government failure rent seeking and capture the design of climate change policy climate change has been described as one of the biggest market failures less attention has been paid to the government failures associated with interventions and the implications for the design of climate change policy this paper sets out the main types of government failure and shows how the processes of rent seeking and capture help to explain both why the choice of targets and instruments has been so inefficient and also why the resulting costs of carbon mitigation are likely to be considerably higher than the estimates provided by the stern review and other recent studies two examples are given emissions trading and renewables policy a number of generic conclusions are drawn about how taking account of government failures can help to improve policy design and limit the impact of the climate change pork barrel which existing policies have created copyright 2010 oxford university press

the sustainable borders of the state economic crises have historically set the stage for the reconfiguration of the economic borders of the state current concerns focus on debt and associated intergenerational issues such as pensions infrastructure and the environment the sustainable state is designed to put in place a framework for integrating these intergenerational issues alongside the traditional focus on macroeconomic policy static market failures and transfers the building blocks include the accounting framework and in particular a national balance sheet setting out assets and liabilities and providing for capital maintenance over time to support these assets and to provide for sufficient investment the sustainable state requires an appropriate level of savings and institutions to translate these savings into investments two components are the deployment of regulatory asset bases to underpin long term sunk and fixed costs given the time inconsistency problem in government s commitments and the development of financial intermediaries such as an infrastructure bank copyright 2011 oxford university press

the assessment financial innovation curse or blessing as financial services go through one of their most radical restructurings of this century this as sessment analyses the factors underlying these changes a picture of the function of different fi nancial institutions emerges which allows the concerns that have been expressed about recent developments in financial markets to be re evaluated the worrying implication is that systems for correcting substantial financial disruption are not yet in place

empirical studies of financial innovation lots of talk little action this paper reviews the extant empirical studies of financial innovation adopting broad criteria we could find only somewhat more than two dozen studies and since some financial innovations are examined by more than one study they cover only seventeen phenomena especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation e g regulation taxes unstable macroeconomic conditions and ripe technologies that have been advanced in descriptive articles we offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare among our suggested culprits is an absence of accessible data we urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

intraplay communication in repeated games the paper examines repeated games where players have the possibly costly option of initiating bargaining over continuation payoffs between plays of the stage game a solution concept for these augmented games renegotiation perfectness is used to characterize concepts like subgame perfectness and pareto perfectness in the underlying repeated game and to extend pareto perfectness to infinite horizon games when bargaining is costly renegotiation may be indispensable off the equilibrium path for supporting renegotiation perfect outcomes sufficient conditions for a renegotiation perfect profile to support payoffs which are not supported by and not dominated by some subgame perfect profile are developed in the infinite horizon case journal of economic literature classification number c70

the dynamics of multimarket competition in exploration and exploitation activities prior studies of multimarket contact have investigated exploitation rather than exploration activities we contrast effects of multimarket contact on entry and exit dynamics in these two settin

do meetings in smoke filled rooms facilitate collusion the sherman act prohibits firms from discussing prices in meetings traditional thought suggests that this prohibition makes it harder for firms to collude and economists have concluded that the sherman act operates in the public interest i provide an alternative explanation for the act that also accounts for the small sanctions chosen by the legislature when firms interact in a dynamic environment in which the law helps them to prevent renegotiation the firms may benefit from the law that makes it costly but not very costly to meet to discuss prices the sherman act may help firms to collude

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

multi market collusion with demand linkages and antitrust enforcement this paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand related markets we show that cartel prosecution can have a knock on effect bringing down a cartel in one market reduces profits and cartel stability and leads to the break up of the cartel in the adjacent market cartel prosecution can also have a waterbed effect disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets we discuss the impact of dynamic cartel formation on consumer surplus explore antitrust spillovers the optimal scope of antitrust interventions and cartel formation with local firms

optimal collusion under imperfect monitoring in multimarket contact abstract we investigate optimal collusion in repeated multimarket contact under imperfect public monitoring where two firms operate in m markets and in each market each firm s decision and public signals are binary we show that in an optimal pure strategy strongly symmetric perfect public equilibrium the size of efficiency loss is equal to that in the market with the most tempting deviation under single market contact furthermore we show a sufficient condition under which the symmetric equilibrium is optimal for joint payoff maximization among any perfect public equilibrium

