growth paths and survival chances an application of gambler s ruin theory this paper links new firm survival with growth with a focus on the patterns in firms growth paths we theorise a gambler s ruin framework by arguing that new firm performance is best modelled as a random walk process but that survival is nonrandom and depends primarily on the stock of accumulated resources a firm s resources are either there when the business begins or are generated by successful periods wins the empirical section tracks over six years the sales and survival non survival of 6247 uk start ups which all began trading in the same quarter of 2004 we do not find strong evidence in favour of a taxonomy of growth paths because we observe that every possible growth path seems to occur with roughly equal probability however we observe that growth paths influence subsequent survival controlling for lagged size we observe that longer lags of growth and even start up size have significant effects on survival

screening as a unied theory of delinquency renegotiation and bankruptcy we propose a parsimonious model with adverse selection where delinquency renegotiation and bankruptcy all occur in equilibrium as a result of a simple screening mechanism a borrower has private information about her cost of bankruptcy and a lender may use random contracts to screen dierent types of borrowers in equilibrium some borrowers choose not to repay and thus become delinquent the lender renegotiates with some delinquent borrowers in the absence of renegotiation delinquency leads to bankruptcy we apply the model to analyze eects of a government intervention in debt restructuring we show that a mortgage modication program aimed at limiting foreclosures that fails to take into account private debt restructuring may have the opposite eect from the one intended

endogenous trading constraints with incomplete asset markets abstract this paper endogenizes the borrowing constraints on capital in a production economy with incomplete markets we find that these limits get looser with income a property that is consistent with us data on credit limits the framework with endogenous limits is then used to study the effects of a revenue neutral tax reform that eliminates capital income taxes our results illustrate that it is very important to take into account the effects of tax policies on the limits throughout the transition these effects can be big enough to change the overall conclusion about the desirability of a tax reform

recent developments in consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

optimal bankruptcy code a fresh start for some abstract what is the optimal consumer bankruptcy law i answer this question using an incomplete markets life cycle model with a planner who can choose state contingent bankruptcy costs i develop two main theoretical characterizations first whenever debt discharge is allowed it should occur without cost second bankruptcy should always be allowed for highly indebted households quantitatively the optimal policy can generate a welfare gain as large as 11 6 however attractive informal default asymmetric information and moral hazard can reduce the welfare gain to as little as 0 7

financial innovation in a general equilibrium model abstract we develop a model of financial innovation in which intermediaries can issue new financial securities against collateral in the form of standard securities intermediaries have to market their innovations and marketing is costly we show that the equilibrium asset structure may exhibit redundancies as frequently observed on financial markets we give conditions for efficiency of financial innovation and show that with small innovation costs the indeterminacy of equilibrium allocations has small utility consequences journal of economic literature classification numbers d52 g10

securitized markets international capital flows and global welfare we study the effect of collateralized lending and securitization on the global supply of securitized assets welfare and international net and gross capital flows in a two country general equilibrium model with idiosyncratic investment risk the financial sectors in the two countries home and foreign differ by the collateral requirement for investment loans with home requiring lower margins in autarky home endogenously supplies more assets and enables more risk sharing upon financial integration capital flows from foreign to home leading to lower interest rates and an increase in the global supply of assets foreign enjoys substantial welfare gains through better risk sharing and portfolio reallocation while the welfare experience for home is ambiguous gross capital flows arise when agents face aggregate shocks to the expected payoff to investment projects but can collapse when shocks concern the variance of returns

the impact of the financial crisis on new firm registration the authors use panel data on the number of new firm registrations in 95 countries to study the impact of the business environment and 2008 financial crisis on new firm registration the data show that more dynamic formal business creation occurs in countries that provide entrepreneurs with a stable legal and regulatory regime fast and inexpensive business registration process more flexible employment regulations and low corporate taxes the data also show that nearly all countries experienced a sharp drop in business entry during the crisis this drop is more pronounced in countries with higher levels of financial development and countries more affected by the crisis

