competition between exchanges a research agenda this paper describes open research questions related to the competition and market structure of financial exchanges and argues that only a combination of industrial organization and finance can satisfactorily attack these questions two examples are discussed to illustrate how the combination of these two approaches can significantly enrich the analysis the network externality puzzle which refers to the question of why trading for the same security is often split across trading venues and the impact of the multi sided character of financial exchanges on pricing and profitability

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

coalition building in a spatial economy abstract we analyze the possibility and consequences of coalition formation among suppliers of retail services we first provide a framework in which producers of substitutes have an incentive to cluster in marketplaces to attract consumers dispersed in space owing to spatial externalities the resulting spatial equilibrium can be welfare suboptimal we characterize regimes in which we find too little and those in which there is too much agglomeration of firms we analyze the role of coalitions of firms e g initiated by a land developer in this framework and show that such coalitions can overcome the suboptimality of the decentralized spatial allocation

monetary integration and the cost of borrowing with european monetary union emu there was an increase in the adjusted spreads of euro area sovereign securities over germany corrected from the foreign exchange risk causing a lower than expected fall in borrowing costs the objective of this paper is to study the reasons for this increase and in particular whether the change in the price assigned by markets was due to domestic factors credit risk and or market liquidity or to international risk factors the empirical evidence suggests that it may have been a change in the market assessment of domestic both liquidity and default risk rather than international factors that caused the observed increase in adjusted spreads with monetary integration even though since market size scale economies have increased since emu their effect differs according to the size of the market

mean reverting financial leverage theory and evidence from pakistan abstractgrounding concepts of the two competing theories of capital structure trade off theory pecking order theory are quite opposite to each other trade off theory claims that there is an optimal target capital structure and firms try to achieve that optimal target point whereas pecking order theory argues that there is no optimal target capital structure but the firms follow a specific pattern of financing using the two competing theoretic frameworks this study applies fisher type panel unit root test to an unbalanced panel data of 13 115 firm year observations of nonfinancial firms listed on karachi stock exchange pakistan spread over 38 years 1973 2010 overall panel test results for short term long term as well as total leverage support trade off financing behaviour while individual firm results do not individual firm results show that only 16 of the firms have short term target 25 of the firms have long term target and 12 of the firms have total target leverage ratio further

desirability of compatibility in the absence of network externalities i compare the incentives firms have to produce individual components compatible with components of other manufacturers instead of systems composed of components that are incompatible with components of competing manufacturers i show that even in the absence of positive consumption externalities network externalities prices and profits will be higher in the regime of compatibility equilibrium total surplus could be higher in either regime both regimes overprovide variety compared to the surplus maximizing solution in today s environment many products are complex specified by a long array of characteristics part of the decision of the firm is to choose if it should break this long array of features into two or more smaller parts and produce the products corresponding to the smaller arrays instead of the product that embodies the full array we will call the products that correspond to these smaller arrays components and the product that corresponds to the full array a system note that components are by their definition complements components produced by different manufacturers are compatible if it is feasible for the consumers to combine them costlessly into a working system in this paper we will assume that there are two components which make up a system we will discuss competition under full compatibility when components produced by all firms are compatible with each other and under incompatibility when no components produced by different firms are compatible and no hybrid systems can exist 2 assuming availability of the same

from drafts to checks the evolution of correspondent banking networks and the formation of the modern u s payments system 1850 1914 checks remained local payments instruments throughout virtually the entire nineteenth century their significant use in interregional transactions dates only to the 1890s we explain their lagged spatial diffusion by the evolution of centralized payments institutions to coordinate transactions among myriad banks not real technological changes to annihilate distance the pivotal institutions were large correspondent banks especially in new york after the civil war new york funds constituted a national settlement medium and the concentration of bankers balances in new york yielded liquidity and other externalities smoothing the flow of check payments

on market integration and the development of institutions the case of international commercial arbitration abstract this paper suggests that the institutional basis necessary to support efficient international trade is provided not only by treaties among national governments but also by international coalitions of private agents international commercial arbitration is an important example of these private coalitions the paper reviews the provisions and the practice of international arbitration and presents a general equilibrium model of the relationship between the expansion of international trade and the adoption of arbitration the model shows that arbitration alters the size and composition of markets while at the same time responding to exogenous changes in trade

