthermore the effect of vehicle age on annual miles decisions and consequently on market value depends on household characteristics and the composition of the vehicle stock owned

the debt overhang and the disincentive to invest abstract this paper is an attempt to explore the debt overhang hypothesis by an empirical examination of the investment experience of 13 severely indebted countries it begins with a discussion of the disincentive effect of debt overhang which is linked to some aspects of the adjustment measures that these countries are undergoing viz devaluation and reduction in public sector deficits this is followed by empirical analysis which demonstrates that first in countries with a debt overhang external debt captures many of the effects of other explanatory variables that traditionally explain investment second through 1971 1991 the relationship between external debt and investment is consistently a negative one however the first half of the period has strong time influences that exercise a positive influence on investment in the second half of the period time effects turn negative too thus explaining the fall in investment levels observed after 1982

sovereign debt and its restructuring framework in the eurozone debt is a particularly serious macroeconomic problem in the eurozone public debt ratios are high by international historical standards with no immediate prospect of a significant reduction private corporate and household debt ratios are either flat or rising banks remain fragile and impose a contingent liability on the public purse the most stressed economies have not had the option of renewing economic growth through exchange rate depreciation and a boost to exports thus fiscal austerity has been their principal instrument to achieve debt reduction but since austerity also hurts growth the debt to gdp ratios have barely budged persistent low growth has also created deflationary tendencies which further raise the challenge of debt reduction

leasing lemons and buybacks in his seminal article of 1970 akerlof argued that the used car market is not efficient because adverse selection causes too little trade we construct a competitive model of the new and used car markets and investigate the relationship between new car leasing and adverse selection our analysis yields a number of interesting results including that new car leasing reduces the adverse selection problem and that buybacks also increase efficiency in the secondhand market we also discuss alternative explanations for new car leasing and an explanation for the growth in new car leasing during the last fifteen years copyright 2003 by the rand corporation

sovereign debt structural adjustment and conditionality abstract the lack of a proper enforcement mechanism for sovereign debt generates a commitment failure as a result a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure formalizing this argument we show that conditionality helps the repayment of sovereign debt in certain circumstances it can eliminate debt overhang especially when it is coupled with concessionary lending of sufficient magnitude it is however unable to restore first best when it is anticipated by lenders conditionality may get international financial institutions and sovereign debtors into a trap where the debt overhang persist debt rescheduling takes place periodically and conditionality continues indefinitely

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

large external debt and slow domestic growth a theoretical analysis abstract this paper analyzes the optimal rescheduling strategy of lenders whose claims on a country show a discount on the secondary markets the paper shows that lenders should proceed as follows they should split the debt into two components a performing and a nonperforming part they should act as if the debt amounted to the performing part and scale down how much money the borrower should service on that part only as a result it is shown that the efficient servicing of the debt crowds in investment the paper relates this result to the debt overhang argument according to which too large a nominal claim may reduce investment and the market value of the debt

migration and the skill composition of the labour force the impact of trade liberalization in ldcs the purpose of this paper is to shed some light on the conditions under which trade liberalization in the developing countries is likely to cause an increase or a decrease in out migration we also examine the impact of trade liberalization on the skill composition of migration and of the labour force for this purpose we explicitly incorporate four additional features in the heckscher ohlin model heterogeneity of labour skills international migration migration costs and constraints on financing migration excerpt summary in fre

trade migration costs and asymmetric migration patterns increase in trade has an asymmetric impact on emigration by skill types for a developing country cost of migration is a dynamic function of the type of emigration and it determines a complementary relation between emigration of skilled workers and expansion of trade emigration of unskilled workers is a substitute however and these outcomes coexist with endogenously determined emigration rates that depend crucially on wage responses among the own skill types at the source additionally asymmetric emigration patterns increase wage inequality

the flat rental puzzle 4cars and replace them after 2 years or when their odometer exceeds 34 000 km this is a very costly 5 strategy caused by rapid depreciation in used car prices we show how economic theory predicts that 6 in a competitive market cars are rented out covering their full economic lifespan and rental prices are 7 a declining function of their odometer value our solution to these puzzles is that actual rental markets 8 are not fully competitive and firms may be behaving suboptimally we provide a case study of a large 9 car rental company that provided us access to its operating data we develop a model of the company s 10 operations that predicts that the company can significantly increase its profits by keeping its rental cars 11 twice as long as it currently does and also by discounting the rental cost of older vehicles to induce 12 its customers to rent them the company undertook an experiment to test our model s predictions 13 we report initial findings from this experiment which involved over 4500 rentals of over 500 cars in 14 4 locations over a 5 month period the results are consistent with the predictions of our model and 15 suggest that a properly chosen declining rental price function can increase overall revenues profits 16 also increase significantly since doubling the holding period of rental cars cuts discounted replacement 17 costs by nearly 40 18

