intertemporal pricing and price discrimination a semiparametric hedonic analysis of the personal computer market we apply a smooth coefficient semiparametric model to a unique high frequency data set to examine the intertemporal pricing of personal computers furthermore we test whether firms charge differential component prices for their top performance personal computers and whether premium firms charge both a premium for all their computers and a premium for their top performance ones we find nonlinear effects in the pricing of personal computer components we also find that firms in general do not charge differential prices for the components of their top performance computers in addition high quality firms charge higher premia only for their most advanced products copyright 2006 john wiley sons ltd

asymmetric peer effects in capital structure dynamics abstract using a semiparametric smooth coefficient partial adjustment model this study finds evidence for asymmetric peer effects on capital structure adjustment speeds between overlevered and underlevered firms overlevered firms adjustment speeds and peer firm shocks have a u shaped relationship while underlevered firms adjustment speeds monotonically increase with peer firm shocks

estimating systemic risk in the international financial system this paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system we examine a sample of 334 banks representing 80 of global bank equity in 28 countries around five global financial crises our results suggest statistically significant but economically small increases in systemic risk although policy responses are endogenous the low estimated probabilities suggest that the distress of central bankers regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

forest clearing in rural livelihoods household level global comparative evidence summary this paper examines the factors that influence rural household decisions to clear forestland we use a large dataset comprising 7172 households from 24 developing countries twenty seven percent of sampled households had converted forest to agriculture during the previous 12 months clearing on average 1 21 ha male headed households with abundance of male labor living in recently settled places with high forest cover unsurprisingly tended to clear more but regional peculiarities abounded households with medium to high asset holdings and higher market orientation were more likely to clear forest than the poorest and market isolated households questioning popular policy narratives about poverty driven forest clearing

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

agricultural household models extensions applications and policy this book presents the basic model of an agricultural household that underlies most of the case studies undertaken so far the model assumes that households are price takers and is therefore recursive the decisions modeled include those affecting production and the demand for inputs and those affecting consumption and the supply of labor comparative results on selected elasticities are presented for a number of economies the empirical significance of the approach is demonstrated in a comparison of models that treat production and consumption decisions separately and those in which the decisionmaking process is recursive the book summarizes the implications of agricultural pricing policy for the welfare of farm households marketed surplus the demand for nonagricultural goods and services the rural labor market budget revenues and foreign exchange earnings in addition it is shown that the basic model can be extended in order to explore the effects of government policy on crop composition nutritional status health saving and investment and to provide a more comprehensive analysis of the effects on budget revenues and foreign exchange earnings methodological topics primarily the data requirements of the basic model and its extensions along with aggregation market interaction uncertainty and market imperfections are discussed the most important methodological issues the question of the recursive property of these models is also discussed

imperfect interbank markets and the lender of last resort abstract this paper presents a monetary model in which interbank markets have limited commitment to contracts limited commitment reduces the proportion of assets that can be used as collateral and thus banks with high liquidity demands face borrowing constraints in interbank markets these constraints can be relieved by the central bank a lender of last resort through the provision of liquidity loans i show that the constrained efficient allocation can be decentralized by controlling only the money growth rate if commitment to interbank contracts is not limited otherwise a proper combination of central bank loans and monetary policy is needed to bring the market equilibrium into a state of constrained efficiency

institutional determinants of capital structure adjustment speeds abstract many authors relate a firm s performance to legal and political features and the regulatory environment in which it operates this article compares firms capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds we find that legal and financial traditions significantly correlate with firm adjustment speeds more narrowly institutional features also relate to adjustment speeds consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm s leverage such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade off theory of capital structure choice

the debt equity choice when firms adjust their capital structures they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt in contrast to previous empirical work out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio and that the target ratio may change over time as the firm s profitability and stock price change a separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision

local versus global separability in agricultural household models the factor price equalization effect of land transfer rights commonly employed global tests for separability between production and consumption decisions are theoretically inappropriate when the market failures creating non separabilities differentially constrain some but not all households simulated maximum likelihood estimates using chinese panel data reject the restrictions implied by a global separability test in favor of regime specific or local separability tests the estimates also show that a global approach to separability obscures the significant effect that less encumbered land transfer rights would have on shadow factor price equalization across households and allocative efficiency the findings on transfer rights suggest a resolution to the debate in china on further property rights reform copyright 2002 oxford university press

market integration development and smallholder forest clearance a significant proportion of deforestation in latin america is caused by smallholders living at the frontier of modern rural markets this paper develops a household model that examines the roles of market integration subsistence time preference and non timber forest uses in the household s decision to clear forest for future agriculture the model explores the possible impacts of development programs that encourage market integration the model shows that rates of forest clearance should be exacerbated in areas in which market integration is most rapid an empirical estimation using household data from the tsimane people of bolivia tests hypotheses from the model

