speculative attacks unique equilibrium and transparency abstract models with multiple equilibria are a popular way to explain currency attacks morris and shin 1998 have shown that in the context of those models unique equilibria may prevail once noisy private information is introduced in this paper we apply the method of morris and shin to a broader class of probability distributions and show using the technique of iterated elimination of dominated strategies that their results continue to hold even if we allow for sunspots and individual uncertainty about strategic behavior of other agents we provide a clear exposition of the logic of this model and we analyze the impact of transparency on the probability of a speculative attack for the case of uniform distribution of noisy signals we show that increased transparency of government policy reduces the likelihood of attacks

more shock than therapy market transition employment and income in russia 1991 1995 sixteen predictions from market transition theory are assessed using survey data on employment earnings and income in russia during the first five years of market reform although the private sector has grown self employment is still rare incomes are down and unemployment is up a distended income distribution reflects unprecedented income inequality distinctive features of late soviet era stratification persist low returns to education a gender gap in earnings and low earnings among professionals the russian market transition offers more opportunity in trade consumer services and speculation and less in manufacturing than do other emerging makets this corresponds to merchat capitalism and contradicts the predictions of market transition theory everything the communists told us about communism was a lie everything they told us about capitalism turns out to be true popular russian joke circa 1996

information quality and crises in regime change games abstract when crises potentially originate from coordination failures does a deterioration in the quality of the information available to market participants contribute towards instability we address this question in a general global game of regime change with a unique equilibrium and illustrate the implications in a debt rollover application we show that a reduction in the quality of information increases the likelihood of regime change thus reducing stability when the net payoff in the case of a successful attack is more sensitive to the fundamentals than the net payoff in the case of status quo survival we also discuss welfare implications

contract enforcement and trade liberalization in mexico s footwear industry abstract the wave of formal legal system reforms sweeping developing countries provides only a partial solution to the problem of enforcing agreements between firms informal institutions govern the majority of interfirm transactions economic reform also necessitates changes in these institutions this paper examines the evolution of contract enforcement in the mexican footwear industry as trade barriers were removed in the closed economy geographic agglomeration of manufacturing allowed the manufacturers trade associations to maintain information about the behavior of retailers and gave retailers strong incentives to maintain reputations by providing an alternative source for procurement trade liberalization weakened the power of manufacturers

political holes in the economy the business network of partisan firms in hungary this article redirects attention from the question of how business ties have an impact on politics to the question of how political ties have an impact on business specifically do divisions within the field of politics become divisions in the field of business networks to study co evolution of political and economic fields we conducted a historical network analysis of the relationship between firm to party ties and firm to firm ties in the hungarian economy we constructed a dataset of all senior managers and boards of directors of 1 696 corporations and the complete set of all political officeholders from 1987 to 2001 findings from our field interviews and dyadic logistic regression models demonstrate that director interlocks depend to a significant extent on political affiliations although the political and economic fields have been institutionally separated firms and parties have become organizationally entangled firms of either left or right political affiliation exhibit a preference for par

does one soros make a difference a theory of currency crises with large and small traders do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets to address this issue we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals even abstracting from signaling the presence of the large investor does make all other traders more aggressive in their selling relative to the case in which there is no large investors small investors attach the currency when fundamentals are stronger yet the difference can be small or null depending on the relative precision of private information of the small and large investors adding signaling makes the influence of the large trader on small traders behaviour much stronger

generalised morality and the problem of transition to an impersonal exchange regime a response to platteau this essay addresses the problem of transition from a personalised exchange regime that characterises most ldcs to the more impersonal form of exchange that marks advanced market economies this debate has received impetus from the discussion launched by platteau 1994 in the pages of this journal where he seeks to clarify the social conditions that allow the market system to evolve while the role of private and public order institutions in generating market order is recognised this is regarded as inadequate necessitating the invocation of generalised morality gm to complete the explanation it is argued here that gm does not need to be invoked the article pleads for taking a closer look at the historical role of risk bearing institutions especially financial institutions evidence from the bangladesh rice market is adduced in support of the contention that there exist elements even within a traditional exchange regime that can evolve into modern impersonal forms this is brought out by ex

transparency of information and coordination in economies with investment complementarities how do public and private information affect equilibrium allocations and social welfare in economies with investment complementarities and what is the optimal transparency in the information conveyed for example by economic statistics policy announcements or news in the media we first consider an environment where the complementarities are weak so that the equilibrium is unique no matter the structure of information an increase in the precision of public information may have the perverse effect of increasing aggregate volatility nevertheless as long as there is no value to lotteries welfare unambiguously increases with an increase in either the relative or the absolute precision of public information hence full transparency is optimal this is because more transparency facilitates more effective coordination which is valuable from a social perspective on the other hand when complementarities are strong enough that multiple equilibria are possible more transparency permits the market to coordinate more effectively on either the bad or the good equilibrium in this case constructive ambiguity becomes optimal if there is a high risk that more transparency will lead to coordination failures this abstract was borrowed from another version of this item