estimating the impact of rural investments in nepal abstract as a largely rural society most people in nepal still depend upon agriculture as their major livelihood strategy therefore it is important to improve the allocation efficiency of limited public expenditures to promote agricultural growth and poverty reduction however evaluating the returns of public investment is limited by methodological challenges we use hedonic and panel data methods to examine the returns to different types of rural public investments including roads irrigation and extension advice the use of diverse identification strategies reduces the risk of using a narrower set of results driven primarily by a particular methodology we find that rural roads and irrigation are one of the most productive public expenditures according to the benefit cost ratio calculations though the magnitudes of these ratios depend on methodology

the impact of financial liberalization on capital structure adjustment in pakistan a doubly censored modelling abstractthe purpose of the study is to explain adjustment rate towards target capital structure of pakistani nonfinancial listed firms and to investigate the impact of financial liberalization fl on capital structure adjustment rate we control for the unobserved heterogeneity and the fractional nature of adjustment rate by applying an unbiased dynamic panel fractional estimator on an unbalanced panel data of pakistani nonfinancial firms listed during 1972 2010 we find that these firms adjust at an annual rate of 24 51 to reach their capital structure targets we argue that in order to optimize the benefits of fl the government should strengthen financial as well as judicial institutions to enforce the creditors rights that will enable access to more options to pakistani firms to raise cheaper external financing

why there are organized futures markets i shall present an explanation of the existence of organized futures markets with more predictive power than the two prevailing rival views my explanation briefly is this an organized futures market facilitates trade among strangers one of the rival prevailing views is a defense of futures trading it asserts that an organized futures market furnishes legitimate businessmen with a means of hedging so that they can obtain insurance against price risk the other prevailing view is an attack on organized futures markets it asserts that such markets enable speculators to manipulate prices to the detriment of outsiders who are less well informed and to the detriment of legitimate businessmen such as farmers the attack on organized futures markets likens them to gambling casinos the defense sees them as a form of insurance neither the attack nor the defense is valid the correct explanation is closely related to why we conduct trade using money instead of by barter

size matters for liquidity evidence from emu sovereign yield spreads abstract the objective is to study the relative importance of domestic components of emu sovereign yield spreads since the start of monetary integration the results indicate a change in the market value of liquidity as measured by market size after emu

household level effects of electricity on income abstract this paper studies the effect of electricity on income using the nepal living standards survey iii nlssiii carried out in the years 2010 11 to account for endogeneity issues we use a two stage probit least squares 2spls model we find that causality runs both ways that is income explains whether a household is connected to electricity but also a household being connected to electricity has a very large and significant effect on income

the division of markets is limited by the extent of liquidity spatial competition with externalities liquidity considerations will limit the number of markets in a competitive economy welfare implications are ambigious since liquidity is a positive externality there may be too little liquidity per market at a noncooperative equilibrium and too many markets compared to the surplus maximizing market structure but liquidity is also self reinforcing given an existing equilibrium new markets may not open because nobody wants to use a new market with low liquidity there may be too few markets to achieve efficiency a nondiscriminating monopolist will operate smaller and more numerous markets compared to optimality as well as to the equilibrium of independent auctioneers copyright 1988 by american economic association

emu and european government bond market integration in this study we adopt the capm based model of bekaert and harvey 1995 to compare the differences in the relative importance of two sources of systemic risk world and eurozone on government bond returns in two groups of countries in eu 15 results show that euro markets are less vulnerable to the influence of world risk factors and more vulnerable to emu risk factors however they are only partially integrated for their part the markets of the countries that decided to stay out of the monetary union present a higher vulnerability to external risk factors

high yields the spread on german interest rates this paper is a first attempt at evaluating the determinants of the interest rate differentials on government bonds between high yielders namely italy spain and sweden and germany in particular we concentrate on daily frequencies where the relevance of economic fundamentals is rather limited and address the question of the relative importance of local and global factors in the determination of such spread we identify and measure three components of total yield differentials one due to expectations of exchange rate depreciation which we call the exchange rate factor another which reflects the market assessment of default risk and a last one due to the different taxation treatment of long term yields

