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new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

information revelation and principal agent contracts in an environment in which effort is private information to the worker agreements between a risk neutral principal and a risk averse agent are likely to be risk sharing and information revealing mechanisms it is shown that principal agent contracts have significant implications for both compensation and employment rules in a simple work sharing model in general such contracts involve incomplete income insurance and involuntary or excessive underemployment this supports the view that models of worker specific information particularly with moral hazard provide a natural explanation of underemployment

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

profit sharing and standard setting in production and procurement management this paper deals with the interaction between procurement and production management the production costs crucially depend on the materials components and subassemblies purchased by the procurement department and on the effort expended by the production department an agency model is utilized based on the scanlon atkinson plans which share gains from production cost improvement after attaining pre specified cost standard the materials quality is used to adjust the cost standards for the prodcution department it is shown that in both the first best and second best cases profit sharing compensation is always preferred to fixed salary by the risk averse principal comparing with the first best case the principal has to provide a greater sharing pool in order to induce the managers efforts and each manager in fact works less hard in the second best case the agents compensations are tied to their positions as well as their risk attitudes when all principal lacks a costless benefits the most from s

financialisation institutions and financing constraints in developing countries the paper uses a consistent firm level data from the world banks enterprise surveys to explore the impact of financialisation in the economy on firms access to finance in 138 developing countries access to finance reflects survey based firms perceptions of external financing constraints financialisation is proxied by consistent cross country measures of financial depth these proxies capture separately the role of bank based versus market based financing firm sector and country level information is jointly used for the analysis firm specific characteristics and economic and non economic national factors are included as controls the results show that the proxies of financialisation are broadly robust predictors of financing constraints of firms in developing countries however the magnitude of the financialisation effect varies between bank based and market based channels of financing as well as between low and high income countries and it is influenced by social institutional and religious factors

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

inefficiency public enterprise and privatisation there is a general perception based upon casual observation and some systematic empirica study that public enterprises are inefllcient this paper takes this to be true and is concerned with the problem of providing a rigorous analysis and explanation of this inefficiency 2 privatisation which in the u k at least has received its primary impetus from political and ideological motivarions 3 has also been supported by some economists4 because it is seen as a way of correcting these ine ciencies to test this argument the analysis of public enterprise ine ciency will be extended in this paper to the issue of privatisation the analysis is an application of the theory of agency s and in particular makes extensive use of the model of the adverse selection or incentive compatability problem 6 privatisation is regarded essentially as a change in the structure of this principal agent model briefly the adverse selection agency model deals with the situation in which an agent is supposed to take decisions on behalf of a principal but has his own objectives which may lead him to act in his own as opposed to the principal s interests if the principal possessed all the information held by the agent such conflict would not be possible however in the adverse selection model the agent possesses some private info ation which is not available to the principal the agent will report a message concerning this for example see the papers by btis and by p man and pestieau ctsewherc in this volume it may be useful to distinguish between short run inetliciency in the sense of wasteful use of variable inputs especially labour and long run inefficiency in the sense of great planning disasters major inefficiencies in investment planning for interesting discussion of the latter possibly more important type of inefficiency see henderson 1977 jthc aims of widening the base of share ownership among households and of rolling back the frontiers of the public sector as well as the short term political advantage of disguising part of government borrowings as the sale of shares in privatised companies have all been relevant

the banking system financial markets and capital structure some new evidence from france this paper presents some new evidence on the hypothesis that financial liberalization will lead to a convergence in the structure of financial systems and firms capital structure towards market based systems the paper focuses on the interesting case of france where major reforms have liberalized financial markets and the banking system and significantly widened the choice of markets and contracts for firms financing the paper does show that the reforms have been paralleled by a shift of firms funding towards the pattern of market based systems but it also argues that this is only a partial picture mirroring past and recent theories of capital structure which have concentrated only on financial markets as the provider of funds this would disregard the role of intermediaries and overlook the fact that french banks are still the core of the french financial economy copyright 1994 by oxford university press

smart meter devices and the effect of feedback on residential electricity consumption evidence from a natural experiment in northern ireland abstract using a unique set of data and exploiting a large scale natural experiment we estimate the effect of real time usage information on residential electricity consumption in northern ireland starting in april 2002 the utility replaced prepayment meters with advanced meters that allow the consumer to track usage in real time we rely on this event account for the endogeneity of price and payment plan with consumption through a plan selection correction term and find that the provision of information is associated with a decline in electricity consumption of 11 17 we find that the reduction is robust to different specifications selection bias correction methods and subsamples of the original data the advanced metering program delivers reasonably cost effective reductions in carbon dioxide emissions even under the most conservative usage reduction scenarios

credit markets and the control of capital traditional discussions of the role of capital markets have identified a number of distinct functions which they perforrn they allocate scarce capital among competing users and uses l and they provide signals to guide managers in making their investment decisions 2 in this lecture i wish to focus on a rather different function of the capital market what i shall refer to as the control of capital 3 conventional theory treats the typical firrn in an anthropomorphic manner it acts as a single rational individual doing what it is supposed to be doing maximizing stock market value that may have been well and good in those nostalgic bygone days of small firrns each run tightly by their owners who were single mindedly pursuing their lust for wealth but today a majority of production occurs in large corporations in which no shareholder owns more than a small fraction of the shares in which the separation of ownership and control that frank knight was so concerned with in his writings some sixty five years ago has become a reality those

