environmental controls in extractive industries diverging from the literature on optimal resource extraction to consider the effects on a competitive resource industry s extraction rate of environmental controls or taxes designed to limit residual discharge this analysis embeds environmental regulations in a dynamic model in which a mineral industry uses physical capital to extract a nonrenewable resource from a fixed stock the analysis considers only flow pollution the most important pollutant being sulfur dioxide emissions from smelting and the leaking of toxic metals into ground water from mine tailing a comparison of controls and pollution taxes finds it impossible to design a fixed emission standard that will lead to optimal industry behavior the author designs a variable standard that can be firm specific in order to encourage resource conservation 32 references 2 figures

farm household production efficiency evidence from the gambia this article investigates the economic efficiency of farm households with an application to the gambia the efficiency analysis is conducted not at the farm level but at the household level thus capturing the importance of off farm activities output based measures of technical allocative and scale efficiency are generated using nonparametric measurements an econometric analysis of factors affecting the efficiency indexes is then conducted using a tobit model technical efficiency is fairly high indicating that access to technology is not a severe constraint for most farm households the cost of scale inefficiency is modest allocative inefficiency by contrast is found to be important for the majority of farm households on the basis of the tobit results imperfections in markets for financial capital and nonfarm employment contribute to significant allocative inefficiency

optimal bank reorganization and the fair pricing of deposit guarantees abstract when should regulators close a financially ailing bank fdic practice in the us has moved in the direction of early closure in contrast banking regulators in japan continue to follow a more patient approach this paper analyses a series of models in which closure rules and bailout policies arise endogenously through the interaction of i regulators attempts to minimize discounted expected bankruptcy costs and ii equity holders incentives to recapitalise banks we characterize subsidy policies for distressed banks that implement socially optimal closure rules at minimum financial cost to regulators and which reduce moral hazard

alternative forms of deposit insurance pricing and bank incentive issues abstract this paper derives formulas for a deposit insuring agency s liability and hence a fair value deposit insurance premium and the equilibrium value of bank equity considering a wide variety of factors affecting individual bank risk both fixed rate and variable rate risk sensitive insurance systems are analyzed consideration is made as to whether the deposit insuring agency makes direct payments to depositors or arranges mergers following bank closings the effect of these various policy choices on banks incentive for risk taking is also analyzed

banking competition risk and regulation in a dynamic framework commercial banks compete for customers by setting acceptance criteria for granting loans while taking into account regulatory requirements by easing its acceptance criteria a bank faces a trade off between attracting more demand for loans thus making higher per period profits and deterioration in the quality of its loan portfolio thus tolerating a higher risk of failure our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria and that increased competition in the banking industry leads to riskier bank behaviour it is shown that risk adjusted regulation is effective in an extension of our basic model we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator even though issuing equity is more expensive than attracting deposits

debt in industry equilibrium this article shows 1 how entry and exit of firms in a competitive industry affect the valuation of securities and optimal capital structure and 2 how given a trade off between tax advantages and agency costs a firm will optimally adjust its leverage level after it is set up we derive simple pricing expressions for corporate debt in which the price elasticity of demand for industry output plays a crucial role when a firm optimally adjusts its leverage over time we show that total firm value comprises the value of discounted cash flows assuming fixed capital structure plus a continuum of options for marginal increases in debt article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

dynamic adjustment to land taxation policy neutrality and welfare implications abstract in this paper we use a dynamic three sector model to examine the neutrality and welfare effects of land income taxes we find that 1 taxes that are neutral in long run equilibrium need not be neutral in the short run 2 short run neutrality depends upon the tax treatment of development costs and losses and 3 many of the neutrality results hold under both static and rational expectations assumptions we also find that even without externality assumptions nonneutrality in the short run does not necessarily entail a welfare cost and may be welfare enhancing when agents have less than perfect foresight

estimation and decomposition of technical efficiency for sugarbeet farms this study computes technical efficiency for idaho sugarbeet farms and decomposes it into pure technical efficiency scale efficiency and congestion efficiency using nonparametric procedures the results indicate that the average efficiency is 0 88 with 45 of the farms in the sample exhibiting full efficiency improper scale operation and input overutilization are the major sources of inefficiency for remaining farms technical efficiency is independent of farm size a tobit model was used to examine the impacts of variables such as farm size specialization tenancy position hired labour location and managerial ability on efficiency inefficiency in sugarbeet production results in a shortfall of potential revenues not only for producers but also for landlords and processors

