the political economy of bilateral bailouts imf loans during times of financial crisis often occur in conjunction with bilateral financial rescues these bilateral bailouts are substantial in size and a central component of international cooperation during financial crises we analyze the political economy of bilateral bailouts and study the trade offs that potential creditor governments experience when other countries find themselves in financial distress creditor governments want to stabilize crisis countries by providing additional liquidity particularly if the crisis country is economically or politically important to them but they are constrained by domestic politics politicians aim to balance these countervailing pressures they provide bailouts when their own economy is exposed to negative spillover effects and when the crisis country is important for geostrategic military or political reasons domestic economic and political constraints on the other hand limit their ability to bail out other countries we test our hypotheses using an original data set on bilateral bailouts by the g7 countries to countries that experienced financial crises between 1975 and 2010 the findings of our statistical analysis support our theoretical argument and contribute to a deeper understanding of international cooperation s complex structure during financial crises

preferential trading arrangements as strategic positioning abstract we analyze a three country model of trade negotiations in which countries can form bilateral free trade areas bilateral customs unions or a trilateral preferential trading arrangement and can continue negotiating after reaching an agreement in contrast to the literature on multilateral bargaining the set of agreements can form a nonpartitional network while in contrast to the network literature players can reach multilateral agreements patient enough countries only reach bilateral agreements if insiders gain more than outsiders which allows them to manipulate the status quo in subsequent negotiations however a hub and spoke pattern may then emerge and insiders then dissipate the advantages of strategic positioning we also use variants on the model to explain why a us commitment not to bargain bilaterally sustained progress at gatt negotiations and the rarity of open access preferential trading arrangements

relaxations of approximate linear programs for the real option management of commodity storage the real option management of commodity conversion assets gives rise to intractable markov decision processes mdps in part because of the use of high dimensional models of commodity forward curve evolution as commonly done in practice focusing on commodity storage we identify a deficiency of approximate linear programming alp which we address by developing a novel approach to derive relaxations of approximate linear programs we apply our approach to obtain a class of tractable alp relaxations also subsuming an existing method we provide theoretical support for the use of these alp relaxations rather than their associated approximate linear programs applied to existing natural gas storage instances our alp relaxations significantly outperform their corresponding approximate linear programs our best alp relaxation is both near optimal and competitive with albeit slower than state of the art methods for computing heuristic policies and lower bounds on the value of commodity storage but is m

the effect of imf programs on labor abstract previous studies find that imf programs have negative effects on income distribution the international monetary fund and latin america economic stabilization and class conflict westview press boulder 1987a world dev 15 1987b 365 world dev 28 2000 1031 no study however has used parametric methods to control for nonrandom selection using a dynamic version of the heckman selection model i study the effect of imf programs on the labor share of income from manufacturing my conclusions are supported by 2 095 observations of 110 countries during 1961 93

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

global growth and international cooperation a structuralist perspective this paper revisits the structuralist ideas on trade and growth and suggests based on the prebisch s principle of implicit reciprocity that policies for promoting structural change in the periphery may lead to higher global growth and a better income distribution across countries the paper discusses the inter relations and complementarities that exist between autonomous expenditure and industrial and technology policies in the long run with this objective we develop a structuralist growth model in which the technology gap and the growth rate of the domestic autonomous expenditure are endogenously determined in a two country centre and periphery international economy copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

game theory and climate diplomacy abstract starting with the new periodic table npt of 2 2 order games introduced by robinson and goforth 2005 we provide an exhaustive treatment of the possible game theoretic characterizations of climate negotiations between two players e g great powers or coalitions of states of the 144 distinct 2 2 games in which the players have strict ordinally ranked utilities 25 are potentially relevant to climate problem the negotiations may be characterized as a no conflict game prisoner s dilemma coordination game chicken type game or cycle depending on the payoff matrix which game corresponds to the actual state of the world depends both on the severity of risks associated with climate change and the perceptions of the governments engaged in the negotiations nash equilibrium or maxi min equilibrium or neither may be the outcome achieving universal abatement of greenhouse gas emissions may require side payments or enforcement mechanisms outside the game framework but we show how the negotiations themselves may offer opportunities to select between nash equilibria or alter the payoff rankings and strategic choices of the players in particular scientific information pointing to the severity of the risks of climate change suggests characterization of the negotiations as a coordination game rather than a prisoner s dilemma

electricity trading and negative prices storage vs disposal electricity cannot yet be stored on a large scale but technological advances leading to cheaper and more efficient industrial batteries make grid level storage of electricity surpluses a natural choice because electricity prices can be negative it is unclear how the presence of negative prices might affect the storage policy structure known to be optimal when prices are only nonnegative or even how important it is to consider negative prices when managing an industrial battery for fast storage a storage facility that can both be fully emptied and filled up in one decision period we show analytically that negative prices can substantially alter the optimal storage policy structure e g all else being equal it can be optimal to empty an almost empty storage facility and fill up an almost full one for more typical slow grid level electricity storage we numerically establish that ignoring negative prices could result in a considerable loss of value when negative prices occur more than 5 of the t

