corrective taxes under oligopoly with inter firm externalities pollution externalities between polluters should be taken into account in the design of corrective taxes when the externalities are substantial and or the number of polluters is large the effluent levies on these firms do not necessarily result in a deadweight loss consequently the second best tax exceeds the marginal social cost of pollution a more general rule is that the tax rate should be greater than the marginal social cost of pollution if and only if a marginal increase in the tax rate results in opposite effects on the changes of equilibrium emission level and output

competition and microfinance abstract competition between microfinance institutions mfis in developing countries has increased dramatically in the last decade we model the behavior of non profit lenders and show that their non standard client maximizing objectives cause them to cross subsidize within their pool of borrowers thus when competition eliminates rents on profitable borrowers it is likely to yield a new equilibrium in which poor borrowers are worse off as competition exacerbates asymmetric information problems over borrower indebtedness the most impatient borrowers begin to obtain multiple loans creating a negative externality that leads to less favorable equilibrium loan contracts for all borrowers

the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

the supply and demand side impacts of credit market information abstract we utilize a unique pair of experiments to isolate the ways in which reductions in asymmetric information alter credit market outcomes a guatemalan microfinance lender gradually started using a credit bureau across its branches without letting borrowers know about it one year later we ran a large randomized credit information course that described the existence and workings of the bureau to the clients of this lender this pairing of natural and randomized experiments allows us to separately identify how new information enters on the supply and the demand sides of the market our results indicate that the credit bureau generated large efficiency gains for the lender and that these gains were augmented when borrowers understood the rules of the game the credit bureau rewarded good borrowers but penalized weaker ones increasing economic differentiation

pigouvian taxes under imperfect competition if consumption depends on emissions the paper considers environmental regulation of a consumption good and an externality which influence demand and costs in a nonseparable way under monopoly two instruments are always required for first best the pigouvian tax is more complicated than anticipated

debt futures and options optimal price linked financial contracts under moral hazard and limited liability this paper characterizes the optimal financial contract between a risk neutral entrepreneur and risk neutral lender investors when the entrepreneur has limited liability there is moral hazard and the investor payoff function can depend on both output and output price but is nondecreasing in output in this setting the optimal contract is a price contingent commodity bond that can be replicated by combining pure debt commodity futures and commodity call option contracts although a pure commodity bond contract is sometimes optimal a pure debt contract is almost never optimal various properties of the entrepreneur s optimal price contingent promised payment are described copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

sharing default information as a borrower discipline device abstract creditors often share information about their customers credit records besides helping them to spot bad risks this acts as a disciplinary device if creditors are known to inform one another of defaults borrowers must consider that default on one lender would disrupt their credit rating with all the other lenders this increases their incentive to perform however sharing more detailed information can reduce this disciplinary effect borrowers incentives to perform may be greater when lenders only disclose past defaults than when they share all their information in some instances by fine tuning the type and accuracy of the information shared lenders can raise borrowers incentives to their first best level

can the new forms of investment substitute for the old forms a transaction costs perspective this paper uses transaction costs theory is used to explain the features of the new contractual alternatives to foreign direct investment the new forms to assess their efficiency and to forecast their future development

internationalization of business services an interregional analysis o farrell p n wood p a and zheng j 1996 internationalization of business services an interregional analysis reg studies 30 101 118 internationalization behaviour by business service firms in scotland and the south east of england is analysed evidence is outlined on level of internationalization time profile of entry into foreign markets location of foreign markets mode of entry into first and largest foreign markets and behavioural aspects of international market selection and entry mode choice initial foreign market entries occurred in the early 1960s with south east business service organizations entering foreign markets earlier while there was a surge in internationalization by scottish businesses after 1988 few firms engaged in a process of explicitly choosing a foreign market to enter since the most common entry mechanism was responding to a particular ad hoc order similarly almost 70 of firms made the mode choice decision without considering any alternative modes o farrell p

