do firms engage in risk shifting empirical evidence i empirically test whether firms engage in risk shifting contrary to what risk shifting theory predicts i find that firms reduce investment risk when they approach financial distress to identify the effect of distress on risk taking i use a natural experiment with exogenous changes to leverage risk reduction is most prevalent among firms that have shorter maturity debt bank debt and tighter bank loan financial covenants these findings suggest that debt composition and financial covenants serve as important mechanisms to mitigate debt equity agency conflicts such as risk shifting that are not explicitly contracted on received january 8 2015 accepted may 27 2016 by editor david denis

the trade effects of antidumping duties evidence from the 2004 eu enlargement abstract this paper exploits the 2004 eu enlargement as a natural experiment to estimate the effects of antidumping ad duties on import prices and quantities the automatic extension of eu ad policy to new member states following their accession is exogenous to new members trade shocks using this source of variation the paper shows that on average ad duties raise producer prices of targeted exporters however import prices from countries with non market economy status nmes notably china remain unchanged while quantities fall more strongly this is in line with expectations as the eu applies special rules to nmes countries the trade dampening effects of ad duties persist over time moreover the duties appear to induce exporters from non targeted countries to increase their prices

investment and financing activity following calls of convertible bonds abstract the staged financing hypothesis of mayers mayers d 1998 why firms issue convertible bonds the matching of financial and real investment options journal of financial economics 47 83 102 predicts that investment and financing activity will increase following in the money convertible bond calls the prediction for out of the money convertible calls is different no increase is expected we study the rate of both corporate investment and external financing around forced conversions using benchmarks that are analogous to those recommended by barber and lyon barber b lyon j 1996 detecting abnormal operating performance the empirical power and specification of test statistics journal of financial economics 41 359 400 we also examine the cross section of changes in investment and financing activity conversion forcing firms exhibit an increase in both capital expenditures and debt financing around the year of the convertible bond call however the same result holds for the sample firms that conducted out of the money convertible calls further there is no relation between changes in investment activity and changes in debt issuance at the firm level the evidence is inconsistent with the notion that forced conversions serve as a catalyst for staged financing and investment

the impacts of international migration on remaining household members omnibus results from a migration lottery program this brief summarizes the results of a gender impact evaluation study entitled the impacts of international migration on remaining household members omnibus results from a migration lottery program conducted in 2002 in tonga the study observed the impact of migration lottery program on the remaining household members of tongan emigrants on the individual and intra household level income falls rapidly by 22 to 25 percent with a rise in remittances failing to offset a large fall in labor earnings ownership of livestock durable and access to financial services is lower for the remaining household members diets change to be less nutritious and more rice and root crops immigration has a negative impact on household size there is no significant impact of migration on labor supply for men nor women funding for the study derived from the world bank stanford university the waikato management school and mardsen fund

u s trade remedy law and agriculture trade diversion and investigation effects we study u s agricultural antidumping and countervailing duty cases from 1980 to 2005 and gauge the effectiveness of trade remedy law as a form of protection the purpose is to measure the resulting investigation and trade diversion effects previous research on trade in manufactured products has shown that the domestic protection offered by ad and cv duties is largely offset by trade diversion in contrast we find that for agriculture trade diversion is relatively unimportant so ad and cvd cases are very effective forms of protection for u s agriculture les auteurs etudient les cas de tarifs antidumping et de tarifs compensatoires dans l agriculture aux etats unis entre 1980 et 2005 et evaluent l efficience de cette forme de protection l objectif est de mesurer les effets resultant des enquetes et de la diversion de commerce des etudes anterieures sur le commerce de produits manufacturiers ont montre que la protection offerte par ces mesures antidumping et compensatoires etait largement contrebalancee par la diversion de commerce a contrario il appert qu en agriculture la diversion de commerce est relativement peu importante voila qui fait que les mesures antidumping et compensatoires sont des formes de protection efficientes pour l agriculture americaine