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

trade negotiations domestic policies and the most favored nation clause this paper illustrates how restricting trade instruments to non discrimination links trade agreements to non trade agreements and under certain conditions helps governments further lower tariffs and or domestic standards policies these conditions are i governments objective functions are sufficiently concave with respect to domestic standards policies ii domestic standards are sufficiently valued and iii policies are strategic complements these can then be used as a rationale for restricting safeguard measures to non discrimination ce texte montre comment le fait de restreindre les instruments de politique commerciale a la seule poursuite de liens commerciaux libres de discrimination relie accords commerciaux et non commerciaux et a certaines conditions aide les gouvernements a reduire encore davantage les tarifs douaniers et ou les normes politiques nationales ces conditions sont que i les fonctions objectives soient suffisamment concaves par rapport aux normes politiques nationales ii les normes nationales soient suffisamment valorisees et iii les politiques soient des complements strategiques ces arguments fournissent le rationale pour limiter les mesures de protection a la seule non discrimination

multilateral contracting and the employment relationship this paper studies the structure of the employment relationship in organizations it investigates the trade off firms face between making commitments to their workforce as a whole multilateral relational contracts and making more limited commitments to individuals or smaller groups of employees bilateral relational contracts multilateral contracts bind the firm more strongly to implicit commitments improving motivation but are difficult to adjust in response to changes in the environment bilateral contracts make workforce changes easier to implement the framework helps to explain the use of relative performance evaluation why firms rely on temporary employees and the adoption of two tier workforces

annual bonus schemes and the manipulation of earnings abstract using confidential data of executive specific short term bonus plans we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments as such this paper extends the work of healy 1985 like healy we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum unlike healy we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus we demonstrate that healy s results at the lower bound are likely to be induced by his methodology

managed trade with imperfect information central to the general agreement on tariffs and trade gatt agreement signed in 1947 by 23 nations was the reduction of tariffs this had the direct result of bringing down the average ad valorem tariff on industrial goods from over 40 in 1947 to under 4 by the time of the uruguay round in 1995 furthermore following the kennedy round of 1969 the objectives of the gatt and of its successor the world trade organization wto were expanded so as to help bring down nontariff barriers as well remarkably these reductions were achieved in the absence of any external enforcement mechanism intended to punish gatt wto violators commitments were kept only as long as nations continued to view adherence to the agreements as being in their mutual interest 2 it is precisely because the contracting parties of the gatt wto have made it their top priority to reduce trade distortions that the subject of safeguards as an exception to the general rule of liberalizing trade comes into play when governments know they can increase tariffs temporarily in the event of a surge in import volume they agree to negotiate a more substantial tariff reduction during the negotiation stage 3 the move toward special protection is motivated in part by the fact that volatility in trade flows has become a more important source of domestic disruption these special protection policy tools are typically used to limit the rate of import or export expansion from that which would occur in the absence of intervention they are aimed at mitigating the underlining changes in trade flows where the basic insight developed in the literature is consistent with different government objectives to this end corden 1974 has argued that countries rarely initiate protection for the purpose of capturing the terms of trade gains presumably because of the fear of future retaliation by their trading partners countries

big bang new beginning or beginning of the end thirty years ago the 1986 oxford review of economic policy assessment of financial innovation foretold the events leading up to the financial crisis and the factors that lay behind it those same insights suggest significant deficiencies in the response to the financial crisis and a failure to identify the limits to as well as requirements for strengthened regulation in particular there is a need for institutional reforms that have received insufficient attention to date

on interdependent supergames multimarket contact concavity and collusion abstract following bernheim and whinston 1990 this paper addresses the effects of multimarket contact on firms ability to collude real world imperfections tend to make firms objective function strictly concave and market supergames interdependent firms payoffs in each market depend on how they are doing in others then multimarket contact always facilitates collusion it may even make collusion sustainable in all markets when otherwise it would not be sustainable in any the effects of conglomeration are discussed multigame contact is shown to facilitate cooperation in supergames other than oligopolies as long as agents objective function is submodular in material payoffs journal of economic literature classification numbers c72 d43 l13 l21