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

pollution control through price incentives the role of rent seeking costs in monopoly markets abstract we consider the effect of rent seeking costs on the design of an efficient pollution tax earlier work has concluded that a pollution tax levied on an otherwise unregulated monopoly should always be less than the pigouvian rate this study demonstrates that if rent seeking costs are present the appropriate discharge tax for a monopoly firm can equal or exceed the marginal damage from its pollution calculations reveal that under a wide range of conditions the ideal corrective tax for a monopoly firm is very close to the fully internalizing pigouvian tax

reputation in a public goods game taking the design of credit bureaus to the lab abstract we present the results of a new laboratory experiment designed to mimic the ways in which credit bureaus will alter microfinance markets where loans are taken in groups bureaus can build reputations for borrowers at the group or the individual level and the optimal contract is not obvious in a modified public goods game with ejection and re assignment played by guatemalan micro entrepreneurs we find the use of group reputation to be effective in increasing contributions given the costs of transitioning microfinance bureaus to the sharing of individual information our results suggest that this change would not be cost effective

informational barriers to credit for migrants evidence from guatemala abstractdoes being a migrant in a developing country cause an individual to receive less access to credit migrant status can be a useful signal for lenders in settings with weak contract enforcement and in the absence of well developed information markets i investigate this contract enforcement based explanation using data on households that have migrated within guatemala to address reverse causality and omitted variable issues i adopt an instrumental variables approach i identify individuals who are most sensitive to violence or crime and who were born in particularly dangerous locations the interaction of these factors causes these individuals to have a higher propensity to move although such migrants are not less likely to apply for loans from formal sources they are significantly less likely to receive them furthermore weak enforcement of contracts dominates alternative explanations of this result such as moral hazard and adverse selection

endogenous communication among lenders and entrepreneurial incentives if banks have an informational monopoly about their clients borrowers may curtail their effort level for fear of being exploited via high interest rates in the future banks can correct this incentive problem by committing to share private information with other lenders the fiercer competition triggered by information sharing lowers future interest rates and future profits of banks but provided banks retain an initial informational advantage their current profits are raised by the borrowers higher effort this trade off determines the banks willingness to share information their decision affects credit market competition interest rates volume of lending and social welfare article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

externally assisted product innovation in the manufacturing sector the role of location inhouse r d and outside technical support makun p and macpherson a d 1997 externally assisted product innovation in the manufacturing sector the role of location in house r d and outside technical support reg studies 31 659 668 this paper examines the role of internal and external technical activity in the product innovation tendencies of new york state manufacturing firms evidence from a sample of electrical industrial equipment producers suggests that innovation rates are significantly higher among firms that subcontract specialized technical work to external consultants a set of logistic regression and discriminant models are presented which show that locational factors play an important role in the innovation relationship specifically the probability of successful product development is found to be noticeably higher in regions that contain rich stocks of advanced producer services the paper concludes with a brief discussion of the role of regional factors in successful product innovation makun p et macpherson a d 1997 l in

credit information systems in less developed countries a test with microfinance in guatemala abstract increases in formal sector lending among the poor have created a need for credit information systems that provide potential lenders with borrower information in this article we present fixed effects estimations that attempt to measure the effect of a newly implemented credit information system in guatemala our results indicate that improved screening effects from the system caused the level of portfolio arrears to decline approximately 2 percentage points after it was implemented in branch offices we observe an even more substantial and significant effect of the information system in reducing late payments that occur during the loan cycle

impact on firms of the use of knowledge external sources a systematic review of the literature this study summarizes the main conclusions from a systematic review of the empirical literature regarding the impact on firms of the use of knowledge external sources universities research institutes and knowledge intensive business services with the aim to organize the literature we classify the different works according to the research question addressed i which firms use knowledge external sources ii do firms using knowledge external sources achieve better results and iii which firms benefit the most from using knowledge external sources stylized facts are that larger more r d intensive and high tech firms are more likely to use knowledge external sources and that use of knowledge external sources is associated to firms higher technical results less attention has been paid to the third question and evidence is not conclusive several recommendations for future research emerge first to take in greater consideration methodological issues so that potential biases in the results caused by sample selection and endogeneity are handled properly second to pay more attention to heterogeneous outcomes third to use continuous indicators of depth and breadth of links allowing for non linear relationships and fourth to extend evidence for developing countries and service industries

the competitiveness of business service firms a matched comparison between scotland and the south east of england o farrell p n hitchens d m w n and moffat l a r 1992 the competitiveness of business service firms a matched comparison between scotland and the south east of england reg studies 26 519 533 in this paper we present a comparative analysis of the competitiveness and performance of matched pairs of business service companies in scotland and south east england several dimensions of performance are investigated for five industries market research management consultancy product design graphic design and advertising value added per person is one quarter higher in the english offices and they achieved a much greater degree of export orientation one fifth of sales than the scottish firms at 4 possible demand and supply side causes of such differences are reviewed and potential policy responses considered o farrell p n hitchens d m w n et moffatt l a r 1992 la competitivite des prestataires des services aux entreprises l ecosse par comparaison avec l angleterre du sud est