insuring banks against liquidity shocks the role of deposit insurance and lending of last resort it has long been recognized that banks simultaneous provision of monitoring and liquidity services is advantageous but leaves them susceptible to liquidity shocks that may culminate in a system failure because a system failure is costly this provides a rationale for adopting arrangements including a lender of last resort and deposit insurance di to insure banks against liquidity shocks these arrangements have proven themselves very successful but they have also been the source of problems researchers have identified some of the main sources of these problems and have suggested ways to improve the design of these arrangements but there are still many issues that remain unaddressed this paper reviews the literature on the two arrangements that most countries have adopted to insure banks against liquidity shocks a lender of last resort and di and compares the design of these arrangements across countries the paper ends with a brief summary of the key lessons learned about the design of these arrangements and the issues related to them that remain unaddressed copyright blackwell publishers ltd 2006

appearance and reality in deposit insurance the case for reform abstract this paper argues that the staffs and explicit insurance reserves of u s deposit insurers have been overwhelmed by de facto financial disaster the full costs of financing federal deposit insurance have become enormous and increasingly inequitable in distribution to reduce voluntary risk taking authorities must reprice and redesign the system of de facto deposit insurance coverage six complementary reforms are discussed 1 accounting for institutional assets liabilities and net worth at market value 2 enhancing opportunities for deposit insurers to manage their risk exposure 3 recalibrating insurance coverages 4 imposing risk rated premiums 5 mixed private and governmental competition in deposit insurance and 6 constraining insurance agency and federal reserve authority to bail out insolvent institutions

optimal bank capital with costly recapitalization we study optimal bank capital choice as a dynamic trade off between the opportunity cost of equity the loss of franchise value following a regulatory minimum capital violation and the cost of recapitalization we introduce a recapitalization delay that results in a strictly positive probability of capital adequacy violation we calibrate the model to bank accounting return data and evaluate the model s ability to explain observed bank capital ratios differences in return volatility explain a significant fraction of the cross sectional variation in bank capital ratios differences in the level of capital market imperfections across banks constitute a secondary explanation

how does equity capital cost affect bank performance during a financial crisis this article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager s performance reveals the like of higher equity return and the dislike of higher equity risk we derive two main results first an increase in the bank s equity capital cost from an increase of the interest rate of the federal funds results in a reduced loan risk taking at an increased optimal bank interest margin implying better bank performance second by ignoring the dislike we find that the better performance is reinforced during a financial crisis but is reduced during a normal time financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities

microprudential regulation in a dynamic model of banking this paper studies the quantitative impact of microprudential bank regulations on bank lending and value metrics of efficiency and welfare in a dynamic model of banks that are financed by debt and equity undertake maturity transformation are exposed to credit and liquidity risks and face financing frictions we show that 1 there exists an inverted u shaped relationship between bank lending welfare and capital requirements 2 liquidity requirements unambiguously reduce lending efficiency and welfare and 3 resolution policies contingent on observed capital such as prompt corrective action dominate in efficiency and welfare terms noncontingent capital and liquidity requirements

economic efficiency in farm households trends explanatory factors and estimation methods factors explaining differences in economic efficiency between farms are of major interest to owners managers and other stakeholders as they strive to improve earnings and improve the chances of firm survival this study is undertaken to improve our understanding of interfarm differences in and opportunities to improve farm household efficiency in utilizing their land labor and capital resources to achieve household objectives the technical allocative and scale efficiencies of farm households are estimated using a nonparametric output based data envelopment analysis dea of a panel data set from 1993 to 2006 single and double bootstrapping procedures are used to estimate technical efficiency initial technical efficiency assuming variable returns to scale tev is estimated to be 0 83 using single bootstrapping the average bias corrected tev estimate is 0 70 using double bootstrapping the tev estimate is 0 72 allocative efficiency is estimated to be 0 81 scale efficiency is estimated to be 0 93 the only factor that is consistently associated with higher technical efficiency across analysis methods and years is larger farm size as measured by the log of farm income the significance of other factors changes with analysis methods

creditor races and contingent claims abstract recent research has begun the task of integrating contingent claims analysis with modern corporate finance by incorporating strategic behaviour in dynamic models of corporate security valuation this paper reports on and illustrates these developments by presenting a simple pricing model in which two debt holders with incomplete information about each other s type decide when to foreclose on a financially distressed firm