economic transformation and income inequality in urban china evidence from panel data using panel data of 4 730 urban residents drawn from 20 cities in china this article examines changes in income determinants between the prereform and reform eras to guide this empirical study a conceptual model is developed that emphasizes the coevolution of politics and markets to synthesize theoretical ideas in the recent debate on the transformation of state socialist societies the findings show significant changes in returns to education and in the rise of private hybrid firms in the reform era there is also strong evidence of institutional persistence in returns to positional power and in the organizational hierarchy these findings reveal multifaceted processes of transformation that call for more sophisticated theoretical models and in depth institutional analyses

why the microbrewery movement organizational dynamics of resource partitioning in the u s brewing industry1 the number of small specialty brewers in the u s beer brewing industry has increased dramatically in recent decades even as the market for beer became increasingly dominated by mass production brewing companies using the resource partitioning model of organizational ecology this article shows that these two apparently contradictory trends are fundamentally interrelated hypotheses developed here refine the way scale competition among generalist organizations is modeled and improve the theoretical development of the sociological bases for the appeal of specialist organizations products especially those related to organizational identity evidence drawn from qualitative and quantitative research provides strong support for the theory the article offers a brief discussion of the theoretical and substantive issues involved in application of the model to other industries and to other cultures

the continuing wind of change in the balkans sources of housing inequality in bulgaria the research in this paper explores the institutional changes in the housing system during the period of market transition in bulgaria which follow suit with the greater societal transformations the societal changes are linked theoretically with polanyi s understanding of the transition from a non market to a market society his argument helps in establishing the institutional context of the macroeconomic changes in the past decade the article then focuses on the changing sources of housing inequality it is argued that there are two urban regimes of housing inequality the regime of controlled uniformity during the period of socialism and the regime of primitive diversity during the period of market transition the two regimes are produced mainly through the changing role of the state

the roles of the state and the market in establishing property rights it is an old saw of the economics profession that markets require a clear assignment of initial entitlements to most resources and well enforced rules of contract governments intent on fostering a market economy should thus make sure to put an effective legal system in place one in which property rights are unambiguous secure and freely alienable even if the state gets some of the initial entitlements wrong it is often added the coase theorem instructs us that the parties if free to contract will correct this by appropriate private agreements the experience of postcommunist countries in eastern europe is a good reminder that economists tend to assume a can opener when one is needed indeed the statement that property and contract rights must be put in place assumes away one of the most interesting and intricate questions concerning economic development the creation of a system of enforceable entitlements to the diverse and complex forms of wealth characteristic of a modern society is itself a process subject to economic laws as i shall argue here it is in fact largely a product of market forces rather than governmental fiat

on the origins of property rights conflict and production in the state of nature i analyse the emergence of property rights in a model of conflict and production in the absence of institutions of enforcement the population of agents evolves dynamically through conflicts for possession of factor goods among pairs of randomly matched agents conflicts are incomplete information wars of attrition with an agent s type consisting of his or her independently drawn valuation of the prize and cost of competing for it i prove equilibrium existence and show that in the steady state of the game the population sorts into two stable groups resource haves and have nots in accordance with a known function of their primitive types

embeddedness and contractual relationships in china s transitional economy interfirm contracts represent common economic relations in the marketplace they are also deeply embedded in social relations and social institutions in the context of china s transitional economy this study examines how three mechanisms economizing transaction costs network based social relations and institutional links affect interfirm contractual relationships in 1 the choice of search channels for contractual partners 2 the formality and provisions in a contract and 3 the intensity of social interaction in contract implementation empirical evidence is drawn from information collected on 877 contracts from 620 firms in two chinese cities beijing and guangzhou the authors find distinct roles of social relations institutional links and regulatory environments in the initiation of contractual partners and the forms of contracts adopted whereas transaction specific factors play a significant role in the intensity of social interaction in contract implementation these findings suggest the interplay among economic calculativeness social networks and institutional links and the complementarity in the underlying theoretical ideas

weak ties information and influence how workers find jobs in a local russian labor market in 1973 granovetter formulated the strength of weak ties hypothesis swt which became the foundation of a vast sociological literature on social networks in labor markets until now swt has neve

