fiscal shocks and budget balance persistence in the eu countries from central and eastern europe this article analyses the time series properties of the fiscal balance in the 10 eu countries from central and eastern europe the persistence of the fiscal balance is analysed by means of unit root tests that account for possible nonlinearities and structural changes the linear and nonlinear unit root tests find only mild evidence in favour of the stationarity hypothesis with asymmetric effects present in a few cases after controlling for structural changes in the data generation processes dgps the results point to stationarity of the series thus in spite of relatively steady headline figures the budget balance processes in the eu countries from central and eastern europe exhibit substantial instability

production costs scope economies and multi client outsourcing under quantity competition abstract two game models are developed based on production costs and scope economies to investigate the widely observed multi client outsourcing mco phenomenon analytical results demonstrate that outsourcers high in house production costs and the advantage of scope economies motivate firms to outsource collectively to an independent vendor under certain conditions if both firms make their outsourcing decisions simultaneously collective outsourcing is one of the two equilibria if both firms make decisions sequentially collective outsourcing becomes the unique equilibrium furthermore the comparative statics of the critical degree of scope economies are examined for the occurrence of mco with regard to diverse market parameters finally it is proved that market prices decrease as the degree of scope economies increases when mco occurs this research helps explain some widely observed phenomena such as malls supply chain cities and the china price

testing intertemporal budget constraints theory and applications to u s federal budget and current account deficits this paper extends previous tests of intertemporal budget balance and present value relationships by expanding the set of allowable deficit processes and by deriving a testable condition that is sufficient to ensure intertemporal budget balance as long as the expected discount rate is strictly positive using these tests the authors find that both the postwar federal budget deficit process and the process governing accumulation of u s assets by foreigners are consistent with intertemporal budget balance copyright 1991 by ohio state university press

meta paradigm change and the theory of the firm many seemingly unrelated debates on the theory of the firm are in fact part of a single deeper transformation of the social sciences as the foundational assumptions of 20th century social science have slowly been shown by science to be false new sub paradigms have emerged which cumulatively drop i theoretical assumptions about markets to explain firms ii epistemological assumptions about knowledge to explain diversity and iii metaphysical assumptions about causality to explain technical change debates occur across each of these levels

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

periodically expanding discounted debt a threat to fiscal policy sustainability this paper models the behaviour of discounted us debt using a markov switching time series model the significance of modelling fiscal policy within this framework derives from the implications it has for long term sustainability the two regime framework used in this paper identifies periods where the present value of us federal debt is expanding versus periods when it is collapsing using an updated data series from hamilton and flavin 1986 a test is conducted to establish if the expanding periods pose a threat to the long run sustainability of fiscal policy for the usa it is found that they do not copyright 2005 john wiley sons ltd

the sustainability of government deficits implications of the present value borrowing constraint this paper introduces a new methodology for evaluating the sustainability of fiscal policy the new methodology is distinguished from most existing tests in two important respects first it allows for stochastic real interest rates and second it is both necessary and sufficient results from the application of the new test suggest that recent fiscal policy in the united states has not been sustainable the paper contrasts its findings with those of james d hamilton and marjorie a flavin 1986 copyright 1989 by ohio state university press

assessing long term fiscal developments a new approach abstract we use a new approach to assess long term fiscal developments by analyzing the time varying behaviour of the two components of government spending and revenue responsiveness and persistence a feature not captured by automatic stabilisers we are able to infer about the sources of fiscal deterioration improvement drawing on quarterly data we estimate recursively these components within a system of government revenue and spending equations using a three stage least square method for eight european union countries plus the us the results suggest that significant changes in the fiscal stance including those related to the current crisis are reflected in the estimates of persistence and responsiveness

the long run relationship between openness and government size evidence from bounds test the bounds test is applied to determine the existence of a level relationship between government size openness terms of trade volatility and external risk using time series data from australia canada england norway sweden and the usa bounds test results show that the existence of a long run relationship in the usa and canada but not in any of the other countries long run parameters are estimated using both autoregressive distributed lag and fm ols procedures results vary from country to country with some evidence that government size is significantly affected by openness and terms of trade volatility however contrary to argument and evidence developed using cross section data empirical evidence presented in this paper show that the size of the government has not changed to mitigate the effect of increased income risks associated with greater openness

cellular telephones in the israeli market the demand the choice of provider and potential revenues this study presents the methodology the estimates and a scenario for forecasting the demand for cellular telephones and their use in israel the analysis was based on the integration of three sub models the estimate of the consumer s decision on whether to purchase a cellular telephone and what type was obtained by using a discrete choice model of the multinomial logit type the total number of cellular telephone purchases to be made in israel during the years 1998 2008 was estimated using a logistic growth model employing aggregate data over time the anticipated demand for airtime was based on findings of a survey carried out on a national sample and on actual usage data on the various consumers during the years prior to the survey the research shows the substantial economic potential of israel s cellular telephone market

