market structure and buyer behaviour price adjustment in a multi object progressive oral auction abstract working within the framework of an english or progressive oral auction with multiple unit trading the study addresses the question of the effect on price behaviour of variations in market size in the sense of the number of equal sized market competitors prices are shown to converge to near competitive equilibrium levels upon replication whatever the market size however by extending the focus of the study beyond equilibrium to the market behaviour revealed during the adjustment or disequilibrium phase of the market it is possible to advance some conjectures on the nature of the equilibrating processes

boom and bust cycles external imbalances and the real exchange rate when the current account balance and net capital outflows do not exactly offset each other international payment flows arise payment flows into a country push the real exchange rate up payment outflows push it down this article uses a model of optimal consumption and portfolio choice to determine the factors that drive international payment flows during boom and bust cycles it shows that during such episodes capital inflows first exceed the deficit on current account strengthening the currency later on when the return on domestic capital reverts to its normal level the current account recovers yet the overall decline of the net foreign asset position provokes a fall of the real exchange rate even below its initial level case studies of countries experiencing rapid economic expansions followed by economic and financial meltdowns confirm the article s theoretical predictions

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

what do twins share a joint probit estimation of banking and currency crises we study the determinants of twin crises and investigate the direction of causality between banking and currency crises in emerging markets we model banking and currency crises as dynamic events correlated over time and jointly estimate their probability using panel data simulation techniques we show that banking and currency crises are closely intertwined and are driven by common fundamentals banking crises exhibit strong state dependence suggesting that countries that have experienced a banking crisis in the past are more prone to experience another crisis finally we find evidence of unobserved heterogeneity and autocorrelation in the error term structure

financial development and financing constraints international evidence from the structural investment model this article provides evidence that financial development impacts growth by reducing financing constraints that would otherwise distort efficient allocation of investment the financing constraints are inferred from the investment euler equation by assuming that the firm s stochastic discount factor is a function of the firm s financial position specifically the stock of liquid assets the magnitude of the changes in the cost of capital is twice as large in a country with a low level of financial development as in a country with an average level of financial development the size effect business cycles and legal environment effects are also considered copyright 2003 oxford university press

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

forced information disclosure and the fallacy of transparency in markets a theory advanced in regulatory hearings holds that market performance will be improved if one side of the market is forced to publicly reveal preferences for example wholesale electricity producers claim that retail electricity consumers would pay lower prices if wholesale public utility demand is disclosed to producers experimental markets studied here featured decentralized privately negotiated contracts typical of the wholesale electricity markets two conclusions emerge i such markets generally converge to the competitive equilibrium and ii forced disclosure works to the disadvantage of the disclosing side information disclosure would result in higher wholesale and thus higher retail electricity prices

ready for capital account convertibility abstract this paper investigates whether the impact of capital account convertibility on the long term volatility of economic growth depends on financial development it estimates a system of three simultaneous equations mean growth volatility of growth and financial development this allows for the study of both the impact of capital account liberalization on volatility as well as its direct impact on financial development results indicate that economies with low financial development fall prey to excess volatility arising from capital account openness while capital account openness itself has a significant positive impact on financial development the results are robust to alternative measures of financial development and volatility and to the removal of outliers

cognitive ability and earnings performance evidence from double auction market experiments abstract our goal in this paper is to understand how heterogeneity in people s cognitive ability leads to different market behavior and thus different market performance to do this subjects with heterogeneous working memory capacity wmc were placed in a double auction environment to compete against artificial traders we considered two treatments which differ in the artificial traders the artificial traders are truth telling in the first treatment but demonstrate adaptive trading behavior in the second one our results show that working memory capacity has a significantly positive effect on subjects market performance and the performance gap caused by cognitive ability while narrowing over time remains significant by the end of experiment we find that differences in subjects performance resulted from their behavior high wmc subjects were better at exploiting extra profit opportunities and avoiding unprofitable transactions and they tended to underbid more than those with lower wmc among the five constituent abilities of wmc we find that it is distinctive abilities which contribute to the overall significance in these two treatments for the treatment involving truth telling traders the relevant factor is the ability of simultaneous processing and storing information whereas for the treatment involving adaptive traders the only one that matters is subjects ability to coordinate elements into structures

