group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

bequests and informal long term care evidence from hrs exit interviews informal long term caregiving for frail elderly individuals by their children may induce parents to compensate their children for their help to test this hypothesis i use the exit interview from the health and retirement study hrs my results show that the decision to care for one s parents has a significant positive impact on the incidence and amount of bequests received in addition increasing the amount of care relative to one s siblings significantly increases the proportion of bequest within a family furthermore i find that the positive nexus of caregiving and bequest requires a written will as a contract between the parent and the helping child

crossing the lines the conditional relation between exchange rate exposure and stock returns in emerging and developed markets this paper examines the importance of exchange rate exposure in the return generating process for a large sample of non financial firms from 37 countries we argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm level currency exposures when conditioning on the exchange rate change we further show that the realized return to exposure is directly related to the size and sign of the exchange rate change suggesting fluctuations in exchange rates as a source of time variation in currency return premia for the entire sample the return impact ranges from 1 2 to 3 3 per unit of currency exposure and it is larger for firms in emerging markets compared to developed markets overall the results indicate that foreign exchange rate exposure estimates are economically meaningful despite the fact that individual time series results are noisy and many exposures are not statistically significant and that exchange rate exposure plays an important role in generating cross sectional return variation moreover we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

the response of multinationals foreign exchange rate exposure to macroeconomic news abstract we use intraday data to estimate the daily foreign exchange exposure of u s multinationals and show that macroeconomic news affects these firms foreign exchange exposure news creates a substantial shift in the joint distribution of stock and exchange rate returns that has both a transitory and a persistent component for example a positive domestic demand surprise as reflected in higher than expected nonfarm payroll increases the value of the low exposure domestic activities and results in a persistent decrease in foreign exchange exposure

gifts bequests and family incentives abstract in this note we use the theory of incentive contracting to characterize the pattern of financial transfers within the family using an altruistic model based on bounded rationality with one parent and two children we show that the parent may provide a lower gift to the less well off child while bequests are always compensatory

dynamic aspects of family transfers parents transfer a great deal to their adult children and we have rich theoretical models providing a framework for these transfers however both the models and existing empirical work typically examine behavior in the cross section to date we know little about the dynamic aspects of family transfers here i examine transfers over a span of 17 years and find substantial changes in recipiency over time and a strong negative correlation between transfers and transitory income i also find that events such as job loss and divorce are strong predictors of parental transfers and although rare are typically associated with larger transfers than income alone might predict finally transfers are distributed unequally across siblings and perhaps surprisingly the distribution of transfers becomes even more unequal when examined over an extended period of time than in any single year the evidence presented here thus suggests that dynamic analyses can provide insights into behavior that are impossible to obtain in a static context

the effect of domestic uncertainty on the real options value of international investments scholars have noted that international investments have the potential to provide firms with real options value under uncertainty to assess this issue prior studies have tended to focus primarily on exchange rate volatility although multinational firms face other types of uncertainty as well including those stemming from their domestic operating environment the role of such uncertainty for firms flexibility needs has not been previously considered in this study we compare the influence of both domestic economic uncertainty and exchange rate uncertainty on the real option value of international investments of korean firms over 16 years of varying uncertainty we find evidence that an international investment network characterized by greater breadth and lower depth is associated with higher firm value under domestic economic uncertainty exchange rate uncertainty however was not found to play a role in firms need for flexibility the results suggest that firms are able to hedge exchange rate uncertainty by using mechanisms such as forward contracts or derivatives thus potentially reducing the impact of this type of uncertainty on their operations

evidence on adverse selection equilibrium signaling and cross subsidization in the insurance market the configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium deductible menu and the demand function as a standard hedonic system using contractual data from a representative insurer we estimate a reduced form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage the data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks

progressive estate taxation we present a model with altruistic parents and heterogeneous productivity we derive two key properties for optimal estate taxation first the estate tax should be progressive so that parents leaving a higher bequest face a lower net return on bequests second marginal estate taxes should be negative so that all parents face a marginal subsidy on bequests both properties can be implemented with a simple nonlinear tax on bequests levied separately from the income tax these results apply to other intergenerational transfers such as educational investments and are robust to endogenous fertility choices both estate or inheritance taxes can implement the optimal allocation but we show that the inheritance tax has some advantages finally when we impose an ad hoc constraint requiring marginal estate taxes to be nonnegative the optimum features a zero tax up to an exemption level and a progressive tax thereafter