optimal futures positions for large banking firms in this paper we extend earlier work on hedging models so that uncertainty about both deposit supply and loan demand is incorporated as well as random rates of return on loans and cd s our model suggests that the optimal forward position is the sum of three ratios that should be estimated simultaneously using bank specific data the optimal hedge ratios are estimated in both the pre deregulation and deregulation subperiods our results show that previous studies of bank hedging with interest rate futures have greatly overstated a the volume of short futures positions that banks should take and b the degree of homogeneity of optimal hedge ratios across the banking system similarly deregulation has not uniformly affected the interest rate risk borne by different institutions as the financial futures markets have matured there has been increased interest in the use of these markets to hedge the risks faced by financial intermediaries the literature on hedging with financial futures has grown dramatically with studies by ederington 4 franckle 5 schweser cole and d antonio 17 arak and mccurdy 2 dew and martell 3 picou 13 ho and saunders 6 koppenhaver 8 and morgan and smith 9 10 with the exception of some of the more recent work most articles that have addressed the use of financial futures have described the hedging problem as a relatively simple risk management situation even studies that have focused on intermediaries have viewed the hedging problem as one dimensional the intermediary wants either to hedge a cash position in a security such as a t bill or to hedge an anticipated issue of a cd this viewpoint does not incorporate the complexity of the situation faced by intermediaries or other firms that may be subject to uncertainty from a variety of sources the more recent literature incorporates some of this additional uncertainty by considering quantity risk in lending partial takedown of loan commitments or deposits for which the intermediary acts as a rate setter seldom are both sources of uncertainty incorporated in the same model for example koppenhaver 8 allows for quantity uncertainty in deposits and in the rate that the intermediary will pay on cd s but not for uncertainty in loan rates or loan quantity morgan and smith 9 allow for uncertainty in loan quantity but not in deposit supply in this paper we extend koppenhaver s 8 model and that of morgan and smith 9 so that uncertainty about both deposit supply and loan demand is incorporated as well as random rates of return on loans and cd s

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

exchange rate pass through price discrimination and us meat export prices exports are becoming increasingly important for us livestock and poultry producers consequently meat industry participants are concerned about the potential impacts of variations in relative currency values these effects are considered by quantifying the impacts of relative exchange rates on us beef pork and poultry export prices in addition the impacts of gatt and nafta agreements on exchange rate pass through are considered the results indicate incomplete exchange rate pass through occurs for several countries trade liberalization under gatt has positively influenced us beef and poultry export prices

the transaction costs paradigm 1998 presidential address western economic association 1998 presidential address western economic association though the idea can be traced to david hume and adam smith the path breaking first economic analysis of transaction costs did not occur until 1937 when ronald coase published the nature of the firm 1 stigler and boulding perspicaciously reprinted coase s paper in the famous aea readings in price theory 1952 but for a quarter of a century it had no real impact on the profession in the 1940s two significant works were published which touched on transaction costs but these sparks did not ignite a fire 2 the transaction costs paradigm began to blossom in the early 1960s again it was coase who supplied the primum mobile his great paper on social cost was published in early 1961 though aaron director dated that issue of journal of law and economics as 1960 ronald had company this time george stigler s article on information cost came out later the same year and kenneth arrow s work on the appropriability of returns to inventions appeared in 1962 3 the combined wisdom of three brilliant men would perhaps not have been enough except that by the early 1960s science was on their side jargonistic articles on economic development flooded the journals throughout the 1950s but by 1960 economists were beginning to question the explanatory power of this kind of economics after the clarion call of friedman s work on the consumption function a few years earlier in 1957 the great methodological debate began 4 the demand for testable implications was becoming more vociferous by the day and the tendency for economists to be policy oriented was losing hold as the keynesian revolution waned 5 the tide of economic explanation was beginning to swell and the transaction costs paradigm was the beautiful goddess who emerged from the foam i began graduate work at ucla in 1961 and after my ma a year later i turned to audit the price theory lectures of jack hirshleifer and armen alchian the straight as student who knew by heart everything about market imperfections was told that this kind of knowledge did not count by 1963 graduate students at ucla s department of economics were all talking property rights and transaction costs now i knew coase and stigler by heart and could even handle the questions on pricing behavior and mergers at the end of friedman s price theory 1962 moreover i was the luckiest of the lot because in late 1963 armen gave me a copy of a manuscript by harold demsetz 6 one of the great expositors of our time harold wrote about property rights and transaction costs with such clarity and force that i decided then and there to work on these topics for my doctorate since that time my research has all been on the same track in this address i shall confine discussion of the transaction costs paradigm to my own involvement this limitation is imposed by necessity i like to sail the strange seas of thought alone and have seldom read other people s publications with the seriousness they deserve after i left chicago in 1969 from 1976 to 1982 i spent my time on contracts in the petroleum industry and from 1982 to now my research has concentrated on economic reforms in china although these works are all transaction costs oriented the former is not in print because it is proprietary while the latter has mostly been published in chinese after more than half a lifetime on the seashore however i feel it is time to share my small collection of pebbles with colleagues in the wea still you would not be wrong if you feel that i am addressing the subject as if i were a stranger returning from another planet i the nature of transaction costs transaction costs must be defined to be all the costs which do not exist in a robinson crusoe economy this broad definition is necessary because it is often impossible to separate one type of transaction cost from another the toll collector of a bridge serves not only transacting customers but also police against trespassers

