the rotten kid theorem meets the samaritan s dilemma a familiar result in the economic theory of the family is becker s rotten kid theorem this theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint we extend becker s one period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the samaritan s dilemma implications of this for transfer arrangements within the family and for the ricardian equivalence theorem are drawn

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

gross versus net equalization scheme in a federation with decentralized leadership this paper compares the impact of two equalization transfer schemes on regional budgetary choices a gross equalization scheme where ex post transfers to regions are financed from federal tax revenues and a net equalization scheme where region to region ex post transfers allocated by the federal government are self financed the net equalization scheme reduces ex post federal intervention and should therefore be favored over the gross equalization scheme in order to reduce opportunistic regional behaviour in addition the two equalization schemes differently affect the composition of public expenditures the gross equalization scheme generates an upward distortion of the amount of capital public expenditures whereas the net equalization scheme generates a downward distortion of the amount of current public expenditures compared to the optimum a welfare analysis reveals that incentives to use a net equalization scheme are strengthened for a sufficiently high number of regions

household fuelwood demand and supply in nepal s tarai and mid hills choice between cash outlays and labor opportunity abstract subsistence households are a leading source of deforestation and their consumption of fuelwood in particular is important in many developing countries yet the empirical economic examinations of fuelwood consumption are sparse particularly for rural areas where the deforestation occurs and we would argue that forest policy is often designed without a good understanding of the potential responses of subsistence households to the new policy this paper addresses these issues with household evidence from the two major populated regions of nepal market prices labor opportunities the availability of substitutes and measure of access to the basic resource are the most reliable predictive variables for fuelwood consumption and production there are however regional differences and important distinctions between the elasticities of fuelwood collecting or purchasing households with respect to these predictive variables the difference between collecting and purchasing households is notable it recommends forestry policies that target the labor opportunity and the physical resource in regions where collecting households dominate and policies that affect the fuelwood market itself in regions where purchasing households are important a second interesting finding is that fuelwood is relatively scarcer prices are higher in the mid hills and both collecting and purchasing households in this region are beginning to respond to deforestation by using their own land for fuelwood production

a pure financial explanation for trade credit this paper provided a pure financial explanation for the existence of trade credit and for the values of the credit terms offered to customers two motives for extending trade credit were identified the pure operating flexibility motive arises because the opportunity to change credit policy provides the seller an efficient way to respond to fluctuations in demand this motive was eliminated from consideration in this paper by assuming constant demand the seller must hold a liquid reserve when the financial markets are imperfect and the desire to earn an excess rate of return on this reserve explains the pure financial intermediary motive for trade credit the pure financial incentive to lend this liquid reserve to customers was examined by viewing a market borrowing rate of interest that exceeds the market lending rate of interest as a hindrance to trade or equivalently as a financial market tariff this tariff imposes a wedge between the market prices paid and received for the product plus a loan and thereby inflicts a loss of surplus on the seller and buyers trade credit lending enables the seller and or the buyers to recapture at least part of this loss when the source of the tariff does not apply to direct loans to customers financial market tariffs caused by transactions costs fulfill this requirement because the trade credit lender s familiarity with its customers and product provide it with information and collection cost advantages over financial intermediaries tariffs caused by financial intermediary rents fulfill this requirement as well because the parties to a trade credit loan do not employ the services of a financial intermediary increasing opportunity costs and financial market imperfections in addition to the ones described above establish the limits of credit policy the optimal amount of accounts receivable is derived from the condition that the marginal revenue of trade credit lending is equal to the marginal cost this condition combined with factoring costs produces a unique finite optimal credit period accrual accounting for income tax purposes imposes an additional restriction because the firm is taxed on the recovery of its opportunity costs these limitations on credit policy were examined separately in this paper for clarity but they are in effect simultaneously in practice