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

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

capital standard forbearance and deposit insurance pricing under garch abstract we propose a multiperiod deposit insurance pricing model that simultaneously incorporates the capital standard and the possibility of forbearance the model employs the recently developed garch option pricing technique in determining the deposit insurance value our model offers two distinctive advantages first it explicitly considers the implications of the strict enforcement on capital standard as stipulated in fdic improvement act of 1991 second the use of the garch model allows us to capture many robust features exhibited by financial asset returns by the garch option pricing theory the value of a contingent claim is a function of the asset risk premium this unique feature is found to be prominent in determining the bank s deposit insurance value we also examine the effects of capital forbearance and moral hazard behavior in this multiperiod deposit insurance setting

insider trading in supervised industries abstractwe investigate the impact of government agency oversight such as by the federal reserve on insider trading at the firm level regulatory supervision potentially limits trading based on material nonpublic information as it provides another layer of corporate governance to mitigate outflows of private information yet regulators themselves may serve as a source of information leakage thereby facilitating insider trading activity we find first that in comparison to nonsupervised firms supervised firms exhibit substantially greater trading based on inside information prior to earnings announcements second in the first few days after firms provide private information to regulators or when regulators possess private information inaccessible to corporate insiders these firms exhibit greater symptoms of insider trading finally within a given supervised industry insider trading symptoms appear more pronounced when regulators exhibit greater leniency or operate in states with more political c

forbearance deposit insurance pricing and incentive compatible bank regulation abstract this paper examines the incentive compatible role of regulatory forbearance policy in the context of optimal bank regulation under moral hazard we show that when a bank s asset portfolio returns have market risk the regulator can influence the bank s choice of ex ante risk by delaying the closure of an insolvent bank the optimal closure policy involves co ordinating the closure decision with market wide performance such a policy may significantly alleviate the bank s ex ante risk shifting problem furthermore even fixed rate deposit insurance can be optimal when combined with a sound forbearance policy and a minimum capital standard

can economic causes of tropical deforestation be identified at a global level this paper contributes to the literature on the macro scale economic determinants of the increase in global forest depletion by performing a regression analysis based on a panel dataset for fifty tropical countries over an eighteen year period while the initial findings appear at first to confirm a common causality pattern of selected macroeconomic variables in influencing tropical deforestation subsequent statistical tests question the significance of the results more specifically testing for autocorrelation which has been downplayed in previous studies appears to represent a critical issue when the initial results are corrected for autocorrelation the significance of the parameters declines substantially below statistically acceptable levels the implications are twofold first regression analyses that seek to explain deforestation at the global level need to be carefully scrutinised and checked to ensure that they meet standard statistical tests second tropical deforestation might ultimately depend upon case specific factors and further research may render more effective policy suggestions if conducted at a more disaggregated local level

deposit insurance regulation and moral hazard in the thrift industry evidence from the 1930 s this paper compares risk taking of insured and uninsured thrifts operating under strict and less strict regulatory regimes during the 1930 s analysis of balance sheet data indicates that while newly insured thrifts undertook less risk than their uninsured counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively permissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts possibly because of screening by deposit insurance authorities moral hazard emerged gradually insured institutions operating under relatively premissive regulatory regimes were more prone to undertake risky lending activities than their more tightly regulated counterparts given the current system of deposit insurance the results suggest that effective regulation and supervision will play a key role in maintaining thrift stability in the 1990s copyright 1992 by american economic association