internal bargaining and strategic innovation in the theory of the firm abstract the transaction cost analysis of the firm has identified asset idiosyncrasy and the risk of ex post opportunism as key determinants of organizational form simultaneously several writers have modeled the distribution of quasi rents among input suppliers as a bargaining game these complementary ideas are used to formalize the notion of strategic innovation where capital and labor attempt to redistribute firm income after specialized assets are in place through unilateral modifications in production technology because strategic behavior can enlarge the quasi rent component of fifirm income this process may persist in equilibrium asset idiosyncrasy therefore creates room for an autonomous theory of organizational dynamics partially insulated from events at the market level of analysis

the capital gains and losses on u s government debt 1942 1987 the capital gains and losses on u s treasury securities are calculated and reported on a quarterly basis over the 1942 87 period these data are then used to calculate an adjusted measure of the federal budget deficit for the years 1975 87 whereas the rising trend in interest rates over the 1975 81 period substantially reduced the federal deficit this study shows that the reversal of that trend over the 1981 86 period contributed even more greatly to an increase in the deficit also calculated and reported are holding period rates of return on overall marketable treasury debt providing a contrast to existing interest rate series copyright 1989 by mit press

targeted and untargeted subsidy schemes evidence from postdivestiture efforts to promote universal telephone service abstract normative economic analysis traditionally has pointed toward the merits of policies wherein prices reflect the economic cost of providing a good or service subsidization policies are nevertheless common in a variety of industries where such subsidies occur economists have long advocated targeting those subsidy flows to maximize their effectiveness and minimizing the allocative inefficiency caused by financing of the subsidy despite the apparent consensus in economic thought on this subject empirical evidence of the relative effectiveness of targeted versus untargeted subsidies to date has been lacking in this article we address this lacuna by examining a set of large scale targeted and untargeted subsidy flows that have developed side by side each with the same nominal policy goal promoting universal telephone service specifically we test empirically the relative contributions of the alternative subsidy mechanisms in promoting the policy goal of maximizing subscription to the public s

why corporations insure corporations insure to reduce the shirking information problem of joint production insurance encourages specialization in ownership increasing the returns to monitoring and lowering shareholders demand for a more diversified portfolio it enhances the credibility of specific capital as a performance bond and it lowers the cost to shareholders of compensating other members of the team for investing in firm specific assets tax and other factors may further encourage individual corporations to insure

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

sustainability of the deficit process with structural shifts this article discusses the condition for deficit sustainability and searches for shifts in the structure of u s deficit policy i show that contrary to the current literature cointegration between revenues and expenditures inclusive of debt payment is not a necessary but a sufficient condition for a strict interpretation of deficit sustainability the necessary condition requires that debt grow slower than the borrowing rate for tests on structural shifts i use a test for structural change that searches for shifts in the rank of the cointegrating matrix i find that there is a shift in deficit policy in the early 80s so that cointegration between revenue and expenditure inclusive of interest payments holds only up to 1980 i show however that the deficit process is still sustainable despite the failure of cointegration in the 80s the finding of shifts in the deficit process is more uncertain when i normalize by gross national product or population but the deficit is shown to be sustainable regard

the pricing of futures and options contracts on the value line index this paper considers the problems peculiar to the value line index because of its use of geometric averaging as regards the pricing of options and futures on that index the value line composite index vlci is an equally weighted geometric average index of nearly 1700 stocks the vlci futures market has existed since 1982 while the vlci options market was established in 1985 this paper provides valuation formulas and analyzes the economic properties of these contracts because of the geometric averaging in the vlci its contingent claims have special properties for example the futures price may fall short of the spot price and the value of a vlci call option may decline when the volatility of the index is increased vlci futures are shown to provide a direct means for duplicating an equally weighted portfolio of the underlying stocks the value line composite index vlci is an unweighted geometric average of stock prices expressed in index form the index on june 30 1961 was set at 100 and subsequent values are compared against it futures contracts on the vlci are traded on the kansas city board of trade kcbt they were the first stock index futures to be traded in the united states starting on february 24 1982 unlike commodity futures contracts no delivery ever takes place instead any open contracts on expiration day are settled in cash according to the actual vlci value 1 more recent market innovations are options on the vlci that have been traded on the philadelphia stock exchange pse since january

are bond financed deficits inflationary a ricardian analysis this paper considers the possible theoretical validity of the following monetarist hypothesis that a constant positive government budget deficit can be maintained permanently and without inflation if it is financed by the issue of bonds rather than money the question is studied in a discrete time perfect foresight version of the competitive equilibrium model of sidrauski modified by the inclusion of government bonds as a third asset it is shown that the monetarist hypothesis is invalid if the deficit is defined exclusive of interest payments but that it is valid under the conventional definition it is also shown that the stock of bonds can grow indefinitely at a rate in excess of the rate of output growth provided that the difference is less than the rate of time preference these formal conclusions do not take account of possible limitations on taxing capacity arising from default incentives that tend to grow with the stock of bonds