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

bank capital regulation in a barrier option framework abstract the barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank the regulator insurer of a bank owns a down and in call option on the bank assets which can be balanced against the expected coverage cost raising the regulatory barrier critical asset level triggering bank closure leads to a transfer of wealth from stockholders to the insurer and reduces stockholder incentives to increase asset risk empirical tests on a sample of 152 one bank holding companies show that regulatory barriers are priced in the stock market and are inversely related to tier 1 leverage ratios

aspects of monetary and banking theory and moral hazard we consider two problems in monetary and banking theory in this paper the first of these deals with differences between monetary and tax transfer resolutions of risk sharing problems in overlapping generations 12 15 models of fiat money under uncertainty our second contribution the scenario for which is also motivated in part by interventions needed for risk sharing reasons is an attempt to provide a rationale for interest rate controls on the liabilities of intermediaries that invest in risky assets both models consider environments in which uncertainty exists private markets are incomplete and most importantly some material payoff relevant actions are not perfectly observable the goal of this research is to provide further momentum to theoretical developments that serve to integrate information based models of investment and intermediation with theories of unbacked fiat money and the control of monetary institutions in recent years there has been a great deal of research interest in explicating the micro economic foundations of fiat money i e valued government created assets which are unbacked by payoffs from productive investments or taxes and the uniqueness and criteria for regulation of depository intermediary firms important contributions have been among others the works of bryant 3 the papers in kareken and wallace 7 fama 6 merton 10 and diamond and dybvig 5 asymmetric information based foundations of intermediary functioning have been provided by the papers of leland and pyle 9 followed by diamond 4 in most of this work there has usually been a dichotomy between models that focus on providing and analyzing a role for fiat money and those which analyze the rationale regulation and pricing of capital market intermediaries and their contracts regrettably we persist in having this dichotomy in our work some recent work like fama 6 does merge these two aspects however by emphasizing perfect information complete market environments in which the financial structure irrelevance theorems of modigliani and miller 10 apply models of unbacked fiat money many different types of which are to be found in kareken and wallace 7 can be usefully dichotomized as being of two types in the first fiat money serves the function of opening up or expanding trading opportunities among contemporaneously living agents who have endowment

bank capital regulation with random audits we consider a model of optimal bank closure rules cum capital replenishment by banks with poisson distributed audits of the bank s asset value by the regulator with the goal of eliminating ameliorating the incentives of levered bank shareholders managers to take excessive risks in their choice of underlying assets the roles of tax or other subsidies on deposit interest payments by the bank and of the auditing frequency are examined c 2002 elsevier science b v all rights reserved

technical and scale efficiency of crop and livestock farms in poland does specialization matter l efficacite technique et d echelle des exploitations agricoles polonaises est calculee par la methode data envelopment analysis l etude porte sur les differences selon l orientation productive en grandes cultures ou elevage a deux dates de la transition en 1996 et en 2000 l article examine de plus la variabilite statistique des resultats d efficacite ceux ci sont revus a la lumiere des intervalles de confiance construits gr ce au bootstrapping en moyenne les exploitations d elevage ont une efficacite technique et d echelle superieure aux exploitations de grandes cultures l efficacite d echelle est toutefois tres elevee pour les deux orientations l inefficacite technique semble donc due principalement a une inefficacite technique pure c est a dire a une gestion inefficace la faible education des agriculteurs en est une raison majeure en 2000 64 des exploitations d elevage et 86 des exploitations de grandes cultures presentaient des retours d echelle croissants ce resultat suggere des recommandations politiques afin de supprimer les incitations a garder une structure operationnelle fragmentee et de stimuler le marche de la terre il s agit en particulier d ameliorer la legislation concernant la location des terres et de modifier le systeme de retraite agricole

energy vs the environment optimal development programs that explicitly account for the environmental impacts of extracting and consuming energy resources are analyzed following lee and orr 1975 we allow for the possibility of storing the resource above ground once it has been extracted when environmental disruption results from resource extraction as in the case of strip mining or there are environmental costs associated with resource consumption for example the social costs of air pollution from fuel consumption then the socially optimal rates of resource consumption and extraction depend on the severity of the environmental impact and on the prospects of storing the resource above ground

allocating bank regulatory powers lender of last resort deposit insurance and supervision abstract we examine the optimal institutional allocation of bank regulation we find that centralizing the lending of last resort and deposit insurance functions in a regulator leads to excessive forbearance it also leads the bank to invest suboptimally in loans giving this regulator supervision improves on both problems but it still does not lead to the efficient outcome in the multi regulator arrangement we find that it is beneficial to give supervision to the deposit insurer the choice between the unified regulator arrangement and the multi regulator arrangement involves a trade off the multi regulator arrangement reduces the forbearance problem at high levels of liquidity shortage but may exacerbate it at low levels these results assume the absence of information frictions when banks are better informed than regulators we show that regulators may have an incentive not to share private information suggesting it is important to consider regulators informational advantages when deciding on the allocation of regulation

costly information production equilibria in the bank credit market with applications to credit rationing in this paper we explore the nature of equilibria in an asymmetrically informed bank credit market in which credit applicants know their own intrinsic default risks but potential lenders can discover these default risks only by expending resources to produce information the resolution of informational asymmetries in the capital market is in the contemporary view considered a very important function served by financial intermediaries like commercial banks and in the opinion of some even the primary justification for their existence 17 we therefore focus on how the presence of asymmetric information in particular the response of expected profit maximizing banks to it affects the equilibrium prices and quantities of credit offered in the banking system