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

monetary and fiscal policy in the great moderation and the great recession in this paper we argue for a new approach to monetary and fiscal policy during the great moderation the inflation targeting regime worked well central banks used the interest rate to stabilize inflation and subject to inflation being controlled stabilized the level of demand fiscal policy exerted discipline over the public sector deficits thereby indirectly managing the level of public debt such fiscal housekeeping worked well because the monetary authorities were stabilizing the economy but once private sector deleveraging led to the great recession and interest rates hit their zero bound the outcome could no longer be managed by monetary policy recovery depended on the automatic stabilizers output and tax revenues have fallen public debt has been created and assets have been created which a deleveraging private sector wishes to hold but the effect has been very gradual recovery would have been faster if fiscal policy had been responsible for the restoration of full employment in an environment which tolerated the necessary rises in public debt conversely policies of austerity designed to reduce public debt have slowed the recovery growth will not be resumed until the private sector begins to invest strongly again creating the financial assets which the private sector wishes to hold thereby enabling public debt to be retired this has not yet happened because the private sector correctly does not believe that macroeconomic policy is capable of sustaining a strong recovery

additional evidence on bonus plans and income management abstract we extend healy 1985 by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980 1990 period contrary to healy we find that when earnings before discretionary accruals fall below the lower bound managers select income increasing discretionary accruals and vice versa we believe that our results are more consistent with the income smoothing hypothesis than with healy s bonus hypothesis however mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results

asymmetric information and the new theory of the firm financial constraints and risk behavior this paper summarizes recent developments in the theory of the firm that have arisen in examining the implications of imperfect information it shows that a wide range of these models have similar implications for the likely reaction of firms to external environmental and policy changes two significant implications are 1 that firms behave as if they are risk averse individuals maximizing a utility function of terminal wealth profitability even when the risks involved are unsystematic and 2 in many circumstances because this utility function is likely to be characterized by decreasing absolute risk aversion firms are likely to respond significantly and positively to changes in cash flow and profitability together these two phenomena are able to account for a wide range of firm behaviors that have been empirically observed both formally and informally and that are difficult to explain in terms of the traditional theory of the firm furthermore the responses of such firms to policy interventions are likely to differ significantly from those of neoclassical firms this abstract was borrowed from another version of this item

smoothing income in anticipation of future earnings abstract recent theory argues that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance we find support for this theory our evidence suggests that when current earnings are poor and expected future earnings are good managers borrow earnings from the future for use in the current period conversely when current earnings are good and expected future earnings are poor managers save current earnings for possible use in the future however sensitivity analysis indicates that we cannot rule out selection bias as a potential alternative explanation for our findings

an explanation for accounting income smoothing it is widely believed that corporate managers often engage in income smoothing taking actions to dampen fluctuations in their firms publicly reported net income one reason given for this is that managers think that investors pay more for a firm with a smoother income stream see ronen and sadan 1981 while there have been many empirical studies attempting to document whether or not income smoothing actually occurs there has been little exploration of why a manager might rationally want to smooth his firm s income explaining why smoothing might be observed and how it can result in an increased stock price is the focus of this paper in two recent studies lambert 1984 and dye 1988 demonstrate in agency settings that a risk averse manager who is precluded from borrowing and lending in the capital markets has an incentive to smooth his firm s reported income in this paper in contrast it is shown that within a market setting an incentive exists for a manager to smooth income that is independent of either risk aversion or restricted access to capital markets the market setting is also useful in that it allows for the analysis of the effect of income smoothing on stock prices it is shown here that if a manager can choose which of two periods to recognize certain income he may prefer the choice that is expected to

unlucky cohorts estimating the long term effects of entering the labor market in a recession in large cross sectional data sets this paper studies the differential persistent effects of initial economic conditions for labor market entrants in the united states from 1976 to 2015 by education gender and race using labor for