mexico s investment collapse debt or oil abstract this paper tests three explanations for mexico s investment collapse in the early 1980s the oil price decline the termination of capital inflows and debt overhang uncertainty effects using previously ignored investment data on private sector industries the data consistently point to the importance of the rise in the relative price of investment goods driven in large part by falling world oil prices but the data also allow a role for the termination of capital inflows however after controlling for these effects the paper finds little evidence for debt overhang effects heightened uncertainty or other commonly cited explanations in the literature jel f34

debt relief investment and growth from 1989 to 2004 the donor community provided approximately 400 billion in debt relief to developing countries in an attempt to promote growth and reduce poverty using a sample of 118 developing countries this paper empirically assesses the impact of debt relief on growth via 1 resources made available for investment from reduced debt service payments and 2 improved incentives to invest from a reduced debt stock although the results show no general evidence of a growth effect from debt relief the study provides certain evidence that it promotes investment and thereby growth in countries not classified as hipcs

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

are lemons really hot potatoes abstract we model the hazard rate for car ownership spells our model allows us to distinguish among different types of adverse selection effects by observing the type of unobserved heterogeneity across owners of the same car our empirical results strongly suggest that there is a lemons effect because there is significant unobserved heterogeneity however they also suggest that the lemons effect is caused by the first owner rather than the manufacturer had the manufacturer created the lemon the unobserved heterogeneity would be positively correlated over all owners of a given car instead we observe a negative correlation between the unobserved heterogeneity term for the first owner and the unobserved heterogeneity term for subsequent owners

an analysis of rural urban migration and protection in this paper a harris todaro migration model is developed with the urban manufacturing sector supplying a crucial input for the rural sector capital is region specific but flows freely between two urban sectors final goods are traded and have exogenously fixed prices if this economy imposes a tariff on the import competing manufacturing sector employment might go down even if the protected sector is labour intensive the paper describes how intersectoral linkages can play a significant role in determining the employment effects of a tariff summary in fre excerpt

international outsourcing and the productivity of low skilled labor in the eu this article presents first insights into the role of international outsourcing on the productivity of low skilled workers in eu manufacturing whereas in the short run international outsourcing exhibits a negative marginal effect on real value added per low skilled worker the long run parameter estimates reveal a positive impact this may be explained by imperfections in european labor and goods markets which prohibit an immediate adjustment in the factor employment and the output structure the change in the outsourcing intensity since 1993 alone acounts for a long run increase of about 6 0 in the real value added per low skilled worker jel c33 f14 f15

dynamics and equilibrium in a structural model of wide body commercial aircraft markets summary this paper develops and estimates a dynamic equilibrium model of the market for new and used commercial aircraft the model is estimated by maximum simulated likelihood using data on wide body aircraft owners and prices for transactions occurring 1978 1997 the importance of explicitly modeling dynamics and equilibrium in new and used markets for durable goods is illustrated in two counterfactual experiments estimates of the structural model are used to show that implementing an investment tax credit not only increases demand for new wide body aircraft by the airlines that receive the tax credit but also increases the number of new wide body aircraft owned by airlines not directly affected by the policy further the model indicates that a policy which improves the efficiency of secondary markets for used wide body aircraft will also stimulate demand for new wide body aircraft copyright 2010 john wiley sons ltd

multilateral indexed loans and debt sustainability we evaluate the benefits and costs of indexing multilateral loans to variables related to developing countries ability to pay i e whether a reform of multilateral lending is feasible and eco nomically justified the analysis covers 40 international development association ida countries from 1990 to 2010 and focuses on three types of debt gdp indexed loans export indexed loans infla tion indexed loans denominated in local currency the insurance that indexed debt might offer against macroeconomic shocks depends on the conditional covariances of gdp growth real exchange rate depreciation and net exports that we estimate as the covariances of the forecast errors obtained from a vector autoregression var model the analysis shows that both gdp indexed loans and inflation indexed local currency loans would help to stabilize the debt ratio of the majority of ida countries in our sample however the adverse policy incentives created by local currency debt tends to favour gdp indexed debt the cost of indexation would be small the estimation of a capital asset pricing model capm suggests that loans indexed to gdp could be introduced at current interest rates since the estimated risk premium is less than 1 per cent any additional risk for multilateral lenders would be more than offset by a lower frequency of debt crises