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

stability of money demand function revisited in china as china s economic reforms have undergone significant structural changes after 1979 it has been rather difficult to formulate a stable money demand function over the period following that year while previous literature on the long run relationship of money demand in china shows the existence of stable money demand this article revisits the stability of the china money demand function over the period after 1979 to employ the unit root tests and the cointegration tests with structural break the empirical evidence demonstrates that economic and financial deregulation did affect the stability of demand for money in china over the period 1977 to 2002 moreover the estimated long run income and interest elasticity are respectively 1 01 1 11 and 0 14 0 08 using the real m1 m2 equation in addition real income and the interest rate are found to be weakly exogenous we overall do find structural breakpoints mainly in 1980 and 1993 and they look to match clearly with corresponding critical financia

the effects of financialization on investment evidence from firm level data for the uk this paper estimates the effects of financialization on physical investment in the uk using panel data based on balance sheets of publicly listed non financial companies supplied by worldscope for the period 1985 2013 we find robust evidence of an adverse effect of not only financial payments interests and dividends but also financial incomes on the rate of accumulation the negative impacts of financial incomes from interests and dividends are particularly strong for the pre crisis period our findings support the financialization thesis that the increasing orientation of the non financial sector towards financial activities is ultimately leading to lower physical investment hence to stagnant or fragile growth as well as long term concerns for productivity

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

cointegration fractional cointegration and exchange rate dynamics multivariate tests due to johansen 1988 1991 as implemented by baillie and bollerslev 1989a and diebold gardeazabal and yilmaz 1994 reveal mixed evidence on whether a group of exchange rates are cointegrated further analysis of the deviations from the cointegrating relationship suggests that it possesses long memory and may possibly be well described as a fractionally integrated process hence the influence of shocks to the equilibrium exchange rates may only vanish at very long horizons in the article by baillie and bollerslev 1989a it is argued that seven different nominal spot and forward exchange rates all contain unit roots in their univariate time series representations at the same time however the spot exchange rates appear to be tied together in the long run through a cointegration type relationship the latter finding of baillie and bollerslev has attracted particular interest and several studies such as those by hakkio and rush 1991 and sephton and larsen 1991 have already addressed this issue using the same data as the baillie and bollerslev article sephton and larsen 1991 describe the evidence for the presence of cointegration as being fragile and note that mixed conclusions are reached by truncating the baillie and bollerslev sample at different points in time diebold gardeazabal and yilmaz 1994 henceforth diebold et al provide interesting evidence that application of the johansen 1988 1991 tests with and without an intercept will result in different inferences on the baillie and bollerslev data set furthermore diebold et al carry out an ex ante forecasting experiment and find that the addition of an error correction term to the martingale model as implied by the standard cointegration paradigm fails to reduce the prediction mean square error when compared to a simple martingale model this therefore leads diebold et al to conclude that there exists substantial uncertainty regarding the existence of cointegration relationships among nominal dollar exchange rates this article provides some additional evidence on the existence of such a long run relationship among the same seven nominal spot exchange rates after further analysis it appears that a form of cointegration does exist between the exchange rates so that they do not drift apart in the long run we argue that this form of cointegration is

capital control liberalization and stock market development the authors address two questions what happens to stock market size liquidity volatility and integration with world capital markets after capital controls are liberalized and what is the relationship between those indicators of stock market development and regulations about information disclosure accounting standards and investor protection an analysis of data on stock markets in 16 developing countries suggests the following a stock markets become larger more liquid more integrated internationally and more volatile after controls on capital and dividend flows are liberalized b easy access to information about firms is positively associated with the size and liquidity of stock markets and c countries that officially establish internationally accepted accounting standards and laws to protect investors do not have substantially better functioning stock markets than countries that do not adopt those official standards

incentives for wetland creation abstract when information about soil quality is complete wetland creation with a take it or leave it contract which specifies wetland size and transfer yields higher social benefits than if a uniform contract which offers a payment proportional to the wetland size had been used this result points to a paradox because uniform contracts have been used a lot in practice this article concentrates on the presence of asymmetric information about soil quality as a possible explanation for this paradox it shows that the choice of instrument for wetland creation has welfare implications different contracts typically yield quite different social welfare surpluses and distribution between interest groups it is not obvious which of four contracts studied dominates when a farm characteristic affecting costs is unknown to the social planner the probability distribution of the characteristic the size of the excess burden the elasticity of costs and benefits to wetland size and the cost of acquiring missing information influence the outcome