migration and child growth in rural guatemala this paper examines the relationship between migration and child growth in the rural highlands of guatemala a region with substantial international migration outflows significant remittance inflows and some of the highest rates of child undernutrition in the world using cross sectional survey data a double difference approach based on child growth patterns that controls for the selectivity of migration is used to assess the impact of migration to the us on height for age z haz scores and stunting prevalence of children haz scores for children in households with a migrant to the us are conservatively estimated to be 0 5 standard deviations higher and the prevalence of stunting is approximately 6 percentage points lower descriptive evidence suggests the possible channels through which migration may operate are improved food security and reduced morbidity

how important is selection experimental vs non experimental measures of the income gains from migration measuring the gain in income from migration is complicated by non random selection of migrants from the general population making it difficult to obtain an appropriate comparison group of non migrants this paper uses a migrant lottery to overcome this problem providing an experimental measure of the income gains from migration new zealand allows a quota of tongans to immigrate each year with a lottery to choose among the excess number of applicants a unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration by comparing the incomes of migrants to those who applied to migrate but whose names were not drawn in the lottery after allowing for the effect of non compliance among some of those whose names were drawn the authors also conducted a survey of individuals who did not apply for the lottery comparing this non applicant group with the migrants enables assessment of the degree to which non experimental methods can provide an unbiased estimate of the income gains from migration they find evidence of migrants being positively selected in terms of both observed and unobserved skills as a result non experimental methods are found to overstate the gains from migration by 9 to 82 percent a good instrumental variable works best while difference in differences and bias adjusted propensity score matching also perform comparatively well

childhood obesity in mexico the effect of international migration this article estimates the effect of international migration from mexico to the united states on the obesity status of children who remain in mexico theory suggests that increased liquidity as well as changing time allocations resulting from migration may influence obesity outcomes natural disasters are used as an identification strategy results suggest that older boys in urban areas are more likely to become obese when either a male or female migrates from the household while girls in urban areas are less likely to become obese both changes in food expenditure patterns and time use changes after migration are likely pathways that affect childhood obesity while there are some changes in food expenditures we find more importantly that urban girls engage in more housework and screen time after migration whereas urban teen boys do not substitute for adult work as much as girls these changes in strenuous activities particularly for girls likely explain the differential effect that migration has on boys and girls obesity outcomes in mexico

warrant exercise and bond conversion in competitive markets abstract we develop a theory of warrants held by competitive warrantholders not constrained to exercise their warrants as one block the theory also applies to convertible bonds held by competitive bondholders not constrained to convert their bonds as one block we prove that the warrant bond price in each of the competitive equilibria is less than or equal to the price in an economy with the block constraint and for at least one competitive equilibrium the warrant bond price equals the warrant bond price in the block constrained economy we illustrate the paths of competitive warrant exercise and bond conversion and conclude that under realistic assumptions they can be long

perquisites risk and capital structure in a corporate agency problem perquisites and risk interact to produce novel complex comparative statics for example even if additional debt induces risk neutral insiders to increase risk they never seek to increase the market value of their stock instead insiders decrease the present value of their subsequent conditionally optimal perquisites also the firm s optimal capital structure includes a risky bond with an agreement to remove insiders whenever the bond defaults however the optimal sharing rule between corporate claimants cannot be supported solely by standard securities such as bonds stocks options and their hybrids

what happens to diet and child health when migration splits households evidence from a migration lottery program the impact of migration on food security and child health is likely to differ depending on whether children themselves migrate or whether they remain behind while other household members migrate however existing studies have not been able to examine how impacts differ in these two scenarios because parallel data are required for both the sending and receiving country moreover self selection into migration makes unbiased estimation of either impact difficult we overcome these problems by using a unique survey of tongan households that applied to migrate to new zealand through a migrant quota which selects households through a random ballot this survey covers both migrant children in new zealand and non migrant children in tonga with the migration policy rules providing a source of exogenous variation for identifying impacts our estimates of short run impacts show that diets diverge upon migration children who migrate experience improvements while diets worsen for children who remain there is also suggestive evidence of a divergence in health outcomes with increases in weight for age and height for age found for migrant children and decreases found for children who remain behind while other household members migrate