valuation of commodity based swing options in the energy markets in particular the electricity and natural gas markets many contracts incorporate flexibility of delivery options known as swing or take or pay options subject to daily as well as periodic constraints these contracts permit the option holder to repeatedly exercise the right to receive greater or smaller amounts of energy we extract market information from forward prices and volatilities and build a pricing framework for swing options based on a one factor mean reverting stochastic process for energy prices that explicitly incorporates seasonal effects we present a numerical scheme for the valuation of swing options calibrated for the case of natural gas

the valuation of sequential exchange opportunities sequential exchange opportunities are valued using the techniques of modern option pricing theory the vehicle for analysis is the concept of a compound exchange option this security is shown to exist implicitly in several contractual settings a valuation formula for this option is derived the formula is shown to generalize much previous work in option pricing several applications of the formula are presented

strong form efficiency with monopolistic insiders we study market efficiency in an infinite horizon model with a monopolistic insider the insider can trade with competitive market makers and noise traders and observes privately the expected growth rate of asset dividends in the absence of the insider this information would be reflected in prices only after a long series of dividend observations thus the insider s information is long lived surprisingly however the monopolistic insider chooses to reveal her information very quickly within a time converging to zero as the market approaches continuous trading although the market converges to strong form efficiency the insider s profits do not converge to zero

the value of operational flexibility in the presence of input and output price uncertainties with oil refining applications refining is indispensable to almost every natural resource based commodity industry it involves a series of complex processes that transform inputs with a wide range of quality characteristics into refined finished products sold to end markets in this paper we take the perspective of a profit maximizing refiner that considers upgrading its existing simple refinery to include intermediate conversion flexibility i e the capability of converting heavy intermediate components to light ones we present a stylized two stage stochastic programming model of a petroleum refinery to investigate the value drivers of conversion flexibility and the impact of input and output market conditions on its economic potential conversion flexibility adds value to refineries by either transforming a nonprofitable situation into a profitable one referred to as purchase benefit or improving profitability of an already profitable situation referred to as unit revenue benefit in a real data calibrated numerical study w

towards a more ethically correct governance for economic sustainability in this paper we propose that economic sustainability is seen in terms of inter temporal and inter national value creation we claim that value appropriation or capture can become a constraint to economic sustainability we propose that for sustainable value creation to be fostered corporate governance needs to be aligned to public and supra national governance in order to achieve this a hierarchically layered set of agencies needs to be diagnosed and the issue of incentive alignment addressed enlightened self interest pluralism and diversity as well as a representative supra national organisation for world wide economic sustainability can serve as a new more ethically correct governance for economic sustainability but not a panacea

sovereign debt relief and its aftermath this paper studies sovereign debt relief in a long term perspective we quantify the relief achieved through default and restructuring in two distinct samples 1920 1939 focusing on the defaults on official government to government debt in advanced economies after world war i and 1978 2010 focusing on emerging market debt crises with private external creditors debt relief was substantial in both eras averaging 21 of gdp in the 1930s and 16 of gdp in recent decades we then analyze the aftermath of debt relief and conduct a difference in differences analysis around the synchronous war debt defaults of 1934 and the baker and brady initiatives of the 1980s 1990s the economic landscape of debtor countries improves signicantly after debt relief operations but only if these involve debt write offs softer forms of debt relief such as maturity extensions and interest rate reductions are not generally followed by higher economic growth or improved credit ratings jel e6 f3 n0 and h6

the imf as a biased global insurance mechanism asymmetrical moral hazard reserve accumulation and financial crises a large literature has established that the international monetary fund imf is heavily politicized we argue that this politicization has important consequences for international reserve accumulation and financial crises the imf generates moral hazard asymmetrically reducing the expected costs of risky lending and policies for states that are politically influential vis a vis the institution using a panel data set covering 1980 to 2010 we show that proxies for political influence over the imf are associated with outcomes indicative of moral hazard lower international reserves and more frequent financial crises we support our causal claims by applying the synthetic control method to taiwan which was expelled from the imf in 1980 consistent with our predictions taiwan s expulsion led to a sharp increase in precautionary international reserves and exceptionally conservative financial policies

soybean inventory and forward curve dynamics we present two results concerning soybean prices first we exhibit a simple relationship between stocks and price volatility the observation of an increasing price volatility with decreasing inventory is often mentioned in the literature but has so far been documented using a proxy for inventory see fama and french 1987 1988 litzenberger and rabinowitz 1995 instead we reconstruct a yearly quarterly and monthly database of worldwide soybean inventories using aggregate data from the united states brazil and argentina we show that under all time scales price volatility is an increasing linear function of inverse inventory which we term scarcity second we show how the addition of the factor scarcity in a state variable approach to the dynamics of the term structure of soybean forward prices improves the quality of the fit we document this property on a 25 year database of cbot futures contracts and show that the superior accuracy also affects long maturity futures contracts an important property for the valuation of long term origination contracts between producing countries and the agrifood industry