a political economy approach to the neoclassical gradualist model of transition a political economy approach to the neoclassical gradualist model of transition requires the exposition of what i define the primary elements of the model which are economic analysis definition of a good society speed political structure ideological structure and whether the initial conditions were incorporated in the model after the identification of the primary elements of the neoclassical gradualist model the next step is to identify secondary elements the desired changes with respect to price liberalization stabilization privatization institutional structure monetary policy and the financial system fiscal policy international trade and foreign aid and social policy the analytical framework developed makes possible to understand the neoclassical gradualist model from a new and more enlightening perspective we are better able to comprehend the complexities involved and the disagreements about the reform process the adoption of a gradual process of transition did not only involve specifying the required policies of a successful transition but also entailed a process a sequence by which the reforms should be introduced as such a process of transition consistent with the policies recommended by the neoclassical gradualists economists is developed the conclusion reveals the inconsistencies in the model copyright blackwell publishers ltd 2005

coordination and delay in global games abstract what is the effect of offering agents an option to delay their choices in a global coordination game we address this question by considering a canonical binary action global game and allowing players to delay their irreversible decisions those that delay have access to accurate private information at the second stage but receive lower payoffs we show that as noise vanishes as long as the benefit to taking the risky action early is greater than the benefit of taking the risky action late the introduction of the option to delay reduces the incidence of coordination failure in equilibrium relative to the standard case where all agents must choose their actions at the same time we outline the welfare implications of this finding and probe the robustness of our results from a variety of angles

between markets and politics organizational responses to reform in china in china s economic transition firms diversify assets through investments in the rapidly expanding service sector in response to organizational uncertainty using data from a random sample of firms in shanghai the author shows that there are two situations that cause this uncertainty economic instability where weak firms struggle to survive in the rapidly changing market system and administrative instability where large firms that were the most protected are now being forced to handle the responsibilities that were previously handled by the state the result is that both types of firm seek stability by spreading out risk through investment in low risk fast return markets revealing much about the economic reforms the overall strategy of a firm reflects at any given point in time important organizational facts any decision to fundamentally alter the deployment of internal resources represents a major structural change these kinds of changes do not occur often when they do they provide us wit

the transition according to cambridge mass this paper reviews the nber s the transition in eastern europe this book s 18 essays examine privatization stabilization fiscal policies the nascent private sector bankruptcy foreign trade and investment etc individual country performance occupies six studies these essays which are of high quality provide a cross section of the literature on transition however the book s stronger conclusions are not supported by strong evidence two conclusions unemphasized by contributors emerge expectations which reflect the theories used to design standard reforms are often unfulfilled during reforms a plausible explanation for the misplaced expectations is the ahistorical approach of those theories

information acquisition in global games of regime change abstract we study costly information acquisition in global games of regime change that is coordination games where payoffs are discontinuous in the unobserved state and in the agents average action we show that only symmetric equilibria exist and provide sufficient conditions for uniqueness we then characterize the value of information in these games and link it to the underlying parameters of the model we investigate equilibrium efficiency complementarities in information choices and the trade offs between public and private information we show that information acquisition can be inefficient and that strategic complementarities in actions do not always translate into strategic complementarities in information acquisition finally we find that public and private information can be complements these results contrast findings in linear quadratic models where payoffs depend continuously on both the unobserved state and the agents average action

knowing what others know coordination motives in information acquisition we explore how optimal information choices change the predictions of strategic models when a large number of agents play a game with strategic complementarity information choices exhibit complementarity as well if an agent wants to do what others do they want to know what others know this makes heterogeneous beliefs di cult to sustain and may generate multiple equilibria in models with substitutability agents prefer to difierentiate their information choices we use these theoretical results to examine the role of information choice in recent price setting models and to propose modeling techniques that ensure equilibrium uniqueness

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

job queues and the union status of workers this paper develops a model of the determination of the union status of workers that allows for the possibility of queuing for union jobs the empirical results derived using a sample from the university of michigan panel study of income dynamics are supportive of the queuing hypothesis the no queue model can be rejected using a likelihood ratio test this suggests that a simple probit or logit model for union status is misspecified because it is not based on any consistent behavioral theory an important implication of the model is that because most new entrants to the labor market prefer union jobs but cannot get them and because accrual of nonunion seniority makes workers progressively less likely to desire union jobs the union status of workers is largely determined by their success in being selected from the queue early in their working life

dynamic global games of regime change learning multiplicity and the timing of attacks global games of regime change coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack it have been used to study crises phenomena such as currency attacks bank runs debt crises and political change we extend the static benchmark examined in the literature by allowing agents to take actions in many periods and to learn about the underlying fundamentals over time we first provide a simple recursive algorithm for the characterization of monotone equilibria we then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time or with changes in fundamentals leads to interesting equilibrium properties first multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark second fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks finally equilibrium dynamics can alternate between phases of tranquility where no attack is possible and phases of distress where a large attack can occur even without changes in fundamentals

