de facto exchange rate regimes and currency crises are pegged regimes with capital account liberalization really more prone to speculative attacks abstract this paper empirically examines whether de facto exchange rate regimes affect the occurrence of currency crises in 84 countries over the 1980 2001 period by using the probit model we employ the de facto classification of reinhart and rogoff 2004 that allows us to estimate the impact of relatively long lived exchange rate regimes on currency crises with much greater precision we find that pegged regimes significantly decrease the likelihood of currency crises compared with floating regimes by using the combined data of exchange rate regimes and the existence of capital controls we also find interesting evidence that pegged regimes with capital account liberalization significantly lower the likelihood of currency crises compared with other regimes these results are robust to a wide variety of samples and models from the standpoint of the macroeconomic policy trilemma we can conjecture that pegged regimes with capital account liberalization are substantially less prone to speculative attacks because they can enhance greater credibility in their currencies by abandoning monetary policy autonomy

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

how much does country matter an analysis of firms growth options recent international strategy research emphasizes the importance of understanding the effects of geographic location on firms strategies and performance outcomes we contribute to this research by providing empirical evidence that the interplay of country and industry effects matters substantially in explaining the variation in the value of growth options of firms based in different countries our results show that country industry effects are the second largest source of variation following firm effects while industry and country effects are relatively small when considered in their own right that valuable growth options are tied to country and industry interactions has important implications for international strategy research and practice

financial fragility and the exchange rate regime abstract we study financial fragility exchange rate crises and monetary policy in a model of an open economy with diamond dybvig banks the banking system the exchange rate regime and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare if the mechanism fails banking crises and speculative attacks on the currency become possible we compare currency boards fixed rates and flexible rates with and without a lender of last resort a currency board cannot implement a social optimum in addition it allows bank runs to occur a fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board a flexible rate system implements the social optimum and eliminates runs provided that the exchange rate and credit policies of the central bank are appropriately designed journal of economic literature classification numbers f3 e5 g2

studying optimal paternalism illustrated by a model of sin taxes the classical economic approach to policy analysis assumes that people always respond optimally to the costs and benefits of their available choices a great deal of evidence suggests however that in some contexts people make errors that lead them not to behave in their own best interests economic policy prescriptions might change once we recognize that humans are humanly rational rather than superhumanly rational and in particular it may be fruitful for economists to study the possible advantages of paternalistic policies that help people make better choices we propose an approach for studying optimal paternalism that follows naturally from standard assumptions and methods of economic theory write down assumptions about the distribution of rational and irrational types of agents about the available policy instruments and about the government s information about agents and then investigate which policies achieve the most efficient outcomes in other words economists ought to treat the analysis of optimal paternalism as a mechanism design problem when some agents might be boundedly rational this approach has many advantages first and foremost by explicitly addressing when and how people do and don t pursue their own best interests economists will be better able to contribute to policy debates to contribute to debates over regulating private financial decisions we must study whether financial decisions are based on fallacious statistical reasoning and whether self control problems lead people to borrow too heavily to contribute to debates over teenage smoking we must study whether teenagers become smokers against their long run best interest economists will and should be ignored if we continue to insist that it is axiomatic that constantly trading stocks or accumulating consumer debt or becoming a heroin addict must be optimal for the people doing these things merely because they have chosen to do it a second advantage of our approach is that it forces us to look for the best feasible policy our

taxing sin goods and subsidizing health care we consider a two period model in the first period individuals consume two goods one is sinful and the other is not the sin good brings pleasure but has a detrimental effect on second period health and individuals tend to underestimate this effect in the second period individuals can devote part of their saving to improve their health status and thus compensate for the damage caused by their sinful consumption we consider two alternative specifications concerning this second period health care decision either individuals acknowledge that they have made a mistake in the first period out of myopia or ignorance or they persist in ignoring the detrimental effect of their sinful consumption we study the optimal linear taxes on sin good consumption saving and health care expenditures for a paternalistic social planner we compare those taxes in the two specifications we show under which circumstances the first best outcome can be decentralized and we study the second best taxes when saving is unobservable

hedging and financial fragility in fixed exchange rate regimes currency crises that coincide with banking crises tend to share at least three elements first banks have a currency mismatch between their assets and liabilities second banks do not completely hedge the associated exchange rate risk third there are implicit government guarantees to banks and their foreign creditors this paper argues that the first two features arise from banks optimal response to government guarantees we show that guarantees completely eliminate banks incentives to hedge the risk of a devaluation our model also articulates one reason why governments might be tempted to provide guarantees to bank creditors guarantees lower the domestic interest rate and lead to a boom in economic activity but this boom comes at the cost of a more fragile banking system in the event of a devaluation banks renege on foreign debts and declare bankruptcy

negotiated block trades and corporate control we identify negotiated trades of large percentage blocks of stock as corporate control transactions when a block trades and the firm is not fully acquired cumulative abnormal returns average 5 6 and 33 of the chief executives are replaced within a year stock price increases are larger when control passes to the new blockholder when management does not resist the blockholder s effort to influence corporate policy and when the block purchaser eventually fully acquires the firm these findings suggest that the specific skills and expertise of blockholders and not just the concentration of ownership are important determinants of firm value we examine 106 negotiated trades of at least 5 of the common stock of new york stock exchange nyse and american stock exchange amex listed corporations our primary objective is to assess the impact of these transactions on the firms whose shares are traded we also investigate the importance of active block investor s specific managerial expertise and incentives for firm value the emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder s incentives to undertake a variety of corporate decisions although it has been recognized that a blockholder s identity also can be important less attention has been paid to this issue several recent studies however provide evidence that blockholders incentives and expertise are not homogeneous for example holderness and sheehan 1985 find that the stock market reacts more favorably to initial block accumulations by six controversial investors who are often portrayed in the press as raiders than to initial accumulations by a random sample of investors morck shleifer and vishny 1988 find that firm value tends to be lower when the firm is run by a member of the founder s family than when it is run by an officer unrelated to the founder brickley lease and smith 1988 document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm when a block trades the concentration of ownership typically does not change but the blockholder s identity does

insider trading and the valuation of international strategic alliances in emerging stock markets because stock markets in emerging economies are relatively new under regulated and often segmented investors responses to public announcements by firms in these economies may differ from responses in developed economies stock markets we draw on the institutional and corporate governance literatures to explain investor reactions to announcements of international strategic alliances isas between foreign and emerging market firms we argue that emerging economies stock markets positively value isas however information leakages due to weak regulatory environments siphon off the good news before the isa announcement date the level of state ownership of publicly traded firms and the nationality of foreign partners both affect the size and timing of market reactions

exchange rate regime durability and performance in developing versus advanced economies abstract drawing on new data and advances in exchange rate regimes classification we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed for developing countries with little exposure to international capital markets pegs are notable for their durability and relatively low inflation in contrast for advanced economies floats are distinctly more durable and also appear to be associated with higher growth for emerging markets our results parallel the baxter and stockman classic exchange regime neutrality result though pegs are the least durable and expose countries to higher risk of crisis

a real options perspective on sequential acquisitions in china we examine how firms in an emerging market address their information disadvantage in takeovers one strategy is to complete the acquisition sequentially rather than as a one time deal in contrast to firms in developed economies that enjoy relatively easy access to information emerging market firms face differential access to information on target firms owing to institutional weaknesses and constraints in those markets sequential acquisitions are conceptualized as a real option based strategy whereby the sequential acquirer resolves valuation uncertainty through information gathering and learning after making a toehold purchase the value of a sequential acquisition strategy increases for firms that are at an information disadvantage statistical analysis based on 272 completed acquisitions of chinese listed firms between 1995 and 2003 shows that the sequential method is more likely to be chosen over a single transaction mode when the acquirer is a private firm or when the acquirer is diversifying into a new business area thus we offer a new way of viewing real option strategies in emerging economies by treating sequential acquisitions as information and learning mechanisms as opposed to tools for hedging

top executive pay and firm performance in china the sensitivity of executive pay to share price performance has been the main focus of western executive pay studies reflecting shareholders efforts to reduce agency problems by better aligning the rewards of executives with their own however these studies have ignored motivational effects and possible two way pay performance causation this paper reports chinese executive pay performance sensitivity with international comparisons to examine whether china s unique institutional environment has produced outcomes consistent with those for western market economies this same unique environment makes possible the first estimates of two way causation based on panel data analysis the results show that executive pay and firm performance mutually affect each other through both reward and motivation

financial institutions and markets across countries and over time the updated financial development and structure database this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

currency crises and monetary policy in an economy with credit constraints this paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities the possibility of multiple equilibria including a currency crisis equilibrium with low output and a depreciated domestic currency results from the following mechanism if nominal prices are sticky a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms and thus to a fall in their profits this reduces firms borrowing capacity and therefore investment and output in a credit constrained economy which in turn reduces the demand for the domestic currency and leads to a depreciation we examine the impact of various shocks including productivity fiscal or expectational shocks we then analyze the optimal monetary policy to prevent or solve currency crises we also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms

political sustainability and the design of social insurance this paper examines how the issue of political support affects the design of social insurance it distinguishes between redistributive character and size of social protection three main results emerge first it may be appropriate to adopt a system which is less redistributive than otherwise optimal in order to ensure political support for an adequate level of coverage in the second voting stage second supplementary private insurance may increase the welfare of the poor even if it is effectively bought only by the rich third the case for prohibiting supplementary private insurance may become stronger when the efficiency of private insurance markets increases

the political economy of sin taxes we analyse the determination of taxes on harmful goods when consumers have self control problems we show that under reasonable assumptions the socially optimal corrective tax exceeds the average distortion caused by self control problems further we analyse how individuals with self control problems would vote on taxes on the consumption of harmful goods and show that the equilibrium tax is typically below the socially optimal level when the redistributive effects of sin taxes are taken into account the difference between the social optimum and equilibrium is small at low levels of harm but becomes more pronounced when consumption is more harmful

currency crashes in emerging markets an empirical treatment we use a panel of annual data for over 100 developing countries from 1971 through 1992 to characterize currency crashes we define a currency crash as a large change of the nominal exchange rate that is also a substantial increase in the rate of change of nominal depreciation we examine the composition of the debt as well as its level and a variety of other macroeconomic factors external and foreign crashes tend to occur when output growth is low the growth of domestic credit is high and the level of foreign interest rates are high a low ratio of fdi to debt is consistently associated with a high likelihood of a crash

optimal sin taxes abstract we investigate sin taxes on unhealthy items such as fatty foods that people may by their own reckoning consume too much of we employ a standard optimal taxation framework but replace the standard assumption that all consumers have 100 self control with an assumption that some consumers may have some degree of self control problems we show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus because such taxes counteract over consumption by consumers with self control problems while at the same time they naturally redistribute income to consumers with no self control problems who consume less such taxes can even create pareto improvements finally we demonstrate with some simple numerical examples that even if the population exhibits relatively few self control problems optimal taxes can still be large

currency crises capital account liberalization and selection bias are countries with unregulated capital flows more vulnerable to currency crises efforts to answer this question properly must control for self selection bias since countries with liberalized capital accounts may also have more sound economic policies and institutions that make them less likely to experience crises we employ a matching and propensity score methodology to address this issue in a panel analysis of developing countries our results suggest that after controlling for sample selection bias countries with liberalized capital accounts experience a lower likelihood of currency crises that is when two countries have the same likelihood of allowing free movement of capital based on historical evidence and a very similar set of economic and political characteristics and one country imposes controls and the other does not the country without controls has a lower likelihood of experiencing a currency crisis this result is at odds with the conventional wisdom and suggests that the benefits of capital market liberalization for external stability are substantial

distinguished lecture on economics in government exchange rate regimes is the bipolar view correct the choice of appropriate exchange rate regime which for economies with access to international capital markets increasingly means a move away from the middle ground of pegged but adjustable fixed exchange rates towards the two corner regimes of either flexible exchange rates or a fixed exchange rate supported if necessary by a commitment to give up altogether an independent monetary policy lawrence h summers 2000 p 8

a fiscal theory of currency crises an exchange rate crisis is caused when the fiscal authority lets the present value of primary surpluses inclusive of seigniorage deviate from the value of government debt at the pegged exchange rate in the absence of long term government bonds the exchange rate collapse must be instantaneous with long term government bonds the collapse can be delayed at the discretion of the monetary authority fiscal policy is responsible for the inevitability of a crisis while monetary policy determines its characteristics that is the timing of the crisis and the magnitude of exchange rate depreciation

the effects of a fat tax on french households purchases a nutritional approach this article assesses the effects of a fat tax on the nutrients purchased by french households across different income groups this is done by making a preliminary estimation of price elasticities using a complete demand system on household scanner data and by calculating nutrient elasticities using estimated price elasticities we find that a fat tax has small and ambiguous effects on nutrients purchased by french households and a slight effect on body weight in the short run with a greater effect in the long run such a tax generates substantial tax revenue but is highly regressive

the incidence of sin taxes abstract we show that the burden of sin taxes does not necessarily fall most heavily on individuals with the highest level of consumption and derive a condition for cases where sin taxes improve individual welfare we further argue that taxes on goods such as unhealthy food can be progressive when consumers have time inconsistent preferences

market liberalization and firm performance during china s economic transition this paper examines the impact of market liberalization on firm performance through institutional changes during the economic reform in china the conceptualization focuses on the decentralization of control ownership restructuring and industrial policy as the primary institutional changes to implement market liberalization in china these institutional changes affect firm performance by shaping managerial incentives affecting transaction and agency costs and making selective resource allocations across and within industries using a large scale data set including 23 577 firms between 1992 and 1996 the study examines how market liberalization affects the profitability and productivity of chinese firms and the relationship between ownership change and the performance of state owned enterprises

rules of thumb for sovereign debt crises abstract this paper investigates the economic and political conditions that are associated to the occurrence of a sovereign debt crisis we use a new statistical approach classification and regression tree that allows us to derive a collection of rules of thumb that help identify the typical characteristics of defaulters we find that not all crises are equal they differ depending on whether the government faces insolvency illiquidity or various macroeconomic risks we also characterize the set of fundamentals that can be associated with a relatively risk free zone this classification is important for discussing appropriate policy options to prevent crises and improve response time and prediction

property rights and stratification in socialist redistributive economies in socialist economies work organizations differ widely in the compensation they provide employees despite the absence of key product and labor market processes thought to ex plain such inequalities in market economies existing theories of stratification in socialist economies focus on the power and privilege of elites but inequalities among organizations are not created by political particularism or elite power in this paper i sketch elements of an institutional theory of stratification anchored in a conception of property rights the right to derive income from productive assets two aspects of property rights guide the analysis 1 the dispersion of property rights across a hierarchy of governmentjurisdictions and 2 the exercise of these rights by government jurisdictions as they extract revenues primarily through taxation extraction of revenues from a work organization varies with the budgetary resources of a government jurisdiction and the dependence of that jurisdiction on the out puts of the organization variation in revenue extraction in turn creates inequalities among work organizations in their abilities to provide benefits to employees an analysis of survey data on the provision of housing and benefits by work organizations in the large industrial city of tianjin china provides provisional support for these ideas s tudents of communist states have had little reason to dispute lenski s 1966 claim that the distribution of rewards in a society is a func tion of the distribution of power p 63 as ex emplified in szelenyi s wedding of elite theory to institutional economics this idea has been de veloped primarily in terms of the power of class es or occupational groups szelenyi 1978 be gan with the observation that planned economies operate according to redistributive rather than market principles however the process of re

earmarking and the political support of fat taxes a fat and a healthy good provide immediate gratification and cause health costs or benefits in the long run which are misperceived additionally the fat good healthy good increases decreases health care costs by increasing decreasing the probability of suffering from a chronic disease in the future individuals differ in income and in their degree of misperceptions concerning the health effects of the consumption of fat and of healthy goods the level of the fat tax is determined through majority voting individuals vote according to their misperceived utility function consequently excessive fat consumption is not due to a self control problem but due to information deficiencies or cognitive inability to process information a fraction of the fat tax proceeds is earmarked to reduce health insurance premiums while the remaining fraction finances a subsidy on the healthy good this earmarking rule is determined at a constitutional stage to maximize utilitarian or rawlsian welfare anticipating the induced political equilibrium we show that the fat tax in the political equilibrium is always lower than the utilitarian fat tax this is no longer necessarily true with a rawlsian objective the determination of the optimal earmarking rule is quite complex even in the utilitarian case it is not just used to boost political support for the fat tax instead it may involve a tradeoff between the fat tax and the healthy good subsidy

united states demand for food and nutrition in the twentieth century the relationships between diet and health are once again the center of debate over farm and food policy targeted food aid programsfood stamps aid to families with dependent children and the women infants and children program can create incentives for food purchases and consumption that are not consistent with those created by programs to support farm prices and incomes marketing orders target prices and deficiency payments the sugar program and farm price supports the result could be that food aid recipients spend more on food but are presented with incentives to eat unhealthy diets due to policy induced price distortions understanding the economic forces behind food and nutrient con

financial institutions and markets across countries and over time this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

governance and uncertainty the trade off between administrative control and commitment this study elaborates upon the motives for initiating equity based collaborations vs acquisition of another firm already having a desired technology we characterize both minority direct investments and joint ventures as options to defer either internal development or acquisition of a target firm in domains where learning about growth opportunities dominates investment activity this incremental mode of governance economizes on the cost of committing resources to a technology with an uncertain value using a sample of 402 transactions in the biotechnology industry we find strong support for the theoretical model the findings suggest that the cost of commitment in the face of technological uncertainty may offset the administrative benefits of hierarchical governance 1998 john wiley sons ltd

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

tax incidence with strategic firms in the soft drink market abstract because soft drink sd consumption is considered to be a contributor to the epidemic of obesity there is a growing interest in evaluating the impact on sd consumption of alternative tax policies in this paper we propose a methodology to evaluate the impact of taxation of a food market taking into account the strategic price response of both manufacturers and retailers we apply this methodology to the french sd market and simulate the impacts of ad valorem and excise taxes we find that firms behave differently when facing an ad valorem tax or an excise tax an excise tax is overshifted to consumer prices while an ad valorem tax is undershifted to consumer prices we find that an excise tax based on the sugar content of sd is the most effective at reducing sd consumption our results also indicate that ignoring strategic pricing by firms leads to misestimations of the impact of taxation by between 15 and 40 depending on the products and the tax implemented in the short term that is ignoring positive long term health effects a 9 cents l excise tax has a small negative welfare effect about 1 person year

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

fiscal imbalances and the dynamics of currency crises abstract this paper analyzes links between the fiscal theory of the price level ftpl and the first generation models after krugman journal of money credit and banking 11 1979 311 325 exploring the idea that a synthesis between the two can become a new framework to analyze the fiscal dimension of currency crises working in a simple synthetic framework we show how external nominal shocks can cause a fiscal imbalance and undermine currency stability resolve two well known paradoxes of the first generation model discuss the role of seigniorage revenues and illustrate how fiscal and interest rate policies interact to determine the magnitude and the timing of speculative attacks and devaluations

political uncertainty and the earmarking of environmental taxes abstract far from being used to secure a double dividend by reducing distorting taxes revenues from environmental taxes seem quite often to be earmarked to particular spending programs in the us for example a range of such taxes feed into environmental trust funds such earmarking runs counter to standard notions of good practice in taxing and spending this paper develops and explores an explanation of such apparent inefficiencies in terms of political uncertainty roughly a green incumbent may chose to earmark revenues if the efficiency loss from doing so is outweighed by the value of constraining subsequent and potentially non green policy makers from wasting the funds raised it emerges for example that those most likely to earmark are green politicians who are politically weak and that earmarking then enables such a policy maker to set the corrective tax higher than they otherwise would but nevertheless lower than the pigovian tax

junk food home cooking physical activity and obesity the effect of the fat tax and the thin subsidy abstract in an effort to reduce the growing prevalence of obesity a tax on junk foods known as fat tax has been proposed the revenue from which could be used to finance a thin subsidy for healthy foods or exercising equipment the present paper addresses the fat tax and thin subsidy within a food intake rational choice model assuming that healthy meals are cooked at home with purchased ingredients and time input the paper examines the effects on obesity of a tax on junk food meals and a subsidy to cooking ingredients distinguishing between a weight conscious and a non weight conscious individual and between a weight conscious individual who is physically active and physically inactive the results show that for a non weight conscious individual a fat tax will unambiguously reduce obesity whereas a thin subsidy may increase obesity however for a weight conscious individual particularly one who is physically active even a fat tax may increase obesity as it may reduce not just the consumption of junk food but also the time devoted to physical activity the paper explores conditions under which obesity will rise fall or remain intact following the introduction of a fat tax or a thin subsidy

capital controls and exchange rate instability in developing economies abstract a large literature on the appropriate sequencing of financial liberalization suggests that removing capital controls prematurely may contribute to currency instability this paper investigates whether legal restrictions on international capital flows are associated with greater currency stability we employ a comprehensive panel data set of 69 developing economies over the 1975 1997 period identifying 160 currency crises we control for macroeconomic political and institutional characteristics that influence the probability of a currency crisis employ alternative measures of restrictions on international payments and account for possible joint causality between the likelihood of a currency attack and the imposition of capital controls we find evidence that restrictions on capital flows do not effectively insulate economies from currency problems rather countries with less restrictive capital controls and more liberalized regimes appear to be less prone to speculative attacks