debt relief and debtor outcomes measuring the effects of consumer bankruptcy protection consumer bankruptcy is one of the largest social insurance programs in the united states but little is known about its impact on debtors we use 500 000 bankruptcy filings matched to administrative tax and foreclosure data to estimate the impact of chapter 13 bankruptcy protection on subsequent outcomes exploiting the random assignment of bankruptcy filings to judges we find that chapter 13 protection increases annual earnings by 5 562 decreases five year mortality by 1 2 percentage points and decreases five year foreclosure rates by 19 1 percentage points these results come primarily from the deterioration of outcomes among dismissed filers not gains by granted filers jel d14 i12 j22 j31 k35

the scope of imf conditionality international organizations are governed by two parallel sets of rules formal rules which embody consensual procedures and informal rules which allow exceptional access for powerful countries a new data set drawn from the imf s records of conditionality provides an opportunity to study the bargaining process within an important international organization and answer questions about the institution s autonomy i find evidence of u s influence which operates to constrain condition ality but only in important countries that are vulnerable enough to be willing to draw on their influence with the united states in ordinary countries under ordinary circumstances broad authority is delegated to the imf which adjusts conditionality to accommodate local circumstances and domestic political opposition the imf has refrained from exploiting the vulnerability of particular countries to maximize the scope of conditionality international organizations have become increasingly important actors in inter national politics they have proliferated have expanded in membership have acquired new legal enforcement powers and have extended their reach into the details of domestic political economy in their member states af ew including the international monetary fund imf or simply the fund command significant resources and wield considerable authority some critics have argued that these international organizations are sufficiently autonomous to create a democratic def icit at the international level as they pursue a vision of undemocratic liberal ism 1 other critics have argued that international organizations are nothing more than instruments in the hands of powerful states 2 these critiques of course cannot simultaneously be true and both run into difficulties the puzzle that the rogue agency view cannot explain is why the principals have chosen to delegate so much authority in principal agent terms this view posits that both screening and monitoring have failed the principals are unable to select agents with preferences similar to their own and are unable

rational asset price movements without news this paper argues that an important part of movements in asset prices may be caused by neither external news nor irrationality but by the revelation of information by the trading process itself two models are developed that illustrate this general idea one model is based on investor uncertainty about the quality of other investors information the other is based on dispersion of information and small costs to trading the analysis is used to suggest a possible rational explanation of the october 1987 crash copyright 1993 by american economic association

informed trading and portfolio returns we solve a multi period model of strategic trading with long lived information in multiple assets with correlated innovations in fundamental values market makers in each asset can only condition their price functions on trading in the that asset but not on trading in the other asset using daily non public data from the new york stock exchange we test the model s predictions on the lead lag relations of institutional order ows and returns within portfolios we flnd support for the model prediction of positive autocorrelations in portfolio returns as well as the predictions for how informed order ow positively predicts future returns and future informed order ow as the model predicts we flnd these relations strengthen for portfolios formed from assets with higher correlation of fundamental values

optimal dynamic hedging in unbiased futures markets a discrete time dynamic hedging problem is solved under expected utility maximization and basis risk without imposing a particular parametric form for utility nor assuming normally distributed cash and futures prices the solution is valid for any increasing and strictly concave utility function and for quite general specifications of the joint distribution of cash and futures prices this generality is achieved by restricting the futures market to be unbiased and requiring that the size of the cash position be nonstochastic the dynamic hedging rule can be estimated empirically using similar methods to those used to estimate static hedge ratios

a common features analysis of amsterdam and london financial markets during the eighteenth century we examine the financial linkage between the london and amsterdam financial markets using stock prices recorded in each market over the period 1723 94 in conjunction with tests for common trends cycles and regime shifts these tests reveal a surprising degree of integration between the markets as their prices move together in both the short and long run moreover shocks to the assets translate quickly and accurately between markets it also appears that dutch investment did not destabilize london markets and stock prices in london were the primary determinant of prices in amsterdam

those who know most insider trading in eighteenth century amsterdam this paper studies how private information is incorporated into prices using a unique setting from the eighteenth century that is closer to stylized models of price discovery than modern day markets specifically the paper looks at english securities traded in both london and amsterdam private information reached amsterdam through sailing boats that sailed only twice a week and in adverse weather could not sail at all results are consistent with a kyle model in which informed agents trade strategically most importantly the speed of information revelation in amsterdam depended on the expected time until the private signal would become public

the risk averse and prudent newsboy the effects of risk and risk aversion in the single period inventory newsboy problem are examined comparative static effects of changes in the various price and cost parameters are determined and related to the newsboy s risk aversion the addition of a random background wealth and of an increase in the riskiness of newspaper demand are also examined although many of the comparative effects generally are ambiguous some fairly simple restrictions on preferences and or risk increases are shown to lead to qualitatively deterministic results

comparing features of convenient estimators for binary choice models with endogenous regressors abstract we discuss the relative advantages and disadvantages of four types of convenient estimators of binary choice models when regressors may be endogenous or mismeasured or when errors are likely to be heteroscedastic for example such models arise when treatment is not randomly assigned and outcomes are binary the estimators we compare are the two stage least squares linear probability model maximum likelihood estimation control function estimators and special regressor methods we specifically focus on models and associated estimators that are easy to implement also for calculating choice probabilities and regressor marginal effects we propose the average index function aif which unlike the average structural function asf is always easy to estimate