institutional environment public private hybrid forms and entrepreneurial reinvestment in a transition economy abstract many less developed and especially transition economies have had high levels of entrepreneurial reinvestment for relatively long periods despite the absence of developed government institutions to resolve this puzzle this study proposes that many entrepreneurial firms in these economies have been actively engaged in political activities through which organizational arrangements are created to co opt government agencies into their organizational structures to manipulate and even control unfavorable institutional environments it empirically evaluates the role of one such organizational arrangement public private hybrid forms in china s gradual reform period it suggests that through protecting property rights and facilitating access to key resources and opportunities public private hybrid forms may act as a substitute for deficient market and legal institutions thus facilitating entrepreneurial reinvestment the findings from a national sample of chinese entrepreneurial firms support our propositions in general entrepreneurial firms adopting public private hybrid forms enjoy higher entrepreneurial reinvestment rates than pure private firms during gradual reform and this may be the case because such forms help to both protect private property rights and access key resources and opportunities in addition the association between the forms and reinvestment rate is found higher under less developed government institutions

opacity and risk taking evidence from norway abstract this paper investigates how balance sheet opacity affects banks risk taking behavior we measure bank balance sheet opacity according to two metrics the ratio of available for sale afs securities and the ratio of off balance sheet items we show that balance sheet opacity is positively correlated with realized bank risk specifically banks with more afs securities have lower realized risk while banks with more off balance sheet items have higher realized risk the correlation between opacity and risk depends on both macroeconomic variables and bank characteristics the positive relationship between bank opacity and bank risk is weaker for better capitalized banks and banks that are subject to more market discipline the relationship is also weaker during periods of favorable market conditions motivated by this analysis we then investigate how regulation affects bank opacity we show that higher capital requirements reduce bank opacity and bank risk through a portfolio rebalancing channel

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

after state socialism the political origins of transitional recessions transitions from state socialism created a startling range of initial economic outcomes from renewed growth to deep economic crises debates about the causes have largely ignored the political dis

establishing property rights establishing secure property rights in transition economies amounts to solving two problems inefficiency structures of control rights over assets and poor contract enforcement politicians and bureaucrats still wield excessive control over assets which results in inefficient underinvestment by entrepreneurs corruption is one way of getting around political control but the drawbacks are considerable particularly the limited enforceability of corruption contracts more workable strategies for establishing property rights in transition economies are giving equity to the bureaucrats and other parties that have control reforming the civil service and removing bureaucratic control rights through privatization russia s experience shows how privatization combined with equity incentives for enterprise insiders transfers control rights from the bureaucrats and stimulates political and economic pressures to protect private property rights

information manipulation coordination and regime change this article presents a model of information manipulation and political regime change there is a regime that can be overthrown but only if enough citizens participate in an uprising citizens are imperfectly informed about the regime s ability to resist an uprising and the regime can engage in propaganda that taken at face value makes the regime seem stronger than it truly is this coordination game with endogenous information manipulation has a unique equilibrium and the article gives a complete analytic characterization of the equilibrium s comparative statics holding fixed the number of signals available to citizens if the per unit signal precision is sufficiently high then the regime is harder to overthrow in contrast if the number of signals increases so that both total signal precision and the regime s costs of manipulation rise together then the regime is easier to overthrow unless there are strong economies of scale in information control

the financial and operating performance of newly privatized firms an international empirical analysis this study compares the pre and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990 our results document strong performance improvements achieved surprisingly without sacrificing employment security specifically after being privatized firms increase real sales become more profitable increase their capital investment spending improve their operating efficiency and increase their work forces furthermore these companies significantly lower their debt levels and increase dividend payout finally we document significant changes in the size and composition of corporate boards of directors after privatization the last fifteen years have witnessed a significant global shift away from state socialism towards entrepreneurial capitalism one of the most important and visible aspects of this trend has been the enthusiasm with which governments of all political persuasions have sold their state owned enterprises soes to private investors in hopes that the generally unsatisfactory economic performance of these firms can be improved by the discipline of private ownership this denationalization process given its current title of privatization by the conservative government of margaret thatcher in

recombinant property in east european capitalism recombinant property is a form of organizational hedging in which actors respond to uncertainty by deversifying assets redefining and recombining resources it is an attempt to hold resources that can be justified by more than one legitimating principle property tansformation in postsocialist hungary involves the decentralized reorganization of assets and the centralized management of liabilities together they blur the boundaries of public and private the boundaries of enterprises and the boundedness of justificatory principles enterprise level field research data on the ownership structure of hungary s 220 largest enterprises and banks and an examination of the government s recent debt consolidation programs suggest the emergence of a distinctively east european capitalism that will differ as much from west european capitalism as do contemporary east asian variants

the theoretical foundation of industrial relations and its implications for labor economics and human resource management the author identifies the core principle that forms the theoretical and policy foundation for the field of industrial relations labor is embodied in human beings and is not a commodity and argues that the field s two central dependent variables are labor problems and the employment relationship next he uses this core principle along with complementary ideas from institutional economics to develop a theoretical framework that not only explains the nature of the employment relationship and labor problems but also reveals shortcomings in related theories from labor economics and human resource management finally this framework is used to derive the fundamental theorem of industrial relations demonstrate that optimal economic performance occurs in a mixed economy of imperfect labor markets and organizations and show that a certain amount of labor protectionism promotes economic efficiency and human welfare

