market triggered changes in capital structure equilibrium price dynamics we analyze the internal consistency of using the market price of a firm s equity to trigger a contractual change in the firm s capital structure given that the value of the equity itself depends on the firm s capital structure of particular interest is the case of contingent capital for banks in the form of debt that converts to equity when conversion is triggered by a decline in the bank s stock price we analyze the problem of existence and uniqueness of equilibrium values for a firm s liabilities in this context meaning values consistent with a market price trigger discrete time dynamics allow multiple equilibria in contrast we show that the possibility of multiple equilibria can largely be ruled out in continuous time where the price of the triggering security adjusts in anticipation of breaching the trigger our main condition for existence of an equilibrium requires that the consequences of triggering a conversion be consistent with the direction in which the trigger is crossed for the design of contingent capital with a stock price trigger this condition may be interpreted to mean that conversion should be disadvantageous to shareholders and it is satisfied by setting the trigger sufficiently high uniqueness follows provided the trigger is sufficiently accessible by all candidate equilibria we illustrate precise formulations of these conditions with a variety of applications

do employees sickness absences react to a change in costs for firms evidence from a natural experiment we analyse the impact of a social security reform that changed the costs incurred by firms due to sickness absences the reform abolished a compulsory insurance for firms which insured them against the wages paid to sick blue collar workers during the first year after its introduction we estimate that the reform resulted in about 6 3 percent fewer sickness absences and in about 8 6 percent fewer absence days we do not find evidence for changes in hiring or firing and we find only limited workforce composition changes we do not find spillover effects on the absences of white collar workers robustness checks confirm these results

boom and bust cycles external imbalances and the real exchange rate when the current account balance and net capital outflows do not exactly offset each other international payment flows arise payment flows into a country push the real exchange rate up payment outflows push it down this article uses a model of optimal consumption and portfolio choice to determine the factors that drive international payment flows during boom and bust cycles it shows that during such episodes capital inflows first exceed the deficit on current account strengthening the currency later on when the return on domestic capital reverts to its normal level the current account recovers yet the overall decline of the net foreign asset position provokes a fall of the real exchange rate even below its initial level case studies of countries experiencing rapid economic expansions followed by economic and financial meltdowns confirm the article s theoretical predictions

crises and exchange rate regimes time to break down the bipolar view we revisit the link between crises and exchange rate regimes err using a panel of 90 developed and developing countries over the period 1980 2009 we find that corner err are not more prone to crises compared to intermediate err this finding holds for different types of crises banking currency and debt and is robust to a wide set of alternative specifications consequently we clearly break down the traditional bipolar view countries that aim at preventing crisis episodes should focus less on the choice of the err and instead implement sound structural macroeconomic policies

payment schemes and gender in germany the authors estimate the determinants of five types of variable payment schemes using panel data on german establishments in 1994 and 1996 women were disproportionately included in schemes based on individual productivity and on profit sharing but not in those based on work group productivity this pattern seems inconsistent with the claim that women are sorted due to their shorter expected tenure instead the authors argue the critical issue may be that women have a greater need for flexibility between work and home than men do collective bargaining coverage and other industrial relations variables are shown to be influential determinants interacting with gender