contagious speculation and a cure for cancer a nonevent that made stock prices soar a sunday new york times article on a potential development of new cancer curing drugs caused entremed s stock price to rise from 12 063 at the friday close to open at 85 and close near 52 on monday it closed above 30 in the three following weeks the enthusiasm spilled over to other biotechnology stocks the potential breakthrough in cancer research already had been reported however in the journal nature and in various popular newspapers including the times more than five months earlier thus enthusiastic public attention induced a permanent rise in share prices even though no genuinely new information had been presented a central tenet of f inancial economics is that an asset should trade at the risk adjusted present value of its expected future cash f lows these expected future cash f lows exist in people s minds and do not normally lend themselves to direct observation an equilibrium price in a frictionless market does not tolerate disagreements among market participants if some people deem the price too low they will buy the asset if others think it is too high they will sell it short if necessary although the efficient markets hypothesis predicts that price changes are unpredictable it associates them with changes in traders beliefs about future cash f lows or the appropriate discount rate beliefs change with the arrival of new information thus in hindsight at least we should be able to ascribe price changes to the arrival of specific new information we examine this view in the context of a series of news reports in the media pertaining to entremed enmd a biotechnology company and other members of its sector the sunday may 3 1998 edition of the new york times reports on a recent breakthrough in cancer research and mentions enmd a company with licensing rights to the breakthrough kolata 1998 the story s impact on the stock prices was immediate huge and to a large extent permanent the new news content of the times story was nil though the substance of the story had been published as a scientific piece in nature boehm et al 1997 and in the popular press including the times itself wade 1997 more than five months earlier in november 1997

international taxation the trajectory of an idea from lorimer to brandt abstract this paper examines early proposals for the establishment of international taxes for the support of international organization for the maintenance of international order and or for development the writings examined span close to one century starting with james lorimer in 1884 and concluding with the report of the brandt commission in 1980 our focus is on works mainly written since 1940 which explore the possibility of taxation levied by a global authority on income and transactions of individuals and firms rather than the financing of aid and international organization by national governments which is sometimes regarded as equivalent to taxation

a public choice approach to international organization the purpose of this paper has been to develop a positive theory of international organization which can supplement the conventional normative theory used as a positive theory the conventional approach draws much of its plausibility from the fact that it relies on the reasons given by the decision makers and reported in the media and on the lofty objections stated in the charters of international agencies the public choice approach by its very nature is precluded from accepting such evidence in some respects it must appear dismal and perhaps cynical it is a positive theory which tries to explain but just as the conventional normative theory tends also to be used as a positive theory our positive theory is likely to have normative implications as well it does not imply that international organization is generally undesirable but it can be used to emphasize the advantages of decentralized policy making and to warn against a naive internationalism which welcomes international agreements for their own sake regardless of what is being agreed upon international organization can be and is abused and the cause is not an occasional lack of virtue among politicians but a systematic built in tendency toward collusion at the expense of the citizens such collusion is not only undesirable in itself there is also the danger that it discredits and crowds out unambiguously desirable forms of international cooperation agreements to remove non market obstacles to market interdependence in the field of international trade and capital movements

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

catalysing private capital flows do imf programmes work as commitment devices in this article we examine whether imf programmes influence the ability of developing country issuers to tap international bond markets and if they improve spreads paid on the bonds issued we find that fund programmes do not provide a uniformly favourable signalling effect instead the evidence is most consistent with a positive effect of imf programmes when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly the size of the fund s programme matters but the credibility of a joint commitment by the country and the imf appears to be critical enhancing its members access to international capital markets is widely regarded as an important objective of the international monetary fund imf or fund though the objective is not an explicitly stated purpose in the fund s articles of agreements the flow of international capital is essential to such stated purposes as the stability of the international monetary system efficient trade and productive resource use and to providing confidence when a member country experiences difficulties with its balance of payments 1 the fund s interest in private international capital flows has moreover increased over the last decade reflecting this evolution the fund s former managing

preferences for international redistribution the divide over the eurozone bailouts why do voters agree to bear the costs of bailing out other countries despite the prominence of public opinion in the ongoing debate over the eurozone bailouts voters preferences on the topic are poorly understood we conduct the first systematic analysis of this issue using observational and experimental survey data from germany the country shouldering the largest share of the eu s financial rescue fund testing a range of theoretical explanations we find that individuals own economic standing has limited explanatory power in accounting for their position on the bailouts in contrast social dispositions such as altruism and cosmopolitanism robustly correlate with support for the bailouts the results indicate that the divide in public opinion over the bailouts does not reflect distributive lines separating domestic winners and losers instead the bailout debate is better understood as a foreign policy issue that pits economic nationalist sentiments versus greater cosmopolitan affinity and other regarding concerns