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

trade credit bank lending and monetary policy transmission this paper investigates the role of trade credit in the transmission of monetary policy most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion in our model we introduce trade credit as an additional source of funding we predict that when monetary policy tightens there will be a reduction in market and bank lending and an increase in trade credit this is confirmed with an empirical investigation of 16 000 manufacturing firms

does trade credit play a signalling role some evidence from smes microdata using micro data on small and medium sized enterprises this paper empirically investigates the signalling hypothesis formulated on the role of trade credit biais and gollier in rev financ stud 10 903 937 1997 burkart and ellingsen in am econ rev 94 569 590 2004 the research method adopted allows evaluation of the impact of suppliers credit on bank debt accounting for the strength duration of bank firm relationships our main finding is that trade credit seems to have an information content for banks especially when the latter do not dispose of adequate soft information on firms which is likely the case at the beginning stages of bank firm relationships an implication of our results is that the availability of suppliers credit might be crucial to foster access to institutional funding for new firms entering the market our evidence also suggests that banks seem to consider suppliers a reliable source of information on firms financial conditions even after several years of lending relationships

altruism and time consistency the economics of fait accompli this paper analyzes the strategic and intertemporal interaction between two economic agents who have overlapping concerns such as altruistic concerns for each other s welfare the agents may be two individuals a social bureau and a client or two units in an organization we show how the presence of such common concerns may lead to socially inefficient outcomes in which one economic agent free rides on the other s concern we also briefly how this inefficiency and free riding in the context of interaction between individuals might be mitigated by compulsory social security systems as another example we interpret the inefficiency in terms of kornai s soft budget constraints within organizations

evidence on the determinants of credit terms used in interfirm trade trade credit is created whenever a supplier offers terms that allow the buyer to delay payment in this paper we document the rich variation in interfirm credit terms and credit policies across industries we examine empirically the firm s basic credit policy choices whether to extend credit or to require cash payment and if credit is extended whether to adopt simple net terms or terms with discounts for prompt payment we also examine determinants of variations in two part terms results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness trade credit has important economic significance from both micro and macroeconomic perspectives during the 1990s vendor financing has accounted for an average 1 5 trillion of the book value of all assets of u s corporations and has represented approximately 2 5 times the combined value of all new public debt and primary equity issues during a given year as a component of the money supply trade credit in the form of accounts payable exceeds the primary money supply mi by a factor of 1 5 on average 1 clearly efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade credit financing several recent empirical studies examine determinants of firm reliance on trade credit 2 these studies model supply and demand for trade credit using financial statement data accounts receivable and payable 3 however many aspects of trade credit practice are unexplored most notably little is known about the types of credit terms e g net 30 2 10 net 30 and credit policies that are observed across firms and industries the only comprehensive doc

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

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

determinants of conservation among the rural poor a charitable contribution experiment this paper examines how conservation decisions are affected by environmental degradation donations to an environmental ngo and participation in actual conservation activities capture individual preferences for environmental conservation environmental degradation is measured both through survey based data on experiences of deforestation and environmental shocks and through indices of deforestation constructed with gis data the results show that being exposed to environmental degradation is correlated both with higher donations and conservation behavior the relationship between conservation choices and individual social preferences is also explored experimental measures of individual altruism and inequality aversion and survey measures of trust time preferences and civic engagement are correlated with donations and real world conservation decisions respectively these findings show the role of environmental awareness in fostering environmental conservation even in very poor settings they also highlight the potential of experiments which closely mirror real world decisions to generate conclusions generalizable to individual behavior outside the laboratory

the exploitation of relationships in financial distress the case of trade credit this paper develops optimal pricing lending and renegotiation strategies for companies in relationships where one firm is highly dependent on the other long term trade creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors anticipating these larger renegotiation concessions not only do less financially stable firms prefer trade credit but all firms agree to pay a higher interest rate for trade credit the model also explains the existence of teaser interest rates and convenience classes findings are consistent with those of the relationship lending literature

credit market imperfections labor markets and leverage dynamics in emerging economies abstract emerging economies emes have different credit and labor market structures relative to advanced economies we document that economies with larger self employment shares tend to exhibit less countercyclical leverage dynamics we build a model where formal credit markets input credit relationships and the structure of labor markets interact that 1 captures a comprehensive set of eme business cycle regularities and 2 rationalizes our new fact the interaction between firms net worth interfirm input credit and self employment underlying our framework is critical for explaining our fact and is supported by the data

