financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

field of use restrictions in licensing agreements a widely used clause in license contracts the field of use restriction four precludes licensees from operating outside of the technical field specified when a technology has several distinct applications four allow the licensor to divide up his rights and attribute them to the lowest cost producer in each field of use this can improve production efficiency with complex technologies however the boundaries of fields of use may be difficult to codify entailing a risk of licensees rights overlapping we explore how this affects the optimal license contract in a moral hazard framework where the licensor s effort determines the probability of overlap we show that depending on the contracting environment the license agreement may include output restrictions and non linear royalty schemes

finance and competition we investigate the role of financial constraints for product market competition in a general equilibrium model where firms may differ in terms of own wealth and or efficiency we find that in general the amelioration of financial constraints increases competition it lowers the lerner index of markups in financially dependent sectors even when other standard concentration indexes indicate otherwise our analysis implies that disruptions in financial markets such as the recent financial crisis may have adverse effects on competition in product markets a cost that has not been identified before does the existence of financial constraints hinder product market competition in financially dependent sectors do such constraints matter for the number and size of firms as well as for concentration indexes and markups in these markets there is a strong presumption based on the notion that financial constraints act as a barrier to entry expansion in financially dependent activities that a more developed financial system is conducive to greater product market competition surprisingly though there is no theory linking asset market development to competition and things are not better on the empirical front the empirical literature is quite meagre rajan and zingales 2003 and haber 2000 studied the effects of financial development and cetorelli and strahan 2006 and bertrand et al 2007 studied the effects of changes in the degree of competition in the banking sector on various measures of market structure and performance rajan and zingales find that financial development increases the number of firms while it has an ambiguous effect on average firm size in financially dependent industries haber compares the cotton industries in brazil and mexico during 1880 1930 a period of financial liberalisation and argues that concentration indexes decreased in particular in brazil the country that underwent the most effective financial market reform cetorelli and strahan study how market structure in non financial sectors was affected by the increase in competition lower bank concentration and looser statelevel restrictions following deregulation in state banking in the us they find that the number of firms increased average size number of employees per establishment and concentration decreased and the share of establishments in the smallest size group also increased similarly bertrand et al examine the effects of lower state intervention deregulation in the french banking industry on performance and competition in financially dependent sectors they find an increase in firm entry and exit rates and also a reduction in the level of product market concentration the theoretical literature on finance and product market competition is quite extensive but at the same time quite narrow in scope it has two key features first it is

collusion and the banking structure of a duopoly the author shows that in credit relationships the choice of a lender may become a determinant of the extent of competition in downstream industries in the presence of imperfect output markets and asymmetric information in financial markets members of an industry may achieve a partial collusion in the output market by borrowing from the same bank in an oligopoly debt is procompetitive as it gives incentives to the borrowing firm to undertake an aggressive output strategy as both firms borrow the industry becomes more competitive and riskier the firms debt value is decreased a common lender can better control these incentive effects and hence limit the extent of competition in the output market

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

on the distribution and dynamics of health care costs using data from the health and retirement survey and the assets and health dynamics of the oldest old survey we estimate the stochastic process that determines both the distribution and dynamics of health care costs we find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent ar 1 process we also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs simulating this model we find that in any given year 0 1 of households receive a health cost shock with a present value of at least 125 000 copyright 2004 john wiley sons ltd

industrial loans and market structure abstract based on the observation that financing is one of the main obstacles to create new firms this paper deals with the interactions between the market structure of both the banking sector and the borrowing industries we consider that firms installation costs are financed by means of industrial loans from specialized banks with endogenous entry in banking activity as well as in the borrowing industry we find that a natural oligopoly emerges in both sectors if the entry cost in the industrial sector is small enough relative to the banks entry cost