optimal commodity trading with a capacitated storage asset this paper considers the so called warehouse problem with both space and injection withdrawal capacity limits this is a foundational problem in the merchant management of assets for the storage of commodities such as energy sources and natural resources when the commodity spot price evolves according to an exogenous markov process this work shows that the optimal inventory trading policy of a risk neutral merchant is characterized by two stage and spot price dependent basestock targets under some assumptions these targets are monotone in the spot price and partition the available inventory and spot price space in each stage into three regions where it is respectively optimal to buy and inject do nothing and withdraw and sell in some cases of practical importance one can easily compute the optimal basestock targets the structure of the optimal policy is nontrivial because in each stage the merchant s qualification of high selling and low buying commodity prices in general depends on the merchant s inventory availability this is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations a computational analysis based on natural gas data shows that mismanaging this interface can yield significant value losses moreover adapting the merchant s optimal trading policy to the spot price stochastic evolution has substantial value this value can be almost entirely generated by reacting to the unfolding of price uncertainty that is by sequentially reoptimizing a model that ignores this source of uncertainty

integrated optimization of procurement processing and trade of commodities we consider the integrated optimization problem of procurement processing and trade of commodities in a multiperiod setting motivated by the operations of a prominent commodity processing firm we model a firm that procures an input commodity and has processing capacity to convert the input into a processed commodity the processed commodity is sold using forward contracts while the input itself can be traded at the end of the horizon we solve this problem optimally and derive closed form expressions for the marginal value of input and output inventory we find that the optimal procurement and processing decisions are governed by price dependent inventory thresholds we use commodity markets data for the soybean complex to conduct numerical studies and find that approximating the joint price processes of multiple output commodities using a single composite output product and using the approximate price process to determine procurement and processing decisions is near optimal compared to a myopic spread option based heuristic the optimization based dynamic programming policy provides significant benefits under conditions of tight processing capacities and high price volatilities finally we propose an approximation procedure to compute heuristic policies and an upper bound to compare the heuristic against when commodity prices follow multifactor processes

valuation of storage at a liquefied natural gas terminal the valuation of the real option to store liquefied natural gas lng at the downstream terminal of an lng value chain is an important problem in practice because the exact valuation of this real option is computationally intractable we develop a novel and tractable heuristic model for its strategic valuation that integrates models of lng shipping natural gas price evolution and inventory control and sale into the wholesale natural gas market we incorporate real and estimated data to quantify the value of this real option and its dependence on the throughput of an lng chain the type of price variability the type of inventory control policy employed and the level of stochastic variability in both the shipping model and the natural gas price model used in addition we develop an imperfect information dual upper bound to assess the effectiveness of our heuristic and find that our method is near optimal our approach also has potential relevance to value the real option to store other commodities in facilities located downstream from a commodity production or transportation stage such as petroleum and agricultural products chemicals and metals or the real option to store the input used in the production of a commodity such as electricity

the political economy of imf lending in africa why has imf lending achieved such poor results in africa is it because the fund imposes the wrong conditions or because it fails to enforce them analysis of monthly data on 53 african countries from 1990 to 2000 shows that the imf s loans for reform contract lacks credibility because donor countries intervene to prevent rigorous enforcement countries that have influence with developed country patrons as measured by u s foreign aid membership in postcolonial international institutions and voting profiles in the un are subject to less rigorous enforcement shorter program suspensions they have more frequent program suspensions because they violate their conditions more often the imf will have to become more independent in order to become an effective champion of reform

money talks supplementary financiers and international monetary fund conditionality what explains the changes in international monetary fund imf conditionality i argue that imf conditionality agreements are influenced by supplementary financiers the imf regularly relies on external financing to supplement its loans to countries facing payments imbalances as a result these supplementary financiers are able to exercise leverage over the imf and the design of its conditionality programs i consider the influence of one type of supplementary financier private financial institutions on imf conditionality conclusions are supported by a data set of 249 conditionality arrangements coded according to their terms and two case studies

an analysis of partially guaranteed price contracts between farmers and agri food companies global agri food companies such as barilla and sabmiller are purchasing agricultural products directly from farmers using different types of contracts to ensure stable supply we examine one such contract with partially guaranteed prices pgp under a pgp contract around sowing time the buying firm agrees to purchase the crop when harvested by the farmer offering a guaranteed unit price for any fraction of the produce and offering the commodity market price prevailing at the time of delivery for the remainder the farmer then chooses the fraction by analyzing a stackelberg game we show 1 how the pgp contract creates mutual benefits when the firm s purchase quantity is taken as being exogenous we also analyze how the pgp contract is robust in creating value for both the firm and the farmer 2 when the firm s purchase quantity is endogenously determined 3 when the firm provides advisory services to the farmer and 4 when the firm offers a price premium as an incentive for farmers to exert efforts to comply with sustainable agricultural practices

the high politics of imf lending analysts have long suspected that politics affects the lending patterns of the international monetary fund imf but none have adequately specified or systematically tested competing explanations this paper develops a political explanation of imf lending and tests it statistically on the developing countries between 1985 and 1994 it finds that political realignment toward the united states the largest power in the imf increases a country s probability of receiving an imf loan a country s static political alignment position has no significant impact during this period suggesting that these processes are best modeled dynamically an analysis of two subsamples rejects the hypothesis that the imf has become less politicized since the end of the cold war and suggests that the influence of politics has actually increased since 1990 the behavior of multilateral organizations is still driven by the political interests of their more powerful member states