reassessing the law finance and growth nexus after the recent great recession abstract the paper provides a reassessment of the relationship between financial structure financial development and economic growth conducting cross section and panel econometric analyses for a sample of 62 countries over 1980 2016 in line with the traditional literature we confirm the existence of a positive cross country relationship between the legal system financial development and growth even including the experience of the recent great recession in addition when jointly assessing the effect of financial structure and financial development on growth it emerges that a more bank oriented economy enjoys higher benefits in terms of long run real gdp per capita growth than a market oriented one when we consider variations across countries and over time we find that both financial structure and financial development affect growth but in an opposite way as the cross section analysis in particular when we control for their joint effect on growth we observe a positive impact of market based financial systems and a negative impact of the overall financial development we also provide evidence of the existence of a positive and significant relationship between economic growth and shadow banking during the 2002 2016 period highlighting the crucial role played by non bank financial intermediation in complementing traditional banking and in affecting the real economy

hourly based greenhouse gas emissions of electricity cases demonstrating possibilities for households and companies to decrease their emissions abstract greenhouse gas emissions from electricity production are a crucial part of the environmental impact assessments of any kind of product service or consumption usually average annual emissions are used but lately there has been increased interest in the daily based and hourly based emission coefficients for electricity in such markets where the technology mix in the production process includes technologies with different emission factors there is potential for large variation in hourly based emission factors and consequently this offers potential for decreasing the emissions by real time based demand management however in real life the timing of electricity use in households and companies has restrictions in this paper we show illustrative household and company cases with realistic shifts in the timing of electricity use we determine hourly based emission factors and give examples of how emissions may be decreased in households and companies by changing usage patterns and consequently the timing of electricity use with the total amount of electricity consumed remaining unchanged the examples show decreases of emissions in the range 3 8 due to optimised timing indicating that there is important potential for managing hourly based demand loads and the resulting emissions even with realistic assumptions of the timing of consumption

interrelationships among banks stock markets and economic growth an empirical investigation this article utilizes a simultaneous equations model to study the relationships among economic growth banking and stock market development in contrast to conventional instrumental variable approach we implement the analysis via the methodology of identification through heteroscedasticity using beck and levine 2004 dataset we find that each of the three variables interacts in important ways while both are conducive to economic growth banking development matters more for growth in low income countries and stock market development is more favourable to growth in high income or low inflation ones the data also reveal coexistence of a positive effect of banking development on stock market development and a negative effect of stock market development on banking development besides the feedback effects of growth on both banking and stock market development are found

does deposit insurance retard the development of non bank financial markets whether and how the introduction of deposit insurance affects non bank financial market development depends on whether banks and non bank financial markets are substitutes or complements and theory has conflicting views using data on 134 countries over a 28 year period and several identification strategies we find that the introduction of deposit insurance retards the equity market the non bank depositaries sector and the banking sector when law and order is weak while strong law and order mitigates this effect it does not lead to a positive outcome for all markets for non bank financial markets the effect is greater in the long run so that while deposit insurance increases banking sector development in the long run it retards non bank financial markets regardless of the level of law and order finally several design features exacerbate the negative outcomes our results have important policy implications for implementing or altering deposit insurance schemes

household production and the short and long run demand for electricity this paper deals with the residential demand for electricity a theoretical model is formulated which is based on intertemporal optimization in a household production context the model is estimated using a dynamic version of the pls partial least squares approach most important determinants of electricity consumption are the prices of appliances and of those goods which can either be purchased in the market or produced at home the dynamic interrelationship between capital stock and electricity consumption is also an important element of the estimated model

stock markets and development this paper asks if financial development especially stock market development affects the level and or the growth rate of economic activity it finds a substantial effect on both current wisdom suggests that the growth effects of financial intermediation could be either permanent or transitory for instance the greenwood jovanovic 1990 henceforth gj model has an ak stucture with no diminishing returns to the reproducible factor and a permanent exogenous improvement in financial structure would cause a permanent increase in the rate of growth on the other hand if the returns to the reproducible factor did diminish better intermediation could lead only to level effects since one should not a priori exclude either growth effects or level effects we shall look for both our search for growth effects will use the gj model our search for level effects will rely on an amended version of the mankiw romer and weil 1992 henceforth mrw structure

same financial development yet different economic growth why we re study the relationship between financial development and real gdp per capita growth in 48 countries what we find is an interesting evidence that only stock market development has positive effects on growth and that banking development has an unfavorable if not negative effect on growth we examine whether or not these impacts are a product of various financial and economic conditional variables our conditional variables consist of financial liberalization two sets of country development dummies crises in banking and currency dummies the creditor protection index as well as the anti director and corruption indices our results clearly show that the conditional variables of financial liberalization high income level and good shareholder protection mitigate the negative impacts of banking development on growth in contrast the conditional variables of middle income level regional latin american sub saharan african and east asian dummies banking and currency crises good creditor protection and higher corruption strengthen the negative impacts of banking development on growth next the conditional variables of middle income level latin american sub saharan african and east asian dummies strengthen the positive impacts of stock market development on growth whereas the conditional variables of financial liberalization mitigate the positive impacts of stock market development on growth last we find that the relationship between growth and bank development is better described as a weak inverse ushape this inverse u shape becomes stronger when additional stock market variables are squared thus financial development and growth may in fact be in a nonlinear form