financial signalling and the deep pocket argument this article provides a formal representation of telser s 1966 deep pocket argument by considering a model in which the entrant s and the incumbent s financial structures are endogenous the entrant s financial vulnerability may be explained by informational asymmetries in financial markets financiers are uncertain of the entrant s true value but they know the incumbent s true worth both firms have to finance a fixed expenditure before starting production in equilibrium the incumbent finances with equity while the high value entrant comes into the market heavily leveraged compared with the incumbent this provides an incentive for the incumbent to engage in predatory practices such as a price war to exhaust the entrant financially and cause his bankruptcy

what is considered development economics commonalities and differences in university courses around the developing world we use a combination of surveys of instructors and data from course syllabi to examine how the subject of development economics is taught at the undergraduate and master s level in over 200 courses

finance firm size and growth the authors examine whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth they define an industry s technological firm size as the firm size implied by industrial specific production technologies including capital intensities and scale economies using cross industry cross country data the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms this suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications

anticompetitive financial contracting the design of financial claims this paper presents the first model where entry deterrence takes place through financial rather than product market channels in standard models of the interaction between product and financial markets a firm s use of financial instruments deters entry by affecting product market behavior whereas in our model entry deterrence occurs by affecting the credit market behavior of investors towards entrant firms we find that in order to deter entry the claims held on incumbent firms should be sufficiently risky i e equity in contrast to the standard branderlewis 1986 result that debt deters entry the model sheds light on the policy debate on the separation of banking as to whether banks should be permitted to hold equity in firms it also provides an explanation for why venture capitalists hold automatically convertible securities in start up firms

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

endogenous firm efficiency in a cournot principal agent model abstract in a market of cournot firms managed by agents the degree of firm efficiency is inversely related o the number of firms in the market journal of economic literature classification numbers l22 d23 d43

what s the big idea the third generation of policies for economic growth economists and reform minded policymakers in latin america are asking themselves and are being asked hard questions these days the broad consensus is that two decades of reform have had too little toshow for it sporadic and sputtering economic growth and stagnant real wages especially for the unskilled is not what was expected this paper puts the latin american experience in the global context and examines the processes that brought the region to this point we look at the trends in policy advice on economic growth and how they were formed and we address the question of what economists can do now to help the region move in restoring economic growth

the commitment value of the debt a reappraisal abstract we analyze the strategic use of the debt in a duopoly model of cournot competition we consider a two stage model where debt acts as a commitment variable and we characterize subgame perfect equilibria we differ from several models based on the strategic value of the debt such as wanzenried wanzenried g 2003 capital structure decisions and output market competition under demand uncertainty international journal of industrial organization 21 171 200 in showing that if one assumes that the debt level acts as a commitment device it is incorrect to consider bankruptcy risk as a strategic variable we demonstrate properties concerning the influence of price volatility and product differentiation upon equilibrium values of production default risk and debt obligation

stage financing and the role of convertible securities venture capital financing is characterized by extensive use of convertible securities and stage financing in a model where a venture capitalist provides staged financing for a project we illustrate an advantage of convertible debt or warrants over a mixture of debt and equity essentially when the venture capitalist retains the option to abandon the project the entrepreneur has an incentive to engage in window dressing and bias positively the short term performance of the project reducing the probability that it will be liquidated an appropriately designed convertible security prevents such behaviour because window dressing also increases the probability that the venture capitalist will exercise the conversion option becoming the owner of a substantial fraction of the project s equity