moral markets and moral managers revisited in the wake of recent corporate scandals this paper examines the claim made by john boatright that business ethics as it is currently conceived rests on a mistake ethics in business should not be achieved through managerial vision discretion or responsibility rather ethics should shape the design of institutions that regulate business from the outside what ethicists should advocate for according to boatright are moral markets not moral managers i explore the empirical and normative dimensions of his claim with special attention paid to the extent to which boatright s development of the economic theory of the firm supports his position i conclude by suggesting some reasons why moral markets and moral management are compatible frameworks for corporate reform

markets as institutions versus organizations as markets disentangling some fundamental concepts abstract this paper argues that ambiguities in concepts as important as institutions markets and organizations undermine progress of research programs intending to take these components seriously into account after a short review of some current confusions section i section ii discusses recent literature to arrive at definitions that encapsulate fundamental characteristics into pure categories in section iii exceptions and qualifications are introduced so as to operationalize the concepts in the real world 1 i organizations and markets are embedded in an institutional framework and 2 ii they overlap giving birth to hybrid forms however the conclusion contends that it is essential to maintain distinct concepts in order to understand these complex arrangements

us deficit sustainability revisited a multiple structural change approach in this article we re examine the long run sustainability of us budget deficits using bai and perron s multiple structural change approach while the deficit would have been weakly sustainable over the full sample 1947 1 2005 3 strong sustainability would appear only between january 1982 and february 1996

the welfare implications of externalities and price elasticities for telecommunications pricing the efficiency implications of telecommunications service pricing are analogous to a puzzle whose parts are beginning to be assembled recently mitchell 1978 has examined the efficiency implications of alternative local service pricing approaches he contrasts the welfare effects of a flat monthly rate with measured service pricing under an optimal two part tariff with an access line charge and a per call charge daly and mayor 1980 have examined the efficiency implications of free directory assistance contrasting it to marginal cost pricing and found large welfare losses the efficiency implications of long distance telecommunications service which in 1975 accounted for almost one half of the bell system revenues remains to be placed in the puzzle the primary purpose of this paper is to examine the efficiency implications of the pricing of local service vis h vis conventional long distance service referred to as message telecommunications service mts which constitutes the bulk of long distance service excluded from this analysis are wats and private line service as demonstrated by rohlfs 1979 substantial cross subsidization occurs between local service which is priced approximately 50 below marginal cost and long distance which is priced two to three times above marginal cost nevertheless cross subsidization need not imply inefficiency in a second best pricing framework for several reasons baumol and bradford 1970 first subsidization of local service can be justified due to access externalities arising because the value to potential callers is not internalized in the subscriber s price second even in the absence of access externalities if the price elasticities of both services tend to be very inelastic cross subsidization may have negligible efficiency effects the optimal second best pricing approach depends critically on the deviation of price from marginal costs the extent of the access externality and the relative price elasticities for local and long distance service in this exercise the welfare effects are particularly sensitive to the price elasticity of mts service thereby justifying the empirical focus on the price elasticity of mts the mts demand relationship estimated in this paper contains advances in several respects first unlike previous pure time series or cross sectional studies 2 the data set consists of pooled quarterly data 1966 to 1978 for five southwestern states the analysis of intrastate long distance demand3 offers a much more robust data source than national interstate demand owing to the limited price variation in the latter the pooled model features polynomial distributed lags and an error structure which corrects for both autocorrelation and heteroskedasticity also the model includes a unique and superior measure of television advertising effects an index of gross rating points reflecting the actual frequency with which television advertising is viewed by the public the use of gross rating points avoids the distortion implicit in the substantial volume discounts reflected in expenditure data 4 the subsequent section outlines the simple theoretical model which is the basis for econometric estimation and the pooling techniques section iii reports the empirical results in section iv we examine the price elasticity implications for optimal pricing of mts service section v recapitulates the major conclusions and suggests directions for future research received for publication september 29 1980 revision accepted for publication april 20 1981 university of houston the author wishes to acknowledge the collaboration of bruce egan in the econometric modelling section of this paper in addition numerous helpful comments were provided by george daly thomas mayor jeffrey rohlfs william taylor and an anonymous referee i see rohlfs 1978 table iii 1 2 for a review see taylor 1980 and lowry 1976 3 taylor notes that from the view of demand the distinction between interstate and intrastate mts is purely artificial see taylor 1980 p 97 and table 5 1 4 comanor and wilson 1967 note that volume discounts may give rise to increasing marginal returns to advertising expenditures

contracts entrepreneurs market creation and judgement the contemporary mainstream theory of the firm in perspective this survey gives an overview of the theory of the firm as it is formulated within the contemporary mainstream of economics two groupings of theories are briefly discussed principal agent and incomplete contract models next three of the most recent contributions regarding firms are considered the reference point approach is looked at first followed by a discussion of spulber s book the theory of the firm last we consider the entrepreneurial judgement perspective