vote trading with and without party leaders two groups of voters of known sizes disagree over a single binary decision to be taken by simple majority individuals have different privately observed intensities of preferences and before voting can buy or sell votes among themselves for money we study theoretically and experimentally the implication of such trading for outcomes and welfare when trades are coordinated by the two group leaders and when they take place anonymously in a competitive market the theory has strong predictions in both cases trading falls short of full efficiency but for opposite reasons with group leaders the minority wins too rarely with market trades the minority wins too often as a result with group leaders vote trading improves over no trade with market trades vote trading can be welfare reducing the theoretical predictions are strongly supported by the experimental data

real interest rates and growth improving on some deflating experiences tests of the mckinnon shaw hypothesis typically investigate the relationship between real interest rates and growth recent work has concluded that this relationship may be non monotonic this article investigates the role of real interest rate mismeasurement in explaining these non monotonicities when such mismeasurement is systematically related to growth it will produced biased empirical results after addressing these biases the article demonstrates that financial liberalisation may offer substantial economic gains in an average country raising real interest rates from 25 per cent to five per cent will increase real annual per capita gdp growth from zero to a relatively robust rate of two per cent

banking reform and the financing of firm investment an empirical analysis of the chilean experience 1983 92 this article investigates whether the chilean banking reforms of the 1980s have contributed to reducing market imperfections in chilean financial markets in the late 1980 and early 1990s to analyse this issue patterns of investment and its finance for different types of firms are studied based on balance sheet information of a panel of 70 firms the most important conclusion is that those specific reforms aimed at reducing intra conglomerate lending seem to have been successful since access of non conglomerate firms has increased indicating a reduction of existing market imperfections for such firms

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

uncertainty and partial adjustment in double auction markets abstract a model is presented of price determination in double auction markets the framework is contrasted with naive autoregressive models of price behavior implications of model choice are illustrated with the use of market experiments from several institutions

some evidence on the effect of the separation of spending and taxing decisions it is often argued that separation of public spending and taxing decisions engenders in the voter overoptimistic hopes that someone else will bear the cost of public services thereby inducing an increase in the size of government but are perceived tax prices systematically and persistently reduced by separation although in stock markets all agents expectations may be unbiased they may or may not be unbiased in political markets this paper analyzes the separation created in federal states when the central government finances local expenditures evidence from a dynamic decisive voter model is presented that indicates that the separation introduced by federal grants to canadian provinces did in fact reduce the perceived tax price of provincial public services and raise provincial expenditures the results suggest also that the effect of separation diminished over time

the circular relationship between inequality leverage and financial crises in this paper we put into perspective the recent literature which points to inequality as a possible cause of credit bubbles by reintegrating it into a more general analysis on the two way relationship between inequality and finance we focus more specifically on situations where high inequalities and widespread access to credit coexist and argue that even when institutions maintain more or less equal access to finance there may be a dynamic positive circular relationship between inequality and financial development however even if there is some evidence in the literature of a positive causal impact of inequality on credit this does not preclude other important cofounding factors the conclusions concerning the distributional impact of finance are more ambiguous a survey of the empirical literature highlights several issues that must be tackled first endogeneity reverse causality and coincidental factors are major concerns second the choice of consistent measurements for the key variables both credit and inequality has strong empirical implications and must be grounded on relevant theoretical channels third those circular dynamics have substantial policy implications for emerging economies since an increasing number face a joint increase in inequality and credit

global capital flows and financing constraints firms often cite financing constraints as one of their primary obstacles to investment global capital flows by bringing in scarce capital may ease the financing constraints of host country firms but if incoming foreign investors borrow heavily from domestic banks foreign direct investment may exacerbate financing constraints by crowding host country firms out of domestic capital markets combining a unique cross country firm level panel with time series data on restrictions on international transactions and capital flows harrison love and mcmillan find that different measures of global flows are associated with a reduction in firm level financing constraints first the authors show that one type of capital inflow foreign direct investment is associated with a reduction in financing constraints second they test whether restrictions on international transactions affects the financing constraints of firms the results suggest that only one type of restriction those on capital account transactions negatively affects firms financing constraints the authors also show that multinational firms are not financially constrained and do not appear to be sensitive to the level of foreign direct investment this implies that foreign direct investment eases financing constraints for non multinational firms finally the authors show that 1 foreign direct investment only eases financing constraints in the non g7 countries and 2 other kinds of flows such as portfolio investment have no impact on financing constraints