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

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

economic policy precommitment and social welfare abstract the claim that economic policy precommitment is advantageous is investigated in a context in which the welfare basis of the government s objectives is explicit three results are demonstrated each one defining a class of welfare functions and a class of models such that precommitment would not raise welfare in models of that class it is concluded that if a purely welfare economic argument for precommitment is to be found attention will have to be paid either to conflicts asymmetries and differences within the private sector or to multiple equilibria

household water supply choice and time allocated to water collection evidence from madagascar abstract this article uses household survey data from madagascar to examine water supply choice and time spent in water collection we find that the choice of water source is strongly influenced by a number of household characteristics as well as distance to sources there are also strong substitution effects across sources for example increasing the distance to a public tap by 1 km increases the probability of using a well by 43 per cent in urban areas with regards to time spent gathering water we focus on the effects of gender age and distance to water women and girls spend the most time gathering water the response to reducing distance to water sources differs in rural and urban areas as well as by gender and age of household members investments to reduce to the distance to water sources will have larger impacts on adults than children and on men than women

rotten kids purity and perfection bergstrom has shown that becker s rotten kid theorem holds in a world of two commodities if their utilities are transferable the present paper identifies a further circumstance in which the theorem is valid we show that it also holds in the absence of transferable utility if the externalities are assumed to take the form of a single pure public good

assessment of initial emission allowance allocation methods in the korean electricity market abstract korea will introduce an emission trading policy from 2015 the rules for the initial allocation of emission allowances have not been decided yet this paper assesses the effect of various initial emission allowance allocation methods of the korean electricity market this study employs the mixed complementarity problem which is able to incorporate operation investment and emission trade decisions in the deregulated electricity market in order to provide more realistic results in particular the allocation rules to existing plants and new entrants are modeled separately in this study the model quantifies the impacts of different allocation rules on emissions capacity mix emission allowance prices electricity prices and social welfare we examine typical allocation rules such as auction to all power plants best available technology bat benchmark to all power plants fuel specific benchmark to existing power plants along with bat benchmark to new entrants and fuel specific benchmark to all power plants we find that giving free allocations to new power plants prompts more new investment and this raises overall social welfare even though the direct cost of achieving the emission reduction target rises while the auction is the most powerful policy to reduce emissions in the electricity sector giving away permits to all power plants based on a fuel specific benchmark encourages investment increases output and leads to a greater level of welfare from an imperfectly competitive industry

bank credit and trade credit evidence from natural experiments abstract prior studies find mixed evidence about the substitution relation between bank credit and trade credit in this paper using two bank interest rate deregulations in china we revisit the substitution hypothesis by examining how exogenous increases in the availability of bank credit affect trade credit we find that firms with higher credit risk increased their use of bank credit and reduced their use of trade credit after the 2004 bank interest rate ceiling deregulation whereas firms with lower credit risk increased their use of bank credit and reduced their use of trade credit after the 2013 bank interest rate floor deregulation our results provide supportive evidence for the substitution hypothesis that firms reduce their use of trade credit after the relaxation of bank credit and suggest that bank credit is more favorable short term financing than trade credit

government transfers and the samaritan s dilemma in the family this paper examines the effectiveness of government transfersin overcoming the samaritan s dilemma in a family in which thechild saves an insufficient amount in order to induce largerbequests from the parent the results are as follows first exogenous government transfers do not affect intergenerationalconsumption allocation if bequests are operative second assuming that government transfers are chosen strategically the government precommits to such a level of transfers fromthe parent to the child that bequests become inoperative andthus rids the child of the incentive for undersaving thisengenders an efficient intertemporal allocation ofconsumption

entrepreneurial moral hazard and bank monitoring a model of the credit channel abstract this paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth the monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders the model is used to analyze the different strands of the credit view of the transmission of monetary policy in particular we derive the empirical implications of a broad credit channel and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel

trade credit and credit rationing asymmetric information between banks and firms can preclude financing of valuable projects trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers incentive compatibility conditions prevent collusion between two of the agents e g the buyer and the seller against the third e g the bank consistent with the empirical findings of petersen and rajan 1995 firms without relationships with banks resort more to trade credit and sellers with greater ability to generate cash lows provide more trade credit finally small firms react to monetary contractions by using trade credit consistent with the empirical results of nilsen 1994 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

the use of linear logit models for dynamic input demand systems this paper demonstrates that a linear logit model with appropriate constraints can be used to specify a system of cost share equations that satisfy neoclassical economic conditions unlike many other flexible functional forms the logistic function is particularly well suited for incorporating dynamic adjustment mechanisms the empirical results suggest that the use of static models overstates short run own price elasticities and understates the corresponding long run price effects