contracts and asymmetric information in the theory of the firm abstract this paper extends the coase notation of firms as intermediaries between consumers and input owners to incorporate asymmetric information we show that in some cases it is optimal for consumers to pay a fixed price for a product and to ignore how the firm operates and the profit that it makes if firms have private information that consumers cannot cheaply obtain however we demonstrate that the optimal contract may require constraints on firms internal operations and profits our work provides conditions under which cost plus contracts are optimal and demonstrates when nonprofit firms are the preferred organization structure

basis risk partial takedown and hedging by financial intermediaries in this paper we provide a model of futures market equilibrium in which both financial intermediaries and their customers are able to hedge both quantity and price risk the interplay between alternative loan commitment arrangements and hedging decisions is examined in some detail as an example we show conditions under which futures contracts can be used in conjunction with a particular loan pricing scheme to replicate another pricing mechanism by considering both input and output price uncertainty we argue that due to the built in hedge on their balance sheets the equilibrium hedge ratios for both firms and intermediaries is less than one that is a partial hedge this generalization also allows us to provide counterexamples to some commonly held beliefs concerning futures trading for example that hedgers would always want to avoid basis risk

is the greek budget deficit sustainable after all empirical evidence accounting for regime shifts this article re examines the sustainability of the greek budget deficit by using a formal framework based on the government s intertemporal budget constraint the empirical analysis uses annual data from 1960 to 2011 and employs traditional as well as more recent unit root and cointegration techniques that account for linear and nonlinear effects in fiscal policy actions unlike previous studies the evidence suggests that allowing for structural breaks the greek budget deficit is unsustainable the parameter after the second detected break reflects the structural deficiencies of the greek economy

testing for the sustainability of the current account deficit in two industrial countries abstract the objective of this paper is to test for the sustainability of the current account deficits in the united states and canada over the 1973 1994 period using various unit root and cointegration tests some of which allow for structural changes we conclude that the real current account deficits to gdp ratios are not sustainable

demand and pricing of telecommunications services evidence and welfare implications although telephone pricing has received increasing attention in recent years the geographic patterns of telephone pricing and the corresponding economic consequences of those patterns have remained perplexing to consumers and policymakers and largely unaddressed by economists in this article we first specify a model of the demand for short intralata long distance calling we then draw upon data made available by the recent adoption of extended area service eas in four metropolitan areas to empirically measure the structure of inter exchange telephone demand given these estimates and a conceptual framework for analyzing the economic welfare effects we were able to quantify the consumer surplus effects of alternative pricing policies the empirical results indicate that consumer surplus is noticeably enhanced by adopting eas but the net economic welfare effects are shown to be sensitive to among other things the level of price cost margins prevailing prior to the implementation of eas

hedging performance and basis risk in stock index futures in early 1982 trading began at three different exchanges in futures contracts based on stock indexes stock index futures were an immediate success and quickly led to a proliferation of new futures and options markets tied to various indexes one reason for this success was that index futures greatly extended the range of investment and risk management strategies available to investors by offering them for the first time the possibility of unbundling the market and nonmarket components of risk and return in their portfolios many portfolio management and other hedging applications in investment banking and security trading have been described elsewhere1 ranging from use by a passive fund manager to reduce risk over a long time horizon to use by an underwriter to hedge the market risk exposure in a stock offering for one or two days in considering the potential applications of index futures it is clear that in nearly every case a cross hedge is involved that is the stock position that is being hedged is different from the underlying portfolio for the index contract 2 this means that return and risk for an index futures hedge will depend upon the behavior of the basis i e the difference between the futures price and the cash price hedging a position in stock will necessarily expose it to some measure of basis risk risk that the change in the futures price over time will not track exactly the value of the cash position basis risk can arise from a number of different sources and is a more significant problem for stock index contracts than for other financial futures like treasury bills and bonds 3 the most apparent cause of basis risk is the nonmarket component of return on the cash stock position since the index contract is tied to the behavior of an underlying stock market index nonmarket risk cannot be hedged this is the essential problem of a cross hedge however basis risk can be present even when the hedge involves a position in the index portfolio itself and there is no nonmarket risk for one thing returns to the index portfolio include dividends while the index and the index future only track the capital value of the portfolio any risk associated with dividends on the portfolio will become basis risk in a hedged position still dividends are fairly low and also quite stable so this may not be a terribly important shortcoming

financial planning where the firm s demand for funds is nonstationary and stochastic the incentive for a firm to engage in planning prearranging for its future financing derives from the interaction of uncertainty concerning the amount and timing of future needs and the cost of negotiating and terminating contracts in capital markets three conditions on relative costs and probability distributions are identified under which no financial slack should be raised if those conditions are not met then under one set of reasonable assumptions the optimum amount of slack will be more than the largest possible future need the model allows for surprises which can cause upward or downward in contrast to eoq models revisions in the future regarding the optimal level of slack to continue to carry