imf conditionality as a screening device a theoretical model is developed in which adoption of an imf programme signals a country s productivity it is assumed that there are two types of country one with a high return on investment and the other with a low return the country s type is known only to itself in the presence of a debt overhang the high productivity country may choose not to undertake the investment despite it being socially efficient to do so in this case the creditor would like to offer the country some debt reduction but the low productivity type will also benefit from the debt reduction this problem can be avoided if the country has sufficient resources to engage in a debt buyback in order to gain the debt relief only the high productivity type would be prepared to sacrifice current resources for the debt reduction and thus a separation of the types is achieved this is similar to an argument found in acharya and diwan 1993 we argue however that it is unlikely that a heavily indebted country will have sufficient resources for a buyback if the country is credit constrained an alternative screening mechanism is to undertake an imf programme in return for debt reduction and possibly an imf loan this mechanism can be the equilibrium outcome even if the programme creates only disutility for the country s policy makers

ida grants and hipc debt cancellation their effectiveness and impact on ida resources abstract ida is in trouble the world bank s long term plans presume that ida will need all the loan repayments currently scheduled just to keep its program from shrinking in future decades yet the ida grant and hipc debt reduction programs are cutting the flow of repayments foreshadowing major future cuts in ida aid unless the donor countries agree on a plan to offset those costs poor countries will suffer meanwhile the efficiency and effectiveness of the grant and debt cancellation programs have been seriously questioned these programs are evaluated and changes in the bank s future plans for ida are proposed

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

globalization brain drain and development this paper reviews four decades of economics research on the brain drain with a focus on recent contributions and on development issues we first assess the magnitude intensity and determinants of the brain drain showing that brain drain or high skill migration is becoming a dominant pattern of international migration and a major aspect of globalization we then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels the recent empirical literature shows that high skill emigration need not deplete a country s human capital stock and can generate positive network externalities three case studies are also considered the african medical brain drain the exodus of european scientists to the united states and the role of the indian diaspora in the development of india s information technology sector we conclude with a discussion of the implications of the analysis for education immigration and international taxation policies in a global context

adverse selection in insurance markets policyholder evidence from the u k annuity market in this paper we investigate the importance of adverse selection in insurance markets we use a unique data set consisting of all annuity policies sold by a large u k insurance company since the early 1980s to analyze mortality differences among individuals who purchased different types of policies we find systematic relationships between ex post mortality and annuity policy characteristics such as whether the annuity will make payments to the estate in the event of an untimely death and whether the payments from the annuity rise over time these mortality patterns are consistent with the presence of asymmetric information in the annuity market we find no evidence of substantive mortality differences however across annuities of different size even though models of insurance market equilibrium with asymmetric information would predict such differences we also find that the pricing of various features of annuity contracts is consistent with the self selection patterns we find in mortality rates our results therefore suggest that selection may occur across many specific features of insurance contracts and that the absence of selection on one contract dimension does not preclude its presence on others this highlights the importance of considering the detailed features of insurance contracts when testing theoretical models of asymmetric information

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

quality differentials and prices are cherries lemons in g a akerlof s market for lemons goods of differential qualities sell under the same standard if no price differentials exist then the low quality goods drive out the high quality goods in cherry markets heterogeneous lots of cherries sell within the same market standard at the time of sale buyers know only the market standard since different qualities sell under the same standard the potential for lemons exists if buyers cannot identify different qualities the authors theoretical and empirical models suggest seller characteristics signal quality to buyers and buyers pay premiums to firms with these characteristics thus cherries are not lemons copyright 1991 by blackwell publishing ltd

sovereign default and the sustainability risk premium effect abstract we analyze the joint determination of interest rate risk and debt sustainability for governments with fiscal imbalances because higher interest rates imply increased debt services they worsen the government s financial situation and increase the probability of sovereign default thus higher interest rates eventually lead to a decrease in the real demand for government bonds which imposes an additional constraint on government debt sustainability

pricing growth indexed bonds abstract growth indexed bonds have been suggested as a way of reducing the procyclicality of emerging market countries fiscal policies and the likelihood of costly debt crises investor attitude surveys suggest that pricing difficulties are seen as a considerable obstacle in an effort to reduce such concerns this article presents a simple way of pricing growth indexed bonds as a pleasant by product the analysis tracks the quantitative implications of an increase in the share of growth indexed bonds in total debt measuring the ensuing decline in the probability of default and the reduction in the spreads at which standard bonds can be issued