private income transfers and market incentives the paper introduces labour supply considerations and labour earnings uncertainty into a parent child framework in the presence of merit goods i investigate the implications of various parental bequest rules on the effort decisions of the offspring where the parent cannot perfectly observe her child s market activities the asymmetry in information and preferences gives rise to a moral hazard problem and as a result the parent may not fully insure her child because the source of risk is not entirely exogenous in this case optimal parental transfers are shown to be state contingent moreover the child s effort is higher in the case with a merit good and parental transfers than in the case without a merit good goods are not only economic commodities but vehicles and instruments for realities of another order influence power sympathy status emotion and the skillful game of exchange consists of a complex totality of maneuvers conscious or unconscious in order to gain security and to fortify one s self against risks incurred through alliances and rivalry levi strauss the principle of reciprocity

efficiency enhancing signalling in the samaritan s dilemma suppose an altruistic person a is willing to transfer resources to a second person b if b comes upon hard times if b anticipates that a will act in this manner b will save too little from both agents point of view this is the samaritan s dilemma this paper shows that the undersaving result is mitigated if we relax the standard assumption of complete information because if a is uncertain about how big b s need for support is b will have an incentive to signal that he is in great need by saving more than he otherwise would have done

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

samaritan versus rotten kid another look abstract we set up a two stage game with sequential moves by one altruist and n selfish agents the samaritan s dilemma rotten kid theorem states that the altruist can only reach her first best when the selfish agents move after before the altruist we find that in general the altruist can reach her first best when she moves first if and only if a selfish agent s action marginally affects only his own payoff the altruist can reach her first best when she moves last if and only if a selfish agent cannot manipulate the price of his own payoff

trick or treat development opportunities and challenges in the wto negotiations on industrial tariffs negotiations on industrial tariffs in the current wto work programme have turned out to be surprisingly difficult on the one hand developing countries particularly in africa are concerned about the potential negative effect on their industrial development of developed country efforts to push them into deep cuts in applied tariffs after the disillusion of the uruguay round promises of welfare gains seem unconvincing on the other hand a number of the more complex formula proposals for tariff cutting make it difficult for participants to evaluate what they have to do compared with what they hope to receive the developing countries may achieve greater exports and welfare gains from the more ambitious proposals but computations show that these also imply greater imports lower tariff revenues some labour market adjustments and reduced output in some politically sensitive sectors some way of assisting the developing countries in coping with these adjustments is required to take advantage of the opportunities presented by the negotiations

natural resource collection work and children s schooling in malawi abstract this paper presents results of research that investigates if long hours of work spent by children in fuel wood and water collection activities i e natural resource collection work influence the likelihood that a child aged 6 14 attends school potential endogeneity of resource collection work hours is corrected for using two stage conditional maximum likelihood estimation data from the 1997 1998 malawi integrated household survey ihs conducted by the malawi national statistics office nso in conjunction with the international food policy research institute ifpri are used the study finds that malawian children are significantly involved in resource collection work and their likelihood of attending school decreases with increases in hours allocated to this work the study further shows that girls spend more hours on resource collection work and are more likely to be attending school while burdened by this work consequently girls may find it difficult to progress well in school however girls are not necessarily less likely to be attending school results further show that presence of more women in a household is associated with a lower burden of resource collection work on children and a higher probability of children s school attendance finally the research shows that children from the most environmentally degraded districts of central and southern malawi are less likely to attend school and relatively fewer of them have progressed to secondary school compared to those from districts in the north

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

tradeable carbon permit auctions how and why to auction not grandfather abstract an auction of carbon permits is the best way to achieve domestic carbon caps designed to limit global climate change to minimize administrative costs permits would be required at the level of oil refineries natural gas pipe lines natural gas liquid sellers and coal processing plants to maximize liquidity in secondary markets permits would be fully tradable and bankable the government would conduct quarterly auctions a standard ascending clock auction in which price is gradually raised until there is no excess demand would provide reliable price discovery an auction is preferred to grandfathering giving companies permits based on historical output or emissions because it allows reduced tax distortions provides more flexibility in distribution of costs provides greater incentives for innovation and reduces the need for politically contentious arguments over the allocation of rents