forward market equilibrium economists have long been interested in the functioning of forward futures markets keynes and hicks were the first to write persuasively in support of the theory of normal backwardation this theory says the futures price is biased downward relative to the expected future spot price as a means of compensating speculators for taking long futures positions 12 8 in this theory speculators are viewed as providing insurance to hedgers who desire to take short futures positions to reduce the riskiness of their commodity holdings in addition to normal backwardation there are theories of unbiasedness and normal contango the unbiasedness theory says that the futures price equals the expected spot price while the normal contango theory says that the futures price exceeds the expected spot price 4 19 21 however the controversy over the three theories has not been entirely resolved it has been suggested 4 19 that each of the three theories could be applicable at various points during the planting harvesting processing cycle of a crop as the net hedging demand shifts from a large number of hedgers who desire to be short in the futures market to a large number of individuals who are long hedgers nonetheless the traditional theories of futures markets have been criticized because they are not grounded in a general equilibrium model where participants tastes endowments and beliefs interact so as to generate a market equilibrium incorporating both speculative and non speculative transactions 9 it is the purpose of this paper to provide a framework within which normal contango normal backwardation and unbiasedness can each occur for commodities which have certain well specified characteristics independent of the relative numbers of participants on each side of the futures market in the spirit of 9 we consider the major source of uncertainty to be technological in nature quantity risk and argue that the commonly used definitions of hedger one who sells forward some fraction of his crop yield and speculator are not very useful for economic analysis instead the more generally applicable concept of hedger as one who trades mean income for reductions in risk in the rothschild stiglitz sense 17 is supported because it

has federal budget deficit policy changed in recent years this paper applies new tests for parameter instability in cointegrated regression models to the u s federal government s intertemporal budget constraint in order to detect whether there has been a regime change in spending and taxing policies some researchers have argued that fiscal policy under presidents reagan and bush moved the u s deficit onto an unsustainable path my results suggest that government deficit policy in the 1980s was not significantly different from policies during the three earlier decades however a diverging debt gnp ratio suggests that the government will run into problems marketing its debt if current policy continues

entrepreneurial enterprises endogenous ownership and the limits to firm size this paper develops a simple model of entrepreneurial enterprises the analysis differs from traditional work on entrepreneurship by analyzing why entrepreneurial activities are typically conducted in small firms owned by the entrepreneur i argue that ownership incentives are an advantage of small firms when the probability of success of an economic activity becomes small if becomes costly for large firms to commit to strong incentives and small worker owned firms emerge the paper discusses application of the theory to innovation wild cat oil exploration restaurants and retail trade professional practices salesmen and franchising

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

transaction costs risk aversion and the choice of contractual arrangements publisher summary this chapter discusses transaction costs risk aversion and the choice of contractual arrangements every transaction involves a contract and the transactions conducted in the marketplace entail outright or partial transfers of property rights among individual contracting parties the contractual arrangements through which these transfers are negotiated are several and varied the chapter presents a theory that states that economic efficiency is the same under various land tenure arrangements subject to the constraint of private property rights although transaction costs exist in the real world the theory enables the understanding of much of the farming behavior however the presence of a variety of contractual arrangements under the same constraint of competition poses the question of the choice of these arrangements if a firm can increase efficiency in production by employing productive resources of more than one resource owner a contract to combine the resources will be obtained the formation of the contract involves partial transfers of property rights in one form or another such as leasing hiring or mortgaging

optimal sequential futures trading hedgers adjust their futures market positions to reflect new information therefore the anticipation of new information creates future decision points and thus a multiperiod decision problem previous studies see 2 4 5 7 and 8 which solved the problem of choosing optimal futures market hedges have not addressed this issue rather these studies have derived optimal hedges in one period frameworks in general this solution is incorrect if during the time the hedge is in effect new information is anticipated

design complexity vertical disintegration and knowledge organization in the semiconductor industry this article examines the advantages and drawbacks of internal knowledge integration versus collaborative outsourcing as two polar modes of governance in the design of application specific integrated circuits asics increasing technological complexity miniaturization and the generalization of markets for technology have induced higher integration constraints for designers the pace of innovation and frequent changes in design rules require a tightly controlled design process as a consequence knowledge integrators must develop expertise beyond the scope of their domain of activity if they are to ascertain the overall efficiency of systems we find that although internalization of knowledge integration reduces coordination and agency related costs the involvement of partner firms in upstream design phases facilitates knowledge sharing and improves the coordination of innovation in modules the analysis of the evolution of the asics industry shows that while large system integrators remain the dominant players specialist firms are gaining market shares and do not hesitate to embark on the design of leading edge systems this result may simply reveal the increasing value of component knowledge in a disaggregated value chain however relying on a comparative case study of two similar development processes one with each of the knowledge integration approaches we confirm the strength of decentralized modes of governance on the condition that partner firms engage in a long term relationship copyright 2007 oxford university press

sustainability and comovement of government debt in emu countries a panel data analysis we investigate the sustainability of fiscal policy in a set of 19 european monetary union emu countries over the period 1970 2016 panel unit root tests in the presence of cross section dependence show that the government debt series is stationary indicating that the solvency condition would be satisfied for these countries this confirms the effectiveness of the austerity measures implemented by these member states moreover an unobserved common factor drives the comovement of government debt in the eurozone

institutions transaction costs and economic growth this essay develops a theoretical framework which explores the historical obstacles to economic growth these obstacles are examined in the context of the political economic institutional framework of economies in history and consequent transaction costs that determine economic performance and growth the essay concludes with specific suggestions for the study of economic growth