dependability and organizational bankruptcy an application of agency and prospect theory this paper proposes and tests a new model of organizational bankruptcy based on agency and prospect theory the paper argues that debtors with unprestigious top managers low liquidity and high leverage signal that they will be undependable exchange partners the model proposes that survival is contingent on maintaining an acceptable minimum level of these financial and managerial assets if a firm falls below that threshold level it has a higher probability of bankruptcy because creditors withdraw their financial support from the debtor consistent with agency theory this implies that bankruptcy can be viewed as the legal resolution of severe shareholder creditor conflicts about the levels of financial and managerial assets that the debtor should maintain this new model proposes that maintaining a minimum level of these assets is a necessary but not sufficient condition for bankruptcy some undependable firms delay bankruptcy by using strategies that create the hope that they will become dependable in the future according to prospect theory these strategies work because creditors wish to avoid recognizing significant losses and thus take on more risk than they might otherwise assume

stature and the standard of living research on the standard of living now emphasizes alternatives or supplements to the national income accounts this paper reviews the results of two decades of research using stature as a measure of health aspects of human welfare after comparing and contrasting stature with per capita income i consider height patterns discovered by economic historians that challenge traditional beliefs about the past including long term trends cycles in heights and the dreadfully small stature of slave children that was followed by catch up growth the paper concludes with comparisons to work in development economics and suggestions for research

on the resolution of agency problems by complex financial instruments a comment a convertible debt or b a package of external equity and managerial stock options ii the agency problems resulting from the shareholders incentive to bear unwanted risk also referred to as risk shifting can be resolved by issuing callable debt and iii welfare loss due to informational asymmetry between insiders and the market can be reduced by issuing callable debt in this paper we derive results that contradict these conclusions of bhs and hs we prove that convertible debt cannot costlessly resolve the agency problem due to excessive perquisite consumption farmer and winter 4 have recently shown that managerial stock options cannot resolve the problem we also show that convertible debt in general does not even mitigate this problem next we show that the argument that callable debt resolves agency problems due to risk shifting and informational asymmetry is incomplete the paper is organized as follows section i deals with the perquisite consumption problem section ii deals with both risk shifting and informational asymmetry problems since the basis of their resolution in the bhs argument is the same

the impact of contingent liability on commercial bank risk taking abstract from 1863 1935 regulators imposed contingent liability on bank shareholders to discourage risk taking using data from 1900 to 1915 i find that banks subject to stricter liability rules have lower equity and asset volatility hold a lower proportion of risky assets and are less likely to increase their investment in risky assets when their net worth declines consistent with the hypothesis that stricter liability discourages commercial bank risk taking these findings provide lessons for current bank regulatory policy and show that the shape of the residual claimant s payoff function has a significant impact on managerial incentives and firm performance

anti dumping measures as a tool of protectionism a mechanism design approach in this paper we explore the design of optimal incentive compatible anti dumping ad measures when the weight given to the domestic firm s profit in the government s objective function is relatively small it is shown that no ad duty should be imposed if the foreign firm reports its own costs but a constant ad duty should be imposed if the domestic firm reports the foreign firm s cost when this weight is large in either case of reporting the ad duty is a prohibitive tariff the optimal ad measures are modified in the presence of a gatt wto constraint jel classification f12 f13 les mesures anti dumping en tant qu outil de protectionnisme une approche en termes de construction de mecanismes ce memoire examine la construction de mesures optimaales anti dumping ad quandla valence des profits de la firme domestique est faible dans la fonction objective du gouvernement on peut montrer qu aucune mesure ad ne devrait etre imposee si l entreprise etrangere revele ses propres couts mais qu un droit ad constant devrait etre impose si c est la firme domestique qui revele les couts de l entreprise etrangere quand la valence des profits de la firme domestique est grande quelle que soit la source de l information la mesure ad qui s impose est un droit de douane prohibitif les mesures optimales doivent evidemment etre modifiees pour prendre en compte la contrainte engendree par l existence des regles du gatt omc