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

collusion and overlending i introduction for a long time have korean companies been engaged in unbridled expansionism financed through loans inefficient octopus style management and over and duplicate investment thus expediting the structural failure of the economy this failure to concentrate on profits consolidation and efficiency provided the fuse to the bankruptcy bombs that triggered the foreign exchange and economic crises the collusion between the conglomerates financial sector and politicians made this financial monopoly possible chosun ilbo december 26 1997 collusion and overlending in the korean financial sector may be best illustrated by the above editorial highlight of chosun ilbo the most read newspaper in korea its 1997 financial crisis is primarily triggered by continual bankruptcies of chaebols conglomerates which with assistance from politicians had borrowed heavily from financial institutions in financing their investment projects 1 unlike some other asian countries experiencing problems in their financial sector due to shifts in investment projects toward real estates such as japan hong kong and thailand chaebols in korea concentrated mostly on manufacturing activities 2 in this study we establish a tractable model of overlending with three key players namely chaebols financial institutions and politicians as highlighted in chosun ilbo the model is designed to achieve two primary goals that are crucial for matching some key observations during the korean turmoil first we illustrate how overlending can be an equilibrium outcome with collusion between chaebols and politicians when the economic environment is favorable this occurs despite that such a collusion distorts normal borrowing lending operation by causing a discernible shift in loan composition from more to less productive investment projects second we show that as the economic environment gradually deteriorates there can be a shift from a collusion to a no collusion equilibrium the combination of deterioration in fundamentals and expectations of an equilibrium shift can trigger economy wide financial crisis more specifically we construct a simple principal supervisor agent model of corruption and overlending the principal is the formal authority of loan decision making of a financial institution or in short the financial institution the supervisor is a politician who serves as the informational intermediary in the borrowing lending arrangement via his her connections and networking 3 the agent is a chaebol of an unknown type which seeks for external financing of a set of risky projects a politician s favorable signal about the borrowing chaebol s overall performance would grant the approval of the loan to finance an array of risky projects whose returns depend on idiosyncratic shocks that cannot be washed out in aggregation within the chaebol as an outside alternative to making the loan the financial institution can invest in the world capital market where a fixed rate of return is guaranteed this portfolio decision depends on a comparison of the expected average returns on the given set of risky projects with the safe returns on investments in the world capital market while both the chaebol s type and the state of nature are unobservable to the financial institution we for simplicity assume that politician s connections and networking can fully uncover the true type of the chaebol this valuable information possessed by the politician is one that the financial institution has an incentive to purchase but a low type chaebol has an incentive to conceal whether the politician ends up revealing truthfully this information depends on how much to obtain from the lender in terms of general support versus how much to gain from the borrower in terms of bribes or side payments when a low type chaebol has the politician on its side information is distorted and a collusion equilibrium arises

assets and liabilities and scottish independence scottish independence implies an economic future that is different from remaining in the united kingdom the economic debate largely comes down to whether this would leave scots better or worse off by most measures scotland s current economic standing is very similar to that of an average uk region output per head income and unemployment are almost all exactly the same as the average uk region this is not surprising given the economic and social integration and shared institutions and is consistent with the idea of conditional convergence this suggests that after controlling for differences in institutions and other characteristics so called initial conditions countries tend to converge to similar levels of income 1 however if scotland becomes an independent nation some of the shared uk assets liabilities and institutions would need to be divided up this would change the initial conditions for scotland and the rest of the uk and therefore we would be likely to see a different economic future for both regions see barro and sala i martin 1991

breaking into tradables urban form and urban function in a developing city many cities in developing economies particularly in africa are experiencing urbanization without industrialization this paper conceptualizes this in a framework in which a city can produce non tradable goods and if it is sufficiently competitive also internationally tradable goods potentially subject to increasing returns to scale a city is unlikely to produce tradables if it faces high urban and hinterland demand for non tradables or high costs of urban infrastructure and construction the paper shows that if there are increasing returns in tradable production there may be multiple equilibria the same initial conditions can support dichotomous outcomes with cities either in a low level non tradable only equilibrium or diversified in tradable and non tradable production the paper demonstrates the importance of history and expectations in determining outcomes essentially a city can be built in a manner that makes it difficult to attract tradable production this situation might be a consequence of low and self fulfilling expectations or history the predictions of the model are consistent with several observed features of african cities

the politics of speculative attacks in industrial democracies recent models of speculative currency crises contend that market expectations of policy behavior can trigger a speculative attack we argue that political processes and partisan objectives inform expectations about the government s commitment to the exchange rate first market actors anticipate periods when the partisan identity of a government may change through an election or a cabinet collapse second party labels provide information to currency traders about the policy objectives of a potential government consequently we contend that the probability of a speculative attack will be higher when markets expect the cabinet to end and when the cabinet dissolution is likely to produce a leftward shift in policy a discrete timesurvival model is used to estimate the probability that a cabinet will dissolve in any given month for sixteen parliamentary democracies from 1970 to 1995 the predicted values are then used as a proxy for market expectations in a model of speculative currency crises