how does the stock market view bank regulatory capital forbearance policies during the subprime crisis the fdic has shown once again laxity in resolving and closing insolvent institutions ronn and verma 1986 call the tolerance level below which a bank closure is triggered the regulatory policy parameter we derive a model in which we make this parameter stochastic and bank specific to infer the stock market view of the regulatory capital forbearance value for 565 u s listed banks during 1990 to 2012 the countercyclical forbearance fraction in capital most substantial in recessions could represent 17 on average of the market valuation of bank equity and could go as high as 100

information contagion and bank herding we show that the likelihood of information contagion induces profit maximizing bank owners to herd with other banks when bank loan returns have a common systematic factor the cost of borrowing for a bank increases when there is adverse news on other banks since such news conveys adverse information about the common factor the increase in a bank s cost of borrowing relative to the situation of good news about other banks is greater when bank loan returns have less commonality in addition to the systematic risk factor hence banks herd and undertake correlated investments so as to minimize the impact of such information contagion on the expected cost of borrowing competitive effects such as superior margins from lending in different industries mitigate herding incentives

agricultural expansion and deforestation modelling the impact of population market forces and property rights abstract this paper compares four different modelling approaches to agricultural expansion and deforestation and explores the implications of assumptions about the household objectives the labour market and the property rights regime a major distinction is made between population and market based explanations many of the popular policy prescriptions are based on the population approach assuming subsistence behaviour and limited market integration within a more realistic particularly for the long term effects market approach well intentioned policies such as agricultural intensification programmes may boost deforestation many forest frontier contexts are also characterized by forest clearing giving farmers land rights deforestation becomes an investment to the farmer and a title establishment strategy land titling and credit programmes may therefore increase deforestation

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

is the international convergence of capital adequacy regulation desirable the merit of international convergence of bank capital requirements in the presence of divergent closure policies of diierent central banks is examined the lack of a complementary variation between minimum bank capital requirements and regulatory forbearance leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies linking the central bank s forbearance to its alignment with domestic bank owners it is shown that in equilibrium a regression toward the worst closure policy may result the central banks of initially less forbearing economies also adopt greater forbearance i analyze the joint design of two bank regulatory mechanisms minimum capital requirements which are an ex ante mechanism to prevent bank failures and closure policy which is an ex post mechanism to manage the cost of bank failures at the heart of the paper is a simple but fundamental point ex post policies affect ex ante incentives and hence the design of an ex ante mechanism must take into account any feedback from the ex post policies the optimal design of capital requirements is thus tied to the extent of forbearance exercised by the central bank s closure policy this warrants a closer scrutiny of the merits of creating a level playing eld in capital requirements across countries as proposed and

banks as secret keepers banks are optimally opaque institutions they produce debt for use as a transaction medium bank money which requires that information about the backing assets loans not be revealed so that bank money does not fluctuate in value reducing the efficiency of trade this need for opacity conflicts with the production of information about investment projects needed for allocative efficiency intermediaries exist to hide such information so banks select portfolios of information insensitive assets for the economy as a whole firms endogenously separate into bank finance and capital market stock market finance depending on the cost of producing information about their projects

incorporating equity market information into supervisory monitoring models we examine whether equity market variables such as stock returns and equity based default probabilities are useful to u s bank supervisors for assessing the condition of domestic bank holding companies we develop a model of supervisory ratings that combines supervisory and equity market information we find that the model s forecasts anticipate supervisory rating changes by up to four quarters relative to simply using supervisory variables the inclusion of equity market variables in the model does not improve forecast accuracy however we argue that equity market information should still be useful for forecasting supervisory ratings and should be incorporated into supervisory monitoring models

using market information in prudential bank supervision a review of the u s empirical evidence in principle market and government supervision provide alternative devices for controlling governing any type of corporation most national governments have instituted nonmarket regulatory mechanisms for banking firms on the grounds that market based mechanisms do not adequately discipline banks but what evidence supports this assessment why must governments assure bank solvency but not the solvency of other firms government oversight naturally displaces private efforts to evaluate and control financial firms moreover if the banking business changes over time as it assuredly has in the past decade or two the best combination of government and private supervision may change concurrently this paper reviews and evaluates the growing empirical literature on private investors abilities to assess the financial condition of banking firms the evidence supports the proposition that market investors and analysts could reasonably provide a greater proportion of corporate governance services for large traded u s financial firms