disequilibrium in the uk corporate loan market in the last decade a debate has resurfaced about whether financial constraints stemming from asymmetric information and incentive problems play an important role in propagating monetary policy shocks this paper investigates the monetary transmission mechanism in the uk and its impact on the availability of bank credit to small and medium size firms the empirical specification is based on a disequilibrium model that allows for the possibility of transitory credit rationing sample firms are classified endogenously into borrowing constrained and borrowing unconstrained the analysis of credit rationing takes into account not only firm specific variables but also important macroeconomic factors such as the prevailing monetary conditions and the stage of the business cycle we find that i firms assets play an important role as collateral in mitigating borrowing constraints ii during periods of tight monetary conditions corporate demand for bank credit increases whereas the supply of bank loans is reduced iii to avoid bank credit rationing smaller companies increase their reliance on interfirm credit iv the proportion of borrowing constrained firms is significantly higher during the recession years of the early 1990s than at other times

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

exchange rate regimes and inflation only hard pegs make a difference abstract using data from a large sample of developing countries from 1985 to 2001 we confirm that hard pegs currency boards or a shared currency reduce inflation and money growth there is no evidence that soft pegs confer any monetary discipline after other factors are controlled for inflation triggers regime switches under hard pegs monetary growth is unaffected by fiscal deficits or by inflation shocks under soft pegs as under floats increased fiscal deficits and positive inflation shocks are associated with higher monetary growth the apparently slower per capita output growth under hard pegs is explained by their geographical distribution jel classification f41

credit program participation and child schooling in rural malawi summary we evaluate the impact of agricultural credit program participation on children s school attendance in rural malawi our paired site sampling survey reveals that credit uptake decreased school attendance by young girl children this finding raises concerns that young girl children are exploited as child labor either at home or in the field when working adults become more involved in income generating activities financed by credit the data however do not show clear evidence for young girls staying at home to do household chores or working in the fields in households that obtained credit but instead find simultaneous occurrence between attending school and taking responsibilities for domestic chores by young children it would appear therefore that credit uptake delays the realization of this concurrence among young girl children and leads to delayed school enrollment

a transactions theory of trade credit use this paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange in the formal analysis uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods by forewarning both trading partners of the timing of money flows credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

interest rates in trade credit markets all things equal interest rates should increase with the borrower s risk and yet klapper laeven and rajan 2012 cannot find such a positive relation in a broad sample of trade credit contracts we shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower s creditworthiness our model implies that trade credit rates are more likely to increase with the borrower s risk if suppliers are less profitable have high cost of funds or sell inputs to firms plagued by moral hazard and financial distress

altruism the samaritan s dilemma and government transfer policy this paper shows that altruism provides an efficiency rationale for public provision of insurance to the poor the framework is one in which there are rich altruists and risk averse poor who face some possibility of loss the government represents the rich and makes transfers on their behalf with unconditional transfers the poor may forgo insurance and rely on private charity to bail them out in the event of loss this reliance on private charity has adverse efficiency effects these may be avoided if the government makes in kind transfers of insurance copyright 1995 by american economic association

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

the costs of global tariff barriers on wool products 1997 2005 the doha round of multilateral trade negotiations commits world trade organization wto members to improving market access for both agricultural and nonagricultural goods tariff barriers on wool products represent a small but important subset of these negotiations to inform the debate on the round we analyze the distortionary effects of recent 1997 2005 tariff barriers on wool products using a model that applies a comprehensive analytical approach with regard to the production trade and consumption of wool products we also account for any indirect effects of wool tariff barriers on the nonwool economy by incorporating the production trade and consumption of nonwool products that is the framework is a comparative static global general equilibrium model with a detailed representation of the world wool market changes in wool tariffs over 1997 2005 lead to positive welfare effects for most regions italy china and the uk are estimated to have gained the most from the changes the results indicate that the nature of recent wool tariffs severely distort the size of wool industries in different regions the changes in the output of wool commodities are extreme reflecting the discriminatory nature of the tariffs