every cloud has a silver lining fast trading microwave connectivity and trading costs modern markets are characterized by speed differentials with some traders being fractions of a second faster than others theoretical models suggest that such differentials may have both positive and negative effects on liquidity and gains from trade we examine these effects by studying a series of exogenous weather episodes that temporarily remove the speed advantages of the fastest traders by disrupting their microwave networks the disruptions are associated with lower adverse selection and lower trading costs in additional analysis we show that the long term removal of speed differentials results in similar effects and also increases gains from trade

short term generation asset valuation a real options approach this paper discusses using real options to value power plants with unit commitment constraints over a short term period we formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward moving monte carlo simulation with backward moving dynamic programming we assume that the power plant operator maximizes expected profit by deciding in each hour whether or not to run the unit that a certain lead time for commitment and decommitment decisions is necessary to start up and shut down a unit and that these commitment decisions once made are subject to physical constraints such as minimum uptime and downtime we also account for the costs associated with starting up and shutting down a unit last we assume that there are hourly markets for both electricity and the fuel used by the generator and that their prices follow ito processes using numerical simulation we show that failure to consider physical constraints may significantly overvalue a power plant

under what circumstances past and present have international rescues of countries in financial distress been successful recent events in asia and other parts of the globe have prompted calls from many quarters for international rescue of the monetary or fiscal authorities in distressed countries we contrast the experience of rescues of monetary authorities before 1973 of advanced countries temporarily short of liquidity with recent experience of bailouts international rescues in the past have involved relatively small amounts of money sufficient to stave off devaluation or abandonment of a fixed exchange rate while remedial policies were put in place recent bailouts have involved handing over relatively large amounts to both foreign lenders and domestic investors after devaluation of a pegged exchange rate to avoid their incurring wealth losses we document past rescues whether successful or unsuccessful by monetary regimes and show what is different today from past experience

room to move international financial markets and national welfare states a central research question in international political economy concerns the influence of financial markets on government policy outcomes to what extent does international capital mobility limit government policy choices i evaluate the relationship between international financial markets and government policy outcomes with a focus on the government bond market in developed democracies evidence includes interviews with financial market participants and a cross sectional time series analysis of the determinants of interest rates this evaluation suggests that governments of developed democracies face strong but narrowly defined financial market pressures financial market participants are concerned with a few macroeconomic policy indicators including inflation rates and government deficit gdp ratios but not with micropolicy indicators such as the distribution of government spending across functional categories in these areas governments retain policymaking autonomy i conclude by exploring the role of financial market influences within domestic politics and offering suggestions for further research

international negotiations and domestic politics the case of imf labor market conditionality what is the role of international organizations ios in the formulation of domestic policy and how much influence do citizens have in countries negotia tions with ios we examine these questions through a study of labor related condi tionality in international monetary fund imf loans using new data from imf loan documents for programs from 1980 to 2000 we test to see if citizens economic interests influence imf conditionality we examine the substance of loan conditions and identify those that require liberalization in the country s domestic labor market or that have direct effects on employment wages and social benefits we find evi dence that democratic countries with stronger domestic labor receive less intrusive labor related conditions in their imf loan programs we argue that governments con cerned about workers opposition to labor related loan conditions negotiate with the imf to minimize labor conditionality we find that the imf is responsive to domes tic politics and citizens interests

technical note optimal inventory policy in the presence of a long term supplier and a spot market we consider a stochastic inventory control problem in which a buyer makes procurement decisions while facing periodic random demand and two supply sources namely a long term contract supplier and a spot market the contract between the buyer and the supplier partially shields the latter from the vicissitudes of the spot market in that the price paid by the buyer to the supplier is only partially linked to the spot price at the moment after fulfilling the minimum order commitment with the supplier the buyer has the full freedom to source from both the supplier and the market procurement from the spot market also incurs a fixed setup cost we show that an optimal policy consists of three different policy forms with the realization of each depending on the buyer s inventory level and the prevalent spot price certain conditions are identified under which monotone trends exist between policy parameters and the current spot price

leverage and beliefs personal experience and risk taking in margin lending what determines risk bearing capacity and the amount of leverage in financial markets using unique archival data on collateralized lending we show that personal experience can affect individual risk taking and aggregate leverage when an investor syndicate speculating in amsterdam in 1772 went bankrupt many lenders were exposed in the end none of them actually lost money nonetheless only those at risk of losing money changed their behavior markedly they lent with much higher haircuts the rest continued as before the differential change is remarkable since the distress was public knowledge overall leverage in the amsterdam stock market declined as a result

the impact of bad writing in economics we find significant style differences between articles written by economists for their professional journals and articles by the same economists in the wall street journal we find no evidence that style influences the professional success of economists which suggests that the private rewards to improving the quality of writing are low indeed each community of scholars has probably adopted a professionally correct writing style from which its members diverge little however scholars do alter their rhetorical style to communicate effectively with audiences other than the professional community this suggests that intra and inter group written communication by economists is efficient