credit reporting relationship banking and loan repayment how does information sharing between lenders affect borrowers repayment behavior we show in a laboratory credit market that information sharing increases repayment rates as borrowers anticipate that a good credit record improves their access to credit this incentive effect of information sharing is substantial when repayment is not third party enforceable and lending is dominated by one shot transactions if however repeat interaction between borrowers and lenders is feasible the incentive effect of credit reporting is negligible as bilateral banking relationships discipline borrowers information sharing nevertheless affects market outcome by weakening lenders ability to extract rents from relationships copyright 2007 the ohio state university

determinants of foreign investment of u s advertising agencies this paper investigates the impact of several factors on the foreign investment of u s advertising agencies by using the theories on the determinants of foreign direct investment by manufacturing firms for the two years examined the hypotheses about the impact of host country market size host country geographic proximity firm size firm s international operations experience oligopolistic reaction and presence of home country customers abroad are all confirmed this paper also investigates the impact of oligopolistic reaction among the top ten and the second ten largest agencies and finds a stronger impact for the former

regional patterns of business performance among small and medium sized public accounting firms in new york state sen j and macpherson a 1998 regional patterns of business performance among small and medium sized public accounting firms in new york state reg studies 32 827 838 this paper assesses the extent to which regional variations exist with regard to the growth performance and operating characteristics of small and medium sized firms smfs in new york state s public accounting sector empirical evidence from a regionally stratified survey of 180 accounting firms is presented contrary to popular opinion the results suggest that locational factors play only a modest role in the strategic behaviour of these firms in addition the data suggest that most smfs in this sector have only recently been considering international markets as possible sources of new income it is argued that non local markets and especially foreign ones are not easily tapped by small producer service firms further it is argued that the recent literature on producer service exports must be tempered by a more detailed considera

the experience factor in foreign market entry behavior of service firms the paper examines the effect of international experience on service firms selection of foreign markets and entry modes the investigation utilizes survey date from 151 united states based service firms results on market selection suggest that as their experience increases and becomes geographically more diversified service firms tend to choose markets that are culturally less similar to their home country on entry mode choice the paper departs from traditional linear conceptualizations and hypothesizes a u shaped relationship between experience and propensity for integrated entry modes results generally support the hypothesis the paper explains these findings and describes how service firms resemble and differ from manufacturing firms in their foreign market entry behavior

credit market efficiency and tax policy in the presence of screening costs after establishing the existence of capital market equilibrium in the presence of asymmetric information and screening costs this paper examines tax policies designed to correct the attendant externalities when projects differ in expected returns it is shown to be ambiguous whether costly private screening weakens or strengthens the case for an interest income tax however when projects differ only in riskiness as in the model of stiglitz and weiss screening opportunities cause the efficiency case for tax intervention to disappear

productivity shocks and repayment behavior in rural credit markets a framed field experiment improving rural credit markets requires a good understanding of the root causes of market failures and taking necessary steps to address them this paper investigates the role of productivity shocks in borrowers repayment choices using a framed field experiment that simulated a repeated interaction in an input credit market the analysis finds strong evidence that negative productivity shocks lead to higher default even when they do not induce negative returns this relationship is robust to the presence of an information exchange system enforcing dynamic incentives the findings suggest that recurrent agricultural production shocks resulting from the negative effects of climate change could exacerbate failures in rural credit markets undermining hard won progress toward rural financial inclusion

microfinance and dynamic incentives dynamic incentives where incentives to repay are generated by granting access to future loans is one of the methodologies used by microfinance institutions mfis in this paper i present a model of dynamic incentives where lenders are uncertain over how much borrowers value future loans loan terms are determined endogenously and loans become more favorable as the probability of default becomes lower i show that in all equilibria but one all borrowers default including the most patient ones i then compare equilibria with and without double dipping i show that when credit constrained borrowers have access to multiple loans equilibrium loan terms have to become more favorable to overcome increased gains from default if borrower s access to multiple loans is unforseen by lenders then the default rates go up in the short run finally if lenders use group loans it generates endogenous hyperbolic discounting even though the borrowers are exponential discounters