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

from institutions to financial development and growth what are the links this paper presents an integrated overview of the literature linking institutions financial development and economic growth from the large body of research on institutional development the paper first selects those contributions that make it possible to study the role of institutional arrangements in ameliorating worsening the information frictions and transaction costs that characterize the development of financial markets the paper then investigates the theoretical mechanisms by which these specific frictions affect economic growth and presents the stock of empirical evidence quantifying the impact of institutions on growth through financial development

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

managerial discretion in the choice among financial reporting alternatives abstract this paper considers the role of an agent choosing among reporting alternatives when that choice is unobserved by the principal and the agent s compensation contract is optimal the agent is allowed to take post outcome costly actions which lead to more precise reports of actual profits than would be yielded by less precise but costless conventional translations of outcomes e g gaap the extent to which the principal allows the agent this discretion depends upon the improvement in profits as an indicator of the agent s pre outcome effort when post outcome actions take place versus the attendant cost of these actions

stock markets corporate finance and economic growth an overview the research presented here focuses on four issues first it constructs more measures or criteria of stock market development than any previous study it compares liquidity concentration volatility institutional development and international integration across forty four industrial and developing countries from 1976 to 1993 besides identifying general characteristics of these measures and defining stock market development empirically these data facilitate further research into the relationship between stock market development and financial intermediaries corporate finance decisions and economic growth these measures ranked for each country can be used for inter country comparisons of the level of stock market development in addition the data provide a basis for gauging the success of capital market development projects using objective criteria second with these new data the research investigates the relationships between stock markets and financial intermediaries third the research analyzes the relationship between stock market development and long run economic growth fourth the research studies the ties between stock market development and financing choices of firms this overview puts this research in context and reviews the main results of the study section i provides a brief review of the role of stock markets in economic development and documents the evolution of debt and equity markets during the growth process section ii defines stock market development and presents summary data on the development of financial intermediaries and stock markets section iii presents evidence on the effect of stock market development on economic growth section iv summarizes the empirical results on how stock market development affects firm financing decisions section v concludes by discussing policy implications

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

credit income and causality a contemporary co integration analysis abstract in this study we investigate the macroeconomic fundamental issue of causal relationship between credit and money income for the us postwar economy along the lines of the credit view theorists in the long run we provide significant evidence that credit causes income further we support the view that there is a rather weak causality effect from income to credit in the long run indeed we identified that there is a dynamic causality effect in the short run from income changes to credit ones a contemporary co integration analysis is applied using the maximum likelihood method additionally considering the formulated var a stability analysis of the equivalent first order dynamic system has been performed finally dynamic forecasts from the corresponding ecvar error correction var are obtained in order to verify the validity of the co integration vector used it may be useful to mention that we have not met in the relevant literature the type of forecasting presented here

common stochastic trends between forward and spot exchange rates abstract the common trend analyses between the forward rate f t and the corresponding future spot rate of the same currency s t 1 have raised several issues notably the sensitivity of the cointegrating relation to a constant term and lag lengths and the non stationarity of the risk premium this paper addresses these issues more rigorously using the daily exchange rate of the pound sterling vis a vis five major currencies viz the canadian dollar french franc german mark japanese yen and us dollar the appropriate deterministic term in the cointegrating space is identified through empirical tests a robust cointegrating relation is found between f t and s t 1 however the hypothesis of unbiasedness of forward rate could not be sustained an alternative measure of risk premium is suggested and its stationarity is confirmed

financial deepening and economic growth the core of shapley shubik games and general equilibrium models with a venn diagram is applied for a theory on the role of real finance in economic growth among advanced economies then the dynamic computable general equilibrium dcge models for germany france the uk japan and the usa are constructed to assess the validity of the over financing hypothesis that has reappeared after the financial crisis of 2008 actual financial deepening ratios observed in the nonconsolidated balance sheet of the oecd exceeded by factors of 3 5 2 4 5 1 11 6 and 4 8 than the optimal financial deepening ratios implied by dcge models respectively in these countries because of excessive leveraging and bubbles up to 19 times of gdp which were responsible for this great recession containing such massive fluctuations for macroeconomic stability and growth in these economies are not possible in conventional fiscal and monetary policy models and require a dcge analysis like this along with adoption of separating equilibri

determinants of hedging and risk premia in commodity futures markets this paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns and with the reve nues of producers owing to supply shocks that stochastically redistribute real wealth surplus between producers and consumers and to limited participation in the futures market the total risk premium in the model is not proportional to the contract s covariance with aggregate consumption stock market variability interacts with the incentive to hedge causing the producer hedging component of the risk premium to increase de crease with income elasticity for a normal inferior good production costs that depend on output raise the premium we argue that output and demand shocks will typically be positively correlated raising the premium high supply elasticity reduces the absolute heding premium by reducing the variability of spot price and revenue

structural changes in volatility and stock market development evidence for spain abstract in this paper we review the factors that lead to changes in stock market volatility and use alternative methodologies of endogenous breakpoint detection in order to analyze whether the volatility of the spanish stock market has changed significantly over the period 1941 2001 this period corresponds to years of profound development of both the financial and the productive sides of the economy in this country the analysis of the spanish stock market suggests that volatility has behaved in a different manner over the period 1941 2001 after three decades of low volatility a structural break in volatility is detected in 1972 coinciding with the opening of the spanish economy from 1972 to 2001 the years of more intense financial development the stock market presents a higher level of volatility and lower persistence this effect is partly attributable to the increased growth of trading volume brought about by the economic development process