a theory of mandatory convertibles abstract the objective of this paper is to develop a theoretical analysis of mandatory convertibles which are securities that automatically mandatorily convert to common stock on a pre specified date we consider a firm facing a financial market characterized by asymmetric information and significant costs in the event of financial distress the firm can raise capital either by issuing mandatory convertibles or by issuing more conventional securities like straight debt ordinary convertibles or equity we show that in equilibrium the firm issues straight debt or ordinary convertibles if the extent of asymmetric information facing it is large but the probability of being in financial distress is relatively small it issues mandatory convertibles if it faces a smaller extent of asymmetric information but a greater probability of financial distress our model provides a rationale for the three commonly observed features of mandatory convertibles mandatory conversion capped or limited capital appreciation and a higher dividend yield compared to common stock we also characterize the equilibrium design of mandatory convertibles

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

anti dumping what are the numbers to discuss at doha while tariff barriers have decreased worldwide through various gatt rounds anti dumping has surged to play a crucial role as the most important non tariff barrier after much debate and opposition anti dumping is on the agenda of the doha round of multilateral trade negotiations and it is one of the most important issues especially for developing countries as they are the main targets of this policy instrument with this prospect it is important to assess the relevance of anti dumping not only by focusing on traditional users but by analysing the experience of new users which are now major players in the field this paper improves upon existing studies by providing a comprehensive assessment on the use of anti dumping first data on the time pattern of worldwide implementations of anti dumping laws are presented this time profile shows interesting relationships with legal developments in gatt and wto dispositions second usual sources of data are complemented with various other sources this allows the inclusion of recent heavy users like china russia taiwan and ukraine which are ignored in similar studies but important for their trade volumes this enlarged and updated dataset shows that new users are even more important than previously thought with implications for the doha negotiations

economic status and health in childhood the origins of the gradient the well known positive association between health and income in adulthood has antecedents in childhood not only is children s health positively related to household income but the relationship between household income and children s health becomes more pronounced as children age part of the relationship can be explained by the arrival and impact of chronic conditions children from lower income households with chronic conditions have worse health than do those from higher income households the adverse health effects of lower income accumulate over children s lives part of the intergenerational transmission of socioeconomic status may work through the impact of parents income on children s health

excessive risk taking and the maturity structure of debt abstract this paper analyses the effect of short term debt on equityholders risk taking decisions we show that if short term debt limits the expropriation of debtholders it also implies a lower leverage which prevents the firm from increasing tax shields we then examine the incentive of equityholders to increase the firm risk when debtholders hold the option to swap a perpetual coupon bond with short term debt we find that this option mitigates equityholders risk shifting incentives compared to standard short term debt this restructuring option deters debtholders expropriation it increases leverage and it reduces the loss in tax shields due to asset substitution

trade deflection and trade depression this is the first paper to empirically examine whether a country s use of an import restricting trade policy distorts a foreign country s exports to third markets we first develop a theoretical model of worldwide trade in which the imposition of antidumping and safeguard taris or trade remedies by one country causes significant distortions in world trade flows we then empirically test this model by investigating the eect of the united states use of such import restrictions on japanese exports of roughly 4800 products into 37 countries between 1992 and 2001 our estimation yields evidence that us restrictions both deflect and depress japanese export flows to third countries imposition of a us antidumping measure against japan deflects trade as the average antidumping duty on japanese exports leads to a 5 7 increase in japanese exports of the same product to the average third country market the imposition of a us antidumping measure against a third country depresses trade as the average us duty imposed on a third country leads to a 5 19 decrease in japanese exports of that same product to the average third country s market we also document the substantial variation in trade deflection and trade depression across dierent importing countries and exported products