financing vs forgiving a debt overhang abstract this paper examines the tradeoffs facing creditors of a country whose debt is large enough that the country cannot attract voluntary new lending if the country is unable to meet its debt service requirements out of current income the creditors have two choices they can finance the country lending at an expected loss in the hope that the country will eventually be able to repay its debt after all or they can forgive reducing the debt level to one that the country can repay the post 1983 debt strategy of the imf and the us has relied on financing but many current calls for debt reform call for forgiveness instead the paper shows that the choice between financing and forgiveness represents a tradeoff financing gives the creditors an option value if the country turns out to do relatively well creditors will not have written down their claims unnecessarily however the burden of debt distorts the country s incentives since the benefits of good performance go largely to creditors rather than itself the paper also shows that the tradeoff itself can be improved if both financing and forgiveness are made contingent on states of nature that the country cannot affect such as oil prices world interest rates etc

economic reform and informal wage a general equilibrium analysis abstract we attempt to trace the consequences of liberal economic policies on informal wage in a general equilibrium model with formal informal labor markets wage differential vertical linkage and restricted capital movement in particular we show that the informal wage representing income for a vast segment of unskilled labor may actually increase even if more people are employed in the informal segment this also confirms that a contraction in the formal sector employment and the consequent expansion in the informal segment do not necessarily imply impoverishment of the existing set of informal workers

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

adverse selection in durable goods markets we present a dynamic model of adverse selection to examine the interactions between new and used goods markets we find that the used market never shuts down the volume of trade can be large and distortions are lower than previously thought new cars prices can be higher under adverse selection than in its absence an extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection unreliable brands have steeper price declines and lower volumes of trade we contrast these predictions with those of a model where brands physically depreciate at different rates

emigration and wage inequality abstract we look at the implications of labor emigration from a small open economy on pre existing wage gap between the skilled and the unskilled unskilled emigration may worsen the wage gap whereas skill emigration can reduce wage inequality although absolute wages increase with emigration

the fiscal impact of high skilled emigration flows of indians to the u s abstract what are the fiscal consequences of high skilled emigration for source countries this paper develops methodologies for inferring these consequences and applies them to the recent sizable emigration of high skilled workers from india to the u s this wave of emigration from india to the u s is shown to be unusually concentrated amongst the prime age work force the highly educated and high earners in order to calculate the fiscal losses associated with these emigrants estimates of their counterfactual earnings distributions are generated using two distinct methods and integrated with a model of the indian fiscal system to calculate fiscal consequences conservative estimates indicate that the annual net fiscal impact to india of high skilled emigration to the u s is one half of 1 of gross national income or 2 5 of total fiscal revenues the sensitivity of these results to the method of predicting counterfactual incomes and the implications of these estimates for other developing countries is discussed in detail

revisiting the bi directional causality between debt and growth evidence from linear and nonlinear tests abstract we revisit the bi directional causality between public debt and the rate of gdp growth for 10 emu countries alongside the us uk and japan over sample periods spanning from 1970 up to 2014 whilst accounting for the nonlinear properties of both the individual time series and their relation in both directions our results indicate that the causal relation between debt and growth in either direction is weak at best for most of the countries in our sample we find no robust evidence of a long run causal effect using bi variate granger causality tests bi directional causality is detected only for austria while for france luxembourg and portugal causality runs solely from debt to growth but the estimated effects are very small in finland spain and italy granger causality from growth to debt in the former two and debt to growth in italy appears to be present in the short run our findings cannot be taken as evidence that a high level of public indebtedness is not risky for the economy or as invalidating hypotheses postulating effects in either direction in the relation between debt and growth

financial determinants of domestic investment in sub saharan africa evidence from panel data abstract this study investigates the effects of financial development on domestic investment in a sample of 30 sub saharan african countries it is based on a dynamic serial correlation investment model including various indicators of financial development controlling for country specific fixed effects and nonfinancial factors of investment the results indicate a positive relationship between domestic investment total investment and private investment and various indicators of financial development higher financial development leads to higher future levels of investment implying a potent long run effect of financial development on domestic investment the findings imply that financial development can stimulate economic growth through capital accumulation

possibility or impossibility of paradoxes in the small country harris todaro framework a unifying analysis abstract in this paper we argue that the harris todaro ht framework sometimes satisfies an envelope property which makes it work like a full employment heckscher ohlin samuelson hos model then the ht structure produces very similar results as one gets in the standard hos framework differences arise because the envelope condition may break down we show how several celebrated results in the ht structure can have this reinterpretation