producer surplus and subsidization of pollution control device a non monotonic relationship regulators have been concerned with the impact of environmental regulation on the profitability of regulated firms there have been numerous grants and subsidy programs to reduce the cost of emission control equipment intuitively there should be a monotonically increasing relationship between profits and the amount of subsidization however the author shows that this may not be so since regulation may establish a collusive outcome amongst oligopolistic competitors the role of the subsidization policy may then be seen as the following given cournot players the regulator may subsidize the emission control device to prevent the industry from reaching a profit superior outcome copyright 1990 by blackwell publishing ltd

the effect of national culture on the choice of entry mode characteristics of national cultures have frequently been claimed to influence the selection of entry modes this article investigates this claim by developing a theoretical argument for why culture should influence the choice of entry two hypotheses are derived which relate culture to entry mode choice one focusing on the cultural distance between countries the other on attitudes towards uncertainty avoidance using a multinomial logit model and controlling for other effects the hypotheses are tested by analysing data on 228 entries into the united states market by acquisition wholly owned greenfield and joint venture empirical support for the effect of national culture on entry choice is found

regional influences on foreign market development by business service companies elements of a strategic context explanation o farrell p n wood p a and zheng j 1998 regional influences on foreign market development by business service companies elements of a strategic context explanation reg studies 32 31 48 the internationalization literature both of manufacturing and services has concentrated upon the issue of entry and largely ignored post entry behaviour and market development a major aim of this paper therefore is to present evidence on foreign market development by business service firms in two uk regions scotland and the south east of england and the amsterdam urban region of the netherlands following a review of the relevance of the internalization approach the development stages paradigm network analysis and a strategic choice framework to internationalization by business services empirical findings are presented from the three regions on trajectories of foreign market development modal shifts the incidence of proactive market strategies and the characteristics of major clients a behaviou

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

the potential bias in producer service employment estimates the case of the canadian space economy footloose information technology producer services are increasingly viewed as the new engines of regional growth and employment creation the claim is often that appropriate government policy can engineer comparative advantage in that direction by means of judicious subsidisation the evaluation of such claims relies on accurate statistical data we argue that attempts to distinguish in survey data or official statistics the subset of services commonly but unofficially known as producer services from consumer and government services may result in a potential bias with implications for public policy an input output model is developed for estimating this bias by decomposing service industry data into its producer and consumer services content this method can give a truer estimate of the actual employment in producer services at various spatial levels we find a systematic bias in official data and a non systematic bias in survey data the model is applicable to countries and regions for which input ou

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

innovation strategy choices in the urban economy this paper analyses how the innovation strategies of individual firms reflect the density diversity and international connectivity of their urban locations it makes three contributions theoretically it argues that observed strategies reflect a series of inter related choices and that each may be influenced differently by the knowledge dynamics of firms locations empirically it uses norwegian community innovation survey data to demonstrate how firms in the capital are less inclined to engage in innovation activities but also more likely to commit strongly once engaged than are comparable firms located elsewhere methodologically it illustrates how the results of sequential regressions on inter related strategy choices differ from those obtained using a more conventional estimation strategy implications for innovation policy and research are drawn

moral hazard and limited liability implications for the theory of the firm this paper presents a theory of the firm based on moral hazard in the provision of effort by an owner manager who borrows money in financial markets under conditions of limited liability the authors examine the relationship between the financial structure of the firm and the effort and output decisions of the owner manager results are reported concerning the determination of the firm s optimal financial structure and concerning the positive and normative implications of financial structure for pure competition and monopoly they also identify a strategic advantage from equity finance under cournot oligopoly copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

information sharing in credit markets we present a model with adverse selection where information sharing between lenders arises endogenously lenders incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers to the size of the credit market and to advances in information technology such incentives are instead reduced by the fear of competition from potential entrants in addition information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market these predictions are supported by international and historical evidence in the context of the consumer credit market a large body of literature on credit markets has shown that asymmetric information may prevent the efficient allocation of lending leading to credit rationing e g jaffee and russell 1976 stiglitz and weiss 1981 or to a wedge between lending and borrowing rates e g king 1986 in this literature informational asymmetries are taken to be exogenous lenders fail to observe some relevant characteristic or action of potential borrowers and have no way of learning about it in some countries however lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers generally known as credit bureaus the latter collect file and distribute the information voluntarily supplied by their members and operate on the principle of reciprocity lenders who do not provide data are denied access to the bureau s files in other countries instead these institutions do not exist the literature offers no guide to identify the factors that lead to endogenous communication between lenders this paper is an attempt to fill the gap information sharing is important for a number of reasons it may increase the degree of competitiveness within credit markets vives 1990 improve