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

coaching team production coaching team production the actual function of managers is the subject of much debate using data on more than 3000 male college basketball players their coaches and their skill levels we find a positive and significant relation between our ability to replicate an individual coach s allocation of playing time across players and his winning percentage although this result does not answer the central question of just what it is that managers contribute the results do support the property rights paradigm managers are the employees of workers and more generally sports data can be used to help understand related economic processes where quantifiable measures of inputs and outputs are more costly to obtain what is meant by performance input energy initiative work attitude perspiration rate of exhaustion or output sometimes by inspecting a team member s input activity we can better judge his output effect it is not always the case that watching input activity is the only or best means of detecting measuring or monitoring output effects of each team member but in some cases it is a useful way i introduction a major tenet of the alchian demsetz 1972 representation of the firm is that managers are hired by workers to prevent shirking and malfeasance in their own ranks absent overseers individual workers bear only a fraction of the cost of shirking and hence everyone undersupplies labor relative to its opportunity cost in this world the managerial function is to monitor inputs and meter rewards thereby reducing the incentive to shirk and raising each worker s marginal productivity the more dependence there is in the marginal products of laborers the more important the role of management this view of supervision is simultaneously intuitively pleasing and difficult to quantify this paper investigates the role of management in a setting where indisputably there is team production intercollegiate basketball 1 data on 3012 college basketball players across ten years and sixty five teams are used to replicate one aspect of coaching the allocation of playing time next we attempt to link coaching decisions to winning the goal is to determine if coaches who manage well by our standards are successful section ii motivates the paper in section iii the empirical methodology is detailed the monitoring function is estimated and related to coaching success section iv contains a summary and conclusion ii coaching decisions the essence of team production is interdependence and the inherent immeasurability of marginal productivity across workers however this does not mean that proxies for marginal productivity cannot be developed managers monitor worker inputs and deduce marginal products accordingly of course some inputs are more cheaply quantified than others attitude is hard to measure but heart rate is easy sweat is observed cheaply but workers can feign exhaustion in the famous chinese boatpullers fable the coxswain uses his whip to insure that coolies pull efficiently to persuade each worker to give the appropriate effort 2 mcmanus 1975 341 relates a story told by cheung boats are pulled upstream by a team of coolies prodded by an overseer with a whip an american lady horrified at the sight of the overseer whipping the men as they strained at their harness demanded that something be done about the brutality she was quickly informed those men own the rights to draw boats over this stretch of water and they have hired the overseer and given him his duties here the monitor uses his vision intuition and experience to determine shirking counseling the loafers with his whip but employing subjective observation is just one way to monitor

persistent deficits and the market value of government debt summary this paper investigates whether postwar canadian public financial policy satisfies a borrowing constraint direct tests of the present value relation suggested by this constraint shed light on the sustainability of current policy we examine monthly data on canadian federal government finances using tests for cointegration the finding is that the joint behaviour of real debt and real surpluses is inconsistent with intertemporal budget balance for the government one interpretation of this finding is that the government is systematically paying real returns to bondholders by issuing further debt alternatively bondholders may expect the government to finance future interest payments from a source other than primary surpluses e g the sale of physical assets much empirical macroeconomics is concerned with the effects of public financial policies numerous studies have examined whether such policies affect interest rates inflation or national income and its components these examinations raise the question of the efficacy of government budget deficits they generally assume that a borrowing constraint holds in the public finances some positive theories of public debt creation also make this assumption examples include barro s 1979 history of us federal deficits and sargent s 1986 rationalizations of recent us budgetary policy lucas and stokey s 1983 discussion of optimal taxation also involves this assumption hansen roberds and sargent 1987 outline the testable implications of present value budget balance and hamilton and flavin 1986 investigate the feasibility of recurring deficits by directly testing the us federal government s borrowing constraint such tests seem natural given both the recent boom is testing more complicated first order difference equations in macroeconomics and the widespread discussion of current deficits this paper tests the present value borrowing constraint using recently constructed data on the market value of outstanding canadian federal government debt we use monthly rather than annual as in hamilton and flavin data and conduct tests of univariate integration and of bivariate cointegration to investigate the joint time series properties of debt and deficits one finding is that real debt and real surpluses are integrated processes evidence of their cointegration is mixed and point estimates of the cointegrating vector suggest that the expected real rate of return on debt is negative moreover the surplus measured to include interest payments as government spending is nonstationary these findings are inconsistent

blanchard s model of consumption an empirical study this article derives several empirically testable implications for blanchard s consumption model which has been widely used in analytical macroeconomic research cointegration methods are applied the parameter that measures the life horizon of households is estimated and the consumption model is tested quarterly canadian data are used there is no empirical evidence against the assumption that households behave as if they live forever within blanchard s framework blanchard s model of consumption is strongly rejected by the data however