optimal bank reorganization policies and the pricing of federal deposit insurance optimal dynamic regulatory policies for closing ailing banks and for deposit insurance premia are derived as functions of the rate of flow of bank deposits and interest rate on deposits the economy s risk free interest rate and the regulators bank audit administration costs under competitive conditions the threshold assets to deposits ratio below which a bank should be optimally closed is shown to be greater than or equal to one optimal deposit insurance premia and probabilities of bank closure are shown to be nondecreasing in the bank s risk on investment and nonincreasing in the bank s current assets to deposits ratio should regulatory agencies close reorganize an ailing federally insured financial institution if so when the recent record rate of failures of savings and loans associations s ls has renewed the urgency of this question the regulatory agencies are empowered but not required to reorganize financial institutions that are statutorily insolvent i e have zero or negative regulatory net worth recently regulators have in many instances permitted insolvent financial institutions to remain in operation 2 also while debating on the increase of the proposed funding of the federal deposit insurers the u s congress argued whether it would be desirable and if so when to close more s ls thus when regulators should close a troubled financial institution has become a major question of bank regulatory policy while the existing academic literature provides powerful insights into the structure and pricing of the insurers liability this literature offers very little guidance regarding the timing of bank reorganizations 3 indeed to the best of our knowledge the value of the federal

bank m a a market power story this paper analyzes capital market reactions to international bank m a we investigate the combined stock return patterns of targets bidders and their peers upon takeover announcement and closing or withdrawal we distinguish five common m a hypotheses and relate characteristic and mutually exclusive abnormal stock return patterns to each hypothesis the findings show that there are more investors who believe in gains through the exploitation of market power by the post merger entity than investors who believe in any of the other motives tested in the paper in a multinomial logistic model we show that patterns related to market power significantly concur with large relative target size intra industry mergers and increasing market concentration suggesting a substantial lessening of competition through m a

deposit insurance and regulatory forbearance are caps on insured deposits optimal considerable academic and public policy attention has been focused on the deposit insurance contract and in particular its mispriced deposit insurance premium this has resulted in a burgeoning literature on the optimal pricing of deposit insurance guarantees see merton 1977 1978 pyle 1983 ronn and verma 1986 acharya and dreyfus 1989 and allen and saunders 1993 for examples in addition other authors have studied the ability of uninsured depositors or debtholders to provide market discipline in the form of marketbased risk premia in the absence of explicit risk based insurance premia see for example ellis and flannery 1989 and avery belton and goldberg 1988 however a third control instrument namely the setting of ceilings or caps on the amount of deposit insurance coverage has not been subject to rigorous investigation in particular while the fdic 1989 and others have considered the general pros and cons of limiting the scope of deposit insurance for instance by lowering the 100 000 ceiling on the amount of insurance per account or by restricting the brokering in of deposits l no formal analysis of the role of coverage caps can be

what makes a bank risky insights from the optimal capital structure of banks abstract assessing the risk of bank failures is the paramount concern of bank regulation this paper argues that in order to assess the default risk of a bank it is important to consider its financing decisions as an endogenous dynamic process we provide a continuous time model where banks choose the deposit volume in order to trade off the benefits of earning deposit premiums against the costs that occur at future capital structure adjustments the bank s asset value may suffer from shocks and follows a jump diffusion process our main finding is that the dynamic endogenous financing decision introduces an important self regulation mechanism where it is crucial to distinguish between the diffusion risk and the jump risk component

us bank credit spreads during the financial crisis this paper argues that first passage time models are likely to better than affine hazard rate models in modelling stressed credit markets and confirms their superior performance in explaining the behavior of credit default swap rates for the major us banking groups over the period of the financial crisis affine models find it hard to deal with periods of exceptionally high or low default risk given their assumption of a constant rate of mean reversion in the hazard rate in contrast first passage time models are specified in terms of the distance to default rather than the hazard rate the persistence of shocks varies with the distance to default allowing the default curve to invert sharply compress when the distance to default is low high i use an empirical version of the collin dufresne et al 2003 model which contains a smoothing parameter that allows it to control the relative effect of these shocks on the short spreads and can be interpreted as an information lag

unintended consequences of the market risk requirement in banking regulation abstract we analyze a bank that operates under the basel credit and market risk requirements and that maximizes its value through recapitalizations dividends and liquid asset investments according to our model the market risk requirement may postpone recapitalization and this way increase the bank s default probability we show that this is indeed the case if the expected return and volatility of the liquid asset portfolio are high i e then the market risk requirement raises the default probability of the bank in this sense the market risk requirement is inefficient