moneylenders and bankers price increasing subsidies in a monopolistically competitive market abstract in many areas of the world a significant part of the cost of obtaining a good or service is the cost of enforcing the contracts entailed in its provision we present models of markets with endogenous enforcement costs motivated by studies of rural credit markets we show that subsidies may have perverse effects under monopolistic competition increasing prices or inducing exit higher prices interest rates result from the loss of scale economies or from negative externalities among suppliers the models are consistent with the puzzling evidence that infusions of government subsidized formal credit have not improved the terms offered by moneylenders

service competitiveness and urban innovation policies in the uk the implications of the london paradox wood p service competitiveness and urban innovation policies in the uk the implications of the london paradox regional studies the policy models currently employed in british cities to promote urban economic innovativeness and competitiveness echo national policies by being science manufacturing and technology based yet the most powerful driver of both modern uk economic success and regional and urban inequality has been london based innovation this does not depend on local technological initiatives but on labour intensive knowledge based processes especially within the financial and business services this paper examines the importance of service based innovation and competitiveness in the english urban system dominated by london and its implications for urban innovation policies these currently offer little support to other uk cities either in gaining from london s experience of service led success or challenging its dominance over the most innovative tradable services wood p les po

environmental policy when market structure and plant locations are endogenous abstract a two region two firm model is developed in which firms choose the number and the regional locations of their plants both firms pollute and market structure is endogenous to environmental policy there are increasing returns at the plant level imperfect competition between the home and the foreign firm and transport costs between the two markets at critical levels of environmental policy variables small policy changes cause large discrete jumps in a region s pollution and welfare as a firm closes or opens a plant or shifts production to from a foreign branch plant the implications for optimal environmental policy differ significantly from those suggested by traditional pigouvian marginal analysis

the internationalization of new and small firms a resource based view abstract this paper seeks to enhance understanding of the internationalization of small and medium sized enterprises smes the study focuses upon the following issues can the characteristics of principal founders businesses and the external environment at one point in time be used to explain at a later date whether a firm is still an exporter or a nonexporter whether exporting firms are larger in size than nonexporting firms whether exporting firms report superior performance than nonexporting firms and whether exporting firms are more likely to survive than nonexporting firms to address these questions this study draws upon a sample of 621 manufacturing construction and services businesses located in twelve contrasting environments in great britain surveyed first in 1990 91 and then re interviewed in 1997 a resource based view is reviewed to identify the range of factors encouraging some owner managed smes to enter export markets four categories of human and financial capital are examined general human capital resources the principal founder s management know how the principal founder s specific industry know how and a principal founder s ability to obtain financial resources that can act as a buffer against random shocks variables relating to resource availability in the external environment were also collected and considered control variables previous studies have highlighted substantial industry differences in the propensity for businesses to enter export markets as well as to survive the principal industrial activity of each business in 1990 91 was therefore considered a control variable variables collected during the 1990 91 survey were selected to explain variations in the propensity to export reported by surviving independent firms in 1997 after elimination of missing values the working sample was reduced to 116 independent firms for this study 86 nonexporters and 30 exporters in 1997 in addition the 21 variables were selected to explain variations in business size in 1997 profit performance relative to competitors reported in 1997 changes in employment over the 1990 91 to 1997 period and business survival over the 1990 91 to 1997 period 213 survivors and 395 nonsurvivors multivariate statistical analysis confirmed that previous experience of selling goods or services abroad is a key influence encouraging firms to export businesses with older principal founders with more resources denser information and contact networks and considerable management know how are significantly more likely to be exporters further businesses with principal founders that had considerable industry specific knowledge are markedly more likely to be exporters businesses principally engaged in the service sectors and those located in urban areas are significantly less likely to be exporters a key finding of this study is that the explanatory variables significantly associated with the propensity to export sales abroad are not the same as those significantly associated with selected size and performance measures the resource based explanatory variables selected fail to significantly detect employment growing firms over the 1990 91 to 1997 period they also fail to significantly distinguish surviving independent firms from nonsurviving firms results from this study will provide policy makers and practitioners with additional insights into the key resource based factors associated with the decision by new and small independent firms to export sales abroad practitioners and policy makers can focus upon the characteristics of principal founders businesses and the external environment to predict the subsequent propensity of an independent firm to be an exporter policy makers and practitioners who want more new and small firms to export outside their local areas may prefer to target their resources and assistance to the relatively smaller proportion of firms that have the business and principal founder profiles that are significantly associated with a firm being an exporter