fixed rate loan commitments take down risk and the dynamics of hedging with futures this paper develops a normative model to analyze the hedging and fee pricing decisions of a financial institution supplying fixed rate loan commitments to its customers in supplying fixed rate loan commitments the financial institution hereafter referred to as bank is assumed to act as an agent that transforms commitment risk through the use of financial futures contracts while most pre vious loan commitment models have analyzed the interest rate or price risk the bank faces in supplying fixed rate loan commitments they either have ignored or assumed away the loan take down or quantity risk l in general by making a formal fixed rate loan commitment the bank exposes itself to both a price and a quantity risk specifically a formal loan com mitment prespecifies the maximum size of the loan the purpose of the loan of ten project specific as well as the interest rate and fee to be paid by the borrower 14 15 however while a formal loan commitment imposes a contractual re quirement on the bank to supply funds up to a maximum amount at an agreed rate of interest the expected size of the loan to be taken down is often uncertain the reason is that for project specific lines of credit the amount taken down will depend on the future state s of the world that are revealed to the borrower at the end of the commitment period as well as on the limitations and constraints im posed on the use of funds in the loan commitment contract for example construction delays and other market imperfections that hamper a planned invest

panel cointegration tests of the sustainability hypothesis in rich oecd countries this study reexamines the sustainability hypothesis by testing whether government revenues and expenditures for eight rich oecd countries between 1977q1 and 2005q4 are cointegrated for this purpose a nonstationary panel data approach is adopted which is general enough to permit for cross country dependence as well as structural breaks representing major shifts in fiscal policy in contrast to many earlier studies the results reported in this study suggest that the sustainability hypothesis cannot be rejected

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

international politics and import diversification abstractthis paper examines how international politics affects trade in the absence of empires or wars we first show that deterioration of relations between the united states and another country measured by divergence in their united nations general assembly voting patterns reduced u s imports from that country during 1962 2000 though statistically significant the magnitude of the effect of political distance on trade is small indeed we show that except for petroleum and some chemical products u s imports are not affected by international politics american firms however diversify their oil imports significantly away from political opponents of the united states oil trade is often associated with backward vertical foreign direct investment that is subject to the expropriation risk in contrast to the usual claim that oil is a strategic commodity we provide suggestive evidence that trade in products when rents are appropriable is more likely to be affected by international politics

threshold effects in the u s budget deficit i introduction there has been an ongoing debate on whether the u s fiscal policy is sustainable in the long run in addressing this issue a number of studies have examined whether the u s public finances are compatible with the government s intertemporal solvency constraint hamilton and flavin 1986 trehan and walsh 1988 hakkio and rush 1991 among others the requirement of budget processes to be sustainable implies effectively that ponzi games are ruled out as a viable option of government finance in other words further new borrowing cannot be used indefinitely as a method of financing interest payments on existing debt therefore the solvency constraint requires that any changes in taxes and government spending are followed by adjustment in future taxation and or spending that equals to the original change in present value this solvency constraint imposes testable restrictions on the time series properties of key fiscal aggregates in this article we present new evidence on this ongoing solvency debate utilizing an empirical framework that allows us to test whether there have been threshold effects in the u s deficit unlike existing empirical studies that focus only on the identification of regime shifts in u s fiscal policy we also offer an explanation and provide evidence as to why these regime shifts might occur specifically we argue that for fiscal authorities to be able to meet the solvency constraint they would intervene through deficit cuts only when the government budget deficit becomes very large therefore we expect a mean reverting dynamic behavior for deficits only when they are above some threshold value we test for this hypothesis using the threshold unit root empirical methodology recently developed by caner and hansen 2001 the article is organized as follows section ii reviews the empirical evidence section iii describes the empirical methodology and section iv presents the empirical results which are analyzed and interpreted section v summarizes and concludes ii intertemporal solvency condition empirical underpinnings one strand of the empirical literature focuses on the stationarity of the stock of public debt uctum and wickens 1997 deal with stochastic interest rates and primary surpluses that are allowed to be either exogenous or endogenous to the stock of public debt they show that a necessary and sufficient condition for the intertemporal solvency condition to hold is a stationary discounted stock of public debt another strand of the empirical literature has concentrated on the dynamics of the undiscounted inclusive of interest deficit or alternatively on the long run relationship between government spending and tax revenues trehan and walsh 1988 show that government spending inclusive of interest payments and government revenues should be cointegrated with a cointegrating vector equal to 1 1 they present evidence that supports this restriction hakkio and rush 1991 point out that a necessary condition for intertemporal solvency is the existence of cointegration between government expenditure inclusive of interest payments and government revenues with a cointegrating vector equal to 1 beta and 0 quintos 1995 expands on hakkio and rush 1991 and shows that cointegration is not necessary for the intertemporal balance condition to hold specifically she distinguishes between a weak and a strong sustainability condition the former implies that the government solvency holds but the undiscounted debt process is exploding at a rate that is less than the growth rate of the economy although this case is consistent with deficit sustainability it is inconsistent with the ability of the government to market its debt in the long run especially if the focus is on the debt to gross national product gnp or on the debt per capita see also hakkio and rush 1991 in contrast strong sustainability implies that the undiscounted public debt is finite in the long run