a macroprudential approach to financial regulation many observers have argued that the regulatory framework in place prior to the global financial crisis was deficient because it was largely microprudential in nature a microprudential approach is one in which regulation is partial equilibrium in its conception and aimed at preventing the costly failure of individual financial institutions by contrast a macroprudential approach recognizes the importance of general equilibrium effects and seeks to safeguard the financial system as a whole in the aftermath of the crisis there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macroprudential direction in this paper we offer a detailed vision for how a macroprudential regime might be designed our prescriptions follow from a specific theory of how modern financial crises unfold and why both an unregulated financial system as well as one based on capital rules that only apply to traditional banks is likely to be fragile we begin by identifying the key market failures at work why individual financial firms acting in their own interests deviate from what a social planner would have them do next we discuss a number of concrete steps to remedy these market failures we conclude the paper by comparing our proposals to recent regulatory reforms in the united states and to proposed global banking reforms

agricultural change rural labor markets and forest clearing an illustrative case from the philippines this paper studies the links between agricultural employment and upland activities at a tropical forest margin a model of lowland agricultural production is combined with a model of labor allocation on a representative upland farm to show how labor productivity agricultural wages and the returns from upland activities determine rates of forest clearing farm level data from the philippines demonstrate how agricultural intensification in the form of lowland irrigation development led to an increase in labor demand an increase in employment of upland inhabitants and small but statistically signi ficant reductions in rates of forest clearing

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

market based risk adjusted examination schedules for depository institutions abstract among deposit insurance reforms considered by economists and policymakers have been prompt resolution of problem institutions risk adjusted deposit insurance premiums and risk adjusted capital requirements some economists have further suggested that risk adjusted deposit insurance premiums or capital ratios be calculated by applying option pricing models to stock market data alternatively the option methodology could be used to establish a risk based examination schedule whereby riskier banks would be examined on a more frequent basis such an examination schedule would be consistent with prompt resolution strategies since it would relate the frequency of examination and closeness of supervision to banks riskness this paper demonstrates how a risk adjusted examination schedule could be derived the paper also considers alternatives to the assumptions regarding examination policies made in standard applications of the option model which may not be valid for the sample periods previously used it discusses potential resulting biases and ways to mitigate their effects

the term structure of interbank risk we infer a term structure of interbank risk from spreads between rates on interest rate swaps indexed to the london interbank offered rate libor and overnight indexed swaps we develop a tractable model of interbank risk to decompose the term structure into default and non default liquidity components from august 2007 to january 2011 the fraction of total interbank risk due to default risk on average increases with maturity at short maturities the non default component is important in the first half of the sample period and is correlated with measures of funding and market liquidity the model also provides a framework for pricing hedging and risk management of interest rate swaps in the presence of significant basis risk

too dispersed to monitor ownership dispersion monitoring and the prediction of bank distress this paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders monitoring in contrast with other studies we do not use regressions of risk performance on ownership concentration instead we build an early warning model of bank distress that includes a leading indicator derived from banks share price the merton kmv distance to default dd the significance of this indicator depends on the efficacy of shareholders monitoring on a sample of european banks we show that the predictive power of the dd is satisfactory only when banks shareholding is characterized by the presence of blockholders

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

testing theories of capital structure and estimating the speed of adjustment this paper examines time series patterns of external financing decisions and shows that publicly traded u s firms fund a much larger proportion of their financing deficit with external equity when the cost of equity capital is low the historical values of the cost of equity capital have long lasting effects on firms capital structures through their influence on firms historical financing decisions we also introduce a new econometric technique to deal with biases in estimates of the speed of adjustment toward target leverage we find that firms adjust toward target leverage at a moderate speed with a half life of 3 7 years for book leverage even after controlling for the traditional determinants of capital structure and firm fixed effects

capital shortfall a new approach to ranking and regulating systemic risks the financial crisis of 2007 2009 has given way to the sovereign debt crisis of 2010 2012 yet many of the banking issues remain the same we discuss a method to estimate the capital that a financial firm would need to raise if we have another financial crisis this measure of capital shortfall is based on publicly available information but is conceptually similar to the stress tests conducted by us and european regulators we argue that this measure summarizes the major characteristics of systemic risk and provides a reliable interpretation of the past and current financial crises