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

pass through and exposure firms differ in the extent to which they pass through changes in exchange rates into foreign currency prices and in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates because pricing affects profitability a firm s pass through and exposure should be related this paper develops models of exporting firms under imperfect competition to study these related phenomena from these models we derive the optimal pass through decisions and the resulting exchange rate exposure the models are estimated on eight japanese export industries using both the price data pass through and financial data for exposure exchange rates can have a major inf luence on the pricing behavior and profitability of exporting and importing firms firms differ in the extent to which they pass through the change in exchange rates into the prices they charge in foreign markets they also differ in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates previous papers have studied either pass through or exposure but none has studied these two phenomena together yet because pricing directly affects profitability the exposure of a firm s profits to exchange rates should be governed by many of the same firm and industry characteristics that determine pricing behavior this paper develops models of firm and industry behavior that are used to study these closely related phenomena together it also provides estimates of pass through and exposure behavior using data from japanese export industries to examine pass through behavior and exchange rate exposure we model a firm with sales to a foreign export market this exporting firm competes with a foreign firm in that export market the costs of the exporting firm are based primarily in the local domestic currency while the foreign firm

exposure and markups this article examines how to properly specify and test for factors that affect exchange rate exposure starting from theoretical underpinnings and a sample of u s manufacturing industries between 1979 and 1995 we find that 4 of 18 industry groups are significantly exposed to exchange rate movements through the effect of industry competitive structure export share and imported input share on average a 1 appreciation of the dollar decreases the return of the average industry by 0 13 consistent with our model s predictions as an industry s markups fall rise its exchange rate exposure increases decreases exchange rate movements are an important source of risk for a firm they affect a firm s expected cash flows and or change the terms of competition for exporters importers and multinationals hung 1992 estimates that during the 1980s u s manufacturing industries lost approximately 23 billion year or 10 of total profits due to the dollar s movements surprisingly early studies which assume exchange rate exposure to be constant e g jorion 1990 bodnar and gentry 1993 and amihud 1994 find that exchange rates have no effect on the stock returns of u s multinationals exporters or manufacturing industries recently however allayannis 1997 and bodnar dumas and marston 1998 examine time varying exposure of industry returns 1 in particular the former article focuses on the effect the variation of u s industries import and export shares have on exposure while the latter focuses on pass through and exposure in a sample of japanese export oriented industries besides trade shares and pass through exchange rate exposure also depends on the markup of an industry specifically in industries with

risky choices and correlated background risk the analysis of a risky project should take into account not only uncertainties about the return from that project project risk but also uncertainties associated with other ongoing projects and with exogenous factors that can impact final wealth background risk the presence of background risk can change the optimal course of action with respect to a project and ignoring such risk might lead to a poor decision most work on background risk assumes that project risk and background risk are independent and are additive in their impact on wealth however independence is often unrealistic and background risk operates in a multiplicative manner in many situations we relax the independence assumption and consider a model with both additive and multiplicative background risk the optimal decisions in the correlated setting can be very different than those that would appear optimal if the correlation were ignored the impact of correlation differs in the additive and multiplicative cases with positive correlation being beneficial in some cases and negative correlation in others the analytical and numerical results indicate that in analyzing decision making problems it is very important to understand the direction and degree of dependence between project risk and background risks

issue costs in the eurobond market the effects of market integration this study compares the issuance costs of eurobonds before and after the completion of the economic and monetary union emu in 2002 we find that the introduction of the euro has significantly reduced the issue cost of euro denominated bonds compared to bonds denominated in the legacy currencies the reduction in issue cost is not due to a decrease in underwriter compensation but rather to the elimination of underpricing the difference between the market price after trading commences and the offering price underwriter fee has declined substantially after the completion of the emu but this decline has been offset by an increase in underwriter spread the difference between the offering price and the guaranteed price to the issuer leaving total underwriter compensation unchanged the emu is also associated with significant reductions in bond maturity and syndicate size consistent with its expected effects on liquidity and issue costs in the eurobond market