testing the boundaries of the double auction the effects of complete information and market power abstract we report boundary experiments testing the robustness of price convergence in double auction markets for non durable goods in which there is extreme earnings inequality at the competitive equilibrium ce following up on a conjecture by smith 1976a we test whether the well known equilibrating power of the double auction institution is robust to the presence of complete information about traders values and costs and the presence of symmetric market power we find that complete information is insufficient to impede convergence to ce prices however introducing market power consistently causes prices to deviate from the ce whether or not subjects possess complete information our design highlights the value of boundary experiments in understanding how market institutions shape behavior and our findings help delineate the limits of the double auction institution to generate competitive outcomes

currency crises and institutions abstract this study furthers recent literature on currency crises and institutions the main objective is to re evaluate the causes of currency crises by focusing on the role played by a broader array of institutional factors and crisis episodes than have previously been considered while at the same time controlling for economic factors our dataset consists of over 30 countries covering 13 institutional factors for the period 1984 2002 two questions are addressed they are 1 what mix of institutions may contribute to or set the stage for a currency crisis and 2 what mix of institutions may affect the depth of currency crises as measured by a decline in output our findings reveal that institutional as well as economic factors affect the probability of currency crises and that worse institutions are associated with bigger contractions in output during the crisis in general our strongest results regarding institutions show that corruption a de facto fixed exchange rate regime weak government stability and weak law and order increase the probability of a currency crisis we find mixed evidence that deposit insurance the removal of capital controls a lack of central bank independence financial liberalization and civil law increase the chance of crisis we find a similar set of factors worsens the contraction in output during a crisis except for deposit insurance which we find moderates the contraction in output

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

examining political connections to study institutional change evidence from two unexpected election outcomes in south korea we argue that the analysis of multiple political connections in an event study framework can improve the study of institutional change based on a unique data set of multiple political relationships of 4 936 south korean board of director members we show that the large business conglomerates the chaebol did not benefit from the unexpected conservative election victories in the 2012 south korean parliamentary and presidential elections personal connections to the presidential candidates and to the opposition party were relevant for the stock returns of small firms our findings suggest that korea s political economy has evolved into a hybrid regime in which the political power of large multinational corporations is limited but political connections still matter for smaller firms the corruption scandal that led to the impeachment of president park in 2017 and the long term development of market capitalisation appear to be congruent with the results of our study

international overborrowing a decomposition of credit and currency risks summary the severity of the financial crises enveloping the tiger economies of southeast asia in 1997 came as a surprise to many observers this paper uses a simple fisherian model of the overborrowing syndrome to compare the asian crises of 1997 with earlier overborrowing episodes in mexico and chile while important similarities exist the crises in southeast asia have been exacerbated by the unhedged foreign exchange positions of asian banks these open currency positions not only imposed significant additional losses on the banks following devaluation they also magnified the scale of overborrowing during the cycle s initial boom phase failure to limit the exposure of banks to foreign exchange risk therefore increased the magnitude of the boom bust overborrowing cycle both ex ante and ex post the paper highlights the importance of effective regulation and supervision of capital markets with a focus on limiting the speculative currency positions of banks especially those that form the core of the domestic payments system and therefore enjoy a possibly implicit public guarantee improving the institutional infrastructure of financial supervision is the only effective way of mitigating the macroeconomic costs of overborrowing

price formation in double auction markets abstract this paper reports 14 laboratory experiments that examine existing theories of the price formation process in the continuous double auction the experiments feature random values and costs and therefore a new price formation observation each period we find that efficiency is high and rises with experience in this environment we also find that trades with greater exchange surplus tend to occur earlier in the period that increased trader experience reduces an anomalous intertemporal arbitrage opportunity observed previously and that only when traders are very experienced does exchange surplus accrue disproportionately to the side of the market with a smaller number of traders

effects of financial liberalisation and political connection on listed chinese firms financing constraints this paper examines the impact of recent financial liberalization in china on the financing constraints of publicly listed chinese firms with and without politically connected ceo chairman two continuous indices are used to measure the evolution and intensity of financial reforms a financial liberalization index and a capital control index the results indicate that while firms without politically connected ceo chairman face significant financing constraints and politically connected firms do not financial liberalization has reduced the constraints for the former similarly lower capital control in china s equity market lessens credit constraints for non connected firms no statistically significant impact is detected with regards to firms that have ceo chairman with powerful political background