is it enough evidence from a natural experiment in india s agriculture markets access to information and communication technologies icts such as mobile phone networks is widely known to improve market efficiency in this paper we examine whether access to timely and accurate information provided through ict applications has any additional impact using a detailed data set from reuters market light rml a text message service in india that provides daily price information to market participants we find that this information reduces the geographic price dispersion of crops in rural communities by an average of 12 over and above access to mobile phone technology and other means of communication to identify the effect of information on price dispersion we exploit a natural experiment where bulk text messages were banned unexpectedly across india for 12 days in 2010 we find that besides reducing geographic price dispersion rml also increases the rate at which prices converge across india over time we discuss the implications of this for development organizations and informat

decoding inside information exploiting the fact that insiders trade for a variety of reasons we show that there is predictable identifiable routine insider trading that is not informative about firms futures a portfolio strategy that focuses solely on the remaining opportunistic traders yields value weighted abnormal returns of 82 basis points per month while abnormal returns associated with routine traders are essentially zero the most informed opportunistic traders are local nonexecutive insiders from geographically concentrated poorly governed firms opportunistic traders are significantly more likely to have sec enforcement action taken against them and reduce trading following waves of sec insider trading enforcement

congressional politics of financing the international monetary fund we address the question of how international public goods are financed by analyzing voting in the u s congress on legislation to increase the u s contri bution to the international monetary fund imf we argue that legislators are more likely to vote in favor of an increase 1 the more campaign contributions they obtain from banks that specialize in international lending and 2 the greater the share of high skilled proglobalization workers in their districts the first argu ment supports the inference that a financially strong imf mitigates the risks of international lending to the benefit of the lending banks the second reflects our claim that voters view the imf as a positive force for global economic integration that following stolper samuelson reasoning benefits high skilled workers lastly we analyze imf loan decisions and find modest support for the claim that imf policy reflects the interests of major international banks overall our results sug gest that private actors within the united states have individual stakes in funding the imf the primary mandate of the international monetary fund imf or fund is to safeguard the stability of the global financial system an international public good the imf obtains the resources it needs for its stabilization operations from mem ber governments with large members contributing most of the funds in this arti cle we analyze the politics of funding the imf from the perspective of its largest contributor the united states rather than treating the united states as a single entity with a unified national interest at the fund we consider the preferences of political actors within the united states who exert power over financing the

independent actor or agent an empirical analysis of the impact of u s interests on international monetary fund conditions abstract in this paper we analyze whether international monetary fund imf conditionality is exclusively designed to be in line with observable economic indicators or whether it is partly driven by the imf s major shareholder the united states a panel data analysis of 206 letters of intent from 38 countries submitted during the period april 1997 through february 2003 revealed that the number of conditions on an imf loan depended on a borrowing country s voting pattern in the un general assembly closer allies of the united states and other group of 7 g7 countries received imf loans with fewer conditions especially prior to elections these results are relevant to current public policy debates on the role and process of setting imf loan conditions and provide broader insight into the influence of the united states and other g7 countries on international institutions

multiechelon procurement and distribution policies for traded commodities we consider a firm that procures and distributes a commodity from spot and forward markets under randomly fluctuating prices the commodity is distributed downstream to a set of nonhomogeneous retailers to satisfy random demand we formulate a model that allows one to compute approximate but near optimal procurement and distribution policies for this system and we explore the value of the commodity s market in providing managers with a additional flexibility in procurement and b information on price dynamics generated through the trading of futures contracts our results indicate that the presence of the commodity market and the information that it conveys may lead to significant reductions in inventory related costs however to obtain these benefits both the spot procurement flexibility and the term structure of prices generated by the commodity market must be incorporated in the formulation of the operating policy managerial insights on the procurement strategy as a function of variability in prices and demand are also discussed this paper was accepted by john birge focused issue editor

international cooperation during the covid 19 pandemic this paper explores the concept of global public goods gpgs in the context of the ongoing covid 19 pandemic it argues that many of the tasks involved in public health and in particular those involved in the control of an infectious disease like covid 19 ought to be treated as gpgs that can only be effectively delivered through international cooperation it sets out what a cooperative response to the covid 19 pandemic should look like and introduces ideas for further discussion about how it might be financed

long lived private information and imperfect competition we develop a multi period auction model in which multiple privately informed agents strategically exploit their long lived information we show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly in the limit as the interval between auctions approaches zero market depth becomes infinite and all private information is revealed immediately these results are in contrast to those of kyle 1985 in which the monopolistic informed trader causes his information to be incorporated into prices gradually and when the interval between auctions is vanishingly small market depth is constant over time fama 1970 defines a strong form efficient market as one in which security prices fully reflect all available information including both publicly and privately held information in a pioneering and influential article kyle 1985 develops a model in which a single privately informed trader with long lived information optimally exploits his monopoly power over time kyle s 1985 main results are i the informed trader trades in a gradual manner so that his information is incorporated into prices at a slow almost linear rate and ii when auctions are held continuously the depth of the market is constant over time however kyle s 1985 assumption of a single informed trader is strong in the sense that in actual financial markets it is reasonable to expect that at least a few players will have access to private information and will trade in the knowledge that they will face competition with other informed agents in the market 1 we develop a multi period auction model in which multiple strategic informed traders optimally exploit their long lived informational advantage we thus explore the restrictiveness of kyle s assumption of a single informed trader and also examine