durable goods monopoly with incomplete information this article reconsiders the durable goods monopoly problem when the monopolist s marginal cost is private information we show that the coase conjecture implies the no trade theorem in any equilibrium in which the lowest cost seller s initial offer approaches her marginal cost the aggregate probability of trade must vanish however we also construct non coasean equilibria which approximate the unique outcome of the rental version of the same model these stationary equilibria are comparatively efficient the results are equally applicable to the mathematically equivalent problem of sequential bargaining with two sided incomplete information where one party makes all the offers what are the consequences of monopoly in a market for a durable good present day understanding of this question divides into two strands of thought first the monopolist may effectively lack any ability to credibly precommit on her future output under this scenario the price will drop almost instantaneously to marginal cost apparently yielding the efficient outcome normally associated with perfect competition 1 second the monopolist may possess an explicit e g leasing the good rather than selling2 or implicit e g the maintenance of reputation3 device enabling her to adhere to an output restriction under such circumstances price will be maintained at a non competitively high level suggesting an outcome fraught with all the inefficiency of classical monopoly the conclusions of the first paragraph rest on analysis of a standard model in which the monopolist s payoff function is taken to be common knowledge a single firm with known constant marginal cost sells an infinitely durable good to consumers with a known distribution of valuations for the good 4 the firm has the ability to revise its posted price

public insurance and private savings who is affected and by how much this paper employs a recently developed instrumental quantile regression method to investigate the effect of medicaid on household savings across different wealth groups it finds that the disincentive effect of medicaid on household savings is heavily concentrated in the middle net worth households in contrast the effects on the bottom and top net worth households are quite small and insignificant these heterogeneous incentive effects are partly explained by medicaid asset tests our findings hold regardless of whether affluence is measured in terms of wealth or income they suggest that despite generating substantial crowd out for the mean household medicaid expansions are unlikely to discourage the savings of the poorest households copyright 2008 john wiley sons ltd

is lack of funds the main obstacle to growth ebrd s experience with small and medium sized businesses in central and eastern europe abstract small and medium sized enterprises smes potentially constitute the most dynamic firms in an emerging economy they are the ones most likely to move into areas of comparative advantage and high value added though they often face economic institutional and legal obstacles obstacles include limited access to working capital and long term credit legal and regulatory restrictions inadequate infrastructure high transaction costs and limited managerial and technical expertise despite the presence of multiple and often interrelated constraints however the widespread belief on which policies to support smes are based is that the lack of finance constitutes the main obstacle to the growth of smes enterprise survey work is the tool generally used to deepen our understanding of constraints affecting smes formation and growth the european bank for reconstruction and development ebrd is no exception in this respect during its early years it drew substantially on a set of enterprise surveys conducted by the world bank between 1991 and 1993 in hungary the czech and slovak federal republic csfr poland and russia investigating the obstacles faced by smes as the volume and geographical spread of its operations increased the ebrd felt the need to design and run its own surveys effectively addressing specific issues encountered in the context of its increasing lending and investment activity in central and eastern europe cee the findings of this analysis confirmed the belief that credit constraints constitute one of the main obstacles to growth of smes and encouraged the ebrd to tailor its financing instruments to the stage of transition of the country in question and the ability of the local financial system to assume key responsibilities this paper analyzes the way in which the ebrd strives to correct this capital market failure in the region in which it operates the fundamental principles on which ebrd policy is based are a preference for reaching the smes via local financial intermediaries a commercial approach to the provision of finance and finally a focus on development of the local financial system as a whole it is still too early to draw conclusions on ebrd activity in the field of smes financing based on other types of indicators than data on volume of signed commitments a large part of the loans is still in the grace period therefore investments are in an early phase and operation performance evaluation reports on this type of operations are still too few aggregate data on volume of ebrd financing through financial intermediaries paint an encouraging picture a 250 increase in the volume of such operations between 1994 and 1997 a nine fold increase in the number of subprojects between 1995 and 1997 and an ever widening geographical spread of activities and decreasing size of subprojects indicate that the experience of the ebrd in financing through financial intermediaries is on the whole positive financing provided to intermediaries is not necessarily always intended nor guaranteed to reach smes it is however guaranteed to create the appropriate financing channels which are necessary to ease the smes liquidity constraint this paper discusses the shortcomings of the financial system in the cee countries it outlines the ebrd policy to support smes and the various instruments employed so far and presents selected case studies to throw light on how good project design can help overcome difficult environments and lower the perception of risk connected to indigenous smes a summary of the findings of the survey work conducted by the ebrd in the region is also presented

capital market imperfections and countercyclical markups theory and evidence during recessions output prices seem to rise relative to wages and raw material prices one explanation is that imperfectly competitive firms compete less aggressively during recessions that is markups of price over marginal cost are countercyclical the authors present a model of countercyclical markups based on capital market imperfections during recessions liquidity constrained firms boost short run profits by raising prices to cut their investments in market share the authors provide evidence from the supermarket industry in support of this theory during regional and macroeconomic recessions more financially constrained supermarket chains raise their prices relative to less financially constrained chains copyright 1996 by american economic association

financing and advising optimal financial contracts with venture capitalists this paper analyses the joint provision of effort by an entrepreneur and by an advisor to improve the productivity of an investment project without moral hazard it is optimal that both exert effort with moral hazard if the entrepreneur s effort is more efficient less costly than the advisor s effort the latter is not hired if she does not provide funds outside financing arises endogenously this explains why investors like venture capitalists are value enhancing the level of outside financing determines whether common stocks or convertible bonds should be issued in response to incentives

early stage financing and firm growth in new industries this paper shows that active investors such as venture capitalists can affect the speed at which new ventures grow in the absence of product market competition new ventures financed by active investors grow faster initially though in the long run those financed by passive investors are able to catch up by contrast in a competitive product market new ventures financed by active investors may prey on rivals that are financed by passive investors by strategically overinvesting early on resulting in long run differences in investment profits and firm growth the value of active investors is greater in highly competitive industries as well as in industries with learning curves economies of scope and network effects as is typical for many new economy industries for such industries our model predicts that start ups with access to venture capital may dominate their industry peers in the long run

self command in practice in policy and in a theory of rational choice an increasingly familiar occurrence for obstetricians is being asked by patients to withhold anesthesia during delivery the physician often proposes that a facemask be put beside the patient who may inhale nitrous oxide as she needs it but some determined patients ask that no such opportunity be provided if gas is available they will use it and they want not to be able to the request is interesting for decision theory and raises questions of ethics policy and physician responsibility even if the woman is merely making a mistake if she simply does not know how painful labor will be and how glad she will be even in retrospect if the pain is relieved but some women who make this request have had earlier deliveries during which they demanded anesthesia and received it they are acquainted with the pain they anticipate asking for relief and they want it withheld when they do they expect to regret afterwards any recourse to anesthesia this particular instance of attempted selfdenial has features that are special but many that are common the woman is so far as we know in good health physically and mentally she anticipates a transient period when her usual values and preferences will be suspended or inaccessible she has reasons for wanting to frustrate her own wishes at the critical time she needs cooperation she may ratify her choice afterward by expressing herself grateful that no anesthesia was offered even when requested there are ethical dilemmas and legal issues and there is conflict if say the husband disagrees with the physician in the delivery room about what his wife really wants

investment bank reputation information production and financial intermediation we model reputation acquisition by investment banks in the equity market entrepreneurs sell shares in an asymmetrically informed equity market either directly or using an investment bank investment banks who interact repeatedly with the equity market evaluate entrepreneurs projects and report to investors in return for a fee setting strict evaluation standards unobservable to investors is costly for investment banks inducing moral hazard investment banks credibility therefore depends on their equity marketing history investment banks evaluation standards their reputations underwriter compensation the market value of equity sold and entrepreneurs choice between underwritten and nonunderwritten equity issues emerge endogenously

information sales and insider trading with long lived information fundamental information resembles in many respects a durable good hence the eects of its incorporation into stock prices depend on who is the agent controlling its flow similarly to a durable goods monopolist a monopolistic analyst selling information intertemporally competes against herself this forces her to partially relinquish control over the information flow to traders conversely an insider solves the intertemporal competition problem through vertical integration thus exerting a tighter control over the flow of information comparing market patterns i show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades

capital market myopia abstract the purpose in writing this article is to focus attention on a phenomenon we call capital market myopia a situation in which participants in the capital markets ignore the logical implications of their individual investment decisions viewed in isolation each decision seems to make sense when taken together however they are a prescription for disaster capital market myopia leads to overfunding of industries and unsustainable levels of valuation in the stock market we use the winchester disk drive industry to elucidate the phenomenon we argue that capital market participants should have seen the problem coming they should have known that valuation levels were absurd based in large part on the greater fool theory the data necessary to anticipate the problem were readily available before the industry shakeout began and stock prices collapsed there are several lessons which we believe can be learned by careful examination of the disk drive experience in the period under study these include taking the broad view of the industry is the key to profitable investment the investment mania visited on the hard disk industry contained inherent assumptions about long run industry size and profitability and about the future growth profitability and access to capital for each individual company these assumptions had they been stated explicitly would not have been acceptable to the rational investor certainly there are valuations which arise which cannot be justified under any circumstance these are the times for the manager to raise money from the public capital markets those managers who took advantage of unsustainable valuation levels now have a chance to survive the shakeout growth is not equivalent to profitability the high growth rate in the industry made it the focus of considerable managerial investor and technological attention the industry attracted so many resources that the growth had high probability of being unprofitable excesses in the capital market turned an opportunity into a disaster profits for some are not equivalent to a good business many players made high profits by investing in the hard disk drive business including the investment bankers and certain of the venture capital groups which invested early enough to catch the wave of euphoria in the stock market and still sell under rule 144 many others rode the cycle up and down without liquidity for many buyers of disk drive stocks in 1983 losses were massive short term successes of some gave the illusion of long term profitability for all investors should not be fooled by such invevitably ephemeral successes market instability can be all bad news very rapid change often creates entrepreneurial opportunity it also creates risk analysis of the hard disk drive industry reveals the dark side of rapid technological evolution and of customer instability early players are often preempted by changes in technology and in customer needs early birds are not always winners in product markets but late comers are almost always losers recognizing the chain one of the more important lessons to be learned from the tale of the disk drive industry is that all players entreprenuers venture capitalists investment bankers industry analysts and investors must recognize the chains involved in such a process first there was a technological chain a series of bets on technological advances in disk drive components disk drive designs and end user designs then there was a financial chain a series of related bets on the internal financial health of each player in the technological chain and on the nature of access to capital in the private and public markets the likelihood that any player in the disk drive industry would prosper without a serious setback due to a weak link was effectively zero indeed weaknesses in the chain were created by exactly the same people whose financial success depended on an unbroken series of favorable outcomes during this same period the public capital markets were also a large supplier of funds to the disk drive industry the total amount of money raised in public offerings of common stocks for participants in the industry was over 800 million during the middle part of 1983 the capital markets assigned a value in excess of 5 billion to 12 publicly traded venture capital backed hard disk drive manufacturers the strong market valuation of these companies paralleled the boom in other high technology stocks and rising valuation levels in the stock market in general table 2 contains data on stock prices and valuation levels for some disk drive manufacturers and table 3 provides general data on the economy and capital markets

national health insurance and precautionary saving evidence from taiwan abstract by reducing uncertainty about future medical expenses comprehensive health insurance can reduce households precautionary saving we examine this effect using taiwan micro data spanning the 1995 introduction of national health insurance the effects of national health insurance are identified using employment based variation in prior insurance coverage replacement of the households prior insurance coverage with national health insurance is exogenous to the household so our estimates are not subject to selection bias compared with the preceding government insurance programs national health insurance reduced saving by an average of 8 6 13 7 with the largest effects for households with the smallest saving

credit and efficiency in centralized and decentralized economies we study a credit model where because of adverse selection unprofitable projects may nevertheless be financed indeed they may continue to be financed even when shown to be low quality if sunk costs have already been incurred we show that credit decentralization offers a way for creditors to commit not to refinance such projects thereby discouraging entrepreneurs from undertaking them initially thus decentralization provides financial discipline nevertheless we argue that it puts too high a premium on short term returns the model seems pertinent to two issues soft budget constraint problems in centralized economies and differences between anglo saxon and german japanese financing practices

the strategic impact of resource flexibility in business groups we show that in business groups with efficient internal capital markets resources may be channelled to either more or less profitable units depending on the amount of internal resources a group may exit a market in response to increased competition or channel funds to the subsidiary operating in that market this has important implications for the strategic impact of group membership affiliation to a monopolistic subsidiary can make a cash rich poor firm more less vulnerable to entry deterrence also resource flexibility within a group makes subsidiaries reaction functions flatter thus discouraging rivals strategic commitments when entry is accommodated

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

dominance and competition we propose and test two possible explanations of envy and its opposite gloating one explanation views them as a learning process just as regret and rejoice are in the private domain envy is the social correspondent of regret the other explanation traces envy back to the natural tendency of individuals to seek higher positions in the social ranking that is a dominant position a tendency with very strong evolutionary motives we show experimentally that these two functional reasons for envy coexist competition is the product of the desire for dominance rather than the artificial output of social arrangements jel d12 d87

credit market competition and the gender gap in labor force participation evidence from local markets abstract we exploit the exogenous variation in regional credit market competition brought on by banking deregulation to study the evolution of the gender gap in labor force participation in local us markets we find that intrastate deregulation increased substantially female labor force participation rates owing to three separate mechanisms an increase in the rates of net job creation by private firms an expansion of services producing sectors and an increase in the share of jobs requiring female specific skills this effect is robust to controlling for a range of socio economic developments as well as for a us wide gender specific trend overall intrastate deregulation reduced the gender gap in labor force participation by at least 7 5

patents vs trade secrets knowledge licensing and spillover we develop a model of two stage cumulative research and development rd yet the contracting parties choose the closed sale whenever the interim knowledge is more valuable and leakage is sufficiently high if the extent of leakage is lower more rus choose open sales generating a nonmonotonic relationship between the strength of intellectual property rights and aggregate r d expenditures and the overall likelihood of development by either du jel d23 o32 o34

a signal jamming theory of predation we propose a new theory ofpredation based on signal jamming in our model the predator s characteristics are common knowledge while the entrant is uncertain of his own future profitability the entrant uses his current profit to decide whether to remain in the market and the predator preys to jam or interfere with this inference problem thus our model differs from those based on reputation effects in which the predator preys to signal information about himself

optimal leverage and aggregate investment we analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures optimal financial contracts can be implemented by a combination of debt and equity when the risk shifting problem is the most severe while stock options are also needed when the effort problem is the most severe worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level moreover aggregate leverage decreases with the risk shifting problem and increases with the effort problem

does means testing welfare discourage saving evidence from a change in afdc policy in the united states abstract this paper provides empirical evidence on the impact of a welfare program s asset test on the saving behavior of its target population the approach exploits a policy experiment the essential federalization of the afdc program s asset testing policy in 1981 data on female headed households from the national longitudinal survey young women are used to test the hypothesis that likely afdc users adjusted their asset stocks in response to this change the findings indicate additional saving between 1978 and 1983 of about 25 cents for each additional 1 increase in the limit in most states

a theory of banks industry expertise market power and credit risk the author analyzes banks incentives to acquire expertise in judging the creditworthiness of borrowers in an industry with uncertain business conditions the analysis shows that industry expertise enables banks to extract rents proportional to their exposure to industry specific credit risk this exposure is in turn determined by the number of banks aiming to focus on lending to an industry in equilibrium the industry receives funding from a limited number of banks with industry expertise as well as from a competitive fringe of financiers without such expertise the equilibrium yields testable predictions about the concentration of bank lending to an industry and about the correlation between this concentration and the recovery rates default rates and interest rates of bank loans

heterogeneity of the effects of health insurance on household savings evidence from rural china summary we estimate the impact of the new cooperative medical scheme ncms on household savings by income quartiles in rural china we control for endogenous ncms participation with an instrumental variable strategy using the china health and nutrition survey we find that ncms has a negative impact on middle income savings but does not affect the poorest participants ncms also decreases richest participants savings when they do not benefit from other health programs thus the implementation of a health care scheme appears to be an appropriate tool to lower savings and boost consumption and so sustain economic growth

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

noncooperative collusion in durable goods oligopoly coase conjectured that a durable goods monopolist who can make offers to sell arbitrarily frequently will lose the ability to extract positive profits this result which has now been proved can be attributed to the inability of the monopolist to commit to maintaining sufficiently high prices in the near future for the case of durable goods oligopoly we show that letting the firms make offers arbitrarily frequently enhances their ability to commit to high prices and in the limit enables the firms to enjoy total market profits equal to the full commitment one shot monopoly profit

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

the effects of 401 k participation on the wealth distribution an instrumental quantile regression analysis we use instrumental quantile regression approach to examine the effects of 401 k plans on wealth using data from the survey of income and program participation using 401 k eligibility as an inst

do welfare asset limits affect household saving evidence from welfare reform we use data from the panel study of income dynamics to estimate the effect of new saving incentives implemented as part of the 1996 welfare reform on household saving economic theory predicts that loosening asset limits will increase total savings for households with a large ex ante probability of welfare receipt such as female headed households with children we follow a sample of female heads with children and find that in both absolute terms and relative to comparison groups of male heads and female heads without children there has been no effect of welfare policy changes on the saving of at risk households

explaining the wealth holdings of different cohorts productivity growth and social security in this paper we explore the reasons why different generations accumulate different amounts of wealth we use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth the first one represents productivity differences across cohorts the aggregate level of gross national product per capita around the time the head of the household entered the labor market the second measure summarizes the changes in social security during the head of household s working life using panel data from the dutch socio economic panel we show that productivity growth can explain all the cohort effects present in income data while productivity growth and the generosity of social security can explain all the cohort effects present in household net worth we also find a limited offset of social security on wealth holdings

health insurance eligibility utilization of medical care and child health two economists applied data from the current population survey and the national health interview survey and state level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of medicaid eligibility on low income children the models took into consideration the recent expansions of medicaid to low income children 38 of those ineligible for medicaid in 1984 who became eligible due to changes during 1984 1992 were uninsured between 1984 and 1992 expansions of the medicaid program increased the proportion of children eligible for medicaid almost two fold 16 1 vs 31 2 yet coverage rates were always lower than eligibility rates 13 2 vs 16 1 in 1984 and 20 3 vs 31 2 in 1992 and the increase in coverage rates was only about 50 of the increase in eligibility rates during 1984 1992 the probability that a child was eligible for medicaid increased the probability of health insurance coverage by 29 77 when the model considered bias in variables e g a recession in a state the take up rate was only 22 73 nevertheless medicaid markedly increased use of medical care for example eligibility for medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50 it also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to medicaid enrollees medicaid eligibility had a significant effect on reducing child mortality the 15 1 percentage point increase in eligibility during 1984 1992 reduced child mortality by 4 5 when the researchers examined parent assessed subjective health measures medicaid eligibility had no effect on child health medicaid eligibility reduced race and education based disparities in the number of visits and racial differences in mortality yet it may actually intensify current disparities in health care delivery site

optimal design of securities under asymmetric information a firm must decide what security to sell to raise external capital to finance a profitable investment opportunity there is ex ante asymmetry of information regarding the probability distribution of cash flow generated by the investment in this setting we derive necessary and sufficient conditions for a security to be optimal uniquely optimal that is for pooling at this security to be an the unique equilibrium outcome using these conditions we show that the debt contract is uniquely optimal if and only if cash flows are ordered by strict conditional stochastic dominance finally we derive an equivalence relationship between optimal security designs and designs that minimize mispricing