russian natural gas policy and its possible effects on european gas markets abstract there is a growing perception among western european gas experts that russia has developed a considerable gas surplus the russian gas bubble thus the question clearly arises how much gas is available for export and how much gas over the next 15 to 20 years can the russian quasi monopolist gazprom market in western europe we consider that gazprom s export strategy mirrors the approach of russia s natural gas policy towards the western european market in this paper we will focus on the characteristics of gazprom s export strategy its underlying logic and its impact on western european gas markets a quantitative approach to managing natural gas flows characterizes russian natural gas policy towards domestic as well as foreign markets the russian government s way of managing and regulating gazprom clearly has an influence on the company s export strategy as indicated by the importance of gas exports for the russian gas industry s and indeed the whole country s financial situation as a consequence of gazprom s export strategy the russian gas company faces today a price quantity dilemma gazprom s problem is to place as much gas as possible in the growing western european gas market without destroying downstream gas prices we argue that gazprom has adopted a market share expansion and downstream vertical integration strategy aimed at capturing a part of the downstream gas rent although this strategy appears to have initiated a form of gas to gas competition in a number of european consumer markets this strategy is not based on an aggressive price policy however in order to live up to its ambitions there is a chance that gazprom will have to somewhat relax traditional contract clauses such as contract length indexation terms and take or pay conditions

competition and privatization amidst weak institutions evidence from mongolia mongolia s mass privatization program was implanted in a country that lacked the very basic institutions of capitalism this paper examines the effects of competition and ownership on the efficiency of the newly privatized enterprises using a representative sample of enterprises and controlling for possible selection biases competition has quantitatively large effects perfectly competitive firms having nearly double the efficiency of monopolies enterprises with residual state ownership appear to be more efficient than other enterprises reflecting an environment where the government was pressured to focus on efficiency and institutions gave little voice to outsider owners jel p0 l1 l33 o12

expanding the behavioral foundations of labor economics the author examines critiques and suggests modifications to the psychological assumptions of the rational choice model of the human agent that underlies much of the theoretical work in modern neoclassical labor economics he analyzes the rational choice model in terms of three psychological constructs motivation cognition and emotion in the context of a five step model of the human behavioral process examples from the empirical and theoretical labor economics literature illustrate both problems with the current theory and new or improved insights and predictions that can be gained by incorporating additional psychological theories and concepts in economic analysis the author concludes that although the rational choice model is a powerful and productive conceptual device in many cases it cannot adequately explain behavior in the world of work and labor economic theory would be improved by a more interdisciplinary approach that integrates conceptual and empirical research from the behavioral sciences abstract courtesy jstor

the information sensitivity of debt in good and bad times abstract we empirically show the dynamics of information production and information sensitivity of bank debt around the great recession as more precise information is produced at the onset of the crisis bank debt becomes informationally sensitive along two separate dimensions first precise information amplifies the effect of market expectations on default risk second for banks that are already expected to perform poorly more precise information further increases default risk both effects are muted in good times overall our findings are consistent with information based models of financial crises

getting paid wage arrears and stratification in russia1 wage arrears have played an important yet unappreciated role in the stratification of contemporary russian society delays in wage payments became rampant and persistent during the 1990s because of the particular structural institutional and policy context that accompanied russia s market reforms recent improvements in russia s economy have reduced but not eliminated wage arrears an innovative practice that has become institutionalized in some but not all postsocialist societies analyses of survey data collected in early 1998 confirm the independent stratifying role of arrears inequality in getting paid is socially structured in a different manner than inequality in contracted wages and the former proves equally or more decisive in shaping inequality in actual wages arrears occur with some regularity in other national and historical contexts this study of russia shows that where arrears are rampant researchers should incorporate them into conceptual and empirical models of earnings inequalit

banking panics the role of the first come first served rule and information externalities this paper proposes that both the first come first served rule and information externalities are important in causing contagious bank runs the first come first served rule creates a negative payoff externality among depositors this payoff externality forces depositors to respond to early noisy information such as failures of other banks therefore failures of a few banks may trigger runs on other banks contagious runs may occur even if i depositors choose the pareto dominant equilibrium when there are multiple equilibria and ii the deposit contract is chosen to maximize depositor welfare the feasibility of reforming the fdic to impose market discipline is also investigated

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

a theory of entrepreneurship and institutional uncertainty abstract uncertainty and institutions are each vital concepts in entrepreneurship research however little work has been done to combine them into a consistent conceptual framework for analyzing the dynamic aspects of entrepreneurial action uncertainty and institutional change using insights from new institutional economics we develop a model that explains the institutional uncertainty resulting from conflicts between institutions on different levels of social activity we further explain how entrepreneurs can both cause and mitigate this uncertainty through market and institutional action finally we focus on a special case of institutional uncertainty regime uncertainty wherein entrepreneurs are left without reliable means to overcome uncertainty in political institutions

information choice and amplification of financial crises we propose an amplification mechanism of financial crises based on the information choices of investors information acquisition makes investors more likely to act against their prior deteriorating public news under an initially strong weak prior increases reduces the value of private information and induces more less information acquisition deteriorating public news increases the probability of a crisis since the initially strong weak prior induces no attacks attacks this effect is amplified with endogenous information choices to enhance financial stability a policy maker affects information acquisition via taxes and subsidies we derive and discuss testable implications for the magnitude of amplification

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

charting the territory recombination as a source of uncertainty for potential entrants in this paper we conceptualize categories as regions of a cognitive map that structure the market and guide the investment decisions of potential entrants i e of new and established organizations we advance that as a category appears altered via incumbents acts of recombination potential entrants face market specific uncertainty and are discouraged to invest in that category these negative effects of recombination on market entries are however mitigated at increasing values of category status we test our arguments in the market for electronic music the analyses of product and organizational entries in music styles between 1978 and 2011 lend support to our arguments

returns to acquirers of privatizing financial services firms an international examination abstract while the literature reports improved performance for privatizing firms banking markets are different many privatizing financial services firms face unique problems such as an overhang of problem loans and weak credit cultures and legal systems we investigate the returns to successful bidders in privatization acquisitions of financial services firms examine short horizon performance and test whether such acquisitions result in a change in risk for the bidding firm our results show that the cumulative abnormal returns to shareholders of bidding firms are positive perhaps reflecting initial optimism that the foreign firm acquiring the privatizing firm would share in the success associated with privatization bidders also experience an increase in their total risk following the acquisition

dynamic debt runs we develop a dynamic model of debt runs on a rm which invests in an illiquid asset by rolling over staggered short term debt contracts i e dierent contracts mature at dierent times we derive a unique threshold equilibrium in which creditors coordinate their asynchronous rollover decisions based on the rm s publicly observable and time varying fundamental the coordination problem ampli es the creditors concerns about the rm s future rollover risk created by its time varying fundamental and causes each maturing creditor to run ahead of others even when the current fundamental is substantially higher than its liability our model provides a set of implications on the roles played by volatility illiquidity and debt maturity in driving debt runs as well as on rms capital adequacy standards and credit risk

signaling in a global game coordination and policy traps this paper introduces signaling in a global game so as to examine the informational role of policy in coordination environments such as currency crises and bank runs while exogenous asymmetric information has been shown to select a unique equilibrium we show that the endogenous information generated by policy interventions leads to multiple equilibria the policy maker is thus trapped into a position in which self fulfilling expectations dictate not only the coordination outcome but also the optimal policy this result does not rely on the freedom to choose out of equilibrium beliefs nor on the policy being a public signal it may obtain even if the policy is observed with idiosyncratic noise

a clash of capitalisms foreign shareholders and corporate restructuring in 1990s japan this article examines the clash between stakeholder and shareholder based business systems resulting from an increase in foreign portfolio investment in the japanese economy during the 1990s an analysis of 1 108 firms between 1991 and 2000 shows that as foreign institutional investors who were more interested in investment returns than in long term relationships replaced domestic shareholders one fundamental pillar of japan s stakeholder capitalism began to crack japanese firms began to adopt downsizing and asset divestiture practices more characteristic of anglo american shareholder economies the influence of foreigners however was weaker in firms more deeply embedded in the local system through close ties to domestic financial institutions and corporate groups thus foreign investors were influential primarily in firms less embedded in the existing stakeholder system this research contributes to debates on globalization and convergence of business systems institutional change and corporate

financial system size in transition economies the effect of legal origin gorton and winton 1998 link the size of the banking system in transition economies to financial stability we provide empirical evidence consistent with their notion that the size of the financial system will be smaller in these countries this effect holds even after controlling for the effect of rule of law and or legal origin and other relevant variables transition economy status thus adds additional explanatory power to traditional law and finance explanations of financial development classification of transition economies by legal origin reveals that russian legal origin has a strong negative effect on financial development regression analysis shows claims on the private sector gross domestic product gdp to be 46 to 60 percentage points lower in the countries of the former soviet union and 23 to 39 percentage points lower in non soviet transition economies compared to countries of english legal origin there is a positive relation between claims on the private sector and the rule of law for a broad cross section of countries

efficient use of information and social value of information this paper analyzes equilibrium and welfare for a tractable class of economies games that have externalities strategic complementarity or substitutability and heterogeneous information first we characterize the equilibrium use of information complementarity heightens the sensitivity of equilibrium actions to public information raising aggregate volatility whereas substitutability heightens the sensitivity to private information raising cross sectional dispersion next we define and characterize an efficiency benchmark designed to address whether the equilibrium use of information is optimal from a social perspective the efficient use of information reflects the social value of aligning choices across agents finally we examine the comparative statics of equilibrium welfare with respect to the information structure the social value of information is best understood by classifying economies according to the inefficiency if any in the equilibrium use of information we conclude with a few applications including production externalities beauty contests business cycles and large cournot and bertrand games

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

up to standard market positioning and performance of hong kong films 1975 1997 the trade off between conformity and differentiation that market entrants face has recently been enriched by a new sociological insight differentiation is rewarded only within the confines of taken for granted market categories entrepreneurs however routinely engage in combining existing market categories the present paper attempts to reconcile these seemingly different views by focusing on the role of market uncertainty in particular we predict that the propensity of entrants to blend multiple categories increases with market uncertainty upon considering the endogenous influence of uncertainty on market positioning the positive returns obtained by entrants from combining multiple categories become apparent because differentiation inspires the positioning of entrants in the face of market uncertainty the frequent adoption of the same combination by competitors dampens the performance returns derived from it our hypotheses find support from the analysis of a large sample of hong kong films during 1975 1997

are n 1 heads better than one the case of mutual fund managers abstract recent studies find that mutual funds exhibit differential and persistent performance which is frequently attributed to superior managerial decision making we extend the literature by examining the impact of the fund s management structure on performance outcomes specifically we examine directly whether superior outcomes in terms of risk adjusted returns may be explained by behavioral decision making theory that asserts that teams make better decisions than individuals empirical results are consistent with the classical decision making theory and the efficient market hypothesis

coordination risk and the price of debt abstract creditors of a distressed borrower face a coordination problem even if the fundamentals are sound fear of premature foreclosure by others may lead to pre emptive action undermining the project recognition of this problem lies behind corporate bankruptcy provisions across the world and it has been identified as a culprit in international financial crises but has received scant attention from the literature on debt pricing without common knowledge of fundamentals the incidence of failure is uniquely determined provided that private information is precise enough this affords a way to price the coordination failure comparative statics on the unique equilibrium provides several insights on the role of information and the incidence of inefficient liquidation

the state led transition to liberal capitalism neoliberal organizational world systems and social structural explanations of poland s economic success neoliberals argue that rapid liberalization and privatization can transform postcommunist economies into western style capitalist systems organizational sociologists argue that these policies produce a unique variety of capitalism while world systems theorists argue that they lead to underdevelopment this article advances a social structural alternative in a crucial case poland s relative economic success resulted from prolonged state ownership and an interventionist state employing various industrial policy tools that facilitated efficiency enhancing market oriented restructuring before ushering in beneficial foreign direct investment the resulting capitalist system closely resembles the typical pattern found in most late industrializers

internationalization and institutional and regional change restructuring post communist networks in the region of lan w kroun czech republic uhli r d 1998 internationalization and institutional and regional change restructuring post communist networks in the region of lan w kroun czech republic reg studies 32 673 685 the aim of this paper is to establish a framework for the analysis of regional change drawing on a combination of network theory and the concepts of social and symbolic capital of bourdieu it argues that regional change in the czech republic can be analysed as a combination of network restructuring and struggles for the redefinition of symbolic capital the case study section presents an example of restructuring in the lan skroun region previously entirely dominated by one single employer using evidence from this region the paper argues that a combination of symbolic capital of foreign investment can be combined successfully with parts of local pre 1989 networks of social capital and that such a combination can reinvigorate regional economies uhli r d 1998 internationalisation et developpements institutionnel

rollover risk and market freezes the debt capacity of an asset is the maximum amount that can be borrowed using the asset as collateral we model a sudden collapse in the debt capacity of good collateral we assume short term debt that must be frequently rolled over a small transaction cost of selling collateral in the event of default and a small probability of meeting a buy to hold investor we then show that a small change in the asset s fundamental value can be associated with a catastrophic drop in the debt capacity the kind of market freeze observed during the crisis of 2007 to 2008 one of the many striking features of the crisis of 2007 to 2008 was the sudden freeze in the market for the rollover of short term debt from an in stitutional perspective the inability to borrow overnight against high quality but long term assets was a market failure that effectively led to the demise of a substantial part of investment banking in the united states more broadly it led to the collapse in the united states the united kingdom and other countries of banks and other financial institutions that had relied on signifi cant maturity mismatch between assets and liabilities and in particular on the rollover of short term wholesale debt in the asset backed commercial paper abcp and overnight sale and repurchase repo markets in this paper we are interested in developing a model of a sudden collapse in the ability to borrow short term against long lived assets in the absence of obvious problems of asymmetric information or fears about the value of col lateral we refer to this phenomenon as a market freeze more precisely a market freeze occurs when the debt capacity the maximum amount of collat eralized borrowing that can be supported by an asset is a small fraction of the fundamental value the economic value measured by the net present value npv of the stream of future returns an extreme form of a market freeze occurs when the fundamental value is close to the maximum possible value of the asset whereas the debt capacity is close to the minimum possible value of the asset

labor supply of new york city cabdrivers one day at a time life cycle models of labor supply predict a positive relationship between hours supplied and transitory changes in wages because such changes have virtually no effect on life cycle wealth previous attempts to test this hypothesis empirically with time series data have not been supportive estimated elasticities are typically negative or nonsignificant such analyses however are vulnerable to measurement error and other estimation problems we use data on daily observations of wages and hours for new york city cab drivers to estimate the supply response to transitory fluctuations in wages cab drivers decide daily how many hours to supply and face wages that are positively correlated within days but largely uncorrelated between days using these data our central finding is that wage elasticities are persistently negative from 5 to 1 in three different samples even after correcting for measurement error using instrumental variables these negative wage elasticities challenge the notion that cab drivers trade off labor and leisure at different points in time and question the empirical adequacy of life cycle formulations of labor supply

institutional economics and the minimum wage broadening the theoretical and policy debate debate among labor economists on the pros and cons of a minimum wage law has come to focus on whether labor markets are competitive or monopsonistic using principles and concepts of institutional economics the author argues that this perspective on minimum wages is too narrow in particular he uses institutional theory to develop four theoretical rationales for minimum wage legislation setting a floor on wages to offset imperfect competition and inequality of bargaining power promote macroeconomic stabilization and full employment contribute to long term efficiency and growth and incorporate labor market externalities and social costs of labor one revisionist implication is that a minimum wage under plausible conditions may increase economic efficiency even in a purely competitive labor market

endogenous information acquisition in coordination games in the context of a beauty contest coordination game in which payoffs 1 depend on the quadratic distance of actions from an unobserved state variable and 2 from the average action players choose how much costly attention to pay to vari 3 ous informative signals each signal has an underlying accuracy how precisely it 4 identifies the state and a clarity how easy it is to understand the unique linear 5 equilibrium has interesting properties the signals which receive attention are the 6 clearest available even if they have poor underlying accuracy the number of sig 7 nals observed falls as the complementarity of players actions rises and if actions 8 are more complementary the information endogenously acquired in equilibrium 9 is more public in nature the consequences of rational inattention constraints on 10

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

distributional coalitions and the politics of economic reform in latin america for much of the discipline of economics a closed economy is seen as the result of efforts of distributional coalitions and rent seekers to maintain sector specific protections accordingly economic liberalization is explained by the policy consistency of uncompromising reform elites students of the politics of economic adjustment in the developing world in turn have argued that reform programs concentrate costs in the present and disperse benefits in the future hence losers are prepared to engage in collective action whereas prospective winners facing uncertainty about payoffs remain disorganized they thus posit the cohesiveness and insularity of policymakers as the main variable for explaining successful reform both economists and political scientists therefore adopt a collective action approach that overlooks how groups organize in support of liberalization in the recent latin american experience however these reforms have preserved market reserves for firms that provided vital political support to and often colluded with policymaking elites this setting has thus reproduced incentives for rent seeking behavior even in the presence of comprehensive liberalization this evidence supports two interrelated theoretical claims first distributional coalitions may proliferate when the state withdraws from the economy not only when it intervenes second interest based variables retain explanatory power in political economy which state autonomy arguments disregard irrespective of whether the economy is closed or open which neoclassical perspectives overlook to highlight the centrality of interest groups favoring marketization therefore the article suggests modifications to the dominant theories of collective action and the literature on the politics of economic adjustment

risk and wealth in a model of self fulfilling currency attacks market participants risk attitudes wealth and portfolio composition in uence their positions in a pegged foreign currency and therefore may have important efiects on the sustainability of currency pegs we analyze such efiects in a global game model of currency crises with continuous action choices generating a rich set of theoretical comparative static predictions related to often discussed but rarely modelled accounts of the onset and timing of currency crises the model can be solved in closed form and the methods could be used to study other economic issues in which coordination and risk aversion play important roles

the consumption function a basic needs hypothesis abstract this paper proposes to split consumption expenditure on non durable items into basic needs and other expenditure this is because it is shown that basic needs consumption expenditure has different characteristics as well as different empirical time series properties using both seasonally adjusted and unadjusted data these differences are clearly demonstrated for example it is shown that the two categories of consumption expenditure differ with respect to their seasonal and cyclical behavior it is concluded that the distinction advocated should be made on a theoretical as well as empirical level