group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

reverse channel design the case of competing retailers the economical and environmental benefits of product remanufacturing have been widely recognized in the literature and in practice in this paper we focus on the interaction between a manufacturers reverse channel choice to collect postconsumer goods and the strategic product pricing decisions in the forward channel when retailing is competitive to this end we model a direct product collection system in which the manufacturer collects used products directly from the consumers e g print and copy cartridges and an indirect product collection system in which the retailers act as product return points e g single use cameras cellular phones we first examine how the allocation of product collection to retailers impacts their strategic behavior in the product market and we discuss the economic trade offs the manufacturer faces while choosing an optimal reverse channel structure when a direct collection system is used channel profits are driven by the impact of scale of returns on collection effort whereas in the indirect reverse channel supply chain profits are driven by the competitive interaction between the retailers subsequently we show that the buy back payments transfered to the retailers for postconsumer goods provide a wholesale pricing flexibility that can be used to price discriminate between retailers of different profitability

planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

is grameen lending efficient repayment incentives and insurance in village economies many believe that a key innovation by the grameen bank is to encourage borrowers to help each other in hard times to analyse this we study a mechanism design problem where borrowers share information about each other but their limited side contracting ability prevents them from writing complete insurance contracts we derive a lending mechanism which efficiently induces mutual insurance it is necessary for borrowers to submit reports about each other to achieve efficiency such cross reporting increases the bargaining power of unsuccessful borrowers and is robust to collusion against the bank copyright 2004 wiley blackwell

coalition proof equilibrium in an adverse selection insurance economy abstract we extend the notion of coalition proof nash equilibrium to a class of matching games with private information this solution concept is applied to an adverse selection insurance economy and is shown to yield a unique allocation the optimal allocation without cross subsidy this contrasts sharply with the outcome in alternative institutional settings for negotiations among players as modeled for instance by the incentive compatible core journal of economic literature classification numbers c71 c72 d82

assessing target zone credibility mean reversion and devaluation expectations in the erm 1979 1992 abstract the paper presents estimates of devaluation expectations for six erm currencies relative to the deutsche mark for the period march 1979 april 1992 both the simplest test and the drift adjustment method are used the simplest test adjusts interest rate differentials for the maximum and minimum expected rate of depreciation within the exchange rate band the drift adjustment method adjusts interest rate differentials by the estimated expected rate of depreciation within the band the latter method gives more precise estimates especially for short horizons and allows statistical inference and hypothesis testing expected rates of devaluation have generally fallen during the period still some devaluation expectations relative to the deutsche mark remain in 1992 except for the belgian luxembourg franc and the netherlands guilder expected rates of devaluation have fluctuated more than interest rate differentials

joint liability versus individual liability in credit contracts abstract i offer an explanation for the coexistence of joint liability and individual liability microcredit contracts i show that both contracts maximize welfare when credit is rationed due to limited liability but for different borrowers borrowers monitor each other when liability is joint while the lender monitors individual loans joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender individual liability offers the wealthier among credit constrained borrowers larger loans even without monitoring the theory explains why individual loans serve the wealthier among poor borrowers and are larger and why businesses funded with individual loans grow more

soft versus hard targets for exchange rate intervention when targeting money prices or credit monetary authorities typically follow rules that combine flexibility over short horizons with discipline over longer horizons usually by committing to average targets for monetary aggregates or inflation over pre specified periods yet when targeting exchange rates monetary authorities typically follow rules that require strict adherence to announced targets in both the short and the long run in this paper we explore the implications of a policy for exchange rate intervention that combines flexibility over short horizons with discipline over long horizons our version of this soft target zone related to an idea ofjohn williamson 1985 requires a monetary authority to maintain the exchange rate on average rather than at all times as in the erm within a pre announced band we study the implications of this policy for the volatility of exchange rates and for the vulnerability of the exchange rate arrangement to speculative attacks practical reasons including the difficulty of targeting money and inflation on a continuous basis contribute to common use of soft i e average rules when targeting these aggregates more important however average targets allow

vertical cooperative advertising and pricing decisions in a manufacturer retailer supply chain a game theoretic approach abstract manufacturers can increase the advertising expenditures of their retailers by bearing a fraction of the occurring costs within the framework of a vertical cooperative advertising program we expand the existing research which deals with advertising and pricing decisions in a manufacturer retailer supply chain contemporaneously by means of game theory four different relationships between the channel members are considered firstly three non cooperative games with either symmetrical distribution of power or asymmetrical distribution with one player being the leader in each case and one cooperative game where both players tend to maximize the total profit the latter is complemented by a bargaining model which proposes a fair split of profit on the basis of the players risk attitude and bargaining power our main findings are as follows a in contrast to previous analyses we do not limit the ratio between manufacturer s and retailer s margin which provides more general insights into the effects of the underlying distribution of power within the channel b the highest total profit is gained when both players cooperate this behavior puts also the customers in a better position as it produces the lowest retail price as well as the highest advertising expenditures compared to the other configurations

organizations in economic analysis three economic environments are reviewed and in each organizations play an essential role for an adverse selection insurance economy we find that when mutual insurance arrangements are permitted an equilibrium necessarily exists and is optimal this example and the two others illustrate the problems that may result from imposing organizational structure on an environment rather than permitting the structure to be determined endogenously les organisations dans l analyse economique les auteurs examinent trois sortes d environnement economique dans chacun des cas les organisations jouent un role fondamental dans le cas d une economie avec assurance et selection adverse les auteurs suggerent que quand des arrangements d assurance mutuelle sont permis un equilibre existe necessairement et est optimal cet environnement ainsi que les deux autres etudies par les auteurs illustre les problemes qui peuvent resulter quand on impose une structure organisationnelle sur un environnement plutot que de permettre a la structure organisationnelle d emerger de fakon endogene

microcredit and mechanism design individual microcredit loans are not necessarily simple fixed debt obligations but rather may have contingencies and procedures suggested by the theory of mechanism design further group or joint liability lending may not be the single miracle cure practitioners claim nor operate the way the logic of a single theory might suggest there are multiple theories these theories can be distinguished in data on repayment rates and the best fit theory may vary with the environment finally the debate about whether to lend to individuals or lend to groups may be misplaced under simple theories of selection the pareto superior regime which is predicted to emerge varies with exogenous environmental characteristics jel d5 d82 g2 o17

incentive and production decisions for remanufacturing operations we consider a manufacturer producing original products using virgin materials and remanufactured products using returns from the market where the amount of returns depend on the incentive offered by the manufacturer we determine the optimal value of this incentive and the optimal production quantities in a stochastic demand setting with partial substitution we analyze 3 different models in centralized and decentralized settings where the collection process of the returns is managed by a collection agency in the decentralized setting we also analyze contracts to coordinate the decentralized systems and determine the optimal contract parameters finally we present our computational study to observe the effect of different parameters on the system performance

a novel closed loop supply chain based on the quality of returned products abstract closing an existing real world supply chain and modelling the resultant network are challenging practices this paper investigates the possibility of closing the chain in a textile company and the effects of such a decision on the profits of the chain the paper addresses one of the common problems in modelling the return rates of backward chain since inaccuracy in estimation of such rates leads to incorrect results the present model forgoes the need for commonly used predetermined rates by proposing a conditional quality based segmentation policy addition of a secondary chain as a recovery option quality dependent incentive rates and flexibility of the model in defining quality are also among novel points of this paper first a bi objective model is proposed to formulate the chain which includes the manufacturers distributors and customers in the forward chain and remanufacturing repairing and recycling centers in the backward chain this model is applicable to industries with zero waste strategy and similar recovery facilities second an extensive sensitivity analysis is carried out on a case study from textile industry the results reveal that increase in rate of returns with low medium qualities leads to higher profits since they create more suitable environmental economical business opportunities moreover closing the supply chain of the company increases the impact of distributors collectors performance on the final profits hence managers of the company need to adopt a pricing policy in favor of the distributors collectors which equals to lower repairing remanufacturing and purchase costs from manufacturers and higher sales prices to customers manufacturers and recycling center

two way product recovery in a closed loop supply chain with variable markup under price and quality dependent demand abstract this article considers a two way product recovery in a two echelon closed loop supply chain which comprises one manufacturer and one retailer for trading a single product the market demand of the product is linearly dependent on selling price and product quality the retailer sets the selling price with a variable markup on the wholesale price of the manufacturer the manufacturer also sets his wholesale price with a fixed markup on the production cost of the product the retailer recovers the used product in two ways he collects from consumers the used products which is a fraction of newly sold products in the forward channel he also collects the used products through an exchange offer and replaces a fraction of the collected used products by new ones we analyze the proposed model under four different decision structures decentralized nash game manufacture led and retailer led stackelberg games and centralized cooperative game structures we then compare these policies to identify the best policy we also examine the feasibility of the cooperative game through a bargaining model to examine the effects of key model parameters on the decisions we perform a sensitivity analysis for a numerical example

coordinating advertising and pricing in a manufacturer retailer channel abstract cooperative advertising is a practice that a manufacturer pays retailers a portion of the local advertising cost in order to induce sales cooperative advertising plays a significant role in marketing programs of channel members nevertheless most studies to date on cooperative advertising have assumed that the market demand is only influenced by advertising expenditures but not by retail price this paper addresses channel coordination by seeking optimal cooperative advertising strategies and equilibrium pricing in a two member distribution channel we establish and compare two models a non cooperative leader follower game and a cooperative game we develop propositions and insights from the comparison of these models the cooperative model achieves better coordination by generating higher channel wide profits than the non cooperative model with these features a the retailer price is lower to consumers and b the advertising efforts are higher for all channel members we identify the feasible solutions to a bargaining problem where the channel members can determine how to divide the extra profits

on the design of a credit agreement with peer monitoring this paper analyses the optimal design of collective credit agreements with joint responsibility first we demonstrate that these agreements can potentially induce peer monitoring reduce the incidence of strategic default and enhance the lender s ability to elicit debt repayments the resulting benefits in terms of extended credit should however be weighted against the higher monitoring effort that such agreements impose upon participant borrowers second we show that the relative benefits from peer monitoring are maximized when risks are positively correlated across borrowers and also when the size of the group is neither too small due to a joint responsibility cost sharing and commitment effects nor too large due to a free riding effect third we compare among different monitoring structures

fixes of the forward discount puzzle regressions of ex post changes in floating exchange rates on appropriate interest differentials typically imply that the high interest rate currency tends to appreciate the forward discount puzzle using data from the european monetary system ems the authors find that a large part of the forward discount puzzle vanishes for regimes of fixed exchange rates that is deviations from uncovered interest parity appear to vary in a way that is dependent upon the exchange rate regime by using the many ems realignments the authors are also able to quantify the peso problem copyright 1996 by mit press

too much investment a problem of asymmetric information this paper shows that under plausible assumptions the inability of lenders to discover all of the relevant characteristics of borrowers results in investment in excess of the socially efficient level raising the rate of interest above the free market level will restore optimality this conflicts with generally held views and is contrasted with the stiglitz weiss model it is shown that the assumptions which yield overinvestment support debt as the equilibrium method of finance however under the stiglitz weiss assumptions used to derive an underinvestment result equity is shown to be the equilibrium method of finance

thy neighbor s keeper the design of a credit cooperative with theory and a test economists now appreciate that resource allocation in less economically developed economies is profoundly influenced by non firm economic institutions however our theories of non firm institutions often suggest different answers to many questions including those of policy this paper illustrates a method for discriminating between alternative theories using data from german credit cooperatives from the nineteenth and early twentieth century germany we build a model of credit cooperatives designed to provide monitoring incentives and test this using nineteenth century data authors

liquidity banking and bank failures a multiperiod model with risk neutral agents is constructed in which a liquidity problem arises in an equilibrium with decentralized tradin g in capital which banking institutions are able to alleviate depos it contracts provide for early withdrawal banks hold debt and agent s who borrow from banks hold compensating balances institutional col lapse or a state of the world when bank failures are experienced is associated with a high demand for liquidity low output and a lower than average level of welfare bank failure is symptomatic of a part icular state of endowments preferences and technology and governme nt intervention is undesirable copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

imperfect information screening and the costs of informal lending a study of a rural credit market in pakistan many governments have perceived the rural moneylender as usurious this article takes a first step toward directly testing the validity of this view in a study of services costs and charges of fourteen informal market moneylenders and their clients in chambar pakistan the article examines whether the high implicit interest rates charged reflect the actual costs of operating in that market estimates of the resource costs incurred by informal lenders for screening pursuing delinquent loans overhead and cost of capital including unrecoverable loans suggest that lenders charges are equal to their average cost of lending but exceed their marginal cost this finding is consistent with the view that the informal credit market is characterized by excess capacity and monopolistic competition in the presence of imperfect information

a game theoretic approach to coordinate pricing and vertical co op advertising in manufacturer retailer supply chains vertical cooperative co op advertising is a marketing strategy in which the retailer runs local advertising and the manufacturer pays for a portion of its entire costs this paper considers vertical co op advertising along with pricing decisions in a supply chain this consists of one manufacturer and one retailer where demand is influenced by both price and advertisement four game theoretic models are established in order to study the effect of supply chain power balance on the optimal decisions of supply chain members comparisons and insights are developed these embrace three non cooperative games including nash stackelberg manufacturer and stackelberg retailer and one cooperative game in the latter case both the manufacturer and the retailer reach the highest profit level subsequently the feasibility of bargaining game is discussed in a bid to determine a scheme to share the extra joint profit