socioeconomic and demographic aspects of school enrollment and attendance in rural botswana as has been true for other african and non african mineral rich economies the most serious constraint on botswana s development to date has been the lack of human capital schapera notes that in traditional botswana schooling was conceived as a burden on the family because of both the new expenditures associated with schooling and the loss of the child s contribution to household production and income ashton notes that parents in botswana apparently failed to perceive the benefits of education 2 the situation has changed fundamentally since schapera and ashton wrote in the forties largely through government policy programs of school construction and teacher training schools have become relatively widespread the benefits of schooling are apparent in the labor market and are even more immediately evident at home schools often provide free meals and health care to their pupils however the schooling system may not be designed to serve sparsely populated areas completely this reflects in part the movement and social spread of botswana s rural population across villages lands and cattle posts moreover children especially in households with assets play a role in the household economy 3 as a consequence the indirect costs of schooling those noted by shapera may still be substantial in botswana today these costs in addition to the direct costs of transportation and uniforms may be prohibitive to the schooling of many children the evidence i present later shows that even primary schooling was not universal in botswana at the time of the 1974 rural income distribution survey on which this present study is based 4 this paper is to study the demographic and socioeconomic corre

formula approaches for market access negotiations textabstractmost of the large tariff reductions achieved in multilateral trade negotiations have involved tariff cutting formulas such as the swiss formula however wide variations in initial tariff rates between active participants call for new approaches under the doha development agenda this paper surveys a range of formula options and examines both targeted and flexible applications of the swiss formula that target tariff escalation and peaks and would allow policy makers to directly target how far they will move towards free trade while providing some flexibility for trading off reductions in peak tariffs against reductions in lower tariff sectors

the aftermath of a currency collapse how different are emerging markets in currency crises unlike in orderly devaluations the financial markets dominate events previous research has shown that the output effects of a crisis tend to be worse in emerging markets and the current account adjustment greater this paper examines the evolution of a wider range of macroeconomic variables from two years before a currency collapse to two years afterwards on the basis of twelve recent episodes it is shown that currency collapses crises followed by depreciations have had a much greater adverse impact in emerging markets defined as relatively high income developing countries exposed to international capital markets than in developed countries there is greater nominal and real depreciation a substantial inflation shock a much bigger output effect and far greater import compression whilst inflows of portfolio capital virtually cease these differences are statistically significant nevertheless there is wide variation n the post collapse experience of the six emerging markets studied mexico thailand korea indonesia russia and brazil although all six experienced a sudden stop or even a reversal of capital flows and very sharp nominal depreciations inflation remained low in thailand korea and brazil and output losses were comparatively small in russia and brazil previous studies of individual crises suggest that important factors are the state of the banking system and its vulnerability to currency movements the ability of the authorities to establish a credible macroeconomic policy after the collapse and whether the crisis triggers significant political instability

a ten year rule to guide the allocation of eu emission allowances abstract member states in the european union eu are responsible for national allocation plans governing the initial distribution of emission allowances in the co2 emission trading system including rules governing allocations to installations that close and to new entrants the european commission has provided guidelines to discourage the use of allocation methodologies that provide incentives affecting firms compliance behavior for example by rewarding one type of compliance investment over another we find that the treatment of closures and new entrants by member states is inconsistent with the general guidelines provided by the eu we propose stronger eu guidance regarding closures and new entrants a more precise compensation criterion on which to justify free allocations and a ten year rule as a component of future eu policy that can guide a transition from current practice to an approach that places greater weight on efficiency

credit channel trade credit channel and inventory investment evidence from a panel of uk firms abstract in this paper we use a panel of 609 uk firms over the period 1980 2000 to test for the existence of a trade credit channel of transmission of monetary policy and for whether this channel plays an offsetting effect on the traditional credit channel we estimate error correction inventory investment equations augmented with the coverage ratio and the trade credit to assets ratio differentiating the effects of the latter variables across firms more or less likely to face financing constraints and firms making a high or low use of trade credit our results suggest that both the credit and the trade credit channels operate in the uk and that the latter channel tends to weaken the former

motives for private income transfers private income transfers are becoming increasingly recognized as a key aspect of the u s economy the majority of private income transfers occur inter vivos i e between living persons but very little is known about this type of transfer behavior this paper tests alternative hypotheses concerning motivation for inter vivos transfers two motives are considered altruism and exchange evidence presented here casts doubt on the altruistic model of transfer behavior observed patterns for inter vivos transfers are more consistent with exchange related motives this finding has important implications for the effects of public transfer programs on the distribution of economic well being

five questions an integrated research agenda for public choice all societies political or academic must choose among alternatives these choices can be good or bad the worst choice may be looking for answers before there is consensus or at least a debate on what the real questions should be five real questions are offered here in an integrated research agenda for public choice my premis is that there is a single fundamental human problem construct or preserve institutions that make self interested individual action not inconsistent with group welfare all social science research is either a distraction or a step toward understanding at least one of five questions 1 what are preferences 2 what are feasible alternatives 3 how much does the form of implementation affect the way alternatives are valued 4 how do alternatives chosen today affect the menu of alternatives available in the future 5 what is good how would we know if some outcomes are better than others

