trade costs and deviations from the law of one price the link between relative prices across countries and trade costs requires a theoretical foundation that is absent in the literature to date empirical tests on the law of one price are based on an arbitrage equation which is of very limited relevance in understanding this link the application of a new set of arbitrage equations to the tin trade market yields results that are consistent with our theoretical expectations we find evidence in favor of the law of one price between the united states and japan however evidence of price discrimination is also found for the los angeles market

measuring the effects of regulation with stock price data this article examines the usefulness of stock returns in measuring the effects of regulation when the dates on which market expectations change are not known and standard sources e g the wall street journal are used to choose announcement dates twenty major changes in regulatory constraint since 1887 are considered tests using either monthly or daily data are found to have surprisingly little ability to detect the effects of regulation the evidence shows that formal regulatory announcements are generally anticipated in cases where it is unclear when expectations change

price discrimination and quality improvement this paper models quality improvements when multiple quality levels can sell owing to differences in consumers valuations of quality improvements firms can collude to price discriminate so that consumers with high valuations pay a price premium while others receive a quality level below the highest available imposing minimum quality standards or price ceilings can ensure that only the highest quality level of each product is sold such intervention reduces the quality adjusted price paid by consumers but also reduces the incentives for firms to innovate when enough consumers have high valuations such intervention must be welfare reducing owing to reduced innovation jel classification o31 l16 discrimination par les prix et amelioration de la qualite ce memoire presente un modele d amelioration de la qualite quand on peut vendre des produits a divers niveaux de qualitea cause des differences dans les evaluations d amelioration de qualite par les consommateurs les entreprises peuvent entrer en collusion pour faire de la discrimination par les prix de maniere a ce que les consommateurs qui apprecient davantage la qualite paient une prime pendant que les autres consommateurs recoivent une qualite au dessous de ce qui est la meilleure qualite disponible si on impose des normes de qualite minimale ou des plafonds aux prix on peut s assurer que seuls les produits de la plus haute qualite seront vendus de telles interventions reduisent le niveau de prix ajuste pour la qualite paye par les consommateurs mais reduisent aussi les incitations des entreprises a innover quand un nombre suffisant de consommateurs apprecient beaucoup la qualite de telles interventions peuvent reduire le niveau de bien etre a cause des innovations moins importantes

bank foreign lending mandatory disclosure rules and the reaction of bank stock prices to the mexican debt crisis this paper examines the effects of the mexican debt mora torium in august 1982 on bank valuation the mexican default resulted in the passage of regulations requiring public disclosure of bank fo reign lending exposure the authors find that even in the absence of public disclosure regulations investors were able to discriminate a mong banks with different levels of exposure copyright 1987 by the university of chicago

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

cooperation through imitation and exclusion in networks we develop a simple model to study the coevolution of interaction structures and action choices in prisoners dilemma games agents are boundedly rational and choose both actions and interaction partners via payoff biased imitation the dynamics of imitation and exclusion yields polymorphic outcomes under a wide range of parameters whenever agents hold some information beyond their interaction neighbors defectors and cooperators always coexist in disconnected components otherwise polymorphic networks can emerge with a center of cooperators and a periphery of defectors any stochastically stable state has at most two disconnected components simulations confirm our analytical results and show that the share of cooperators increases with the speed at which the network evolves increases with the radius of interaction and decreases with the radius of information

economic cosmology and the evolutionary challenge abstract the intellectual histories of economics and evolutionary biology are closely intertwined because both subjects deal with living complex evolving systems because the subject matter is similar contemporary evolutionary thought has much to offer to economics in recent decades theoretical biology has progressed faster than economics in understanding phenomena like hierarchical processes cooperative behavior and selection processes in evolutionary change this paper discusses three very old cosmologies in western thought how these play out in economic theory and how evolutionary biology can help evaluate their validity and policy relevance these cosmologies are 1 natural man as a rational self sufficient egotistical individual 2 competition among individuals can lead to a well functioning society and 3 there exists an ideal optimal state of nature these correspond to colander et al 2004 holy trinity of orthodox economics rationality greed and equilibrium it is argued below that current breakthroughs in evolutionary biology and neuroscience can help economics go beyond these simple cosmologies