real effects of information frictions when the states and the kingdom became united abstract this paper exploits a unique historical experiment to estimate how information frictions distort international trade the establishment of the transatlantic telegraph in 1866 i use newly collected data on cotton prices trade and information flows from historical newspapers and find that the average and volatility of the transatlantic price difference fell after the telegraph while average trade flows increased and became more volatile using a trade model in which exporters use the latest news about a foreign market to forecast expected prices i estimate the efficiency gains of the telegraph to be equivalent to 8 percent of export value jel d83 f12 f14 l96 n71 n73

optimal control and equilibrium behavior of production inventory systems the relationship between commodity inventory and short term price variations has received considerable attention but the understanding has been limited to single stage cross sectional relation in this paper we aim to deepen our understanding of the inventory price relationship in two dimensions across time and across production stages we first examine an individual firm controlling production and two stages of inventory under uncertain input and output prices and operating costs we next establish and characterize the rational expectations equilibrium for an economy in which competitive production firms link a raw material market and a finished goods market with uncertain and price sensitive supply and demand we characterize the dynamics of inventory market price and gross margin based on theoretical analysis simulation and empirical evidence from the petroleum industry we find that inventory fluctuations lag behind price variations and the length of the lags depend on how far the inventory is from the source of the supply or demand shocks we also find that shocks are both dampened and delayed when propagating through the production stages and that shocks have a prolonged effect on inventories and prices at both stages

us food aid and civil conflict we study the effect of us food aid on conflict in recipient countries our analysis exploits time variation in food aid shipments due to changes in us wheat production and cross sectional variation in a country s tendency to receive any us food aid according to our estimates an increase in us food aid increases the incidence and duration of civil conflicts but has no robust effect on interstate conflicts or the onset of civil conflicts we also provide suggestive evidence that the effects are most pronounced in countries with a recent history of civil conflict jel d74 f35 o17 o19 q11 q18 we are unable to determine whether our aid helps or hinders one or more parties to the conflict it is clear that the losses particularly looted assets constitutes a serious barrier to the efficient and effective provision of assistance and can contribute to the war economy this raises a serious challenge for the humanitarian community can humanitarians be accused of fueling or prolonging the conflict in these two countries medecins sans frontieres amsterdam 1

global horse trading imf loans for votes in the united nations security council we investigate whether temporary members of the united nations security council receive favorable treatment from the international monetary fund imf using panel data for 197 countries over the period from 1951 to 2004 our results indicate a robust positive relationship between temporary security council membership and participation in imf programs even after accounting for economic political and country specific factors there is also evidence that security council membership reduces the number of conditions included in imf programs imf loans seem to be a mechanism by which the major shareholders of the fund can win favor with voting members of the security council

information percolation in large markets we introduce a simple model of the percolation of information of common interest through a large market as agents encounter each other over time and reveal information to each other some of which they may have received earlier from other agents we are particularly interested in the evolution over time of the cross sectional distribution in the population of the posterior probability assignments of the various agents we provide a market example based on privately held auctions and obtain a relatively explicit solution for the cross sectional distribution of posterior beliefs at each time our results contribute to the literature on information transmission in markets hayek 1945 argues that markets allow information that is dispersed in a population to be revealed through prices grossman s 1981 notion of a rational expectations equilibrium formalizes this idea in a setting with price taking agents milgrom 1981 pesendorfer and swinkels 1997 and reny and perry 2006 provide strategic foundations for the rational expectations equilibrium concept in centralized markets a number of important markets however are decentralized these include over the counter markets and private auction markets wolinsky 1990 and blouin and serrano 2002 study information transmission in decentralized markets in contrast to these two papers equilibrium behavior in our market example leads to full revelation of information we happily acknowledge conversations with manuel amador frank kelly jeremy stein and pierre olivier weill and research assistance from sergey lobanov rubinstein and wolinsky 1985 and gale 1986a 1986b study decentralized markets without asymmetric information satterthwaite and shneyerov 2003 study decentralized market with private value asymmetric information amador and weill 2006 study a more abstract setting regarding transmission of common and private i nformation

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

haircuts estimating investor losses in sovereign debt restructurings 1998 2005 abstract we calculate investor losses haircuts and recovery values in recent debt restructurings in russia ukraine pakistan ecuador argentina and uruguay haircuts are computed as the percentage difference between the present values of old and new instruments discounted at the yield prevailing immediately after the exchange recovery value means value received in terms of outstanding principal we find average npv haircuts ranging from 13 uruguay external exchange to 73 2005 argentina exchange recovery values range from 30 to about 75 we also find within exchange variations in haircuts and recovery values depending on the bond tendered with a few exceptions domestic residents do not appear to have been treated systematically better or worse than foreign residents

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

risk aversion market liquidity and price efficiency a model of a noncompetitive speculative market is analyzed in which privately informed traders and market makers are risk averse market liquidity is found to be nonmonotonic in the number of informed traders their degree of risk aversion and the precision of their information it is also shown that increased liquidity trading leads to reduced price efficiency and that under endogenous information acquisition market liquidity may also be nonmonotonic in the variance of liquidity trades article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies