efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

unemployment rates and political outcomes an incentive for manufacturing a political business cycle in recent years the interdependence of politics and economics has received an increasing amount of attention by both economists and political scientists the explanation for this interest lies in the rediscovery of political economy and may be at least partly due to the recent experiences that governmental advisors have had with simultaneously increasing inflation and unemployment conventional macroeconomic approaches have failed to pin point causes for the stagflation and to provide methods for solving the problem the traditional economic policies may have failed in part because these traditional solutions were simply not plausible in the political environments in which they were proposed it is the intent of a growing body of work to develop macromodels with endogenous political sectors the inference made in this literature is that 1 the economy can be manipulated or affected by a political sector and that 2 there is an incentive for the political sector to manipulate the economy this literature has however just begun to formalize the interaction of the political and economic sectors and empirical work is virtually nonexistent the purpose of this paper is to present some evidence on these two inferences in section 1 the first inference is examined in section ii literature on which the first inference is based is reviewed and evidence on the possible incentive to create such a cycle is presented in section iii concluding remarks are offered

the influence of private contractual failure on regulation the case of oil field unitization an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement the focus of the study is oil field unitization regulation in oklahoma texas and wyoming federal lands from 1948 through 1975 despite large potential gains from unitization private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates in response the federal and state governments have adopted strikingly different policies to encourage unitization with different results only the federal government s regulations are effective because they surmount information problems texas has the least successful regulation the paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production 25 references 2 tables

does direct democracy reduce public debt evidence from swiss municipalities although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times public debts ofmany oecd countries remain at high levels since structural reforms of public spendinghave only infrequently taken place in mostcountries fiscal pressure will increaseagain in the future due to society s ageingand the accompanying increases in socialtransfer spending constitutionalrestrictions on debt levels and legal rulesof the budgetary process such as a strongrole of the minister of finance aresupposed to be helping against the debtbias inherent in political decision makingprocedures in addition to such top downbudgetary procedures this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest swissmunicipalities in 1990

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

random timing of elections and the political business cycle in his 1975 paper nordhaus formally proves that governments whose aim is to be reelected will generate political business cycles empirical results do not confirm this proposition especially in countries used to early elections

property rights and efficiency of voluntary bargaining under asymmetric information we show that in public good problems under asymmetric information the success of voluntary bargaining is closely related to the structure of property rights we characterize property rights structures and mediated bargaining procedures that either lead to an efficient voluntary resolution to public good problems or achieve the efficient outcome but slightly coerce the agents into participation in this respect we identify efficient property rights structures in this paper we show that in public good problems under asymmetric information the success of any voluntary bargaining procedure is closely related to the structure of property rights in the economy for clarity of exposition we focus our attention on the following example in a town inhabited by n residents a firm is considering whether to operate a factory that generates pollution as an inevitable by product a higher level of production generates a correspondingly higher level of pollution the firm s profits are increasing with the level of production and the welfare of the residents is decreasing with the level of pollution the firm s profitability and residents preferences are assumed to be private information the structure of property rights specifies the level of pollution that the firm is entitled to emit into the environment for every such economy we describe and prove the existence of efficient property rights structures we characterize property rights structures and voluntary mediated bargaining procedures that maximize the sum of residents utilities and the firm s profit and thus lead to an efficient resolution to the public good problem furthermore we show that these efficient property rights structures are robust to changes in the underlying environment this suggests that the combination of efficiency minded legislation that would set the initial structure of property rights appropriately and a mediator who would base his recommendations on an efficient decision mechanism could facilitate the achievement of the efficient outcome under some circumstances however we show that the mediated voluntary bargaining procedure has to be replaced by compulsory arbitration that coerces agents into agreement we provide results that show that when the efficient property rights structure is adopted the degree of coercion that is necessary to obtain the efficient outcome is small thus in contrast to rob 1989 and mailath and postlewaite 1 our results apply to any public good problem where the costs and benefits of providing the public good are monotonically increasing in the level of provision and where some additional restrictions to be specified later are imposed on the form of the utility and profit functions and on the information structure

simple contracts renegotiation under asymmetric information and the hold up problem abstract in this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non trivial it is argued that the default decision may be interpreted as a simple contract that the parties have written ex ante this result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold up problem to be solved even if the parties valuations are private information

a mechanism design approach to climate change agreements we take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities incentive compatibility and voluntary participation by sovereign countries the optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement this mechanism can be approximated by a simple menu with attractive implementation and robustness properties limits on enforcement and commitment might nevertheless hinder the performance of this menu making the business as usual scenario more likely

pollution claim settlements under private information abstract the classical problem of resolving a nuisance dispute between a pollution generating firm and nearby residents is modelled here as a mechanism design problem we assume that the designer of the mechanism is the firm that it is uncertain about the actual losses suffered by residents and that the initial assignment of property rights is one where each resident is entitled to prevail we derive a profitmaximizing scheme under the individual rationality and incentive compatibility constraints and examine its properties it is shown that the outcomes it yields are sometimes inefficient moreover when many residents are affected by pollution and the degree of uncertainty with respect to the losses they suffer is large these inefficiencies become rampant

the exchange rate regime and the currency composition of corporate debt the mexican experience abstract this paper analyzes the effect that the change from a fixed to a floating exchange rate regime that took place in mexico in december 1994 had on the currency composition of corporate debt in particular the paper asks whether a fixed exchange rate regime biases corporate borrowing towards foreign currency due to an implicit exchange rate guarantee given by the government therefore under a predetermined regime firms will not fully internalize their exchange rate risk and will be more likely to engage in balance sheet mismatches than under a floating regime we study the main determinants of foreign currency borrowing of those firms listed in the mexican stock exchange from 1992 to 2000 to test whether balance sheet currency mismatches fell after the adoption of the floating exchange rate regime the results found support the view that the floating exchange rate regime has been useful in reducing exchange rate exposure

do elections affect the composition of fiscal policy in developed established democracies this paper investigates the impact of elections on the level and composition of fiscal instruments using a sample of 19 high income oecd democracies during the period 1972 1999 we find that elections shift public spending towards current expenditures at the cost of public investment although we find no evidence for an electoral cycle for government deficit and overall expenditures we find a negative effect of elections on revenue attributed to a fall in direct taxation our results apply for predetermined electoral periods while endogenous elections seem to increase deficit and leave the composition of fiscal policy unaffected

public goods with congestion abstract i consider the problem of the efficient provision of a congested limited capacity public good in a setting with asymmetric information i show in particular that when the capacity of the good is limited in a wide class of economies it is possible to construct an incentive compatible mechanism that always produces the good at the efficient level balances the budget and satisfies voluntary participation constraints this result is in contrast with the corresponding impossibility result for pure public goods due to mailath and postlewaite rev econ stud 57 1990 351 359 and rob j econ theory 47 1989 307 333

financial globalization and debt maturity in emerging economies this paper studies how financial globalization affects debt structure in emerging economies we find that by accessing international markets firms increase their long term debt and extend their debt maturity in contrast with financial liberalization long term debt decreases and the maturity structure shifts to the short term for the average firm these effects are stronger in economies with less developed domestic financial systems the evidence is consistent with financial integration having opposite effects on the firms that are able to integrate with world markets and obtain financing globally relative to the firms that rely on domestic financing only

the effect of fiscal performance on local government election results in israel 1989 1998 abstract we discuss the circumstances under which voters in local elections will reward fiscal responsibility and suggest that such circumstances evolved in israel in the mid 1990s we present empirical evidence that indeed fiscal performance of mayors substantially affected their reelection probability in the 1998 campaign but not in the 1989 and 1993 campaigns changes in the political environment enforcement of audit and financial reporting requirements tougher imposition of hard budget constraints and the development of local media are proposed as explanations the hypotheses that the fiscal variables reflect the income level at the locality or the mayor s success in extracting resources from the central government are tested and rejected

membership in citizen groups we analyze the coordination problem of agents deciding to join a group that uses membership revenues to provide a discrete public good and excludable benefits the public good and the benefits are jointly produced so that benefits are valued only if the group succeeds in providing the public good with asymmetric information about the cost of provision the static membership game admits a unique equilibrium and we characterize the optimal membership fee we show that heterogeneity in valuations for the excludable benefits is always detrimental to the group however in a dynamic contest in which heterogeneity arises endogenously returning members receive additional seniority benefits at the expense of junior members we show that in the ex ante optimal contract offering seniority benefits is beneficial for the group despite the heterogeneity in valuations created

inequality control rights and rent seeking sugar cooperatives in maharashtra this paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members the two key assumptions are constraints on lump sum transfers from poorer members and disproportionate control rights wielded by wealthier members transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings the theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity predictions concerning the effect of the distribution of local landownership on sugarcane price capacity levels and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the indian state of maharashtra over the period 1971 93

financing constraints and investment efficiency evidence from a panel of canadian forest firms this article examines the financial constraint of 18 listed canadian forest firms between 2000 and 2014 following the stochastic frontier approach empirical results support the observation that ca

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

les liaisons dangereuses a minskyan approach to the relation of credit and investment in argentina during the 1990s we classify firms according to their financial behaviour in the short term using a minskyan taxonomy that classifies firms as hedge speculative and ponzi we measure financial constraints across that taxonomy using panel data for argentina during 1992 2001 after controlling for profitability we find that firms with an oppressed financial structure in the short term had to rely on their internal funds for long term investment we interpret this finding from a minskyan keynesian framework arguing that credit allocation followed conventional rules about the quality of borrowers and not necessarily about the quality of the project because of being a highly unstable country argentinean firms quality is defined on a short term basis

does there exist a political business cycle a box tiao analysis theories of the political business cycle are by now common they range from the elegant theoretical work of nordhaus 1975 to the essentially empirical work of tufte 1978 they all assume that politicians manipulate the economy to aid their reelection efforts in particular politicians manipulate macroeconomic policy to create a boom just before election day golden and poterba 1980 provide an excellent review of this literature both tufte and nordhaus provide casual evidence for the existence of a political business cycle using inflation and unemployment rates as indicators of macroeconomic outcomes tufte and nordhaus predict at a minimum that unemployment should be decreasing before election day if presidents are really manipulating the economy very well then unemployment should be at a minimum in the october before the election and hence should be rising after the election in the nordhaus version the economy pays for the pre election boom with a post election surge in the inflation rate nordhaus also suggests that the president should engineer a recession early in his term to reduce inflationary expectations tufte 1978 20 presents graphs of the unemployment series and claims that visual examination shows them to be generally consistent with the hypothesis however he provides no statistical tests of the hypothesis nor does he estimate the quantitative impact of elections on unemployment tufte does not examine the inflation series nordhaus restricts himself to comparing unemployment rates in the two years preceeding and following an election with a simple nonparametric test supporting the hypothesis the literature provides several good empirical tests of the political business cycle hypothesis both paldam 1979 and mccallum 1978 test for the existence of four year cycles and find none however they do not test for discontinuous changes in the series around election day golden and poterba examine whether the use of policy instruments changes near election day and

no deep pockets some stylized empirical results on firms financial constraints this paper is a survey of recent empirical work on financial constraints faced by firms it is organized as a series of stylized results which mirror what is generally understood about the severity of financial constraints and the effects that they have upon firms the review of the literature shows that a financial constraints are a widespread key concern for firms hindering their ability to carry out their optimal investment and growth trajectories and b the severity of such constraints depends on institutional and firm specific characteristics as well as on the nature of investment projects

an incomplete contract perspective on public good provision abstract this paper surveys what can be learned from recent advances in the incomplete contract literature to understand how public goods are or should be provided the paper starts with a section on the full information case that presents and discusses the classical samuelson condition on the optimal provision of public goods the rest of the paper presents results under asymmetric information it is constituted of two main parts in the first one the social planner has complete contracting ability we discuss the basic setting and assumptions of this comprehensive contracting approach and study the trade offs it generates the second part of the paper is devoted to the study of contracting incompleteness such incompleteness can emerge from various sources which we present and discuss we then study the case of a politically chosen decision maker and the consequences of its inability to commit for more than one period and of the ability for individuals to form groups finally we address the problem of the choice between public and private forms of public good provision the concluding section summarizes the main policy lessons

property rights and the efficiency of bargaining we show that efficient bargaining is impossible for a wide class of economic settings and property rights these settings are characterized by i the existence of adverse efficient opt out types whose participation does not change the efficient allocation and who when they opt out are the worst type other agents can face and ii non existence of the marginal core and its multivaluedness with a positive probability we also examine the optimal allocation of property rights within a given class that satisfies i such as simple property rights liability rules and dual chooser rules we characterize property rights that minimize the expected subsidy required to implement efficiency with two agents simple property rights that are optimal in this way maximize the expected surplus at the status quo allocation but this no longer holds with more agents we also study second best budget balanced bargaining under a liability rule the optimal second best liability rule may differ from but is often close to the expectation of the victim s harm which would be optimal if there were no bargaining however liability rules that are close to a simple property right result in a lower expected surplus than the simple property right they are near

running for office again evidence from portuguese municipal elections using a data set that covers all portuguese mainland municipalities for the period 1979 2005 this study performs an empirical analysis of the economic determinants of mayors decisions to run for another term in office the literature on the subject is mainly centered on the united states and as far as we know there are no papers addressing the economic factors influencing those choices

the political theory of the business cycle two strands of recent empirical work pose a challenge for the macro theorist when brought together one is the rational expectations interpretation of the business cycle the other is the political theory of the business cycle this paper attempts a reconciliation of these two strands in a theory where national political parties have to satisfy the preference of their own supporters as well as the floating voter the implications are that party voters evaluate government performance with respect to expected inflation and output and their variances and that parties will pursue different feedback rules

financialisation institutions and financing constraints in developing countries the paper uses a consistent firm level data from the world banks enterprise surveys to explore the impact of financialisation in the economy on firms access to finance in 138 developing countries access to finance reflects survey based firms perceptions of external financing constraints financialisation is proxied by consistent cross country measures of financial depth these proxies capture separately the role of bank based versus market based financing firm sector and country level information is jointly used for the analysis firm specific characteristics and economic and non economic national factors are included as controls the results show that the proxies of financialisation are broadly robust predictors of financing constraints of firms in developing countries however the magnitude of the financialisation effect varies between bank based and market based channels of financing as well as between low and high income countries and it is influenced by social institutional and religious factors

financial liberalization and the industrial response concentration and entry in malawi it has been suggested that financial liberalization may be a key policy to promote industrialization as it removes the credit access constraint on firms especially small and medium ones we investigate the effect of credit expansion in the wake of liberalization on the structure of the industrial sectors in malawi and find that in contrast to the hypothesis above it resulted in an increase in industrial concentration and a decrease in net firm entry especially in sectors that are more finance dependent the case of malawi is interesting because financial liberalization has been justified precisely as a means for industrial development and because the implementation of the policy has been regarded as relatively successful

directed credit financial development and financial structure theory and evidence the recent initiative of the rbi in reviving the policy of directed credit allocation in a period dominated by the neoliberal philosophy necessitates reconsideration of the role of policy directed

the determinants of financing obstacles the authors use survey data on a sample of over 10 000 firms from 80 countries to assess 1 how successful a priori classifications are in distinguishing between financially constrained and unconstrained firms and 2 more generally the determinants of financing obstacles of firms they find that older larger and foreign owned firms report less financing obstacles their findings thus confirm the usefulness of size age and ownership as a priori classifications of financing constraints while they shed doubts on other classifications used in the literature their results also suggest that institutional development is the most important country characteristic explaining cross country variation in firms financing obstacles

political budget cycles the case of the western german lander this paper focuses on the issue of the electoral andideological cycles in state government budget for the elevenwestern german lander we verify this hypothesis over theperiod 1974 1994 for the following budgetary variables totalexpenditures surplus deficit administration health care education roads and social security benefits while overallour results seem to show that generally the party variabledoes not play a systematic role in spending decisions theyprovide some support to the opportunistic cycle theory showingthat the only relevant phenomenon is the effect of theupcoming election on the government spending inclinations

effects of financial liberalisation and political connection on listed chinese firms financing constraints this paper examines the impact of recent financial liberalization in china on the financing constraints of publicly listed chinese firms with and without politically connected ceo chairman two continuous indices are used to measure the evolution and intensity of financial reforms a financial liberalization index and a capital control index the results indicate that while firms without politically connected ceo chairman face significant financing constraints and politically connected firms do not financial liberalization has reduced the constraints for the former similarly lower capital control in china s equity market lessens credit constraints for non connected firms no statistically significant impact is detected with regards to firms that have ceo chairman with powerful political background

the 2007 nobel memorial prize in mechanism design theory this paper provides an overview of mechanism design theory and explains the roles played by leonid hurwicz eric maskin and roger myerson in the development of this field

workers versus firms bargaining over a firm s value we introduce a distinction between a firm and its network of workers in a competitive world if networks are easily lured away the workers must receive the entire value of their contribution to the firm how then can service firms have equity value a model is analysed in which workers are paid less as a group than their value even in a competitive world the workers are assumed to have a nonwage benefit for working at the current firm this benefit is privately known these privately known benefits make it impossible for the workers to agree on a division of their value should they leave the existing firm for a new enterprise the result is that the workers may receive a total compensation that is less than their contribution to the firm

voting suffrage and the political budget cycle evidence from the london metropolitan boroughs 1902 1937 we study the opportunistic political budget cycle in the london metropolitan boroughs between 1902 and 1937 under two different suffrage regimes taxpayer suffrage 1902 1914 and universal suffrage 1921 1937 we argue and find supporting evidence that the political budget cycle operates differently under the two types of suffrage taxpayer suffrage where the right to vote and the obligation to pay local taxes are linked encourages demands for retrenchment and the political budget cycle manifests itself in election year tax cuts and savings on administration costs universal suffrage where all adult residents can vote irrespective of their taxpayer status creates demands for productive public services and the political budget cycle manifests itself in election year hikes in capital spending and a reduction in current spending

oil field unitization contractual failure in the presence of imperfect information an empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting the case under study is the widespread failure of private crude oil producing firms to use us oil fields to reduce rent dissipation rent dissipation follows as multiple firms compete for migratory oil in common oil pools unitization is the obvious private contractual solution to rent dissipation the authors argue that despite large net gains from unitization imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares as a result contracts are often not completed or only fragmented units are completed 9 references 1 figure 4 tables

the effect of bank credit on asset prices evidence from the japanese real estate boom during the 1980s bernanke bs 2001 am econ rev v91 p253 doi 10 1257 aer 91 2 253 cargill thomas 2000 financial policy cen gerlach s 2005 j bank financ v29 p461 doi 10 1016 j jbankfin 2004 05 015 hoshi t 2000 nber macroecon annu v14 p129 hoshi t 1993 4421 nber hoshi t 2001 monetary ec studies v19 p1 hutchison m 1997 political ec japanes ito t 1996 monetary ec studies v14 p143 ito t 2004 japans lost decade o p17 kindleberger c 1978 financial crises the kitagawa h 1994 financial dev japan p81 kiyotaki n 1997 j polit econ v105 p211 doi 10 1086 262072 peek j 2000 am econ rev v90 p30 doi 10 1257 aer 90 1 30 petersen ma 2002 j financ v57 p2533 doi 10 1111 1540 6261 00505 ueda k 2000 crisis change japane p59 ueda k 1994 japanese main bank s p89 weinstein de 1998 j financ v53 p635 doi 10 1111 0022 1082 254893

rationality and the political business cycle the case of local government the empirical results which have been reported support the hypotheses implied by the model of rational political behavior set out in section 2 in pre election periods local government development expenditures deviate significantly from their normal levels the extent of deviation is approximately 20

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

corporate investment in emerging markets the role of commodity prices we examine how firm level and country specific macroeconomic variables determine corporate investment in emerging markets in particular we investigate how investment decisions are affected by changes in country specific commodity export prices using firm level data from 38 emerging markets for the period 1990 2013 we show that in addition to the standard firm level variables such as expected future profitability cash flows leverage and new debt flows commodity export prices play a significant role in driving corporate investment moreover we show that the sharp decline in commodity prices since 2011 has been a key factor explaining the sizable slowdown in private investment growth during this period especially in regions with large net commodity exporters

fiscal dynamics of local elected officials the fiscal behavior of local elected officials is examined in a dynamic model where officials maximize an intertemporal objective function in two stages officials first decide upon an optimal mix of revenue and expenditure and then minimize loss and adjustment cost functions the model is tested using data from the 20 most populated u s cities whose mayor was elected on a four year cycle the empirical results support the model fiscal behavior differs between cities and local fiscal decisions made by elected officials are in part dependent on the timing of elections

voter participation and strategic uncertainty the paradox of not voting is examined in a model where voters have uncertainty about the preferences and costs of other voters in game theoretic models of voter participation under complete information equilibrium outcomes can have substantial turnout even when voting costs are relatively high in contrast when uncertainty about preferences and costs is present only voters with negligible or negative net voting costs participate when the electorate is large

beneficiaries from federal transfers to municipalities the case of israel in this paper we have shown which variables affect the size of grants given by the government to cities in israel we have also shown that aside from demographic variables which alone account for a very large portion of the variance there is also a political residual effect where cities with mayors who are members of the in political party fared better than other cities this effect is felt mainly through the general and not the earmarked portion of the grant and was more prevalent when the likud was in power than when labor ruled

a stochastic frontier approach to modelling financial constraints in firms an application to india we propose the use of stochastic frontier approach to modelling financial constraints of firms the main advantage of the stochastic frontier approach over the stylised approaches that use pooled ols or fixed effects panel regression models is that we can not only decide whether or not the average firm is financially constrained but also estimate a measure of the degree of the constraint for each firm and for each time period and also the marginal impact of firm characteristics on this measure we then apply the stochastic frontier approach to a panel of indian manufacturing firms for the 1997 2006 period in our application we highlight and discuss the aforementioned advantages while also demonstrating that the stochastic frontier approach generates regression estimates that are consistent with the stylised intuition found in the literature on financial constraint and the wider literature on the indian credit capital market

the effect of financial liberalization on the capital structure and investment decisions of indonesian manufacturing establishments this article analyzes the consequences of financial liberalization using a large panel of indonesian manufacturing establishments it discusses whether financial reforms have had an impact on investment and on the allocation of credit and whether the effects differ depending on the type of firms the overall conclusion is that shifting from administrative toward market based allocation of credit has increased borrowing cost particularly for smaller firms but at the same time has benefited firms by giving them widened access to finance

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

partnership dissolution with interdependent values we study partnership dissolution when valuations are interdependent and only one party is informed in contrast with the case of private values cramton gibbons and klemperer 1987 in which efficient trade is feasible whenever initial shares are about equal there exists a wide class of situations in which full efficiency cannot be reached in these cases i the subsidy required to restore the first best is minimal when the entire ownership is allocated initially to one of the parties and ii ruling out external subsidies the second best welfare is maximized when one of the parties initially has full ownership

investment in segmented capital markets bankers screening devices are identified to determine firms probability of borrowing in the formal segment of the capital market in pakistan incorporating this information investment functions are estimated using a two stage switching regressions model with endogenous switching it is concluded that firms that borrow in the formal markets behave according to the flexible accelerator model of investment while non borrowing firms plough back profits furthermore the former have higher capital output ratios and find it less difficult to adjust to their desired capital stocks compared to the latter investment determinants related to entrepreneurial and firm features are also identified

public goods with ambiguity in large economies abstract we consider a canonical problem in economics the financing and provision of a public good mailath and postlewaite 1990 show that under natural information and enforcement frictions the probability of providing the public good falls to zero as the population size goes to infinity even if provision of the public good is efficient in this paper we allow agents to have multiple prior beliefs about others valuations and to make choices that reflect their aversion to that ambiguity we show that as long as each agent s set of priors contains some distribution of valuations under which provision is inefficient it is possible to find a mechanism in large economies that finances provision of the public good

international and domestic collateral constraints in a model of emerging market crises abstract we build a model of emerging markets crises which features two types of collateral constraints firms in a domestic economy have limited borrowing capacity from international investors they also have limited borrowing capacity with respect to each other we study how the presence and changes in these collateral constraints affect financial and real variables a binding international constraint in the aggregate leads to a sharp rise in interest rates and fire sales of domestic assets while limited domestic collateral can lead to wasted international collateral these two collateral constraints can interact in important ways the first is disintermediation a fire sale of domestic assets causes banks to fail in their function of reallocating resources across the economy leading to wasted international collateral the second is a dynamic effect we show that firms in an economy with limited domestic collateral and a binding international collateral constraint will not adequately precaution against adverse shocks increasing the severity of these shocks

public spending interactions and local politics empirical evidence from french municipalities this paper aims at testing whether there exist spending interactions between french municipalities by estimating a dynamic panel data model our results suggest that there are some interactions between neighbouring municipalities as regards primary and investment expenditures a positive relationship between municipalities wage bill and un employment rates is likely to stress a rise of temporary employment in those municipalities that suffer from social troubles further the estimation results show that these interdepen dences also exist between cities whose mayors have the same partisan affiliation finally our results confirm the opportunistic behaviour of local governments which increase all categories of public spending in pre electoral periods

election results and opportunistic policies a new test of the rational political business cycle model the literature on the rational pbc suggests that politicians systematically manipulate economic and fiscal conditions before elections to increase their chances of reelection most tests of this theory look for evidence of pre election distortions in fiscal policy we propose a new test that explores the two way interaction between the magnitude of the opportunistic distortion and the margin of victory the test is implemented using a large panel of portuguese municipalities the results show that opportunism leads to a larger win margin for the incumbent and that incumbents behave more opportunistically when their win margin is small these results are consistent with the theoretical model

capital market imperfections before and after financial liberalization an euler equation approach to panel data for ecuadorian firms using a large set of panel data for ecuadorian firms the authors analyze the role of capital market imperfections in investment decisions and investigate whether the financial reforms introduced in the 1980s in ecuador succeeded in relaxing financial constraints to facilitate capital accumulation and growth the ecuadorian government removed administrative controls on the interest rate and eliminated or scaled down directed credit programs the model used here allows both for an increasing cost of borrowing as the degree of leverage increases and for a ceiling on leverage the econometric results suggest that both types of capital market imperfections are important for small and young firms but not for large and old firms moreover the estimated equations do not provide evidence that financial reform in ecuador has helped to relax these financial constraints

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

financial liberalization credit constraints and collateral investment in the mexican manufacturing sector abstract we examine the impact of financial liberalization on fixed investment in mexico using establishment level data from the manufacturing sector in addition to analyzing changes in cash flow sensitivities an innovative approach explores the role of real estate as collateral and addresses a potential censoring problem the results suggest that financial constraints were eased for the smallest firms but not for larger ones however the importance of possessing real estate increased given banks reliance on collateral in their lending the results also provide microeconomic evidence consistent with the role attributed to financial accelerator mechanisms during lending booms and during post crisis recessions

overlapping political budget cycles we advance the literature on political budget cycles by testing for cycles in expenditures for elections to the legislative and the executive branches using municipal data we identify cycles independently for the two branches evaluate the effects of overlaps and account for general year effects we find sizable effects on expenditures before legislative elections and even larger effects before joint elections to the legislature and the office of mayor in the case of coincident elections we show that it is important whether the incumbent chief executive seeks reelection to account for the potential endogeneity of that decision we apply an iv approach using age and pension eligibility rules

lending constraints real estate prices and business cycles in emerging economies abstract we investigate a small open economy with constraints in both the domestic and the international credit market the informational opaqueness of the domestic market hinders foreign lenders activity so that entrepreneurs face looser borrowing constraints vis a vis domestic financiers however limited capitalization constrains domestic lenders calibrating the model to data from argentina we find that the interaction between lending and borrowing constraints is a channel through which real interest rate shocks generate fluctuations in output real estate prices and consumption external financial liberalization increases volatility and affects welfare more than domestic liberalization but also mitigates the destabilizing impact of domestic deregulation

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

public good provision with many participants for a nonexcludable public good with benefit and cost functions independent of the number of participants this paper studies second best allocations under bayesian interim incentive compatibility and interim individual rationality as the number of participants becomes large second best provision levels converge in distribution to first best levels if the latter are bounded second best provision levels become large in absolute terms but small relative to first best levels if benefit and cost functions are isoelastic in contrast for an excludable public good the ratio of second best to first best levels is bounded away from zero

investment cash flow sensitivities are useful a comment on kaplan and zingales arecent paper in this journal by kaplan and zingales reexamines a subset of erms from work of fazzari hubbard and petersen and criticizes the usefulness of investment cash eow sensitivities for detecting enancing constraints we show that the kaplan and zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique moreover we describe why their empirical classiecation system is eawed in identifying both whether erms are constrained and the relative degree of constraints across erm groups we conclude that their results do not support their conclusions about the usefulness of investment cash eow sensitivities in a recent paper in this journal kaplan and zingales 1997 hereinafter kz argue that investment cash eow sensitivities do not provide useful evidence about the presence of enancing constraints because kz use a subset of the same erms and the same regressions as fazzari hubbard and petersen 1988 hereinafter fhp and claim page 176 that fhp can legitimately be considered the parent of all papers in this literature it is appropriate that we respond based on a simple theoretical model kz reach the provocative conclusion page 211 that the investment cash eow sensitivity criterion as a measure of enancial constraints is not well grounded in theory in section i we show that the kz model does not capture the theoretical approach employed in fhp and many subsequent studies most of the kz paper attempts to show that empirical investment cash eow sensitivities do not increase monotonically with the degree of enancing constraints within the 49 low dividend erms from the fhp sample in section ii we explain why the kz classiecation of the degree of constraints is eawed in identifying both whether or not erms are constrained absolute constraints as well as the relative degree of constraints across erms as a result we argue in section iii that there is no expected ex ante pattern for the

the rate at which a simple market converges to efficiency as the number of traders increases an asymptotic result for optimal trading mechanisms private information in an independent private values market provides incentives to traders to manipulate equilibrium prices strategically this strategic behavior precludes ex post efficient market performance increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders bids and offers reveal this paper shows that the expected inefficiency of optimally designed mechanisms relative to ex post efficient allocations decreases almost quadratically as the number of traders increases

monetary policy in a financial crisis what are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis under what conditions will a cut stimulate output and employment and raise welfare under what conditions will a cut have the opposite effects we answer these questions in a general class of open economy models where a financial crisis is modeled as a time when collateral constraints are suddenly binding we find that when there are frictions in adjusting the level of output in the traded good sector and in adjusting the rate at which that output can be used in other parts of the economy then a cut in the interest rate is most likely to result in a welfare reducing fall in output and employment when these frictions are absent a cut in the interest rate improves asset positions and promotes a welfare increasing economic expansion

reduced cross border lending and financing costs of smes abstract this paper investigates how the withdrawal of banks from their cross border business impacted the borrowing costs of european firms since the crisis we combine aggregate information on total and cross border credit with firm level survey data for the period 2010 2014 we find that the decline in cross border lending led to a deterioration in the borrowing conditions of small firms in countries with more pronounced reductions in cross border credit inflows the likelihood of a rise in firms external financing costs increased this result is mainly driven by the interbank channel which plays a crucial role in transmitting shocks to the real sector across borders

efficiency of large double auctions we consider large double auctions with private values values need be neither symmetric nor independent multiple units may be owned or desired participation may be stochastic we introduce a very mild notion of a little independence we prove that all nontrivial equilibria of auctions that satisfy this notion are asymptotically efficient for any alpha 0 inefficiency disappears at rate 1 n 2 alpha