credit bureau policy and sustainable reputation effects in credit markets welfare increasing reputation effects arise in credit markets when adverse selection gives rise to borrower reputation formation incentives that mitigate moral hazard problems this paper shows that welfare stemming from reputation effects will diminish over time as the private information of borrowers is revealed to lenders in the form of lengthening credit histories aggregate borrower welfare may therefore decrease over time unless reputation effects can be sustained restricting a lender s access to a borrower s credit history via credit bureau policy is shown to be one method of sustaining reputation effects and preventing a decline in welfare copyright 1995 by the london school of economics and political science

the effect of information sharing between lenders on access to credit cost of credit and loan performance evidence from a credit registry introduction abstract using a rich dataset from a commercial bank in albania we utilize the introduction of a public credit registry by the albanian central bank in january 2008 as a natural experiment to analyze the effect of information sharing between lenders on 1 access to credit 2 cost of credit and 3 loan performance our results suggest that information sharing by means of a credit registry does not affect access to or cost of credit but improves loan performance specifically loans granted after the introduction of the credit registry are 3 points less likely of turning problematic representing a 35 reduction of the overall sample average arrear probability we further find that the effect is more pronounced for repeat borrowers and in areas where competition is weak this indicates that information sharing among lenders improves loan performance mainly by disciplining borrowers to repay in their concern about future access to credit

long term financial contracts can mitigate the adverse selection problem in project financing this paper shows that long term contracts can be used in competitive financial markets to separate entrepreneurs of different abilities in equilibrium poor entrepreneurs are financed with a sequence of standard debt contracts good entrepreneurs are financed with a modified contract in which the terms of the second part of the contract are contingent upon whether default is observed at the first date sorting is achieved through the contingent term in the contract in equilibrium good entrepreneurs will typically pay high interest rates to start with followed by relatively lower rates later if they are successful the solution in the paper is contrasted with the use of collateral incomplete information plays an important role in explaining the existence and form of enduring relationships when agents have private information and cannot precommit to future actions and announcements there may be a role for multiperiod contracts see townsend 1982 and hart and holmstrom 1986 such contracts tie future contractual terms to current behaviour moreover these contracts can be self enforcing simply relying upon the self interest of agents to see them through this paper shows that long term relationships may help overcome adverse selection problems the basic idea is very simple entrepreneurs have different probabilities of completing successive projects successfully observation of the returns cannot reveal the type of project however repeated observation of returns does give information about the type of project by the law of large numbers even if there are only two observations at successive dates it may be possible to separate types by making the terms of the contract at the second date conditional upon whether default is observed at the first we consider an entrepreneur who is risk neutral and who has a project at each of two successive dates the projects may require outside finance from banks risk neutral banks offer two period credit contracts to the entrepreneur we assume that there are two types of entrepreneur one with a high probability of completing projects successfully and a second with a low probability the probability of success is private information to the entrepreneur it is not known by the bank the problem of generalising the analysis to more entrepreneur types is discussed in the conclusion in section 2 of the paper it is shown that in this setting an adverse selection problem may arise we consider a sequence of standard debt contracts which specify a fixed payment at each date the important point to note here is that with

the globalization of service multinationals in the triad regions japan western europe and north america in this study we empirically investigate the determinants of foreign direct investment of service multinationals based in the triad regions japan western europe and north america foreign investment decisions of 168 of the largest service firms in nine service industries over the period 1976 1986 are analyzed and hypotheses that are developed based on findings of manufacturing fdi and studies of single service industries are tested using a logistic regression model the applicability of the mne fdi theories to service mnes is tested empirically over a broad range of mne home countries and service industries differences in the international behavior of service mnes based in different countries are uncovered and analyzed