the impact of immigration on child health experimental evidence from a migration lottery program this paper uses a unique survey designed by the authors to compare migrant children who enter new zealand through a random ballot with children in the home country of tonga whose families were unsuccessful participants in the same ballots the authors find that migration increases height and reduces stunting of infants and toddlers but also increases body mass index bmi and obesity among 3 to 5 years old these impacts are quite large even though the average migrant household has been in new zealand for less than 1 year additional results suggest that these impacts occur because of dietary change rather than direct income effects

agricultural export dumping the case of mexican winter vegetables in the u s market this paper examines the 1978 agricultural dumping charge brought by florida winter vegetable producers against mexican growers it discusses fair value in the context of three antidumping criteria prices at home and abroad selling below cost of production and third market test the u s department of commerce found in favor of the mexican producers by using the third market test a test which leads to ambiguous results it is the authors contention that the law should be changed so that future cases can be decided on a normal business practice concept accounting for production and costing decisions unique to highly perishable products

managed trade the us mexico sugar suspension agreements under the 1994 north american free trade agreement mexican sugar producers were ultimately granted free access to the us sugar market while all other suppliers including us refiners were subject to supply quotas following a surge in imports of mexican sugar the american sugar coalition initiated anti dumping and countervailing duty adcvd proceedings against mexico in early 2014 in december 2014 the adcvd cases were halted as a result of two suspension agreements negotiated between the us and mexico this paper contributes to a small number of empirical studies that have estimated the impact of suspension agreements we measure the impacts of the adcvd filings and the suspension agreements on us domestic raw and refined prices the raw to refined margin and the quantity and composition of sugar imports from mexico results suggest us raw sugar prices increased by 3 per lb 14 under adcvd proceedings equivalent to an ad valorem tariff between 40 and 50 while the suspension agreements increased us raw sugar prices by 5 70 tariff equivalent us refined sugar prices increased by similar amounts under the adcvd proceedings and the suspension agreements 4 5 per lb ultimately both the adcvd proceedings and the suspension agreements significantly reduced sugar imports from mexico us sugar refiner economic welfare hinges critically on the quantity and composition of raw sugar imports as such refiner revenue following the adcvd filings and suspension agreements is estimated to have declined by 16 relative to a free trade environment

informative conversion ratios a signalling approach the paper uses a signalling equilibrium to explain the market s reaction to the announcement of a firm s financing decision in our model a firm can issue one of the following securities convertible debt with a different conversion ratio straight debt and stock we identify conditions under which the conversion ratio of a convertible debt issue serves as a credible signal of a firm s private information given the continuous distribution of attributes information across firms in this signalling equilibrium we find that the lower the expected future earnings the higher the conversion ratio of a convertible debt issue at the limit firms that expect the highest earnings will use straight debt financing and firms that expect the lowest earnings will use equity financing based on the signalling equilibrium we predict that at announcement of a convertible debt issue negative abnormal common stock return increases in absolute value with the conversion ratio

the role of price risk in china s agricultural and fisheries exports to the us abstractthis article explores the effect of price risk on the us importers optimal allocation of agriculture imports between the major supplier china and other competing countries we first modify a demand system to account for the impacts of own price risk and cross price risk and then apply the model to 16 agricultural and fisheries commodities exported to the us the estimation results show that importers are sensitive to price risks of 14 chinese commodities comparisons between price risk trade relations of agricultural and fisheries products and between trade effects of cross price risk on chinese goods and substitutes provide strong evidence for explaining the observed trade patterns our study highlights the importance of price stability in promoting international trade especially from developing countries to developed countries

the rise and demise of the convertible arbitrage strategy this article analyzes convertible arbitrage one of the most successful hedge fund strategies the aim of the strategy is to exploit underpricing of convertible bonds by taking a long position in a convertible and a short position in the underlying asset the authors find that convertible bonds are underpriced at the issuance dates at the same time short sales of underlying equity increase significantly both effects are stronger and more persistent for equity like convertibles than for debtlike convertibles furthermore short sale pressures negatively affect stock returns around the announcement and issuance dates of convertibles all these factors have likely contributed to the shift toward issuing more debtlike convertibles in recent years which in turn has substantially lowered the returns from convertible arbitrage