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

econometric analysis of bank lending and business cycles in south africa this article examines econometric relationships between bank lending and business cycle in south africa two long run economic relationships are hypothesized between total credit and the variables namely coincidental indicators spread between lending and borrowing rates money supply stock price index inflation and banking sector specific factors included in the model of these variables only coincident indicators changes in money supply as well as capital and reserve are found to exert some influence on short run total credit availability

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

monitoring moral hazard asymmetric information and risk sharing in procurement contracting this article characterizes the optimal procurement contract for a monopsonistic purchaser who contracts with a risk averse supplier with private information about his costs and who contributes an unobservable effort the costs incurred by the supplier may be uncertain and the purchaser has access to a monitor of costs that may be subject to noise that complicates risk sharing the purchaser prefers to respond to the observability problem with afixed price contract and to respond to the private information problem with a cost plus contract with uncertain costs and a perfect monitor the optimal contract relieves the supplier of some risk and the purchaser prefers that the effort of the supplier be subsidized with deterministic costs and a noisy monitor the optimal contract places risk on the supplier and the purchaser may prefer that the effort of the supplier be taxed procurement of goods and services is an important form of economic exchange that is often characterized by bargaining and contracting rather than by exchange in a competitive market the procurement setting analyzed here corresponds to the case in which the purchaser is a monopsonist who contracts with a single supplier as in the case of the department of defense contracting for the delivery of a military system in such a setting a principalagent model may be a reasonable representation of the relationship between the purchaser and the supplier and the economics of the procurement arrangement is then captured in the contract when the item procured is standardized the relevant information is likely to be common knowledge and risk may be minimal in such a case a fixed price contract may satisfactorily resolve the purchaser s contracting problem in contrast the model considered here is intended to represent the procurement of a nonstandardized item about which information is incomplete costs are uncertain and observability of supplier costs by the purchaser is limited procurement thus is complicated by the conjunction of adverse selection risk sharing and moral hazard problems

empirical exercises in estimating the effects of different types of financial institutions functioning on economic growth while recent studies of the finance growth nexus have focused on the use of proxies which more accurately capture the theorized functioning of the financial sector they have tended to focus either on the functioning of the financial sector as a whole or on the dominant institutions within the sector little attention has been paid to a comparison of the relative effects of different types of financial institutions on economic growth this article attempts to get a deeper understanding of the finance growth process by disaggregating the total financial sector impact and examining the individual and relative effects of each type of institution in the financial sector we explore the empirical properties of alternative specifications of models of the impact of financial institutions functioning on economic growth by conducting a number of exercises these exercises experiment with various model specifications to represent the long and short run impacts of the financial institutions functioning on econo

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

financial structure and economic growth recent empirical work on financial structure and economic growth analyzes multi country dataset in panel and or cross section frameworks and concludes that financial structure is irrelevant we highlight their shortcomings and re examine this issue utilizing a time series and a dynamic heterogeneous panel methods our sample consists of fourteen countries tests reveal that cross country data cannot be pooled financial structure significantly explains output levels in most countries the results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests we also test for several hypotheses about the prospective role of financial structure and financial development on economic growth

does financial development lead economic growth a vector auto regression appraisal using a vector autoregression var approach several hypotheses are re examined suggested by the literature concerning the relationship between financial development and economic growth investment and productivity the models use quarterly time series data from ten oecd countries and china innovation accounting or variance decomposition and impulse response function analysis is applied to examine interrelationships between variables in the var system and therefore differs from the more usual granger causality approach in particular it examines the relationship between financial development proxied by total credit at best weak support is found for the hypothesis that financial development leads economic growth

economic incentives for countertrade this paper examines countertrade using standard economic theory we show that in many circumstances countertrade is a rational response to transaction costs information asymmetry moral hazard agency problems and other market imperfections this paper also integrates countertrade into international business theories some preliminary hypotheses that may be empirically testable after refinement are developed as reports of countertrade arrangements have become frequent academic interest has increased many popular explanations have been advanced among them shortage of foreign exchange balance of payments difficulties exercise of monopsony power and imposition of trade barriers it has also been alleged that countertrade is an inefficient form of international trade and that iitepresents a retrograde development most of these arguments have not been established theoretically nor have they been tested empirically

endogenous structural breaks public investment in agriculture and agricultural land productivity in taiwan using time series data for taiwan s agricultural sector and with the government s public investment in the agricultural sector serving as a proxy variable for nonfarm current inputs aside from the original labour and capital input variables usually taken into consideration this article examines the relationship between public investment in agriculture public investment land and agricultural land productivity output land in taiwan our main findings are as follows first the cointegration test reveals that public investment in agriculture and the productivity of agricultural land exhibit a significant positive relationship in the long run where the elasticity of land productivity in relation to public investment in agriculture is 0 55 second when controlling for endogenous structural breaks the long run equilibrium relationship for the productivity of the agricultural land model is still supported third the results of the weak exogeneity test indicate that a causal relationship exists in the lo

promotion of market access for renewable energy in the nordic power markets this study investigates how renewable targets for the nordic power market might be achieved at the lowest costs the instruments investigated are fixed feed in tariff economically sound premium based feed in tariff and shadow prices for co2 emissions we utilize a real time price based simulation model in the analysis we show that even with strong assumptions regarding the emission permit price the targeted level of wind power is not reached without feed in tariffs emission trading produces the lowest total emissions but with the highest total costs from the studied instruments the most cost efficient way to reach the targets for wind energy market shares is the premium based feed in tariff this tariff is also the most cost efficient way to reduce co2 emissions

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

infrastructure finance and industrial takeoff in england that financial matters did not constrain industrial takeoff in the uk is generally accepted in the historical literature in contrast contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth we look to reconcile these findings by concentrating on a particular aspect of industrializing uk where inefficiencies in finance could have had bite the finance of physical infrastructures we document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development we develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous we argue that the conception of the finance growth nexus as a largely static aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures

risk and incentives in the financing of hazardous waste cleanup abstract this paper evaluates alternative approaches to financing hazardous waste cleanup recognizing that future cleanup costs are not known with certainty and that the choice of a financing approach implies a specific allocation of risk both retroactive and prospective use of different forms of strict liability are considered in the prospective case the standard principal agent paradigm is extended to capture the risk sharing and incentive effects relating to the choice of waste generating inputs the results indicate when a fund used for cleanup should or should not be subrogated

assessment of sustainability indicators for renewable energy technologies the non combustion based renewable electricity generation technologies were assessed against a range of sustainability indicators and using data obtained from the literature the indicators used to assess each technology were price of generated electricity greenhouse gas emissions during full life cycle of the technology availability of renewable sources efficiency of energy conversion land requirements water consumption and social impacts the cost of electricity greenhouse gas emissions and the efficiency of electricity generation were found to have a very wide range for each technology mainly due to variations in technological options as well as geographical dependence of each renewable energy source the social impacts were assessed qualitatively based on the major individual impacts discussed in literature renewable energy technologies were then ranked against each indicator assuming that indicators have equal importance for sustainable development it was found that wind power is the most sustainable followed by hydropower photovoltaic and then geothermal wind power was identified with the lowest relative greenhouse gas emissions the least water consumption demands and with the most favourable social impacts comparing to other technologies but requires larger land and has high relative capital costs

evidence on economic growth and financial development in montenegro macroeconomic development must be supported by a stable and efficient financial system there are many different measures of financial development that are suggested when the relationship between growth and financial system is analyzed in this paper we will identify the most important indicators of the financial development in montenegro due to the fact that in the last decade montenegrin financial market has been developing we want to see if that fact had an influence on the economic growth as well as if there is significant positive relationship between the growth and financial development the intention of this article is to use principal components in order to examine correlation among indicators and find means or main components this technique has the advantage of giving more general measures of financial development rather than individual variables for bank or stock market development it could be concluded that it is difficult to identify the specific components of the financial system most associated with the economic growth

a rationalization of bonuses penalties and kinked payment functions within an agency model abstract the optimal payment schedule of the simplest principal agent problem can be continuous smooth or kinked or semicontinuous depending on the specifications of objective functions of the principal and or of the agent using the nonsmooth mathematical analysis this article determines a mapping from classes of objective functions into classes of optimal payment functions examples provide illustrations

new directions in the economic theory of agency an accessible survey of existing results in the theory of agency is provided a general one period single agent model is presented first and the restrictions required to obtain predictions are explained environments having more than one agent and or multiple periods are considered subsequently the central conclusion is that the theory of agency as currently formulated has little operational content the new directions suggested are among those that are likely to yield more empirically relevant propositions directions nouvelles dans la theorie economique de l agence l auteur presente un survol relativement simple des principaux resultats des analyses de la theorie economique de l agence on presente d abord un modele general dans le cas d un agent et d une periode ainsi que les restrictions requises pour obtenir des previsions sans ambiguite on examine ensuite les cas oiu il y a plus d un agent et ou plus qu une periode ce qui ressort de cette analyse fondamentalement c est que la theorie de l agence telle qu elle est formulee pour le moment a un contenu operationnel limite les directions nouvelles suggerees dans le memoire sont susceptibles d engendrer un plus grand nombre de propositions pertinentes et operationnelles

financial development and relationship evolvement among money supply economic growth and inflation a comparative study from the u s and china abstractwith the rapid development of financial markets economic financialization degree can no longer be ignored for its influence on the relationship among money supply economic growth and inflation combined with the horizontal comparison of china this article concentrates on the financial development and evolution from the period of industrialization to economic financialization in the u s systematic and comprehensive analysis is first done on the variation of overall economic operation then impulse response function based on var model is applied to study the dynamic influence of economic financialization degree on the relationship evolvement the empirical results show that economic financialization makes good explanation of the deviating phenomenon among money supply economic growth and inflation and the interactive relationship between fictitious economy and real economy is becoming closer and closer furthermore compared to the u s china still belongs to the process of transforming from

hedging and coordinated risk management evidence from thrift conversions we provide an explanation for hedging as a means of allocating rather than reducing risk we argue that when increases in total risk are costly firms optimally allocate risk by reducing increasing exposure to risks that provide zero positive economic rents our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion consistent with their increased abilities and incentives for risk taking they achieve this increase by hedging interest rate risk and increasing credit risk we provide some evidence that risk management activities are related to growth capacity and management compensation structure attained at conversion

equity markets transactions costs and capital accumulation an illustration poorly developed equity markets inhibit the transfer of capital ownership moreover the costs of transacting in equity markets affect not just the level of investment but the kinds of investments that are undertaken once equity markets allow the ownership of capital to be transferred economically reductions in costs tend to favor the use of longer maturity investments when there is a relationship between the maturity of an investment and its productivity transactions cost reductions are conducive to observing certain kinds of increases in productive efficiency this article analyzes savings investment and consumption decisions by using an overlapping generation s model with two period lived agents the analysis allows for several technologies for converting current output into future capital that varies by productivity and maturity and it makes ownership of capital costly to transfer a reduction in transactions costs will typically alter the composition of savings and investment and have potentially complicated consequences for capital accumulation and steady state output

on the nexus of financial development economic growth and energy consumption in china new perspective from a gmm panel var approach abstract this paper studies the endogenous relationships among financial development energy consumption and economic growth in china by applying a gmm panel var approach with a panel data of 30 chinese provinces over the period 1996q1 2015q4 financial development is measured by six individual indicators and by a comprehensive indicator obtained through the pca method we also account for regional heterogeneity by dividing our sample into three regions eastern region central region and western region we underline our findings in three aspects first financial development measured by most individual indicators m2 credit revenue of the insurance industry and stock market value and the comprehensive one has a significantly negative impact on economic growth second energy consumption can significantly contribute to economic growth in all regions while no feedback effect is found except in the western region this result is further supported by the granger causality tests last financial development in the sense of m2 credit stock turnover and the comprehensive indicator can significantly lessen energy consumption in all regions but this inhibitory effect is found to be largest in the western region followed by the eastern region and be smallest in the central region the granger causality tests confirm further the existence of heterogeneity across regions a bidirectional granger causality between the two variables is found in the eastern region a unidirectional granger causality running from energy consumption to financial development is identified in the central region and no significant causal relationship shows up in the western region our findings provide valuable policy implications for china heading for a green economic growth

financial development and household portfolios evidence from spain the u k and the u s abstract we examine the impact of financial development on the composition of household portfolios in spain the u k and the u s three countries whose financial systems underwent profound changes over the past two decades and for which relevant data exist for sufficiently long time periods we find a division of labour between the indices measuring financial development and asset returns the first affecting mainly the long run dynamics of household portfolios and the second the short run dynamics both however in an economically reasonable way among the notable results pertaining to long run dynamics more competitive financial intermediaries are associated with a higher share of currency and deposits and a lower share of equity for the short run dynamics the most important driver is stock market returns

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

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

liquidity shocks and real gdp growth evidence from a bayesian time varying parameter var we examine the dynamic impact of liquidity shocks resonating in stock and housing markets on real gdp growth we fit a bayesian time varying parameter var model with stochastic volatility to us data from 1970 to 2014 gdp becomes highly sensitive to house market liquidity shocks as disruptions in the sector start to emerge yet more resilient to stock market liquidity shocks throughout time we provide substantial evidence in favour of asymmetric responses of gdp growth both across the business cycle and among business cycle troughs stock and house market liquidity shocks explain on average 17 and 35 of the variation in gdp during the great recession respectively

spatial and temporal variations of marginal electricity generation the case of the finnish nordic and european energy systems up to 2030 abstract assumptions related to energy generation often play a decisive role in abatement studies for estimating the effects of demand side interventions however there can be significant geographical and temporal variation in the emission intensities of electricity generation in different regions the aim of this article is to describe how spatial and temporal variations related to a particular energy system may affect an electricity generation unit operating on the margins the approach takes the generation mix within interconnected electricity markets and the exchange of electricity between these markets into account the short term 2009 2010 and long term until 2030 hour by hour marginal electricity generation unit and marginal emission intensities are identified for electricity use using the finnish nordic and european energy systems as actual cases the estimated marginal electricity generation technology and marginal emission intensities for electricity use differed significantly within the studied time horizon and between the studied countries and energy systems furthermore due to the projected structural changes in the energy systems i e changes in the fuel mix and electricity generation technologies the carbon dioxide co 2 intensity of marginal electricity generation will decrease in the nordic countries and in the eu in the long term however the approach used for calculating the effect of change in electricity exchange on the margin increased the variability of the results considerably for some nordic countries such as sweden and norway whose export of electricity was high and whose marginal generation mix differed significantly from the european system furthermore the spatial and temporal variations of marginal electricity generation will increase in the future this variation combined with the interconnections between market areas for exchanging electricity in the eu will require improved understanding of the impacts of exchanged marginal electricity generation on the possible emission leakage between eu countries to better inform policy decisions