explaining forward exchange bias intraday intraday interest rates are zero consequently a foreign exchange dealer can short a vulnerable currency in the morning close this position in the afternoon and never face an interest cost this tactic might seem especially attractive in times of fixedrate crisis since it suggests an immunity to the central bank s interest rate defense in equilibrium however buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs that is currencies under attack should typically appreciate intraday using data on intraday exchange rate changes within the european monetary system we find this prediction is borne out this article examines implications of the fact that interest rates are zero intraday in particular we focus on the foreign exchange fx market and ask whether trading strategies might be affected the answer to this question is of greater import than might first appear for example in times of fixed rate crisis central banks typically employ an interest rate defense raising domestic rates to attract a capital inflow and punish short sellers but if dealers are immune to this defense at least on an intraday basis then perhaps the viability of fixed rate regimes is undermined goldstein et al 1993 provide an overview of how central banks defended their currencies during the 1992 currency crisis a simple example helps with intraday interest rates of zero a dealer can short a high interest rate currency in the morning close her position in the afternoon and never face an interest cost if there is any likelihood of an intraday devaluation this appears to be an attractive strategy other things equal since the dealer is immune to the interest cost of an overnight short position other things should not be equal in equilibrium however buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs that is devaluation risk is offset by systematic appreciation further the greater the probability and size of the devaluation the greater the implied appreciation thus the absence of a role

optimal collective contract without peer information or peer monitoring if entrepreneurs have private information about factors influencing the outcome of an investment individual lending is inefficient the literature typically offers solutions based on the assumption of full peer information to solve adverse selection problems and peer monitoring to solve moral hazard problems in contrast i show that it is possible to construct a simple budget balanced mechanism that implements the efficient outcome even if each borrower knows only own type and effort and has neither privileged knowledge about others nor monitoring ability the mechanism satisfies participation incentives for all types and is immune to the rothschild stiglitz cream skimming problem despite using transfers from better types to worse types the presence of some local information implies that the mechanism cannot be successfully used by formal lenders thus a local credit institution can emerge as an optimal response to the informational environment even without peer information or monitoring finally i investigate the role of monitoring in this setting and show how costly monitoring can increase the scope of the mechanism

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

group lending under asymmetric information abstract this paper examines joint liability loan contracts as part of a screening mechanism adopted by lenders using group lending schemes a model and one period game are introduced in order to analyze the type of optimal loan contracts that emerge when lenders have less information than borrowers it is shown that under imperfect information lenders may be able to utilize joint liability contracts as a means of screening agent types by inducing endogenous group formation and self selection among the borrowers

uncovered interest parity it works but not for long abstract if an investor borrows in a low interest currency and invests in a high interest currency the interest differential accrues in a lumpy manner formally just like the dividend payments on a stock the investor will receive the interest differential discretely at the point when a position is rolled over from one day to the next a position that is not held open overnight receives no interest differential because intradaily interest rates are zero using a large data set of intradaily exchange rate data we run uncovered interest parity uip regressions over different short time intervals taking careful account of the settlement rules in the spot foreign exchange market we find results that are supportive of the uncovered interest parity hypothesis over very short windows of data that span the time of the discrete interest payment however adding even a few hours to the span of the window destroys the positive uncovered interest parity results

group lending local information and peer selection this paper analyzes how group lending programs use joint liability to utilize local information that borrowers have about each other s projects through self selection of group members in the group formation stage these schemes are shown to lead to positive assortative matching in group formation faced with the same contract this makes the effective cost of borrowing lower to safer borrowers because they have safer partners conditional on success their expected dues to the lender are lower than that of riskier borrowers the resulting improvement in the pool of borrowers is shown to increase repayment rates and welfare q 1999 elsevier science b v all rights reserved

managing new and remanufactured products we study a firm that makes new products in the first period and uses returned cores to offer remanufactured products along with new products in future periods we introduce the monopoly environment in two period and multiperiod scenarios to identify thresholds in remanufacturing operations next we focus our attention on the duopoly environment where an independent operator io may intercept cores of products made by the original equipment manufacturer oem to sell remanufactured products in future periods we characterize the production quantities associated with self selection and explore the effect of various parameters in the nash equilibrium among other results we find that if remanufacturing is very profitable the original equipment manufacturer may forgo some of the first period margin by lowering the price and selling additional units to increase the number of cores available for remanufacturing in future periods further as the threat of competition increases the oem is more likely to completely utilize all available cores offering the remanufactured products at a lower price

interactions between institutional and informal credit agencies in rural india in an attempt to expand rural credit and displace the village moneylender india created a system of rural cooperatives in the 1950s and expanded branch banking into rural areas in the 1970s this article examines how these measures affected the rural market it begins with the question of how large the expansion of institutional credit has been and the extent to which it has dislodged the village and nonresident moneylenders a detailed comparison of three major surveys of the indian rural credit market suggests that in various guises the moneylender is still a major source of loans the article also examines the weak evidence on intermediation between the formal and informal sectors a formal model of the interaction between the informal moneylender and institutional lender is constructed under a variety of assumptions about the exclusivity of loan contracts and the competitive structure of the informal sector the conclusions are drawn together in the form of five proposals for public policy