the un importance of chapter 7 wealth exemption levels this paper examines the effects of the chapter 7 wealth exemption level on welfare bankruptcy filings debt and on asset holdings i build a heterogeneous agent life cycle model which features uninsurable income and expense shocks moreover households can borrow and save simultaneously when a borrower defaults on her debt by filing for chapter 7 bankruptcy she can keep her assets up to the wealth exemption level wealth exemption levels are important for two reasons first they explain the extensive and intensive margin of the credit card debt puzzle around thirty percent of borrowers both in the model and in the data who borrow at high interest rates simultaneously save at low interest rates however these borrowers borrow and save only relatively small amounts a few thousand u s dollars second ignoring the exemption level biases results because it overstates the costs of defaulting the welfare gains from chapter 7 compared to the european system where debt is not discharged are twice as high when exemption levels are positive compared to when they are ignored at the same time wealth exemption levels are unimportant in the sense that they have an impact only at low exemption levels the effects of increases in the exemption level fade out very quickly there is no strong positive relationship between exemption levels which vary across u s states and default rates in the model this is in contrast to the previous literature but consistent with the data the reason is that those borrowers who might default do not own much wealth therefore only very few households are affected by increases in the exemption level

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

default and punishment in general equilibrium we extend the standard model of general equilibrium with incomplete markets to allow for default and punishment by thinking of assets as pools the equilibrating variables include expected delivery rates along with the usual prices of assets and commodities by reinterpreting the variables our model encompasses a broad range of adverse selection and signalling phenomena in a perfectly competitive general equilibrium framework perfect competition eliminates the need for lenders to compute how the size of their loan or the price they quote might affect default rates it also makes for a simple equilibrium refinement which we propose in order to rule out irrational pessimism about deliveries of untraded assets we show that refined equilibrium always exists in our model and that default in conjunction with refinement opens the door to a theory of endogenous assets the market chooses the promises default penalties and quantity constraints of actively traded assets

foreign currency debt risk premia and macroeconomic volatility abstract this paper studies the relationships between foreign currency debt macroeconomic volatility and risk premia in a model of a small open emerging market economy the external value of the local currency is counter cyclical so that foreign currency debt requires larger repayments than local currency debt in bad states of nature the level of foreign currency denominated debts therefore affects the volatility of aggregate demand and by extension of the exchange rate exchange rate volatility is in turn an important determinant of the risk premium on local currency debt finally this risk premium is a major factor in the choice of local versus foreign currency for emerging market borrowers the mutual endogeneity of foreign currency debt risk premia and macroeconomic volatility creates important feedback effects in the economy small increases in international risk aversion may entail large amplification effects on macroeconomic volatility since domestic borrowers substitute towards cheaper but riskier foreign currency debt finance

regulating collateral requirements when markets are incomplete in this paper we examine the eects of default and collateral on risk sharing we assume that there is a large set of assets which all promise a risk less payo but which distinguish themselves by their collateral requirements in equilibrium agents default the assets have dierent payos and there are as many linearly independent assets available for trade as there are states of the world we derive necessary and sucient conditions for equilibria to be pareto ecient in the presence of uncertainty we explore some examples for which the collateral equilibrium allocation is identical to the arrow debreu allocation either when agents have a high preference for the durable good or when the endowment distribution of the durable good is relatively homogeneous we examine a series of examples to understand which collateral levels prevail in equilibrium and under which conditions there is scope for regulating margin requirements that is restricting the sets of tradable assets through government intervention in these examples equilibrium is always sub optimal but regulation never leads to a pareto improvement while the competitive equilibria are constrained ecient there do exist regulations which make large

origin of alliance portfolios entrepreneurs network strategies and firm performance alliance portfolios are ubiquitous and influential for firm performance extant research addresses attributes of high performing alliance portfolios but not how executives originate such portfolios

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

harsh default penalties lead to ponzi schemes a counterexample pascoa and seghir 2009 presented two examples to show that in the presence of utility penalties for default collateral requirements do not always eliminate the occurrence of ponzi schemes and equilibria may fail to exist this paper aims at providing a counterexample to their claim we show that in the examples they consider a competitive equilibrium with no trade can be supported due to unduly pessimistic expectations on asset deliveries

bank capital and dividend externalities dividend payouts erode equity capital and affect the relative value of claims on a bank through this channel when banks have contingent claims on each other one bank s capital policy affects the equity value and risk of default for other banks when such externalities are strong bank capital becomes a public good whereby the private equilibrium features excessive dividends and inefficient recapitalization relative to the efficient policy that maximizes total banking sector equity we relate these implications to the observed bank behaviour during the crisis of 2007 2009