specialization across varieties and north south competition analyzing a new database that makes it possible to disaggregate trade flows across many countries according to unit values we show that international specialization in terms of quality within industries and product categories plays an important role in the dynamics of north south competition the different specialization of countries at different levels of development within products and across varieties is mirrored in the recent shifts in world market shares which are very different across quality segments the south is not gaining market share in high value portions of trade pattern in this respect europe s specialization pattern appears to be different from that of the us and japan and may allow it to better resist the competitive pressure of the south lionel fontagne guillaume gaulier and soledad zignago

intellectual property rights and foreign direct investment abstract this paper develops a product cycle model with endogenous innovation imitation and foreign direct investment fdi we use this model to determine how stronger intellectual property rights ipr protection in the south affects innovation imitation and fdi we find that stronger ipr protection keeps multinationals safer from imitation but no more so than northern firms instead the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both fdi and innovation the greater resources absorbed in imitation crowd out fdi reduced fdi then transmits resource scarcity in the south back to the north and consequently contracts innovation

costly information and the evolution of self organization in a small complex economy abstract the core idea of evolution is that order in living systems emerges from a simple process of variation and selection in biological systems we usually understand the source of variation as best described by the mechanisms of genetics if human social systems are evolutionary systems however it would seem the variation that most explains the sources of change in these systems occurs not from a genetic mechanism but from individual learning we use an evolutionary computational methodology to explore the way individual learning and adaptation lead to the evolution of persistent self organized social and economic activity the basic idea behind these explorations is that the character and extent of self organizing social and economic activity depends upon the way the environment frames the costs of individual learning and adaptation we consider three different kinds of costs affecting learning and adaptation the costs of autonomous searching of communicating and of deciding individuals respond to these costs by carefully i e economically choosing to learn about and interact with familiar agents in familiar arenas in which they have relatively secure expectations about the outcome of their actions emerging from these choices are persistent relationships among agents that lead to social and economic structure and to the imperfect coordination of aggregate production the character and the extent of each are a function of the way the costs of information change with changing natural and human system conditions we use a learning classifier system lcs to model learning the logic of an lcs closely mimics the mechanisms of darwinian evolution but is applied to the evolution of an agent s decision rules we describe the environmental context necessary for an lcs to produce economizing behavior and apply the method to a multi agent simulation of the maine lobster fishery which we treat as a metaphor for competition based on the search for useful knowledge the structure and method of the model is similar to a conventional agent based model except we use lcs to evolve decision rules for each agent rather than supplying those rules ourselves this allows agents to change their behavior i e to learn and adapt as their environment changes modeling learning and adaptation as the source of behavioral variation makes it possible to use evolutionary theory to address important questions of social and economic emergence not possible with current methods

export quality and the dynamics of north south competition this paper introduces and applies a new methodology to deal with competition among exporters of vertically differentiated products the novel methodology is applied to imports of manufactured goods from japan at the most detailed level of classification it is shown that the north lost market share in direct competition with the south in all of the three product segments low medium and high and in every sub period from 1988 to 2010 except in the high segment in the 1988 91 sub period most of the north s direct loss to the south took place in the low and medium segments china accounts for most of the south s direct gains in these two segments while the rest of the developing countries of asia accounts for most of these gains in the high segment

the economics of organization the transaction cost approach the transaction cost approach to the study of economic organization regards the transaction as the basic unit of analysis and holds that an understanding of transaction cost economizing is central to the study of organizations applications of this approach require that transactions be dimensionalized and that alternative governance structures be described economizing is accomplished by assigning transactions to governance structures in a discriminating way the approach applies both to the determination of efficient boundaries as between firms and markets and to the organization of internal transactions including the design of employment relations the approach is compared and contrasted with selected parts of the organization theory literature

on the persistence of leadership or leapfrogging in international trade when two countries starting from different quality levels reflecting different conditions on domestic market demands open to trade two possible equilibria arise in the first the quality leader maintains its position in the second leapfrogging occurs however the latter is possible only if the initial quality gap is not too wide further when the risk dominance criterion is used only the former equilibrium is selected these results suggest that initial conditions such as domestic market size or home demand preferences are important factors in determining relative competitiveness of firms in international markets

a contribution to a multidimensional analysis of trade competition international trade grew substantially throughout the last decades and international relations became more important for the economic performance of the countries simultaneously new poles emerged in the international arena leading to growing competition for higher market shares therefore trade competition is a critical dimension of analysis for applied international trade studies we propose a conceptual framework for measuring this phenomenon by combining some critical previous contributions to build a multidimensional and more comprehensive concept which defines trade competition as a function of the degree of both structural similarity and total exports overlap moreover structural similarity should take into account three elements sectoral shares similarity inter sectoral similarity evaluating how different the distinct sectors are and intra sectoral similarity proximity in terms of quality ranges exported several measures are proposed to empirically capture the concept suggested finally we present an example including the exports of the three largest european economies to 122 destination markets in order to illustrate the application of the concept and the measures suggested this abstract was borrowed from another version of this item

the brady plan the 1989 mexican debt reduction agreement and bank stock returns in the united states and japan the authors investigate the impact of the menu approach to debt rescheduling on the market value of two major creditors u s and japanese banks they try to understand how major creditor banks are affected by debt reschedulings and the menu choices they make so that debt deals can be structured in a way that appeals to both creditors and debtor countries they measure the stock market s reaction to the announcement of the brady plan and the mexican debt reduction agreement the brady plan was implemented through the menu approach which acknowledges creditor heterogeneity and provides financing packages that meet the country s financing requirements while still allowing the banks to reduce their exposure the mexican agreement provides an opportunity to test the impact of the brady plan s implementation by examining individual bank s menu choices exposure levels and the market s reaction they explore whether banks were able to make optimal portfolio choices when confronted with the obligation to participate they show that stock prices for different groups of banks reacted quite differently to focal events among all banks u s multinationals showed the strongest positive reaction to the brady announcement and the mexican agreement u s non multinationals do not appear to have been significantly affected by these international debt related events the reaction experienced by all japanese banks was much weaker than that of u s multinationals and was negative for the brady announcement and the initial mexico announcement the authors contend that the lack of a strong reaction was because of the japanese banks relatively low exposure to developing country risk they see the negative market reaction as a reflection of the expectation that a u s initiated debt reduction strategy would not be favorable for japanese banks indeed after the menu choices were announced the market recognized that the japanese banks were treated fairly and corrected itself they do not find that banks that made different choices were treated differently by the market so banks were able to negotiate menu choices in their best interest and to make portfolio choices consistent with their business objectives the results here confirm that the menu approach to debt restructuring may benefit both the creditor banks and the debtor countries

heterogeneous creditors and the market value of bank ldc loan portfolios abstract a standard proposition used in many empirical studies is that the value of an ldc loan does not depend on the identity of the lender i test this proposition using bank securities prices and prices for ldc loans trading in the secondary market i find significant cross sectional differences in the sensitivity of bank stocks to changes in the price of ldc loans differences in sensitivity appear to be related to changes in bank exposure to ldcs i also find evidence consistent with the hypothesis that cds are implicitly insured

the reaction of bank stock prices to news of derivatives losses by corporate clients abstract from march through may of 1994 several large nonfinancial firms announced millions of dollars in losses from derivatives deals especially those arranged by bankers trust accompanying these announcements and related news stories were allegations that bankers trust had either misrepresented lied or deceived its clients using sur methods we investigate how these announcements affected bankers trust and three portfolios of banks dealers nondealers and nonusers our results indicate significant cumulative abnormal returns of 12 14 bankers trust 5 56 13 dealer banks and 2 45 32 nondealer user banks the evidence suggests an intra industry information transfer effect consistent with rational pricing the replacement cost of derivative contracts is an important factor in explaining the variation in abnormal returns across banks

official credits to developing countries implicit transfers to the banks this paper investigates the impact on the wealth of bank share holders on the transfer of official resources to the debtor countries the main aim was to derive actual estimates of increases in shareholder wealth following important news concerning future transfers from the multilaterals to the debtor nations the main result is that stock market expects virtually all additional resources provided to debtor countries to be used for debt service to commercial banks while the estimated magnitude of these effects are informative the emphasis should be on the direction of these effects as they are robust to overestimation problems clearly official resources provided to debtor countries do devolve to creditor banks however the debtor countries should at least gain in so far as the reduction of a debt overhang eliminates investment distortions the results stem from the fact that some of the monies provided by the multilaterals are specifically earmarked for debt service or are in the form of general balance of payments support that the developing countries can use for private debt service official creditor resources that are specially provided to finance development projects are less likely to be allocated to bank debt service

evolution as a general theoretical framework for economics and public policy abstract economic and evolutionary thinking have been entwined throughout their histories but evolutionary theory does not function as a general theoretical framework for economics and public policy as it does for the biological sciences in this lead article for a special issue of the journal of economic behavior and organization we first describe how evolution functions as a general theoretical framework in the biological sciences then we consider four reasons why evolution might not need to be consulted for human related subjects such as economics and public policy we conclude that these reasons can be valid in particular cases but they fail for any sizeable human related subject area hence evolution can and should become a general theoretical framework for economics and public policy the other articles in the special issue help to substantiate this claim

the economic effects of client losses on otc bank derivative dealers evidence from the capital market this paper investigates the economic impact of client derivatives losses on otc derivatives dealers its focus is on the capital marketers reaction to losses suffered by four end users of otc derivatives products arranged with bankers trust new york evidence is provided on the impact of these end user losses on bankers trust itself as well as whether these losses produced any systemic or contagion effects extending to other major bank otc derivatives dealers finally the paper investigates whether possible systemic effects may be associated with bank specific characteristics such as the level of derivatives exposure counterparty risk and reliance on trading income copyright 1996 by ohio state university press

do high skill immigrants trigger high quality trade this paper investigates the links between product quality and the pro trade effect of ethnic networks using a large panel on bilateral stocks of immigrants with information for 19 oecd destination countries and 177 origin countries in line with the approach of rauch and trindade we classify traded goods according to their quality level and separately estimate pro trade elasticity of ethnic networks for each subgroup we allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level our findings suggest that the trend of the pro trade effect of immigrants over quality seems to be driven by the north south specialisation across varieties for both supply and demand indeed ethnic networks mostly facilitate imports of those varieties for which their countries of origin have a comparative advantage as for exports ethnic networks are more effective in promoting exports to their homeland of those varieties for which there is relatively higher demand we show that the same trend applies to products characterised by the same degree of differentiation according to the classification proposed by rauch and given their lower liquidity constraints and advantages in human capital we find a greater impact of high skilled migrants consistent across all quality levels

the method of constant market shares analysis reconsidered constant market shares cms analyses are frequently used in applied studies of export development this paper reviews the development of the method and argues that it can be considerably improved a new version of the method is developed which in addition to the familiar cms effects also allows for the calculation of effects reflecting the ability of each country to adapt its export structure to the changes in the commodity and country composition of world imports the method is applied to a sample of 20 oecd countries for the period 1961 83

competition between brazil and other exporting countries in the us import market a new extension of constant market shares analysis this article develops a new extension of the constant market shares model attributing the gains or losses of market share of an exporter in a specific market to its competitors the method is then applied to brazil s exports of manufactured products to the us market determining from which countries and by how much brazil gained market share and to which countries brazil lost market share in the period between 1992 1999 and 2004 the bilateral gains and losses of brazil to oecd countries are shown to be related to changes in the relative unit labour costs of these countries through a two period panel data analysis