population and the environment a parable of firewood and other tales the author analyzes the relationship between population and the environment with a focus on the role which environmental degradation and natural resources depletion may play in producing the population pressure which lies behind such degradation and depletion especially in developing countries the principal conclusion of this analysis is that the possibilities for a stable equilibrium between human population and its environment are quite limited i show that parental altruism toward their children can only make matters worse if socially unchecked by leading to an increase of the birthrate in every environmental state in comparison with that which would occur in its absence excerpt

does the samaritan s dilemma matter evidence from u s agriculture the samaritan s dilemma posits a downside to charity recipients may rely on free aid instead of their own efforts anecdotally the expectation of free assistance is thought to be important for decisions about insurance and risky behavior in numerous settings but reliable empirical evidence is scarce we estimate whether the samaritan s dilemma exists in u s agriculture where both private crop insurance and frequent federal disaster assistance are present we find that bailout expectations are qualitatively and quantitatively important for the insurance decision furthermore aid expectations reduce both expenditure on farm inputs and subsequent crop revenue jel d72 h84 q18

counter cyclical substitution between trade credit and bank credit abstract this paper explores the substitution relationship between trade credit and bank credit and its counter cyclic dynamic pattern through economic cycles we propose a new theoretical model using a mechanism design method which predicts the substitution between the two credits and its counter cyclic behavior subject to the condition of technological efficiency not less than one this model also helps explain the somewhat contradictory evidence in the literature on the relationship between the two credits we present empirical evidence on the substitution effect and its counter cyclic behavior by using a balanced panel data set of 284 listed chinese companies for the period 1998 2006 we further find that the substitution behaves counter cyclically with respect to the coincident macroeconomic indicator namely gdp our empirical analysis also has some new features such as treating endogeneity carefully and incorporating the lag effect of trade credit coherently

equity bonds and bank debt capital structure and financial market equilibrium under asymmetric information this paper proposes a model of financial markets and corporate finance with asymmetric information and no taxes where equity issues bank debt and bond financing coexist in equilibrium the relationship banking aspect of financial intermediation is emphasized firms turn to banks as a source of investment mainly because banks are good at helping them through times of financial distress this financial flexibility is costly since banks face costs of capital themselves which they attempt to minimize through securitization to avoid this intermediation cost firms may turn to bond or equity financing but bonds imply an inefficient liquidation cost and equity an informational dilution cost we show that in equilib rium the riskier firms prefer bank loans the safer ones tap the bond markets and the ones in between prefer to issue both equity and bonds this segmentation is broadly consistent with stylized facts

king lear s dilemma precommitment versus the last word abstract we relax the prevalent assumption in the literature on intergenerational transfers that an altruistic parent can perfectly observe her child s activities and market opportunities we find that when private information and market risks are present precommitment by the parent to a transfer dominates having the last word

corporate trade credit and inventories new evidence of a trade off from accounts payable and receivable abstract trade credit is an important source of finance for firms and has been well researched but the focus has been on financial trade offs in this paper we consider the trade offs with inventories and develop a simple model that recognizes the incentives a firm faces to offer and receive trade credit our model identifies the response of accounts payable and accounts receivable to changes in the cost of inventories profitability risk and liquidity and importantly this influence operates through a production channel our results support the model and complement many existing studies focused on explaining the financial terms of trade credit

financial fragility in the great moderation abstract a nascent literature explores the measurement of financial fragility this paper considers evidence for rising financial fragility during the 1984 2007 great moderation in the u s the literature suggests that macroeconomic stability combined with strong growth of credit to asset markets in asset prices and in credit relative to output are all indicators of rising financial fragility we show each of these trends in the great moderation we derive the testable implication that in the great moderation credit growth is driven more by past credit growth and less by output growth allen and gale 2000 relative to pre great moderation years results from a var model estimated on quarterly data for 1955 2007 are consistent with the hypothesis this invites a reinterpretation of the great moderation our methodology may help understand when a credit boom turns into a credit bubble and contributes to the development of methods of measuring financial fragility