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

social security and unsecured debt abstract in this paper we use a calibrated life cycle model to explore quantitatively ways of reducing the burden of social security in a world populated by both optimizing and rule of thumb consumers social security contributions force young households with upward sloping income profiles to save a sizeable portion of their income for retirement when their optimal consumption plan would likely have them either saving little or borrowing we first use household data to document that young households have accumulated social security contributions that are large relative to debt holdings then using a calibrated life cycle model we show that both allowing households to use social security wealth to pay off their debt and exempting young households from social security contributions but in both cases requiring higher contributions later mitigate many of the inefficiencies of social security from the perspective of life cycle financial planning specifically in our preferred experiment which exempts households whose heads are under 30 from making social security contributions we find that certainty equivalent consumption increases by 3 4 for optimizing households and by 3 3 for rule of thumb households

cross border banking credit access and the financial crisis abstract we study the sensitivity of credit supply to bank financial conditions in 16 emerging european countries before and during the financial crisis we use survey data on 10 701 applicant and non applicant firms that enable us to disentangle effects driven by positive and negative shocks to the banking system from demand shocks that may vary across lenders we find strong evidence that firms access to credit was affected by changes in the financial conditions of their banks during the crisis firms were more credit constrained if they were dealing with banks that experienced a decline in equity and tier 1 capital as well as losses on financial assets we also find that access to credit reflects the balance sheet conditions of foreign parent banks the effect of positive and negative shocks to a bank is greater for riskier firms and firms with fewer tangible assets

a reconsideration of minsky s financial instability hypothesis the worst and longest depressions have tended to occur after periods of prolonged and reasonably stable prosperity this results in part from agents rationally updating their expectations during good times and hence becoming more optimistic about future economic prospects investors then increase their leverage and shift their portfolios towards projects that would previously have been considered too risky so when a downturn does eventually occur the financial crisis and the extent of default become more severe whereas a general appreciation of this syndrome dates back to minsky 1992 jerome levy economics institute wp 74 and even beyond to irving fisher 1933 econometrica 1 337 357 we model it formally in addition endogenous default introduces a pecuniary externality since investors do not factor in the impact of their decision to take risk and default on the borrowing cost we explore the relative advantages of alternative regulations in reducing financial fragility and suggest a novel criterion for improvement of aggregate welfare

marketing strategies that make entrepreneurial firms recession resistant abstract the recession of 1990 1991 adversely affected nearly every industry in the united states and entrepreneurial manufacturing firms were among those hardest hit by the recession the failure rate among this group by mid year 1991 had risen 37 from the previous year thus recessions pose a serious threat to the survival of entrepreneurial firms understanding how the business cycle influences performance and what strategies are effective in such turbulent times has practical value for managers of entrepreneurial firms in this paper we report a large scale empirical research study involving subjective and financial information from 118 publicly traded u s manufacturing firms the participating firms are involved in technologically demanding and highly innovative industry segments industrial and computer equipment electrical equipment and components and measuring analysis and control instruments none of the firms has achieved a market share of more than one half of one percent we find that in these industries a company s marketing strategies preceding a recession strongly impact the extent of economic downturn on the firm and influence its odds of a timely and complete recovery our specific prescriptions follow first maintain marketing activities in the core business as assurance against recession increasing sales and advertising increasing breadth of production and increasing geographic coverage improve performance during both the peak and the contraction of the business cycle second during the peak period cautiously expand with an emphasis on marketing efficiency increasing the number of channels of distribution and cutting price have a negative effect unless accompanied by sales force performance measurement a simple emphasis on incentives and efficiency alone hurts a firm as a recession hits all of these prescriptions run counter to existing views that suggest that recession simply requires cutbacks and retrenchment recessions seem to be different from other threats to firm viability and marketing activities appear to help pull the firm through a macroeconomic downturn

is competition the answer abstract proposals for more price competition in medical services delivery have arisen on both sides of the atlantic perhaps the most visible pro competition spokesman in the united states is alain enthoven 1978 1980 but other names are also prominently associated with the concept mcclure 1978 havighurst 1980 president s commission 1980 greenberg 1981 recently legislation to promote competition has been introduced in the united states congress periodically individuals in other parts of the world also unfurl the banner of competition lees 1961 stahl in press the remarks that follow are limited to the american context for brevity some of them would have to be altered in other institutional contexts

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

legitimating first organizing activities and the survival of new ventures abstract the process by which firm founders create new organizations is of considerable interest to evolutionary theorists and entrepreneurship researchers this article tracks the life histories of 223 swedish new ventures started between january and september 1998 by a random sample of firm founders we explore the effect of legitimating activities on the hazard of disbanding and the transition to other firm organizing activities during their first 30 months of life we find that undertaking activities to generate legitimacy reduces the hazard of venture disbanding and facilitates the transition to other organizing activities

unsecured debt with public insurance from bad to worse abstract in u s data income interruptions the receipt of public insurance and the incidence of personal bankruptcy are all closely related the central contribution of this paper is to evaluate bankruptcy protection and public insurance in a unified setting where each program alters incentives in the other our analysis delivers two striking conclusions first we find that u s personal bankruptcy law is an important barrier that prevents the public insurance system from improving welfare second contrary to popular belief we find that increases in the generosity of public insurance will lead to more not less bankruptcy

neutrally optimal mechanism under adverse selection the canonical insurance problem abstract this paper revisits the problem of adverse selection in the insurance market of rothschild and stiglitz 1976 we extend the three stage game in hellwig 1987 by allowing firms to endogenously choose whether or not to pre commit on their contractual offers menus we show how this mechanism can deliver the miyazaki wilson spence allocation as the unique perfect bayesian equilibrium this allocation is the unique incentive efficient and individually rational maximizer of the utility of the most profitable type in fact given that the informed player has only two types it is the unique core allocation and thus the unique neutral optimum in the sense of myerson 1983

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

recent developments in consumer credit and default literature consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

relation of dominant problems to stages of growth in technology based new ventures two studies investigating the growth patterns of new ventures are presented in the first study a stage of growth model theorized to apply specifically to technology based new ventures was develop

learning about the unknown how fast do entrepreneurs adjust their beliefs this paper seeks to measure the extent to which entrepreneurs adjust their beliefs in the light of new information instead of relying on past experience to guide their decision making we build a model in which entrepreneurs continually receive valuable but noisy market signals about the true but unobserved productivity of their effort and use this information to update their expectations of unobserved productivity the model is estimated using a sample of over 700 self employed britons interviewed in 1999 and 2000 it is found that on average these individuals adjust their expectations of unobserved productivity in the light of new information by only 16 this suggests that while entrepreneurs do exploit new information they give much greater weight to their prior beliefs when forming their expectations also there are no significant differences in terms of expectation formation between males and females employers and non employers and experienced and less experienced entrepreneurs however younger entrepreneurs respond significantly more sensitively to new information than older entrepreneurs do with adjustment rates of 21 compared with 14 respectively we go on to discuss some policy implications of these findings and briefly discuss several features of entrepreneurship education programs that might help entrepreneurs improve this aspect of their business performance

the output costs of hard and soft sovereign default abstract how costly are sovereign debt crises in this paper we study output losses during sovereign default and debt renegotiation episodes since 1980 in contrast to previous work we account for the severity of default and not only for its occurrence specifically we distinguish between hard and soft defaults using new data on debtor payment and negotiation behavior and on the size of haircuts towards private external creditors we show that hard defaults are associated with a much steeper drop in gdp of up to ten percent compared to soft defaults the results are consistent with theoretical models assuming proportional output costs of default

founded in adversity operations based survival strategies of ventures founded during a recession abstract we examine the survival of 404 new ventures founded during the 2008 recession we find that industry explains a significant but small percentage of variance in survival 2 81 percent and therefore focus on which operations related actions could enhance ventures odds of survival we find marginally significant support for our hypotheses that a venture founded during a recession is more likely to survive if it increases its production efficiency increases both its production efficiency and variable costs or increases both its production efficiency and fixed costs in property plant and equipment our findings demonstrate that operational decisions are key determinants of survival for ventures founded during a recession

statistical arbitrage with default and collateral abstract this paper studies the implications of the absence of statistical arbitrage opportunities in a two period incomplete market economy where default is allowed but there are collateral requirements modified versions of the fundamental theorem of asset pricing are obtained

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

inventory investment over the business cycle in the eu and the us abstract this paper investigates the business cycle properties of aggregate inventory investment in the countries of the european union eu and the us given the experience of the latest recessions this issue becomes particularly interesting for the study of the propagation mechanism of business cycles the kydland prescott methodology was used to derive and organize the business cycle features the results showed that business cycle fluctuations in the eu are more volatile than those in the us the contribution of the declines of inventory investment in recessions has also been greater in the eu important similarities though were identified as to the extent of the destabilizing effect of inventory investment cycles in the overall economic activity

efficiency and the role of default when security markets are incomplete this paper argues that default plays an important positive role in the economy if markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events contingent contracting may be severely restricted moreover opening new markets may not relieve these restrictions default promotes efficiency in a way that opening new markets does not by making it possible for traders to enter into contracts that they will be able to execute with high probability but not with certainty copyright 1993 by american economic association

competitive pooling rothschild stiglitz reconsidered we build a model of competitive pooling which incorporates adverse selection and signaling into general equilibrium pools are characterized by their quantity limits on contributions households signal their reliability by choosing which pool to join in equilibrium pools with lower quantity limits sell for a higher price even though each household s deliveries are the same at all pools the rothschild stiglitz model of insurance is included as a special case we show that by recasting their hybrid oligopolistic competitive story in our perfectly competitive framework their separating equilibrium always exists even when they say it does not and is unique

competition among exchanges does competition among e nancial intermediaries lead to excessively low standards to examine this question we construct a model where intermediaries design contracts to attract trading volume taking into consideration that traders differ in credit quality and may default when credit quality is observable intermediaries demand the right amount of guarantees a monopolist would demand fewer guarantees private information about credit quality has an ambiguous effect in a competitive environment when the cost of default is large small private information leads to higher lower standards we exhibit examples where private information is present and competition produces higher standards than monopoly does i introduction in spite of the general acceptance of the competitive mechanism as an allocation scheme many observers consider e nancial intermediation an exception competition is thought to lead to a race to the bottom in which e nancial intermediaries settle for excessively low levels of contractual guarantees in an attempt to increase volume evaluating futures exchanges a joint report from the treasury and the federal reserve board written in the wake of the 1987 crash states that t here is sufe cient possibility that at some point sros self regulatory organizations might establish margins that were inconsistent enough to present market problems or set them at levels that might present potential costs to other parties that regulatory approval should be established in all markets 1

the contribution of large and small employers to job creation in times of high and low unemployment we document a negative correlation at business cycle frequencies between the net job creation rate of large employers and the level of aggregate unemployment that is much stronger than for small employers the differential growth rate of employment between initially large and small employers has an unconditional correlation of 0 5 with the unemployment rate and varies by about 5 percent over the business cycle we exploit several datasets from the united states denmark and france both repeated cross sections and job flows with employer longitudinal information spanning the last four decades and several business cycles we discuss implications for theories of factor demand jel d22 e23 e32 j23 l25

to bail out or to bail in answers from an agent based model since the beginning of the 2008 financial crisis almost half a trillion euros have been spent to financially assist eu member states in taxpayer funded bail outs these crisis resolutions are often accompanied by austerity programs causing political and social friction on both domestic and international levels the question of how to resolve failing financial institutions and how this depends on economic preconditions is therefore a pressing and controversial issue of vast political importance in this work we employ an agent based model to study the economic and financial ramifications of three highly relevant crisis resolution mechanisms to establish the validity of the model we show that it reproduces a series of key stylized facts of the financial and real economy the distressed institution can either be closed via a purchase assumption transaction it can be bailed out using taxpayer money or it may be bailed in in a debt to equity conversion we find that for an economy characterized by low unemployment and high productivity the optimal crisis resolution with respect to financial stability and economic productivity is to close the distressed institution for economies in recession with high unemployment the bail in tool provides the most efficient crisis resolution mechanism under no circumstances do taxpayer funded bail out schemes outperform bail ins with private sector involvement

measurement of input specific productivity growth with an application to the construction industry in spain and portugal abstract decision making in companies requires an assessment of the efficiency and productivity of individual inputs to provide insights into the scope for improvement of inputs use this paper estimates an input specific luenberger productivity growth indicator that can be decomposed to identify the contributions of input specific technological change technical efficiency change and scale efficiency change these components for a specific input sum up to the aggregated indicators which are then compared with the traditional luenberger indicator the application focuses on panel data of spanish and portuguese construction firms over the period 2002 2011 accounting for three inputs materials labor and capital the results show that aggregated productivity change and its components computed from the input specific productivity indicator are different from those obtained using a traditional approach the results also indicate that productivity change is negative for labor and capital for construction firms in both spain and portugal while productivity change of materials is positive for portugal and negative for spain productivity decline is worse for capital in the spanish construction firms and for labor in portugal

arbitrage short sales and financial innovation the authors describe a model of general equilibrium with incomplete markets in which firms can innovate by issuing arbitrary costly securities when short sales are prohibited firms behave competitively and equilibrium is efficient when short sales are allowed these classical properties may fail if unlimited short sales are allowed imperfect competition may persist even when the number of potential innovators is large if limited short sales are allowed perfect competition may obtain in the limit but equilibrium can be inefficient because of the presence of an externality the private benefits of innovation for firms differ from the social benefits copyright 1991 by the econometric society

strategic or nonstrategic the role of financial benefit in bankruptcy i introduction personal bankruptcy rates have increased at an annual rate of 3 9 since 1990 from about 718 thousand non business bankruptcies in 1990 to about 1 5 million in 2010 partly as a response to this increase the congress passed the bankruptcy abuse prevention and consumer protection act bapcpa of 2005 the largest overhaul of bankruptcy laws since 1980 although recent data are too sparse to determine the longer term effectiveness of the law we know that there was a spike in bankruptcy filings in 2005 just before the law took effect on october 17 2005 and a corresponding decline in 2006 since then bankruptcies have continued to rise reaching a level of about 1 5 million in 2010 the same level as in 2004 the bankruptcy rate has also begun to creep up to the earlier levels one of the major purposes of the new bankruptcy law was to cut down on abusive or fraudulent uses of the bankruptcy system or in other words strategic use of the law therefore it is important to understand the motivations of consumers who file for bankruptcy what constitutes strategic use of bankruptcy law and how widespread is its incidence in the literature there is no clear definition of what constitutes a strategic bankruptcy filing we shall consider strategic behavior to be a conscious decision to benefit from bankruptcy law to make this tractable consider a simple two period model of decision making in the first period consumers receive a noisy signal of experiencing a financial shock in the second period based on this signal consumers may update their probability of an adverse shock and choose their debt level in the second period the shock is realized and consumers decide whether to file for bankruptcy or not a strategic consumer is one who in the first period chooses her debt level after conditioning on the signal that is a strategic consumer takes on debt after accounting for the chance of filing for bankruptcy in other words a strategic consumer is one who is fully rational and takes decisions to maximize her benefit a nonstrategic consumer is one who chooses debt level without conditioning on the signal he plans to repay his debt in the absence of adverse events such a consumer is myopic and may be exhibiting rational inattention as described below consistent with this view we may distinguish between strategic and nonstrategic behavior by testing whether consumers make their debt and filing decision jointly or not strategic behavior is consistent with a joint decision whereas nonstrategic behavior is not in terms of empirical strategy this is implemented by testing whether financial benefit is endogenous to the filing decision or not our test is different from the one in the study by fay hurst and white 2002 henceforth fhw in that approach a positive relationship between filing for bankruptcy and financial benefit from filing ceteris paribus is taken as evidence of strategic behavior and a positive relationship between filing for bankruptcy and adverse events such as divorce health shocks employment shocks etc is taken as evidence of nonstrategic behavior using data from the panel study of income dynamics psid fhw show that financial benefit is positively and significantly related to the filing decision and after controlling for financial benefit adverse event variables do not affect the bankruptcy decision except for a marginally significant positive effect of divorce 1 this simple empirical relationship between bankruptcy filing and financial benefit does not consider more realistic relationships among financial benefit adverse events and strategic behavior for example financial benefit from filing may go up due to adverse events regardless of whether a consumer is trying to abuse bankruptcy law or not that is financial benefit goes up when a consumer consciously increases unsecured debts before filing consistent with strategic behavior and it also goes up when she uses unsecured debt e

group characteristics evolution arising from asymmetric information in asymmetric information problems agents with less information principals or contractors usually take as given the preferences of agents with more information agents or contractees moreover the distribution of characteristics of contractees is supposed to be invariant in this article we consider a mixed framework of asymmetric information adverse selection followed by moral hazard where those two assumptions are excluded specifically the contractor only knows the current distribution of characteristics and the contractees may change them after signing the contract if this improves their welfare thus we find that the asymmetric information problem leads to a group eect changes of characteristics this feedback defines a sequence of temporary equilibria we provide conditions for the convergence of that sequence to a stationary long run equilibrium we also prove that both temporary equilibrium and long run equilibrium coincide with the equilibrium in classical models of adverse selection and the moral hazard problem vanishes in the long run

ambiguity aversion in the long run to disagree we must also agree abstract we consider an economy populated by smooth ambiguity averse agents with complete markets of securities contingent to economic scenarios where bankruptcy is permitted but there is a penalty for it we show that if agents posterior belief reductions given by their average probabilistic beliefs do not become homogeneous then an equilibrium does not exist it is worth noting that our main result does not imply any convergence of ambiguity perception or even the attitudes towards it in this way complete markets with default and punishment allow for ambiguity aversion in the long run and the agents can disagree on their ambiguity perception but they must agree on their expected beliefs

a walrasian theory of markets with adverse selection the paper describes a walrasian theory of markets with adverse selection and shows how refinements of equilibrium can be used to characterize uniquely the equilibrium outcome equilibrium exists under standard conditions it is shown that under certain conditions a stable set exists and is contained in a connected set of equilibria for generic models there exists a stable outcome that is all the equilibria in the stable set have the same outcome these ideas are applied to markets with one sided and two sided uncertainty under standard monotonicity conditions it is shown that the stable outcome is separating and implies a particular pattern of matches of buyers and sellers

constrained efficiency with adverse selection and directed search abstract this paper studies constrained efficiency in guerrieri et al s 2010 model of adverse selection and directed search buyers post contracts and sellers with private information about their type direct their search toward their preferred contract buyers and sellers then match bilaterally and trade if the guerrieri shimer wright equilibrium fails to achieve the first best then the planner subject to the frictions of the environment achieves strictly higher welfare than the equilibrium i e the equilibrium is not ex ante constrained efficient under certain conditions the planner achieves an allocation that even pareto dominates the equilibrium i e the equilibrium is not interim constrained efficient under other conditions the planner can completely undo the effects of adverse selection and achieves the first best cross subsidization is the key to these results

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

welfare implications of endogenous credit limits with bankruptcy this paper studies the aggregate welfare consequences of changes in the prescribed penalty for personal bankruptcy and in social insurance policies when borrowing limits may respond to these changes it uses a dynamic general equilibrium model of an exchange economy with incomplete markets and a continuum of agents the borrowing constraint and the risk of default are endogenous and the default penalty restricts an individual s access to the markets for a fixed period of time the effect on the stationary equilibrium of an exogenous reduction of 1 and 2 years in this exclusion period is explored quantitatively for comparison purposes the same experiment is carried out under the assumption made in related studies that the borrowing limit is fixed a small welfare loss follows in either case in contrast in a small open economy welfare may increase substantially but only if the borrowing constraint is endogenous similar results follow from an exogenous change in social policy that reduces individual income variability