dumping on free trade the u s import trade laws the passage of the uruguay round trade agreement represents a natural opportunity for us to review the policy goals of the us import trade laws to assess how well current laws achieve those objectives and to explore possible reforms we argue that there are a variety of policy concerns that militate for a circumscribed set of import trade statutes the relevant us laws however have largely become divorced from such national welfare considerations and are now too often a mechanism for furtive protectionism the uruguay round effected some marginal improvements but left the fundamental structure of the laws unchanged we discuss possible reforms in the final selection of the paper

trade remedy actions in nafta agriculture and agri food industries the economic rationale for trade remedy law while always weak is undermined by the formation of free trade areas however due to political pressure first cusfta and then nafta have continued the use of domestic antidumping and countervailing duty laws with the lowering of border protection it was feared that there would be an explosion of trade remedy law as nafta was implemented this article examines data on the use of anti dumping and countervailing duty investigations in agriculture and analyses the incidence between nafta partners before and after the implementation of free trade and compared to the incidence with other countries given the cost of current ad and cvd suits options are explored for alternative methods to resolve ad and cvd suits evaluation of options hinges on goals held for dispute resolution within nafta given continued political opposition to eliminating ad and cvd processes increasing the options for resolving these suits may reduce their overall costs

welfare costs of the u s antidumping and countervailing duty laws abstract the antidumping ad and countervailing duty cvd laws in the united states have become the most pervasive form of import relief sought by domestic producers this paper estimates the collective economic effect of the hundreds of active u s ad cvd orders using a computable general equilibrium model we estimate that the collective net economic welfare cost in 1993 of these orders to be 4 billion this welfare estimate is sensitive to various modeling assumptions which are explored in the paper with the implementation of the uruguay round agreements the ad cvd laws remain one of the costliest programs restraining u s trade

antidumping investigations and the pass through of antidumping duties and exchange rates comment well in excess of 100 percent based on their understanding of the us antidumping calculation however the hypothesis is based on an incorrect understanding of the antidumping calculation under us law when corrected for this error the hypothesis would lead to a prediction of simple 100 percent pass through at most dumping refers to selling a product in an export market at less than its normal value a benchmark that is most commonly based on sales in the domestic market of the same product antidumping laws set tariffs to offset the amount of dumping the excess of normal value over export price in us practice a dumping complaint is brought on behalf of an industry against rival imports with the cases defined by product and by country a successful case results in the potential imposition of antidumping duties over and above any normal tariffs an unsuccessful case results in no duties being imposed american antidumping law and practice have the somewhat unusual characteristic that anti dumping duties are estimated and used to set duty deposits for a forward looking period in an initial investigation then are recalculated and actually assessed for the same period now back ward looking in a later review with some variation the later review is typically completed about two years after the initial investigation the review sets a new deposit rate and a second review determines the actual assessment rate retrospectively this can be repeated indefinitely the ini tial duty estimate resulting in a deposit rate allows companies to modify their pricing behavior so as to affect the actual dumping duties that are later assessed blonigen and haynes exploit this characteristic of the us administration of its antidump ing law to examine the effects of the imposition of antidumping duties on the pass through to us pricing the dumping investigation and resulting deposit rate provide information that the company can use in its subsequent sales in order to reduce or eliminate its dumping liability in the eventual review by comparing the antidumping deposit rates with eventual us pricing the degree of pass through of antidumping deposits can be estimated and the effects on exchange rate pass through of a potential antidumping dumping duty can be studied here i focus on the factual underpinnings that lead to blonigen and haynes s pricing model rather than the empirical results that model predicts that the method by which the us department of commerce usdoc calculates ad duties will lead to pass through of estimated antidump ing duties at twice the level of those estimated duties if companies wish to eliminate the eventual dumping duties by studying the outcomes of a series of ad cases concerning steel from canada they conclude that pass through of estimated duties exceeds 160 percent broadly consistent with

chinese firm and industry reactions to antidumping initiations and measures china has been the subject of large numbers of both antidumping initiations and measures this article explores the reactions of chinese firms and industries to these actions by using dynamic system gmm estimator and industrial panel data on all chinese firms in the industry foreign firms operating within china and state owned enterprises soes for aggregated firms group between 1997 and 2007 we find that antidumping actions by developed and developing countries negatively impact industrial profits and employee and firm numbers and also exports but improve labour productivity we also find that different kinds of firms show different responses all firms together in an industry react to antidumping the most and foreign and soe firms show a much smaller response further antidumping effects from different countries are different developed countries antidumping actions have more negative impact than developing countries actions the effects of us actions are different from the european union s

income maximization and the selection and sorting of international migrants abstract two prominent features of international labor movements are that the more educated are more likely to emigrate positive selection and more educated migrants are more likely to settle in destination countries with high rewards to skill positive sorting using data on emigrant stocks by schooling level and source country in oecd destinations we find that a simple model of income maximization can account for both phenomena results on selection show that migrants for a source destination pair are more educated relative to non migrants the larger is the absolute skill related difference in earnings between the destination country and the source results on sorting indicate that the relative stock of more educated migrants in a destination is increasing in the absolute earnings difference between high and low skilled workers we use our framework to compare alternative specifications of international migration estimate the magnitude of migration costs by source destination pair and assess the contribution of wage differences to how migrants sort themselves across destination countries

corporate liquidity and capital structure we solve for a firm s optimal cash holding policy within a continuous time contingent claims framework using dividends short term borrowing and equity issues as controls assuming mean reversion of earnings optimal cash is non monotone in business conditions and increasing in the level of long term debt the model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature firm value is quite insensitive to changes in the level of long term debt the model has interesting implications for asset substitution hedging and pecking order growth opportunities do not greatly affect cash holding policy

on the resolution of agency problems by complex financial instruments a reply not always possible to design callable debt to resolve the problem of risk shifting and to mitigate the problem of asymmetric information moreover he incorrectly argues that the rationalization of complex financial contracting as a means of resolving or reducing agency conflicts falls merely because it fails to succeed in every case we feel that narayanan s confusion stems from his misreading of the two underlying articles 2 5 and the original work including chapter 6 of our book 1 consequently we shall reproduce the relevant quotations from the original work by way of responding to the issues raised regarding the three types of complex securities namely executive stock options convertible debt and callable debt

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

the pricing of convertible debt offerings abstract we present the first empirical evidence on the pricing of convertible debt offerings using a sample of 91 convertible debt offerings from the period 1988 1992 we show a significant mean initial excess return of 1 11 our underpricing result is invariant to zero nonzero coupons maturity issue size or bond ratings further analysis reveals that various types of risk inherent in the new convertible issues are useful in explaining the cross sectional variation in the initial excess returns we offer an explanation for our results based on the arguments of the differential information model

evolving discretionary practices of u s antidumping activity using data on u s dumping margin calculations by the u s department of commerce usdoc we first document the rapid rise in u s dumping margins from around 15 in the early 1980s to over 60 by 2000 second statistical analysis finds that usdoc discretionary practices have played the major role in rising u s dumping margins over this period importantly the evolving effect of discretionary practices is due not only to increasing use of these practices over time but to apparent changes in implementation of these practices that mean a higher increase in the dumping margin whenever they are applied utilisant des donnees sur le calcul de l ecart entre les prix aux etats unis et les prix de ces biens dans leur marche national d origine dumping margin calcules par le u s department of commerce usdoc on montre que ces marges sont passees d environ 15 au debut des annees 80 a plus de 60 en l an 2000 une analyse statistique suggere que les pratiques discretionnaires du usdoc ont joue un role important dans l accroissement de ces marges au cours de la periode cela n est pas attribuable seulement a l accroissement de ces pratiques dans le temps mais aux changements apparents dans la mise en application de ces pratiques qui se sont traduits par un accroissement de la marge quand on choisit de l appliquer

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

financial contracting and leverage induced over and under investment incentives this paper investigates the effects of seniority rules and restrictive dividend convenants on the over and under investment incentives associated with risky debt we show that increasing seniority of new debt decreases the incidence of under investment but increases over investment and vice versa under symmetric information the optimal seniority rule is to give new debtholders first claim on a new project without recourse to existing assets i e project financing under asymmetric information the optimal debt contract requires equating the expected return to new debtholders in the default state to the new project s cash flow in the same rate if this is not possible the optimal seniority rule calls for strict subordination of new debt if the expected cash flow in default is small and full seniority if it is large with regard to dividend convenants we show that their effect depends on whether or not dividend payments are conditioned on future investments when they are unconditioned allowing more dividends increases the under investment incentive in contrast conditional dividends decrease the underinvestment incentive and increase the over investment incentive

resolving the agency problems of external capital through options this paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by jensen and meckling 1976 these problems are precipitated by managerial incentives a to consume excessive non pecuniary benefits or perquisites beyond the optimal level for sole ownership and b to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors these incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner manager and external financiers respectively the resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt the work by jensen and meckling 7 has brought more realism to the theory of the firm in their paper jm address agency problems in the context of a firm which is viewed as a nexus of contracts among various factors of production the contractual relationships involve incentive conflicts arising from the pursuit of self interest by limiting themselves to an entrepreneur or owner manager who retains complete control of the firm jm have demonstrated that financing through the issuance of common stock or debt to outsiders engenders costs these costs are precipitated in part by the manager s propensity to consume nonpecuniary benefits or perquisites perks by employing certain resources in excess of their optimal usage 1 and by his propensity to engage in high risk investment projects so as to transfer wealth from bondholders to stockholders 2

warrant exercise dividends and reinvestment policy in this paper we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants we analyze several obstacles to acquiring large blocks in order to exploit sequential strategies first we identify several reinvestment policies for which sequential exercise is not advantageous thereby eliminating the gain from hoarding however sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders even absent dividends because using exercise proceeds to repurchase stock or to expand the firm s scale increases the riskiness of an equity share second oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders suggesting a potential cost to unsuccessful hoarding

optimal leverage and aggregate investment we analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures optimal financial contracts can be implemented by a combination of debt and equity when the risk shifting problem is the most severe while stock options are also needed when the effort problem is the most severe worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level moreover aggregate leverage decreases with the risk shifting problem and increases with the effort problem

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

trade creation and trade diversion in the canada united states free trade agreement in this paper the changes in trade patterns introduced by the canada united states free trade agreement are examined variation in the extent of tariff liberalization under the agreement is used to identify the impact of tariff liberalization on the growth of trade both with member countries and non member countries data at the commodity level are used and the results indicate that the canada united states free trade agreement had substantial trade creation effects with little evidence of trade diversion jel classification f13 f14

china in the world trade organization antidumping and safeguards china finds itself in a unique situation on antidumping and safeguard issues it is by far the main target of antidumping measures but so far one of the smallest users of such measures china s world trade organization wto accession protocol includes stringent antidumping and safeguard provisions that its trading partners may use against its exports the article examines three related concerns how quickly large developing economies can become intensive users of antidumping measures an evolution raising concerns about china s recent antidumping enforcement how china could minimize its exposure to foreign antidumping cases a recipe for both improving trade outcomes and for china s taking a leading role in reforming wto antidumping and the opportunities that the doha round of trade negotiations offer to china for negotiating stricter disciplines both on wto contingent protection and on the use by china s trading partners of the special provisions included in china s accession protocol

ex ante costs of violating absolute priority in bankruptcy a basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects in contrast this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders such deviations aggravate the moral hazard problem with respect to project choice increasing the equityholders incentive to favor risky projects as well as with respect to borrowing and dividend decisions