demand revelation and tâtonnement auctions abstract the t tonnement process is inherently a price taking process an auctioneer calls out a price and traders respond with a quantity signal this t tonnement groping process contrasts with a double auction continuous bid ask process that utilizes price signals do traders in this institution fully reveal quantity or do they underreveal affecting price quantity and efficiency in the experiments reported here traders playing against a fully revealing automaton systematically attempt to manipulate price by underrevealing quantity bid or offered

financial crisis in southeast asia dispelling illusion the minskyan way this paper extends minsky s financial instability hypothesis to the case of the open liberalised economy making it possible to put forward a specifically minskyan account of the road to the financial crisis in southeast asia 1997 1998 the analysis suggests that the threats to growth and employment emanating from the financial sector which minsky identified in the closed economy setting are much intensified in open liberalised developing economies financial liberalisation is an important key factor in this process rival explanations of the crisis are examined and rejected in favour of the extended minskyan explanation the policy implications are derived and discussed copyright 2002 oxford university press

advance production in experimental markets the effects of advance production in posted offer and double auction markets are investigated previously observed differences between these institutions in mean contract prices and in the distribution of producers and consumers surpluses under the production to demand condition disappear when sellers make output decisions and incur production costs prior to the start of trading the double auction institution remains more efficient under advance production the results suggest that the differential effects of alternative trading institutions on market outcomes may be partially offset by the production conditions characterizing a market

tax and subsidy incidence equivalence theories experimental evidence from competitive markets abstract a basic tenet in microeconomics is tax incidence equivalence which holds that the burden of a unit tax on buyers and sellers is independent of who actually pays the tax by contrast policymakers and the public often mistake statutory incidence for economic incidence using competitive laboratory markets i test both tax incidence equivalence and an analogous theorem for subsidies for sufficiently large markets the results show strong support for both theories there is little to no evidence even in the short run of the popular misperception that statutory incidence equals economic incidence in smaller markets in which competitive forces are weaker and relative bargaining strengths may play a role the evidence for tax incidence equivalence is weaker as minor price discrepancies may persist between markets

competitive equilibrium convergence in a posted offer market with extreme earnings inequities abstract we present the results of five laboratory posted offer experiments in which the competitive equilibrium model predicts that all exchange profits are received by one side of the market thus defining a boundary condition price converges to the prediction more slowly when buyers rather than sellers receive the exchange surplus apparently due to the increased market power of sellers in this trading mechanism a model of the seller s decision in this market is developed to explain this result we also observe costly signalling and tacit collusion in our experiments

can supply and demand parameters be recovered from data generated by market institutions the relative accuracy of estimators in recovering supply and demand parameters can depend on the market institutions that generate the data the parameters of known supply and demand functions are estimated with data from laboratory market experiments with human buyers and sellers single equation estimators dominate simultaneous equations estimators in recovering supply and demand parameters from posted offer market data the inaccuracy of simultaneous equations estimators with posted offer data can be explained by the implications for error distributions of the inherent properties of this market institution simultaneous equations estimators perform better with closing price data from double auction markets

dollarization of bank deposits causes and consequences abstract this paper assesses the benefits and risks associated with dollarization of bank deposits we provide novel empirical evidence on the determinants of deposit dollarization its role in promoting financial development and on whether dollarization is associated with financial instability we find that a the credibility of macroeconomic policy and the quality of institutions are both key determinants of cross country variations in dollarization b dollarization is likely to promote financial deepening only in a high inflation environment and c financial instability is likely higher in dollarized economies the implications of these findings for financial sector and monetary policies are briefly discussed

europe s great depression coordination failure after the first world war in this paper i survey and reinterpret the extensive literature on europe s great depression i argue that europe could not exploit its vast economic potential after 1918 because the war had not yet come to an end indeed it did not end before 1945 both domestic and international institutions suffered from a lack of reciprocal trust and commitment which can be clearly illustrated in the realm of monetary policy but affected many other areas of policy making such as energy or migration policies these institutions in turn affected expectations and thereby the extent to which for example expansionary policies could be effective