seigniorage revenue deficits and self fulfilling currency crises abstract this paper examines potential resolutions to the conflict between a fixed exchange rate and seigniorage revenue requirement of a stylized developing economy that gives rise to a currency crisis the government has an informational advantage and can decide when it is optimal to invoke an escape clause i e to drop the peg and float speculators must guess when the crisis will happen based on their assessment of the probability of collapse and this makes pegged exchange rate equilibria unstable

absenteeism as a mechanism for approaching an optimal labor market equilibrium an empirical study this research examines absence as a response to a non optimal labor market equilibrium its basic premise is that workers may be using absenteeism to move themselves closer to an optimal equilibrium in situations where due to greater than desiredwork hours the workers marginal rate of substitution of income for leisure mrs is less than the wage rate for the last hour worked this notion is tested for a sample of workers using tobit analysis with individual data from company records on absence and wages and an empirical measure of each worker s mrs the results indicate a significant positive relationship between absence and the difference between a worker s mrs and wage

buying and selling attacks on fixed exchange rate systems abstract in this paper we show how rational expectations models of speculative attacks on fixed exchange rate systems can be extended to take into account the possibility that the central bank could be forced to either devalue or revalue essential to the analysis are the concepts of buying attack and selling attack by means of which we were able to describe how expectations about the future exchange rate are formed we also provide a discussion on the problem of uniqueness of the equilibrium that may arise in this kind of speculative attack models

a theory of expropriation and deviations from perfect capital mobility there are many reasons why commodity trade fails to equate the rewards to factors of production in different countries consequently there is an incentive for factor movements between countries while movements of factors especially capital are important in the world economy they have not been sufficient to equate factor returns among countries the failure of capital flows to equate returns to capital is frequently attributed to political risks and left outside the sphere of economic analysis specifically investments abroad especially in ldc s are said to be more subject to the risk of expropriation or at least to unpredictable changes in the tax and exchange control regime adopted by the host country fears of foreign investors have often been realised williams i975 estimates that about 20 of the value of foreign investments carried into or made during i956 72 in ldc s was expropriated without compensation in this period in the past researchers in disciplines other than economics have been responsible for most of the analysis of expropriations we argue that an important set of economic considerations affect the nature of these impediments to capital mobility and this paper provides a theory of expropriation based on maximising behaviour by host countries and investors we use this theory to identify industry and national characteristics increasing the threat of expropriation and implying large deviations from equal returns on capital and to examine host country and home country policies minimising distortions from the threat of expropriation three broad conclusions follow from the analysis first the threat of expropriation can significantly distort the international allocation of capital even if the act of expropriation is relatively rare in the extreme acts of expropriation would never occur in a world of perfect foresight and rational decision making yet actions by investors to ensure that countries do not expropriate would be distorting second the ability of a country s government to expropriate foreign investments may actually reduce its welfare furthermore a host may be better off if home governments can retaliate against an expropriating country indeed an increase in the penalty imposed on an expropriating country may increase its welfare a government s power to expropriate after investments are made may alasdair smith and an associate editor made numerous valuable suggestions we would also like to thank g m grossman r w jones l a sjaastad n h stern and j e stiglitz for comments much of eaton s work on this paper was completed while he was a visitor at the graduate institute for international studies geneva an earlier version of this paper appeared under the same title as rpds

balance of payments crises and devaluation the collapse of a fixed exchange rate is typically marked by a sudden balance of payments crisis in which speculators fleeing from the domestic currency acquire a large portion of the central bank s foreign exchange holdings faced with such an attack the central bank often withdraws temporarily from the foreign exchange market allowing the exchange rate to float freely before devaluing and returning to a fixed rate regime this paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating an implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered for sufficiently long transition periods the floating exchange rate overshoots its new peg before appreciating back toward it for shorter periods the rate depreciates monotonically to its new fixed level accordingly the central bank s return tothe foreign exchange market can occasion a capital outflow or a capital inflow this abstract was borrowed from another version of this item