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

the impact of agricultural extension and roads on poverty and consumption growth in fifteen ethiopian villages this article investigates whether public investments that led to improvements in road quality and increased access to agricultural extension services led to faster consumption growth and lower rates of poverty in rural ethiopia estimating an instrumental variables model using generalized methods of moments and controlling for household fixed effects we find evidence of positive impacts with meaningful magnitudes receiving at least one extension visit reduces headcount poverty by 9 8 percentage points and increases consumption growth by 7 1 percentage points access to all weather roads reduces poverty by 6 9 percentage points and increases consumption growth by 16 3 percentage points these results are robust to changes in model specification and estimation methods

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

do central banks act asymmetrically empirical evidence from the ecb and the bank of england the paper attempts to exploit whether monetary authorities have a different behaviour during recession and expansion to this end a multivariate extension of hamilton markov switching model is adopted first regime dependent taylor type rules are estimated for the euro area and the united kingdom in order to capture the systematic behaviour of central banks then impulse response functions that account for the different phases of the business cycle are analysed in addition a comparative analysis concerning the estimated rules as well as the different reaction of real economy to monetary shocks is implemented the study strongly suggests that central banks cannot neglect the regime where the monetary action takes place it follows that the phase of business cycle is an important matter in monetary policy decision process

the immediate effect of monetary union on eu 15 sovereign debt yield spreads yield spreads corrected for exchange rate risk over 10 year german securities of european union eu countries that did not join economic and monetary union emu experienced an average decrease of 14 20 basis points during the first 3 years after the beginning of currency union conversely euro area countries adjusted spreads registered an average rise of 11 98 basis points in the same period this article examines the elements a possible change in the relative importance of domestic or international risk factors behind these results using both panel estimations in the two groups of countries and a country by country specification in each of them

the city network paradigm measuring urban network externalities in recent years network behaviour has been analysed extensively as the emerging model for economic growth by network behaviour a metaphor for co operative behaviour among individuals corporate

networks and compatibility implications for antitrust in this paper we draw crucial parallels between the concepts of compatibility and networks and the more traditional concepts of complementarity and vertical relationships we also develop the important distinctions between two way networks and one way networks we then apply our framework to a number of current antitrust issues

asymmetric monetary policy effects in emu this paper develops a semi structural modelling approach to study asymmetric monetary transmission in europe a system of dynamic equations containing reaction functions for monetary policy as well as output gap and inflation equations is simultaneously estimated for france germany and italy we find asymmetries on the demand side in the strength of interest rate transmission and on the supply side in the effects of the output gap on inflation the responses are similar in germany and italy and generally stronger than in france out of sample tests do not find a structural break in the transmission mechanisms prior to the establishment of the european monetary union

geographic poverty traps a micro model of consumption growth in rural china how important are neighbourhood endowments of physical and human capital in explaining diverging fortunes over time for otherwise identical households in a developing rural economy to answer this question we develop an estimable micro model of consumption growth allowing for constraints on factor mobility and externalities whereby geographic capital can influence the productivity of a household s own capital our statistical test has considerable power in detecting geographic effects given that we control for latent heterogeneity in measured consumption growth rates at the micro level we find robust evidence of geographic poverty traps in farm household panel data from post reform rural china our results strengthen the equity and efficiency case for public investment in lagging poor areas in this setting copyright 2002 john wiley sons ltd

granger causality in peripheral emu public debt markets a dynamic approach our research aims to analyze the possible existence of granger causal relationships in the behavior of public debt issued by peripheral member countries of the european economic and monetary union emu with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009 with this goal in mind we make use of a database of daily frequency of yields on 10 year government bonds issued by five emu countries greece ireland italy portugal and spain covering the entire history of the emu from its inception on 1 january 1999 until 31 december 2010 in the first step we explore the pair wise granger causal relationship between yields both for the whole sample and for changing subsamples of the data in order to capture the possible time varying causal relationship this approach allows us to detect episodes of significant increase in granger causality between yields on bonds issued by different countries in the second step we study the determinants of these episodes analyzing the role played by different factors paying special attention to instruments that capture the total national debt domestic and foreign in each country

an operational measure of liquidity embedding the process of selling an asset in a search environment enables one to provide an exact definition of liquidity an asset s liquidity is the expected time until it is sold while pursuing an optimal in the sense of maximization of expected discounted net proceeds policy this analysis reveals that this definition is compatible with most other notions of liquidity and in particular with those of john maynard keynes impatience the discount associatedwith a quick sale predictability and flexibility copyright 1986 by american economic association