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

forest loss and economic inequality in the solomon islands using small area estimation to link environmental change to welfare outcomes abstract to study welfare effects of environmental change data from household surveys may be linked to remote sensing data using spatial aggregation to link risks ecological fallacy since surveys are usually representative for areas larger than the spatial scale of decision making units this paper uses survey to census imputation to estimate welfare indicators for small areas to study the effect of deforestation on subsequent inequality in the rural solomon islands this country depends on logging for almost half of foreign exchange and one sixth of government revenue and most forested land remains under customary ownership a sharp increase in log exports to seven times the sustainable yield and a major shift in export destinations as other countries withdrew from the tropical log trade represents an exogenous shock that helps to identify effects of deforestation on inequality rather than the reverse relationship a standard deviation increase in the rate of forest loss over 2000 to 2012 raises the gini index of inequality in 2013 by one third of a standard deviation mean incomes and poverty rates are also higher implying that deforestation makes some households richer while others become poorer these precisely estimated effects would be obscured using more spatially aggregated data

depositor behavior under macroeconomic risk evidence from bank runs in emerging economies depositor behavior has been associated with bank specific characteristics random runs or contagion episodes using evidence on the 2000 02 bank runs in argentina and uruguay this paper shows that macroeconomic risk is also important few macroeconomic shocks can quickly cause large runs macroeconomic risk affects deposits regardless of traditional bank specific characteristics furthermore bank exposure to macroeconomic factors can explain differences in deposit withdrawals during crises the evolution of bank specific characteristics is mainly driven by macroeconomic factors while the informational content of bank specific variables declines overall depositors seem responsive to risk in a broader sense than that often considered by the literature

banking market structure and financial stability evidence from the texas real estate crisis in the 1980s abstract this paper examines the relationship between banking market structure and financial stability using data on thrifts a type of banking institution specializing in residential mortgage lending i test two related hypotheses first competition reduces franchise value second reduced franchise value induces risk taking testing the second hypothesis exploits predictions that when hit by an exogenous shock the slope of risk with respect to franchise value becomes more negative because thrifts adopt bang bang strategies and choose minimal or maximal risk using the texas real estate collapse in the 1980s as a natural experiment i find evidence supporting both hypotheses

the information content of bank exam ratings and subordinated debt prices do supervisory examinations of large commercial banking firms produce useful information not already reflected in market prices to investigate this question we apply a new research methodology to data on bank exam ratings and the subordinated debt risk spreads of their parent holding companies we find that government exams do produce new value relevant information that debenture prices do not immediately reflect this information and that the market prices the likely regulatory actions implied by this information these results have implications for market versus regulatory discipline at large banking firms and for proposals to make subordinated debt mandatory for these firms

market discipline and bank subordinated debt note a lengthy literature in banking has addressed the question of whether the market prices of liabilities respond to individual bank risk taking activity that is whether any market disciplines exists however despite the obvious importance of this question the current record has led to no consensus on the issue results have been contradictory in this journal alone hannan and hanweck 1988 conclude that the market does extract at least some price for risk taking while avery belton and goldberg 1988 find no such evidence in this study we argue that this line of inquiry has a serious f law in that it fails to use theoretical models of bank instrument valuation to determine the appropriate testing of market discipline therefore the empirical models have lacked the necessary exactness to isolate the appropriate null hypotheses to redress this shortcoming and advance the methodology of this area of the literature we use a pricing model which comes to the banking area from the options pricing literature to look at the yield spread on bank liabilities using this model it is clear that the value of large uninsured bank liabilities cannot be described as a linear monotonic function of risk moreover current bank regulation affects the assumed role risk measures play in the pricing of such debt instruments both of these complications mean that simple regressions are not likely to adequately address the relationship between the value of debt and underlying risk in the final section we empirically investigate the presence of market discipline using contingent claims pricing we find that accounting measures of bank risk still have little predictive value in explaining yield spreads and therefore offer little evidence of meaningful market discipline

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

a market evaluation of the risk based capital standards for the u s financial system abstract this paper evaluates u s risk based capital guidelines by comparing stock market measures of institutions risk with current regulatory risk based capital measures the first part of the evaluation compares overall market and regulatory risk based capital measures of current capital adequacy required capital and the capital infusion required to meet the capital requirement the second part compares regulatory risk weights on individual risk categories with market determined risk weights the results suggest that the market and risk based capital standards agree to some extent on the adequacy of institutions current capital and required capital infusion but that their measures of asset risk are not positively correlated further the 100 percent risk category for banks and the 50 and 200 percent categories for s ls do distinguish activities that are riskier by market measures however the market model makes limited distinctions among the other categories in addition the results suggest that some off balance sheet activities for banks may reduce asset risk

a reexamination of the over or under pricing of deposit insurance this study shows how fair deposit insurance premia can be calculated using data on bank stock prices interest rate movements and income and balance sheet accounts fair insurance premia are estimat ed under the alternative assumptions that the fdic provides either a limited term variable rate or unlimited term insurance cont ract to banks the paper s results suggest that for nearly all of the large commerical banks in the sample the actual insurance premium c harged by the fdic falls between the bounds of fair limited term and unlimited term insurance premia copyright 1987 by ohio state university press

threshold arch models and asymmetries in volatility this paper attempts to enlarge the class of threshold heteroscedastic models tarch introduced by zakoian 1991a we show that it is possible to relax the positivity constraints on the parameters of the conditional variance unconstrained models provide a greater generality of the paths allowing for nonlinearities in the volatility cyclical behaviour is permitted as well as different relative impacts of positive and negative shocks on volatility depending on their size we give empirical evidence using french stock returns

market based corrective actions many economic agents take corrective actions based on information inferred from market prices of firms securities examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions we provide an equilibrium analysis of such situations in light of a key problem if agents use market prices when deciding on corrective actions prices adjust to reflect this use and potentially become less revealing we show that market information and agents information are complementary and discuss measures that can increase agents ability to learn from market prices the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

do bank regulations affect board independence a cross country analysis abstract based on the hand collected board structure data of 277 listed banks across 55 countries and the bank regulation and supervision database compiled by the world bank this paper provides the first cross country assessment of the impacts of bank regulations on board independence of banks in line with beck et al 2006 we examine the effects of two types of regulation policies the first involving the empowerment of supervisory agencies to monitor and discipline banks directly and the second focusing on encouraging private monitoring of banks through requiring disclosure of more accurate and complete information we find that empowering official supervisory agencies to discipline banks directly reduces board independence but encouraging private sector monitoring of banks increases it the findings suggest that the first type of regulations tends to crowd out the internal governance of banks while the second crowds in it we also find that the legal system with better investor rights protection and better contracts enforcement not only increases board independence but also enhances the crowding in effect of promoting private monitoring and decreases the crowding out effect of direct official supervision on board independence

forests livelihoods and conservation broadening the empirical base summary more than 10 000 years after the agricultural revolution started millions of rural smallholders across the developing world may still derive as much income from foraging forests and wildlands as from cultivating crops these steady environmental income flows come often from public forests and are extracted by men and women alike however inflexible supplies from nature the physical hardship of harvesting and commonly low returns limit their role as safety nets and pathways out of poverty while their harvesting does not preclude the ongoing conversion of wildlands to agriculture privileged access to high quality environmental resources can become a strong local conservation motive

subordinated debt market discipline and bank risk this paper demonstrates that subordinated debt subdebt thereafter regulation can be an effective mechanism for disciplining banks by reducing the chance that managers of distressed banks can take value destroying actions to benefit themselves subdebt regulation may encourage banks to lower asset risk moreover subdebt regulation and bank capital requirements can be complements for alleviating the banks moral hazard problems to make subdebt regulation effective regulators may need impose ceilings on the interest rates of subdebt prohibit collusion between banks and subdebt investors and require subdebt to convert into the issuing bank s equity when the government provides assistance to the bank

product market competition and the value of innovation evidence from us patent data this study investigates the relationship between product market competition and the market value of innovation using firm level patent data of us firms over the period 1977 2005 we find that there is an inverted u shaped relationship between competition and the value of innovation furthermore we show that there is an asymmetric causal effect of intensifying product market competition on the market value of innovation using a quasi natural experiment based on tariff cut events for us manufacturing firms between 1977 and 2006 a firm s incentive to innovate tends to get stronger in response to a tariff cut when product market competition is very mild while it tends to get weaker when very severe

correlated default and financial intermediation financial intermediation naturally arises when knowledge about the aggregate state is valuable for managing investments and lenders cannot easily observe the aggregate state i show this using a costly enforcement model in which lenders need ex post incentives to enforce payments from defaulted loans and borrowers payoffs are correlated when projects have correlated outcomes learning the state of one project via enforcement provides information about the states of other projects a large correlated portfolio provides ex post incentives for enforcement as a result intermediation dominates direct lending intermediaries are financed with risk free deposits earn positive profits and hold systemic default risk

sovereign risk and deposit dynamics evidence from europe abstractthe unprecedented expansion of sovereign balance sheets since the beginning of the global crisis has given a new meaning to the term sovereign risk developments in europe since early 2010 revealed new challenges for the functioning of private banks in an environment of heightened sovereign risk and may have contributed to deleveraging the article uses an innovative way of measuring the perception of sovereign risk and its impact using an extension of a common market discipline framework it shows that exposure to sovereign risk may have limited the ability of banks in europe to collect deposits potential identification issues between deposits and bank efficiency are controlled by using data envelopment analysis dea the results are robust to inclusion of conventional measures of bank performance and the sector wide holdings of foreign sovereign debt

do federal home loan bank membership and advances increase bank risk taking since the early 1990s commercial banks have turned to federal home loan bank fhlbank advances to plug the gap between loan and deposit growth is this trend worrisome on the one hand advances implicitly encourage risk by insulating borrowers from market discipline on the other advances give borrowers greater flexibility to managing interest rate and liquidity risk and access to fhlbank funding encourages members to reshape their balance sheets in ways that could lower credit risk using quarterly financial and supervisory data for banks from 1992 to 2005 we assess the effect of fhlbank membership and advances on risk the evidence suggests liquidity and leverage risks rose modestly but interest rate risk declined somewhat credit risk and overall failure risk were largely unaffected although the evidence suggest fhlbank membership and advances have had at best only a modest impact on bank risk we caution that our sample period constitutes one observation and that moral hazard could be pronounced if leverage ratios revert to historical norms

semiparametric smooth coefficient stochastic frontier model this paper proposes a semiparametric smooth coefficient spsc stochastic production frontier model where regression coefficients are unknown smooth functions of environmental factors z technical inefficiency is specified in the form of a parametric scaling function which also depends on the z variables thus in our spsc model the z variables affect productivity directly via the technology parameters as well as through inefficiency a residual based bootstrap test of the relevance of the environmental factors in the spsc model is suggested an empirical application is also used to illustrate the technique

the pricing of deposit insurance considering bankruptcy costs and closure policies the paper aims to study the pricing issue of deposit insurance with explicit consideration of bankruptcy costs and closure policies full coverage from deposit insurance is imposed by many regulators to stabilize the banking system in the current financial crisis despite of the potential moral hazard problems we argue that bankruptcy cost is an important factor in pricing deposit insurance especially when the insured institution is insolvent applying the isomorphic relationship between deposit insurance and put option we first derive a closed form solution for the pricing model with bankruptcy costs and closure policies then we modify the barrier option approach to price the deposit insurance in which the bankruptcy cost is set as a function of asset return volatility and more realistic closure policies considering possible forbearance can be accounted for the properties of the models are supported by numerical simulations and are consistent with the risk based pricing scheme

too many to fail evidence of regulatory forbearance when the banking sector is weak this paper studies bank failures in 21 emerging market countries in the 1990s by using a competing risk hazard model for bank survival we show that a government is less likely to take over or close a failing bank if the banking system is weak this too many to fail effect is robust to controlling for macroeconomic factors financial crises the too big to fail effect domestic financial development and concerns due to systemic risk and information spillovers the paper also shows that the too many to fail effect is stronger for larger banks and when there is a large government budget deficit

information about bank risk in options prices abstract the volatility of its share price reflects the volatility of the market value of a bank s assets we present data for the volatilities of individual banks shares that are implied by the prices of options on the banks shares we present evidence that implied volatilities iv s better forecast actual future volatilities of share prices than historical volatilities do banks iv s are correlated with marketwide volatility with the levels of their own share prices with their own subordinated debt yield spreads and with other banks iv s bank capital reduces the response of iv s to market volatility iv s are likely to add information about bank risk that is timely cheap objective and useful