macroeconomic regime switches and speculative attacks this paper explains a currency crisis as an outcome of a switch in how monetary policy and fiscal policy are coordinated the paper develops a model of an open economy in which monetary policy starts active fiscal policy starts passive and in a particular state of nature monetary policy switches to passive and fiscal policy switches to active the probability of the regime switch is endogenous and changes over time together with the state of the economy the regime switch is preceded by a sharp increase in interest rates and causes a jump in the exchange rate the model predicts that currency composition of public debt affects dynamics of macroeconomic variables furthermore the model is consistent with evidence from recent currency crises in particular small seigniorage revenues

absenteeism and wages abstract we show that for assembly line type production processes a worker s wage is a sharply decreasing function of his probability of being absent absenteeism causes firms to hire redundant workers we also define the marginal product of assembly line workers

delaying the inevitable interest rate defense and balance of payments crises the classical model of balance of payments crises implicitly assumes that the central bank sits passively as international reserves dwindle in practice however central banks typically defend pegs aggressively by raising short term interest rates this paper analyzes the feasibility and optimality of raising interest rates to delay a potential bop crisis interest rate policy works through two distinct channels by raising demand for domestic interest bearing liquid assets higher interest rates tend to delay the crisis higher interest rates however increase public debt service and imply higher future inflation which tends to bring forward the crisis we show that under certain conditions it is feasible to delay the crisis but raising interest rates beyond a certain point may actually hasten the crisis a similar nonmonotonic relationship emerges between welfare and the increase in interest rates it is thus optimal to engage in some active interest rate defense but only up to a certain point i

collapsing exchange rate regimes in the presence of a parallel market this paper develops a model of an economy where the fixed exchange rate is overvalued and coexists with a parallel market for foreign currency such a situation persists because the parallel marker is used by the central authorities as an instrument to delay policy changes using the haitian experience this paper estimates a rationing parameter of foreign currency in the official market which translates the extent of tolerance of the parallel market the paper also produces estimates of onestep ahead probability of devaluation rationing has been severe and the probability of collapse has reached high levels during the period studied

does high involvement management improve worker wellbeing employees exposed to high involvement management him practices have higher subjective wellbeing fewer accidents but more short absence spells than like employees not exposed to him these results are robust to extensive work wage and sickness absence history controls we highlight the possibility of higher short term absence in the presence of him because it is more demanding than standard production and because multi skilled him workers cover for one another s short absences thus reducing the cost of replacement labour faced by the employer we find direct empirical support for this in accordance with the theoretical framework we find also that long term absences are independent of exposure to him which is consistent with long term absences entailing replacement labour costs and with short absences having a negative effect on longer absences

sovereign default and the euro the introduction of the euro meant that countries with sovereign debt problems could not use monetization and devaluation as a way to prevent default the institutional structures of the euro were also widely thought to prevent a country in difficulties being bailed out by other euro members or having its sovereign debt purchased by the european central bank ecb despite these restrictions there was relatively little discussion about sovereign default in pre economic and monetary union debates among economists and financial markets priced in almost no default risk in the pre crisis years the crisis has seen bailouts and bond purchases by the ecb but there has also been a sovereign default inside the euro and further defaults seem likely the introduction of the euro was intended to bring greater stability by ending devaluations triggered by self fulfilling runs on a currency while this particular scenario can no longer happen this paper discusses mechanisms whereby expectations that a country may leave the euro can lead to this outcome occurring copyright 2013 oxford university press

absenteeism efficiency wages and shirking we investigate the absence behaviour of workers when there is asymmetric information regarding worker health an individual s health is assumed to be private information to that individual and only observable to a third party at cost our aim is to complement the existing largely empirical studies of absence behaviour which have tended to treat the phenomenon exclusively as a labour supply decision on the part of workers cf allen 1981 barmby and treble 1991 barmby orme and treble 1991 and dunn and youngblood 1986 our approach is to draw out the interactive aspects of the employment relationship we assume that workers are ex ante uncertain as to their state of health and supply labour on the basis of an all or nothing utility maximising decision taken once a realisation of this state has been received utility is a function of income leisure and health and workers value leisure more the sicker they are firms are able to exert some control over individual behaviour by monitoring workers and threatening to fire shirkers that is workers absenting themselves with unacceptable sickness our model highlights an efficiency wage effect through which wages may be used as a method of absence control in particular the optimal response of the firm to an increase in the cost of monitoring is to discourage shirking by raising wages furthermore to the extent that

determinants and costs of current account reversals under heterogeneity and serial correlation using large panel data sets for analysis of determinants and costs of reversals asks for controls of latent heterogeneity among countries this article performs a bayesian analysis which allows for a parsimonious yet flexible handling of country specific heterogeneity via random coefficients and serially correlated errors consideration of persistence within the employed macroeconomic data is important to gauge the impact of explaining variables suggested by theory correctly bayesian specification tests provide evidence in favour of models incorporating heterogeneity and serial correlation the results suggest that costs of reversals are overestimated when country specific heterogeneity is neglected and stress the importance of external variables in explaining current account reversals results are checked for robustness against the underlying reversal definition

learning large deviations and recurrent currency crises this article studies a version of obstfeld s journal of international economics 43 1997 61 77 escape clause model the model is calibrated to produce three rational expectations equilibria two of these equilibria are e stable and one is unstable dynamics are introduced by assuming that agents must learn about the government s decision rule it is assumed they do this using a stochastic approximation algorithm it turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small the algorithm converges to a small noise diffusion process the dynamics of exchange rate changes are then characterized using large deviation techniques from freidlin and wentzell random perturbations of dynamical systems second edition berlin springer verlag 1998 these methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two state markov switching process where the two states correspond to the two e stable equilibria the model is calibrated to the exchange rate histories of argentina brazil and mexico currency crises in these countries resemble the predicted escape routes of the model a key feature of these escape routes is that expectations of a devaluation erupt suddenly without large contemporaneous shocks this is consistent with evidence showing that crises are often poorly anticipated by financial markets

dynamics of the exchange rate in anticipation of pegging abstract this paper studies an economy in which agents expect the current floating rate regime to be interrupted on a specific future date by a transitional fixed rate policy when the new peg is not revealed in advance the path of the floating rate in anticipation of pegging is determined by the interaction between what agents perceive to be the objectives and the constraints of the central bank the paper highlights the role of the pegging date the duration of the fixed rate interval the quantity of reserves available to the authorities and the nature of policies expected after pegging is terminated

gresham s law or gresham s fallacy gresham s law often takes two forms the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies yet history contr

pay technology and the cost of worker absence i introduction the complexity of patterns of worker absence is well known but is yielding reluctantly to studies that use highly detailed information about individual workers and their work environments to date these studies have focussed on how specific contractual details affect worker absenteeism rates 1 in this paper we instead take an equilibrium perspective where we assume heterogeneous firms and heterogeneous workers participate in a competitive labor market by understanding why firms with different technologies may have different policies toward absenteeism we can begin to explain observed differences in absenteeism rates across workers and firms the empirical framework is based on coles and treble 1996 which considers an equilibrium assignment model with heterogeneous firms and workers the standard assignment framework 2 assumes that each filled job is characterized by one machine of quality q and one employee with skill level s a competitive equilibrium yields a wage schedule w and an assignment rule q where a worker of skill s is hired at wage w w s by a firm holding machine q q s coles and treble 1996 do not assume that workers are differently skilled instead workers have different propensities to go absent also instead of a one worker one machine production process firms utilize different production technologies some use an assembly line technology where output requires that a sufficient number of workers show up for work and others use a linear production technology in which there are constant marginal returns to labor for reasons that will become clear a competitive equilibrium yields a wage schedule and an assignment rule that depend on worker propensities to go absent specifically workers with a lower propensity to go absent earn a higher wage and are employed in firms using assembly line technologies the key insight is that firms who operate assembly line technologies have a different shadow cost of absenteeism from those which operate a linear technology as in weiss 1985 and coles and treble 1993 in the latter technology an absence by one particular worker does not affect the marginal productivity of other workers at the firm this is not true in an assembly line firm or in production functions where labor inputs are strict complements as in kremer 1993 coles and treble 1996 consider a market equilibrium in which workers are also heterogeneous say workers have different family responsibilities in this case a competitive labor market implies equilibrium sorting by firms and workers assembly line firms require a low level of absenteeism and pay a relatively high wage to compensate workers for attending work reliably we refer to this as the shadow cost of absenteeism workers who have a comparative advantage in attending work reliably say those who do not have to look after children when the children are sick take employment in assembly line firms and enjoy the wage premium attached to employment there we refer to this as the shadow price of absenteeism conversely those who appreciate greater flexibility in work attendance take employment in the linear technology firms and in equilibrium earn a lower average wage rate although absenteeism may be costly to firms observed absenteeism rates are not necessarily inefficient the worker who misses a day at work to look after sick children or enjoy a sports event is expressing a trade off between workplace production and home production where home productivity is perhaps subject to idiosyncratic shocks efficient contracting implies that firms and workers agree to an acceptable absenteeism rate and a compensating wage differential efficient sorting implies that those workers who can commit to attending work reliably accept employment in assembly line occupations and so earn a wage premium reflecting the shadow price of absenteeism our goal is to identify and measure this shadow price using a unique data set from france

corporate downsizing to rebuild team spirit how costly voting can foster cooperation we propose a new mechanism to achieve coordination through voting for which we discuss a number of real life applications among them the mechanism provides for a new theory for downsizing in organizations a crisis may lead to a decrease in the willingness to cooperate in an organization and therefore to a bad equilibrium a consensual downsizing episode may signal credibly that survivors are willing to cooperate and thus it may be optimal and efficiency enhancing for the individuals remaining in the organization as the empirical evidence suggests a variation of the same mechanism leads to efficient upsizing jel c70 d70 m50

gold monetization and gold discipline gold and its price have emerged as frequent topics of both academic and government debate 2 public attention focused on the gold market since gold s price began fluctuating violently in 1980 and 1981 has turned to gold as a possible means of removing some discretion inherent in the current fiat money system since lack of adherence to monetary rules can lead to problems of dynamic policy inconsistency academic economists have begun seriously to reconsider monetary standards based either on gold or on some other commodity as politically feasible methods of establishing rules 3

renewing expectations about africa s cities built with great expectations to connect africa with growing global trade in the nineteenth century many of africa s cities today have economies that are predominantly local not regional or global in their reach at the same time africa s cities are experiencing rapid population growth with the urban population predicted to exceed 1 billion by 2040 why have africa s urban economies not been able to keep pace with their burgeoning populations and get into the production of regionally and globally tradable goods and services and what should policy makers focus on to renew expectations about africa s cities this paper makes the case that as long as african cities lack functioning land markets and regulations and early coordinated infrastructure investments they will remain local cities closed to regional and global markets trapped into producing only locally traded goods and services and limited in their economic growth

absenteeism predictors least squares rank regression and model selection results this paper examines the determinants of absenteeism using ols rank based re gressions and a model selection procedure the results show that personal attributes are the most important determinants of long term absences for total working days lost the penalty factors are the most significant predictors the results also show that absenteeism tends to be lower among firms with more part time workers unionization on the other hand increases the total days lost due to absenteeism

explaining the duration of exchange rate pegs abstract this paper is an empirical investigation of the duration of exchange rate pegs in 16 latin american countries and jamaica we identify factors that influence peg duration using logit analysis the real exchange rate and the level of international liquidity are significant determinants of the monthly likelihood of devaluation structural variables such as the openness of an economy and its geographical trade concentration and political variables such as changes in the executive also significantly affect the likelihood of a devaluation there is some evidence that the likelihood of a devaluation first rises and subsequently declines during the first year of a peg

reserve accumulation and financial crises from individual protection to systemic risk abstract this paper provides a new perspective on the relationship between countries international reserve holdings and financial crises while the local view holds that reserves may prevent domestic crises it overlooks that the accumulation of reserves relaxes the financing constraint of the reserve currency country and may cause a financial crisis in the centre which is transmitted globally according to this global view reserve accumulation might destabilize the international financial system since the crisis affects all countries alike the accumulation of reserves imposes a negative externality on non accumulating countries we integrate this idea in a theoretical model of the optimal amount of reserves and illustrate the gap between local and global optimality the consideration of systemic risk lowers the demand for reserves moreover if a supranational authority determines the optimal level of reserves it internalizes the negative externality and accumulates fewer reserves a macroprudential tax on reserve hoardings might implement the socially optimal solution our calibration analysis shows that these considerations are economically significant they lower the optimal amount of reserves in the benchmark case by 45

social preferences and strategic uncertainty an experiment on markets and contracts this paper reports experimental evidence on a stylized labor market the experiment is designed as a sequence of three phases in the first two phases p1 and p2 agents face simple games which we use to estimate subjects social and reciprocity concerns together with their beliefs in the last phase p3 four principals who face four teams of two agents compete by offering agents a contract from a fixed menu then each agent selects one of the available contracts i e he chooses to work for a principal production is determined by the outcome of a simple effort game induced by the chosen contract we find that heterogeneous social preferences are significant determinants of choices in all phases of the experiment since the available contracts display a trade off between fairness and strategic uncertainty we observe that the latter is a much stronger determinant of choices for both principals and agents finally we also see that social preferences explain to a large extent matching between principals and agents since agents display a marked propensity to work for principals with similar social preferences

urbanization in developing economies the assessment urbanization is an inherent part of economic development yet its success in delivering jobs productivity and liveability varies widely this issue of the oxford review of economic policy compares the experience of different countries and analyses the causes of their different performance cities are policy intensive requiring public provision of infrastructure regulation and coordination this in turn requires authorizing environments with a sufficiently broad span of control and correspondingly powerful checks and balances to prevent abuse

managing exchange rate crises evidence from the 1890s abstract this paper investigates the effectiveness of the monetary authority s borrowing policies in resolving exchange rate cises it shows why obtaining loans or lines of credit in foreign currency may avoid at least temporarily the devaluation of a fixed rate and discusses the problem of the optimal size of the loan and or the line of credit the analysis focuses on a particular episode of foreign exchange rate pressure during the troubled years between 1894 to 1896 the results suggest that the borrowing policy followed by the us treasury in those years was effective in avoiding the collapse of the united states gold standard and that the amount of the borrowing undertaken by the treasury might have been optimal

currency crises with the threat of an interest rate defence while virtually all currency crisis models recognise that the decision to abandon a peg depends on how tenaciously policy makers defend it this is seldom modelled explicitly we add the threat of an interest rate defence to the global game model of morris and shin american economic review 88 1998 with an endogenous defence actions of speculators may become strategic substitutes instead of the usual complements nevertheless our generalised model remains tractable and has a unique threshold equilibrium it provides additional insights for instance the threat of an interest rate defence makes speculation riskier and this may be sufficient to keep speculators out when fundamentals are still relatively strong

the international monetary system forty years after bretton woods review essay in may 1984 a distinguished group of central bankers and economists gathered for a conference at bretton woods to consider the evolution of the world monetary system that was born at that location forty years earlier this volume contains nine essays with accompanying discussion on issues of performance and reform of current international monetary arrangements these papers deal with problems facing the industrialized and the lessdeveloped countries and assess the institutions that have been set up to accommodate these problems the major accomplishments of the original bretton woods conference were of course the establishment of the system of payments based on fixed exchange rates and the organization of the world bank and the international monetary fund as the order developed in the late 40 s and early 50 s each central bank saw it as its duty to intervene in foreign exchange markets to ensure an essentially fixed parity of their currency with respect to the dollar the role of the u s was to guarantee the dollar price of gold at 35 an ounce the system has been called a dollar standard because the dollar played the role of a reserve currency one of the paradoxes of the system as robert triffin pointed out in the early 60 s is that in order to produce a continuing and rapid enough expansion of world reserves the u s had to run balance of payments deficits yet continued deficits by the u s threatened the convertibility of the dollar into gold as it happened the system of fixed parities broke down in the early 70 s not because of a lack of reserves but because a glut of dollars made the bretton woods dollar exchange rates untenable the system eventually evolved into one in which most of the industrialized countries currencies more or less are determined by the market while the currencies of most second and third world countries are pegged to a major currency the floating period has been

collapsing exchange rate regimes some linear examples abstract we construct a pair of linear examples to study the collapse time of a fixed exchange rate regime the first example is a perfect foresight continuous time model which allows calculation of the exact collapse time and the tracking of reserves the second example is a discrete time stochastic model which yields an endogenous probability distribution over the collapse time and produces a forward discount of the exchange rate

a model of the demand for investment banking advising and distribution services for new issues this paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer and the issuer cannot observe the distribution effort expended by the banker the optimal contract under which the offer price decision is delegated to the better informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized the model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues an investment banker performs three functions which may be of value to an issuer of new securities underwriting advising and distribution this paper presents a theory of the demand for investment banking advising and distribution services based on an informational asymmetry between an issuer of new securities and an investment banker ultimately a theory of the organization of the financial intermediary industry is required that would predict which firms would use which types of financial intermediaries for which purposes and which firms would raise capital without engaging the services of a financial intermediary only a limited set of such predictions are developed here in the context of a model of a fixedprice offering under a negotiated contract in which the investment banker is

teams teamwork and absence we argue that firms with interdependent worker productivity team production have a higher cost of absence and as a consequence spend additional resources on monitoring absence as a result firms with team production should have lower absence rates we estimate the determinants of absence for blue collar workers using a sample of german manufacturing establishments workplace teams are used as a proxy for team production the estimates reveal that firms with teams have lower absence rates as do smaller establishments the size effect however is unique to establishments with teams which fits prior theoretical work that has not been previously tested

borrowing to defend the exchange rate and the timing and magnitude of speculative attacks abstract the paper analyses the implications for the timing and magnitude of a speculative attack on a fixed exchange rate of government borrowing to increase the stock of international reserves it is shown that such borrowing reduces the likelihood of an early collapse and increases the likelihood of an eventual collapse the magnitude of the speculative attack also increases

the lifetime of a unilateral target zone some extended results abstract in dumas and svensson journal of international economics 36 1994 467 the lifetime of a krugman quarterly journal of economics 106 1991 669 682 type target zone model is found to be extremely long this paper shows that the lifetime of the identical target zone regime can be much lower when real disturbances occur in particular the mean lifetime is found to be very low when real disturbances occur and the real exchange rate elasticity of the demand for domestic goods is very low it is also shown that allowing for monetary disturbances to have real effects has very little effect on the lifetime the results indicate the conditions under which real disturbances might trigger currency crises

looking after number two competition cooperation and workplace interaction abstract we look for cooperation in a real world setting in which optometrists absent less frequently in two chair than one chair offices because of the externality such behavior imposes on their co worker we motivate our empirical analysis by developing a model of worker interdependence in which two workers can either compete or cooperate we show that relative to a single worker working in isolation competition unequivocally increases absence whilst cooperation may increase or decrease absence our empirical analysis of a unique data set finds explicit support for cooperative behavior

bank firm relationships and contagious banking crises this paper argues that in an open economy a banking system with close bank firm relationships may be easily subject to contagious banking crises because it is difficult to distinguish between crony capitalism and good main bank relationships 1 show that if international investors cannot distinguish the bank type the distinction between crony capitalism and good main bank relationships becomes very fuzzy in particular the model can explain sequences of bank defaults within a country even if the insolvent banks are very few ex ante as well as sequences of banking crises among countries that are equally rated by international investors but indeed differ in the ex ante solvency of their banking system

the belmont morgan syndicate as an optimal investment banking contract this paper represents an application of theories of speculative attacks on fixed exchange rate regimes and of optimal investment banking contracts to the belmont morgan syndicate of 1895 this syndicate contracted to supply gold to the u s treasury and to bear the risk of maintaining a fixed exchange rate for six months our purpose is to determine the extend to which such simple theories can elucidate both the events of that period and the features of the belmont morgan contract

information and the division of labour implications for the firm s choice of organisation this paper provides a partial analysis of the organizational problem that arises from decentralized information within the firm firm members possessing different decision relevant information can communicate in different ways leading to a taxonomy of organizational structures with different effectiveness and costs it is shown that with usual assumptions about the form of the payoff function and the stochastic nature of information the decision functions and the expected profit for different organizations have a simple linear form comprising a small number of information value parameters copyright 1995 by royal economic society