financial crisis in southeast asia dispelling illusion the minskyan way this paper extends minsky s financial instability hypothesis to the case of the open liberalised economy making it possible to put forward a specifically minskyan account of the road to the financial crisis in southeast asia 1997 1998 the analysis suggests that the threats to growth and employment emanating from the financial sector which minsky identified in the closed economy setting are much intensified in open liberalised developing economies financial liberalisation is an important key factor in this process rival explanations of the crisis are examined and rejected in favour of the extended minskyan explanation the policy implications are derived and discussed copyright 2002 oxford university press

diffusion of solar electricity in the network of private actors as a strategic experiment to mitigate climate change abstract low carbon experiments offer interesting opportunities for climate change mitigation they can be seen as niche activities that eventually challenge the existing regime of energy production and consumption the role of actors in these potential transitions has not been extensively studied this study bridges this gap by analysing ten cases of joint procurement experiments of on grid solar photovoltaic energy in finland the study deepens the understanding of how such experimenting can contribute to climate change mitigation in an area that in many countries is still a largely untapped source of change the study shows that the expansion of solar pv can be enhanced through joint procurement experiments which thereby become strategic the joint procurement lowered several barriers of adoption and can therefore accelerate diffusion of solar pv significantly even when there is a lack of explicit political support in the form of a subsidy system joint procurements help to overcome one of the most important barriers of solar panel purchase the price but the joint procurement experiments also offer important social support to the peers the positive image of solar electricity greatly empowers consumers and increases acceptance of large investment costs further mainstreaming of the experiments towards a regime shift would benefit from institutional support that eases the laborious process of joint procurement and that strengthens the small scale producers negotiating position relative to the utilities and power network operators in trading surplus electricity

on the role of domestic and international financial cyclical factors in driving economic growth abstractwe investigate the effects of domestic and international financial cyclical factors on the us business cycle over the period 1890 2013 using an augmented stochastic version of the neoclas

probationary contracts in agencies with bilateral asymmetric information this paper examines a two period principal and agent model where the agent s ability level is not observable to the principal and revealed to the agent only after the contract is signed the value of the agent s output to the principal is affected by the agent s collegiality which is unknown to the agent but is observed by the principal in these circumstances with risk neutral agents the principal prefers a probationary scheme with second period rehiring based on satisfactory first period performance multiple equilibria results from this problem however the refinements literature provides a resolution to the multiplicity under certain conditions the agent is rehired for sufficiently high first period output the superior agent will work harder in the first period than under recontracting and the inferior type agent will work less hard the probationary scheme is shown to be pareto superior to standard recontracting

real time pricing in the nordic power markets abstract in this paper we study the potential effects of real time pricing rtp of electricity on the need for long run capacities in the nordic power markets a characteristic of the nordic power market is the large variety of production technologies of which hydro and nuclear power are capacity constrained we analyze the impact of rtp on the need for total peak and midmerit capacities total demand prices peak demand hours and economic welfare we have also studied whether the results of rtp are sensitive to the simultaneous implementation of tradable emission permits we find that rtp diminishes the need for total capacity even with inelastic demand our results show that even with modest assumptions related to rtp participation the annual midmerit and peaker capacity efficiency savings amount to 97 million euros which are around 6 of their total annual investment costs the price of the peak demand hour clearly diminishes as the share of the rtp customers increases or demand becomes more price elastic we compare rtp and tradable emission permits as two separate instruments in reaching energy use efficiencies and show how these two instruments must be seen as complementary and not as substitutable instruments we show how rtp and tradable emission permits have a positive correlation in promoting market access of renewable energy sources we find that welfare effects of the implementation of rtp are positive

structural breaks energy consumption and economic growth revisited evidence from taiwan abstract this paper studies the stability between energy consumption and gdp for taiwan during 1954 2003 we use aggregate as well as various disaggregate data of energy consumption including coal oil gas and electricity to employ the unit root tests and the cointegration tests allowing for structural breaks our main findings are first though gas consumption seems to have structural breaks in the 1960s after considering the structural breaks the series is a stationary variable when taiwan adopted its expansionary export trade policy second we find that different directions of causality exist between gdp and various kinds of energy consumption the empirical result shows unanimously in the long run that energy acts as an engine of economic growth and that energy conservation may harm economic growth third the cointegration between energy consumption and gdp is unstable and some economic events may affect the stability overall we do find the structural breakpoints and they look to match clearly with the corresponding critical economic incidents

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

on cointegration and exchange rate dynamics baillie and bollerslev 1989 have recently argued that nominal dollar spot exchange rates are cointegrated here we examine an immediate implication of their finding namely that cointegration implies an error correction representation yielding forecasts superior to those from a martingale benchmark in light of a large earlier literature highlighting the predictive superiority of the martingale in an out of sample forecasting exercise we find the martingale model to be superior we then perform a battery of improved cointegration tests and find that the evidence for cointegration is much less strong than previously thought a result consistent with the outcome of the forecasting exercise

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed