patterns of agrarian transition karen macoursuniversity of california berkeley and katholieke universiteit leuvenjohan f m swinneneuropean commission and katholieke universiteit leuveni introductioneconomic reforms have induced important output and productivity changesin the agricultural sectors of transition countries tcs there are however large differences between the countries in terms of the direction and themagnitude of these changes for example agricultural output increased con siderably in the east asian tcs while there was a large output fall in thecentral and east european countries ceecs and the former soviet union fsu during transition g 1

does the bond market predict bankruptcy settlements this study shows the extent to which deviations from the absolute priority rule increase or decrease the bankruptcy emergence payoff to traded i e usually junior claimants bondholders the data indicate that on average bondholders benefit albeit slightly from absolute priority rule apr violations this paper also examines the degree to which the bond market in the bankruptcy filing month anticipates departures from the apr and other influences on the payoff to bondholders in other words we investigate the informational efficiency of the market for bankrupt bonds overall despite the complex and lengthy nature of bankruptcy proceedings the results support efficiency the finance literature has traditionally assumed that when a firm enters bankruptcy the creditors become the owners and the value of the firm is distributed according to the absolute priority rule apr the apr states that senior creditors should be fully compensated before junior creditors receive any portion of the bankrupt firm s value and junior creditors should receive full payment before shareholders receive any compensation in practice formal bankruptcy proceedings are complex processes that often violate the apr brown 1989 captures some of the intricacies of this process in a game theoretic model showing that the solution to the bargaining process in bankruptcy can involve deviations from the apr although the solution

stabilizing a previously centrally planned economy poland 1990 stabilization in poland guillermo a calvo and fabrizio coricelli we examine the dynamics of the january 1990 stabilization programme in poland focusing on the substantial and sudden collapse in industrial output and inflation persistence we discuss three non mutually exclusive explanations of these phenomena 1 excessive initial stocks of inventories 2 an exogenous fall in household demand and 3 tight credit we conjecture that tight credit was at centre stage it helped to magnify the fall in output and to coordinate such a fall across sectors we base such a conjecture on the existence of substantial credit segmentation and on the underdevelopment of private credit markets the latter may explain the substantial shrinkage of interenterprise credit compounding the initial contraction of bank credit they argue that credit tightness is reflected in firms offering wages below the programme s ceilings especially given that firms are controlled by workers councils this conjecture is further strengthened by the fact that wages increased and even went beyond the programme s ceilings as credit expanded during the year we argue that the wage hike may be the reason why credit expansion did not result in a major output recovery and inflation persisted during the year

strikes and holdouts in wage bargaining theory and data we develop a private information model of union contract negotiations in which disputes signal a firm s willingness to pay previous models have assumed that all labor disputes take the form of a strike yet a prominent feature of u s collective bargaining is the holdout negotiations often continue without a strike after the contract has expired production continues with workers paid according to the expired contract we analyze the union s decision to strike or hold out and highlight its importance to strike activity strikes are more likely to occur after a drop in the real wage or a decline in unemployment

endogenous borrowing constraints and stagnation in latin america latin america has had striking changes in economic performance over time none more striking than consumption consumption per capita in the year 2004 was roughly the same as it was in 1980 latin america is also an open economic region with several international debt crises this paper studies the time path of consumption using a small open economy real business cycle model with limited commitment i compare the distortions to the planner s pareto weights and investment that are generated endogenously by the model to those that can be recovered from an international extension of a business cycle accounting exercise in the spirit of chari kehoe and mcgrattan 2007 i find that the limited commitment model does a good job at explaining the behavior of latin american consumption and that the endogenous distortions to the planner s pareto weights are very similar to those recovered from the accounting exercise

renegotiation collective action clauses and sovereign debt markets abstract collective action clauses cacs are provisions specifying that a supermajority of bondholders can change the terms of a bond we study how cacs determine governments fiscal incentives sovereign bond prices and default probabilities in environments with and without contingent debt and imf presence we claim that cacs are likely to be an irrelevant dimension of debt contracts in current sovereign debt markets because of the variety of instruments utilized by sovereigns and the implicit imf guarantee nonetheless under a new international bankruptcy regime like that recently proposed by the imf cacs can increase significantly the cost of borrowing for sovereigns contrary to what is suggested in previous empirical literature

bargaining and strikes strikes are generally regarded as an important economic phenomenon and yet good theoretical explanations of them are hard to come by the difficulty is to understand why rational parties should resort to a wasteful mechanism as a way of distributing the gains from trade why could not both parties be made better off by moving to the final distribution of surplus immediately or if it is uncertain to its certainty equivalent and sharing the benefits from increased production

analytics of sovereign debt restructuring abstract this paper develops a simple theoretical model to analyse recent proposals on restructuring of sovereign bonds we find that collective action clauses cacs inserted in bonds resolve the inefficiencies caused by intra creditor coordination problems providing that all parties have complete information about each other s preferences in such a world statutory mechanisms such as international bankruptcy courts are unnecessary this is no longer the case when the benefits from reaching a restructuring agreement are private information to the debtor and its creditors due to inefficiencies caused by the debtor creditor bargaining problem

sovereign debt restructuring since the early 1980 s patterns of emergingmarket finance have changed significantly greater integration of capital markets and a trend toward a greater use of direct lending through bonds has led to relatively decreased use of indirect finance through syndicated bank loans these changes have produced benefits to investors through opportunities for risk diversification and to emerging market sovereign borrowers by increasing the investor base the broadened investor base in bond financing however raises problems of coordination and collective action in the event of a sovereign borrower s default and restructuring now three parties are involved in determining the debt markdown required to produce solvency the debtor creditors and the global taxpayer through international financial institutions ifi s the complex relationships among the borrowers creditors and the global taxpayer have made restructuring obligations a costly and time consuming exercise especially with the possibility of holdouts both the sovereign borrower and its creditors have an incentive to avoid a restructuring in the hope of financial assistance from the global taxpayer sovereign governments may not undertake the politically painful steps involved in beginning a restructuring when there is always the hope that official assistance will be forthcoming creditors may not accept a reduction in the value of their claims also in the hope that official assistance will be forthcoming costs of postponed and disorderly restructurings are real and substantial delays in restructuring can drain a country s resources and increase the ultimate costs of restoring financial sustainability creditors bear a burden as well because the losses associated with the restructuring are reflected in values of

patterns of transition from plan to market patterns of transition from plan to market martha de melo cevdet denizer and alan gelb hungary s bankruptcy experience 1992 1993 cheryl w gray sabine schlorke and miklos szanyi why and when do governments initiate public enterprise reform jose edgardo campos and hadi salehi esfahani roads land use and deforestation a spatial model applied to belize kenneth m chomitz and david a gray industrial centralization in indonesia j vernon henderson and ari kuncoro guidlines on searching for a dalton improving tax reform an illustration with data from indonesia shlomo yitzhaki and jeffrey d lewis a new data set measuring income inequality klaus deininger and lyn squire

duration of sovereign debt renegotiation abstract in the period since 1990 sovereign debt renegotiations take an average of five years for bank loans but only one year for bonds we provide an explanation for this finding by highlighting one key difference between bank loans and bonds bank loans are rarely traded while bonds are heavily traded on the secondary market in our theory the secondary market plays a crucial information revelation role in shortening renegotiations consider a dynamic bargaining game with incomplete information between a government and creditors the creditors reservation value is private information and the government knows only its distribution delays in reaching agreements arise in equilibrium because the government uses costly delays to screen the creditors reservation value when the creditors trade on the secondary market the market price conveys information about their reservation value which lessens the information friction and reduces the renegotiation duration we find that the secondary market tends to increase the renegotiation payoff of the government but decrease that of the creditors while increasing the total payoff we then embed these renegotiation outcomes in a simple sovereign debt model to analyze the ex ante welfare implications the secondary market has the potential to increase the government ex ante welfare when the information friction is severe

solving the feldstein horioka puzzle with financial frictions unlike the prediction of a frictionless open economy model long term average savings and investment rates are highly correlated across countries a puzzle first identified by feldstein and horioka 1980 we quantitatively investigate the impact of two types of financial frictions on this correlation one is limited enforcement w here contracts are enforced by the threat of default penalties the other is limited spanning where the only asset available is noncontingent bonds we find that the calibrated model with both frictions produces a savings investment correlation and a volume of capital flows close to the data to solve the puzzle the limited enforcement friction needs low default penalties under which capital flows are much lower than those in the data and the limited spanning friction needs to exogenously restrict capital flows to the observed level when combined the two frictions interact to endogenously restrict capital flows and thereby solve the feldstein horioka puzzle

repeated moral hazard with a time inconsistent agent abstract i consider a repeated principal agent model with moral hazard in which the agent has preferences which are widely used to capture time inconsistency i analyze the case where the agent is sophisticated in the sense that he is fully aware of his inconsistent discounting i characterize the optimal wage scheme for such an agent and compare it to time consistent benchmarks the marginal cost of rewarding the agent for high output today exceeds the marginal benefit of delaying these rewards until tomorrow in this sense the principal does not smooth the agent s rewards over time when facing a sophisticated agent it is optimal for the principal to reward the good performance more and punish the bad performance more in the early period relative to the optimal wage scheme for a time consistent agent

measures of shortage and monetary overhang in the polish economy this paper attempts to cast light on the debate about the existence and size of a monetary overhang in household money balances in command economies four measures of shortage or price deformation are constructed for the polish economy and used to test for the existence of shortage money balances in poland 1965 1989 the approach involves estimating relationships for household money balances 1965 1993 a period that spans both central planning and the post 1990 period of liberalised prices the principal finding is that the evolution of household money balances in poland cannot be explained without invoking measures of shortage and an overhang during the planning period the estimates suggest an overhang with a maximum of just over 40 of money balances

stabilization and growth in transition economies the early experience this paper analyzes the growth and stabilization experience in 26 transition economies in eastern europe the former soviet union and mongolia for the period 1989 1994 inflation rates have declined significantly in most countries following an inflation stabilization program growth resumes after stabilization occurs typically with a lag of about two years reducing inflation thus appears to be a precondition for growth an econometric analysis of the short run determinants of inflation and growth illustrates the key roles of fixed exchange rates improved fiscal balances and structural reforms in spurring growth and lowering inflation and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms

stabilization and recession in a transitional economy the case of poland abstract this paper analyzes the polish experiences in 1990 of the stabilization shock therapy implemented simultaneously with the set of system transforming reforms the orthodox exchange rate based stabilization program brought about a substantial reduction in inflation and the establishment of market clearing prices but the economy fell into unexpectedly deep recession our findings suggest that the recession which has been common to all postsocialist countries was mainly caused by a system specific output decline related to the dismantling of a centrally planned system and the transition to market economy

the postsocialist transitions in comparative perspective policy issues and recent experience abstract this paper examines the postsocialist transition in eastern europe the reforms in china and the postdirigiste transitions in latin america the paper analyzes the initial conditions that gave rise to processes of reform in the different countries the main strategies for economic reform shock treatment gradualism and mixed strategies discussing their conditioning factors and rationale the actual record of these policies in terms of key indicators of economic performance such as inflation gdp growth external sector sustainability progress in privatization and the social costs of adjustment in addition the paper discusses interdependencies between economic and political reforms during the course of systemic transformation

transition and agricultural labor reforms have strongly affected agricultural employment in transition countries but in remarkably different ways we present a theoretical model and an empirical analysis to explain differences in labor adjustment during transition we show that the differences are due to a combination of variations in initial conditions and differences in reform policies and effects the removal of price distortions and subsidies caused wage and price adjustments during transition and a reduction in labor demand in agriculture surplus labor outflow from agriculture was further stimulated by the privatization of the farm assets as they improve incentives and remove constraints for optimal factor allocation and structural adjustment the shift to individual farms which was especially strong in labor intensive production systems with low labor productivity in agriculture has reduced the outflow of labor from agriculture by improving farm governance and labor efficiency although this effect was mitigated by losses in scale economies due to disruptions and market imperfections in transition in general labor outflow was considerably lower on individual farms than on corporate farms due to a combination of factors related to human capital access to finance and physical capital in the last section of the article we present a general framework for understanding labor adjustments in transition countries specifically we show that there are several patterns of labor transition in one pattern followed by e g the czech republic and hungary there is initially a strong survival of the restructured large scale corporate farms that have laid off many workers in the second phase of transition gradually the importance of individual farms increases in other countries such as romania the opposite has happened in these countries there is an immediate strong shift to individual farms while labor use increases on average in agriculture after this initial phase the shift to individual farms continues albeit more slowly and labor use in agriculture starts to decline finally our analysis shows that in countries such as russia and ukraine much of the surplus labor is still employed by little reformed former collective and state farms major adjustments await more progress in agricultural and general reforms

growth in transition what we know what we don t and what we should abstract this essay surveys macroeconomic issues that marked the transition from planned to market economy in central and eastern european and former soviet union countries we first establish stylized facts of the transition so far we then critically survey the theoretical literature on transition discussing explanations for the initial output fall and mediumterm issues such as optimal speed of transition disorganization institutions and sectoral reallocation as source of output dynamics we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts we conclude with suggestions for future research

sovereign debt restructurings preemptive or post default sovereign debt restructurings can be implemented preemptively prior to a payment default we code a comprehensive new dataset and nd that preemptive restructurings i are frequent 38 of all deals 1978 2010 ii have lower haircuts iii are quicker to negotiate and iv see lower output losses to rationalize these stylized facts we build a quantitative sovereign debt model that incorporates preemptive and post default renegotiations the model improves the t with the data and explains the sovereign s optimal choice preemptive restructurings occur when default risk is high ex ante while defaults occur after unexpected bad shocks empirical evidence supports these predictions jel f34 f41 h63

structural adjustment and international trade in eastern europe the case of poland poland andrew berg and jeffrey sachs the polish economic programme is important not only in its own right hut as a key example of the benefits and possible costs of a rapid movement to convertibility this paper proposes an analytical framework and new estimates of the costs and benefits the framework shows that convertibility revolves around the relationship of two nominal variables the money supply and the nominal exchange rate return to convertibility is achieved not mainly through a real depreciation but through a nominal depreciation which helps to bring the overall price level back into line with nominal aggregate demand and particularly with the money supply the new estimates show that the costs a drop in living standards and output are less than commonly believed given the extreme inflationary conditions in 1989 and the shock following the disintegration of cmea trade the loss of output was not caused in any important way by the rapid move to free trade

strategic models of sovereign debt renegotiations the sovereign debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter this paper explores that assumption by analyzing three game theoretic models of debt renegotiations in two of the models both of which are built on the traditional one sector growth model all the subgame perfect equilibria have an extreme form in which the game s surplus is captured by the creditor the third game has many subgame perfect equilibria that do not have this feature however the roles of various assumptions in all three games are examined

sovereign risk and secondary markets conventional wisdom says that in the absence of default penalties sovereign risk destroys all foreign asset trade we show that this conventional wisdom rests on one implicit assumption that assets cannot be retraded in secondary markets without this assumption foreign asset trade is possible even in the absence of default penalties this result suggests a broader perspective regarding the origins of sovereign risk and its remedies sovereign risk affects foreign asset trade only if default penalties are insufficient and secondary markets work imperfectly to reduce its effects one can either increase default penalties or improve the working of secondary markets jel f34 g12 g15

the political economy of price ceilings for necessities abstract developing countries and countries in eastern europe frequently institute price ceilings for necessities such as food or gasoline which implies these goods are provided at prices fixed below market prices to finance the provision of these goods countries often resort to monetary finance which may lead to an accelerating inflation this paper analyses these phenomena in a model where voters decide periodically on stabilizations that amount to adjustments in the price ceilings of the subsidized good recurrent subsidization of necessities through price ceilings occurs if it benefits the median voter the paper also considers the timing of a once and for all elimination of price ceilings

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

how to reform a planned economy lessons from china the countries of eastern europe and the former soviet union have been flooded with advice from the west on how to liberalize their planned econo mies this advice is unfortunately offered in an empirical vacuum no one knows how these econo mies will react to the proposed liberalization meas ures there exists however a neglected source of information china offers a long time series of data over a decade s worth on the effects of reforms on a planned economy china s reforms were gradual but their cumulative effect has been large and they have been remarkably successful china s experiments provide some practical les sons on what kinds of reforms can work elsewhere the dominant school of thought among economists favours the big bang policy of reforming quickly and according to a comprehensive plan partial reforms in this view are useless they will be negated by the remnants of the planning system the proponents of big bang reform have been influential with poland czechoslovakia and rus sia announcing plans for a rapid transition to capi talism