production trade prices exchange rates and equilibration in large experimental economies we study market equilibration in laboratory economies that are larger and more complex than any that have been studied experimentally to date complexity is derived from the fact that the economies are international in economic structure with multiple input output and foreign exchange markets in operation the economies have twenty one markets and due to the fact that they have roughly fifty agents the economies are characterized by several hundred equations in spite of the complexity and interdependence of the economy the results demonstrate the substantial power of the general equilibrium model of perfect competition to predict the direction of movement of market level variables empirical patterns in the convergence process are explored and described

the effects of rent asymmetries in markets characterized by advance production abstract the results of 40 controlled market sessions are reported the effects of advance production and the distribution of the market surplus between buyers and sellers on the relative performance of posted offer and double auction markets are compared with the relative performance of posted offer and double auction institutions in markets with production to order performance differences between the two institutions across production conditions as the surplus distributions are varied are similar but not identical the distribution of surplus appears to have an effect on the performance measures in advance production markets

financial development and the instability of open economies this paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies our basic model is a dynamic open economy model with a tradeable good produced with capital and a country specific factor we also assume that firms face credit constraints with the constraint being tighter at a lower level of financial development a basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies this is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles thus countries that are going through a phase of financial development may become more unstable in the short run similarly full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development phases of growth with capital inflows are followed by collapse with capital outflows on the other hand foreign direct investment does not destabilize

political connections ownership structure and private equity placement decision evidence from chinese listed firms in contrast with many other countries chinese listed firms must obtain approval to make private equity placements peps from the chinese security regulatory commission csrc a state bureau that regulates capital market financing we analyse the role of political connection pc and ownership structures when accessing private equity pe market while investigating the mechanisms through which political ties operate within the regulatory process of peps the findings suggest that pcs do not contribute to the firm s decision to apply for peps but firms with state ownership demonstrate a higher propensity to apply for peps pc and state ownership appear to help firms to obtain approval from the csrc and these firms are treated more favourably than their rivals without such connections politically connected firms spend less time in managing bureaucracy but pc and state ownership negatively affect proceeds from the pe market in china firms with politically connected directors with professional busines

the competitive market paradox abstract the competitive market model is paradoxical in perfect competition agents cannot influence price they only select an output quantity such passive behavior does not conform to the intuitive notion of competition this paper describes an experiment which demonstrates that near or even at a competitive equilibrium price competition is undiminished a substantial difference between the performance of sellers and buyers frequently results from this vigorous competition even with low price variability and approximate efficiency in double auction experiment sessions conducted with both automated and human agents exogenous variation of the pace of asks and bids of automated agents demonstrates that the performance difference between sellers and buyers results primarily from a difference between the pace of asks and bids if the buyers pace is slower than sellers pace buyers make price concessions less frequently than sellers so that prices move below the equilibrium price then more buyers become active and fewer sellers remain active prices stabilize when changes to the numbers of active buyers and sellers offset the superior bargaining capability of one side or the other in competitive equilibrium to a first approximation agents are price takers but that does not preclude vigorous competition competitive behavior moves to the dimension of bargaining pace

the opportunity for conspiracy in restraint of trade an experimental study a study is a limited exploration into the relationship between the opportunity for conspiracy in restraint of trade and the resulting market performance laboratory experimental methods are applied to separate competing theories the competitive model predicts well relative to cartel models nevertheless when measurements are taken relative to the performance of markets where conspiracies are not possible the effects of attempted conspiracies can be determined

capital market imperfections before and after financial liberalization an euler equation approach to panel data for ecuadorian firms using a large set of panel data for ecuadorian firms the authors analyze the role of capital market imperfections in investment decisions and investigate whether the financial reforms introduced in the 1980s in ecuador succeeded in relaxing financial constraints to facilitate capital accumulation and growth the ecuadorian government removed administrative controls on the interest rate and eliminated or scaled down directed credit programs the model used here allows both for an increasing cost of borrowing as the degree of leverage increases and for a ceiling on leverage the econometric results suggest that both types of capital market imperfections are important for small and young firms but not for large and old firms moreover the estimated equations do not provide evidence that financial reform in ecuador has helped to relax these financial constraints

avoidable cost ride a double auction roller coaster the double auction trading institution has been highly efficient across diverse marginal cost market structures whether human subjects or zero intelligence robots populated those markets accordingly many researchers suspect that double auction performance transcends market structure and agent strategy but the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero intelligence efficiencies their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies copyright 1996 by american economic association

designing call auction institutions is double dutch the best this paper is an exercise in the institutional design of call markets schwartz i988 whitcomb i985 using the experimental laboratory as a test bed we evaluate the comparative performance1 of three new institutions for exchange when all trades are simultaneously executed at a uniform price call markets have been used on many european and israeli stock exchanges and for the daily opening on the new york american and tokyo stock exchanges in all outstanding listed issues in some versions the bids offers are verbal in others written in some cases the procedure is walrasian orders may be modified after a trial price is given whitcomb i985 also see jarecki i976 for the walrasian mechanism implemented with a unanimity stopping rule in the london bullion market in france new issues are offered in fixed quantity using modified uniform price sealed bid auction rules mcdonald and jaquillat i974 the rules of trading on all these exchanges are subject to incremental adjustment in the light of experience in recognition of this continuing adaptation the chicago mercantile exchange publishes its consolidated rules as a loose leaf three ring notebook these considerations motivate our interest in examining three potential new exchange mechanisms as their names suggest these institutions are generalisations of auctions which already exist in the field 2 double dutch dd is a generalisation of the dutch auction double english ee a generalisation of the english auction and dutch english de a special form of tatonnement using a single clock which is a dutch clock to buyers and an english clock to sellers our generalisations make the supply quantity endogenous thus broadening the scope of english and dutch auctions to markets in which both buyers and sellers are active in the exchange process two cited disadvantages of sealed bid offer call markets schwartz i988 pp 442 6 are corrected by

the international monetary system in the last and next 20 years the last two decades have seen far reaching changes in the structure of the international monetary system europe moved from the european monetary system to the euro china adopted a dollar peg and then moved to a basket band and crawl in 2005 emerging markets passed through a series of crises leading some to adopt regimes of greater exchange rate flexibility and others to rethink the pace of capital account liberalization interpreting these developments is no easy task some observers conclude that recent trends are confirmation of the bipolar view that intermediate exchange rate arrangements are disappearing while members of the fear of floating school conclude precisely the opposite we show that the two views can be reconciled if one distinguishes countries by their stage of economic and financial development among the advanced countries intermediate regimes have essentially disappeared this supports the bipolar view for the group of countries for which it was first developed within this subgroup the dominant movement has been toward hard pegs reflecting monetary unification in europe while emerging markets have also seen a decline in the prevalence of intermediate arrangements these regimes still account for more than a third of the relevant subsample here the majority of the evacuees have moved to floats rather than fixes reflecting the absence of emu like arrangements in other parts of the world among developing countries the prevalence of intermediate regimes has again declined but less dramatically where these regimes accounted for two thirds of the developing country subsample in 1990 they account for a bit more than half of that subsample today as with emerging markets the majority of those abandoning the middle have moved to floats rather than hard pegs the gradual nature of these trends does not suggest that intermediate regimes will disappear outside the advanced countries anytime soon barry eichengreen and raul razo garcia

financial liberalization credit constraints and collateral investment in the mexican manufacturing sector abstract we examine the impact of financial liberalization on fixed investment in mexico using establishment level data from the manufacturing sector in addition to analyzing changes in cash flow sensitivities an innovative approach explores the role of real estate as collateral and addresses a potential censoring problem the results suggest that financial constraints were eased for the smallest firms but not for larger ones however the importance of possessing real estate increased given banks reliance on collateral in their lending the results also provide microeconomic evidence consistent with the role attributed to financial accelerator mechanisms during lending booms and during post crisis recessions

the principles of exchange rate determination in an international finance experiment this paper reports the first experiments designed to explore the behavior of economies with prominent features of international finance two countries each with its own currency were created international trade could take place only through the operation of markets for currency the law of one price and the flow of funds theory of exchange rate determination were used to produce general equilibrium models that captured much of the behavior of the economies prices of goods as well as the exchange rate evolve over time toward the predictions of the models however both the law of one price and purchasing power parity can be rejected for reasons that do not appear in the literature patterns of international trade were as predicted by the law of comparative advantage

personal income taxes elasticities and fiscal illusion hunter and scott 1987 suggest an alternative methodology for testing whether high state income tax elasticities may be consistent with larger public sectors due to the presence of fiscal illusion examining state choices of income tax reductions in the period 1976 1983 they find evidence consistent with the idea that the public obtains desired income tax reductions when such high elasticities would otherwise lead to a substantial overexpansion in the public sector

statutory changes in state income taxes an indirect test of fiscal illusion empirical studies of fiscal illusion have focused on the relationship between tax structure and government revenue or tax structure and the growth of government revenue the premise is that tax structures which tend to conceal revenue sources are prone to fiscal illusion and should therefore have a positive effect on tax revenue unfortunately the results of these studies can at best only be characterized as mixed for example oates 1975 and craig and heins 1980 found a significant and positive relationship between tax elasticity and government revenue at the state and city level while dilorenzo 1982 found a negative relationship between tax elasticity and tax revenue for county governments these contradictory findings may be in part the result of attempts to isolate the effects of fiscal illusion on the very complicated political process of setting and passing government budgets in this paper we propose a voting model as an alternative to fiscal illusion as an explanation of the relationship between income elastic taxes and tax revenue the premise is simple the effect of rising nominal income on progressive income taxes is that the individual s real tax burden rises as the growth of real disposable income falls the more progressive the income tax system the more pronounced this effect should the growth in real taxes exceed the individual s increased demand for public goods a tax cut would be demanded however there is a positive cost for the individual of informing the government of the desired tax cut and spending reduction it is only when the value of the increased disposable income exceeds the cost of securing the tax cut that voters will petition for a tax reduction we test the elasticity hypothesis by estimating the effect of income tax progressivity on the probability of a state enacting a statutory income tax reduction fiscal

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

papers in experimental economics on nonbinding price controls in a competitive market interest in the effect of nonbinding price controls on double auction markets stems from two primary considerations the double auction institution converges to a competitive allocation more rapidly and with fewer participating agents than any other institution with which it has been compared see smith et al one way to improve our understanding of this important property is to determine what conditions if any can interfere with or retard this convergence process nonbinding price controls represent a condition that may affect this convergence process hence if such effects can be documented they will provide a body of data that any future proposed model of the double auction process should be able to explain a second reason for studying the effect of nonbinding controls on the double auction is practical the organized commodity exchanges often set limits on price fluctuations during any single day when prices at any point during a day rise above qr fall below the closing prices of the preceding day by more than the amount of the limit no further trading for that day is permitted walter labys p 162 consequently commodity trading frequently occurs at prices near the level of nonbinding price floors or ceilings mark issac and charles plott report the results of twelve exploratory experiments in which various price control constraints are imposed on double auction markets their two principal conclusions can be summarized as follows 1 the hypothesis is rejected that nonbinding price controls that is price ceilings above or price floors below the competitive equilibrium ce will serve as a focal point or signalling price on which sellers and buyers will key their contracts 2 inconclusive evidence is presented in support of the hypothesis that nonbinding controls near the ce will bias prices below ce when there is a price ceiling and above ce when there is a price floor support for this second hypothesis is not conclusive because some experimental markets show a tendency to converge from below and others from above depending upon the relative bargaining strength of buyers as against sellers thus sampling variation among subjects can yield a group in which buyers sellers are able to make contracts at an average price below above ce for several periods of trading consequently in an experiment in which there is a price ceiling floor five cents above below ce and in which contract prices are observed to occur below above ce one cannot determine conclusively whether the observed effect was due to the nonbinding price control or to the bargaining characteristics of the market participants we report below an experimental design developed for the purpose of separating these confounding factors and allowing the effect of nonbinding controls to be isolated the results of sixteen experiments strongly support the hypothesis that markets with a nonbinding price ceiling floor near ce will converge from below above relative to any otherwise identifiable tendency to converge from below above an analysis of the effect of a nonbinding price ceiling floor on the distributions of bids and offers reveals the cause of this bias ceilings limit the bargaining strategies of sellers especially but also that of buyers while floors have the opposite effect thus in the absence of price controls double auction trading is characterized by a process in which sellers typically make concessions from offer prices well above ce while buyers most often concede from bid prices well below ce a price ceiling truncates seller offer prices at the ceiling requir university of arizona and indiana university respectively research support by the national science foundation is gratefully acknowledged

market power in oral double auctions this paper reports the results of a series of oral double auction experiments in which some traders possess market power a market is set up in which the configuration of the supply and demand curves leads to an asymmetry between buyers and sellers in their abilities to influence transactions prices this market structure does not always lead to convergence to the competitive equilibrium price despite the competitive nature of the oral double auction institution the nonconvergence occurs most frequently in the experiments involving experienced subjects