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

the efficiency of competitive equilibria in insurance markets with asymmetric information abstract this paper addresses the relationship between competitive equilibria and efficient allocations in an insurance market with asymmetric information using the definition of second best efficiency proposed by harris and townsend 1981 for environments characterized by informational assmmetry the efficiency properties of several proposed market equilibria are examined we find an analogue to the first optimality theorem a miyazaki wilson equilibrium always results in a second best allocation

is everything neutral in his well known analysis of the national debt robert barro introduced the notion of a dynastic family this notion has since become a standard research tool particularly in the areas of public finance and macroeconomics in this paper we critique the assumptions on which the dynastic model is predicated and argue that this framework is not a suitable abstraction in contexts in which the objective is to analyze the effects of public policies we reach this conclusion by formally considering a world in which each generation consists of a large number of distinct individuals as opposed to one representative individual we point out that family linkages form complex networks in which each individual may belong to many dynastic groupings the resulting proliferation of linkages between families gives rise to a host of neutrality results including the irrelevance of all public redistributions distortionary taxes and prices since these results are not at all descriptive of the real world we conclude

advantageous selection in insurance markets this article reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision risk tolerant individuals take few precautions and are disinclined to insure but they are drawn into a pooling equilibrium by the low premiums created by the presence of safer more risk averse types taxing insurance drives out the reckless clients allowing a strict pareto gain this result depends on administrative costs in processing claims and issuing policies as does the novel finding of a pure strategy partial pooling subgame perfect nash equilibrium in the insurance market copyright 2001 by the rand corporation

bequests as signals implications for fiscal policy this paper explores how bequests affect redistributive fiscal policies the main premise underlying our approach is that bequests act as a signal of parental affection it is shown that private transfers in the form of bequests may not offset public transfers to a significant extent even though such private transfers are altruistically motivated and are strictly positive for all but a negligible set of households this is notable since these conditions are normally believed to yield a fully offsetting response ricardian equivalence we explicitly identify circumstances under which the departure from ricardian equivalence is large notably the departure may be quite large even when our model is observationally very close to one in which ricardian equivalence is known to hold in the sense that children care very little about parental affection

fiscal policy with impure intergenerational altruism recent work demonstrates that dynastic assumptions guarantee the irrelevance of redistributional policies distortionary taxes and prices the neutrality of fiscal policy ricardian equivalence is only the tip of the iceberg this paper investigates the possibility of reinstating approximate ricardian equivalence by introducing a small amount of friction in intergenerational links if ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results then friction may dissipate the effects that generate strong neutrality without significantly affecting the ricardian result however models with friction have other untenable implications and thus the theoretical case for ricardian equivalence remains tenuous copyright 1991 by the econometric society

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

joint liability borrowing and suicide the case of japan abstract this paper develops a model for joint liability borrowings that facilitates credit market transactions ex ante but may induce the borrower s suicide ex post through the stigma associated with default a japanese suicide survey provides some supportive evidence

a model of electoral competition with incomplete information a model of two candidate electoral competition is developed in which voters are uncertain about the policy either candidate would implement if elected candidates simultaneously announce policy positions from which voters attempt to infer the true positions the candidates would adopt announcing a position different from the true position is costly to the winning candidate with these costs increasing as the difference between the true policy and the announced policy increases a refinement of the sequential equilibrium concept is used to describe the behavior of candidates and voters

risk sharing within families evidence from the health and retirement study abstract we report strong empirical support for the presence of self interest based risk sharing within extended families in the u s a standard model of self interest based risk sharing predicts that the share of current family income consumed by a child positively depends on that child s permanent income it follows that parental transfers to children that are expected to earn more over the period of risk sharing arrangements should exhibit less sensitivity to the recipient s income fluctuations we test this distinguishing prediction of self interest based risk sharing by exploiting the variation of transfer receipts among siblings observed over 17 years of longitudinal data spanned by the health and retirement study

savings of the elderly and desired bequests cross section data often show that the wealth of the elderly increases with age even at advanced ages these and other results suggest that the life cycle hypothesis of consumption should be augmented to include a bequest motive for saving in this paper the author proposes a model of bequests and a test for a bequ est motive using panel data he finds that over a ten year period the elderly in the data set dissaved in contradiction to most cross section results the test offers no support for a bequest motive copyright 1987 by american economic association

post mortem reputation compensatory gifts and equal bequests suppose that gifts are private information only known to donor and donee while bequests are public also suppose that parents care about the reputation that their bequest behavior will give them and that reputation deteriorates with the difference in amounts inherited then the optimal choice of altruistic parents is compensatory gifts and equal bequests this is also what data show

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

bequests sibling rivalry and rent seeking we examine bequest sharing rules where sibling rivalry creates wasteful competition for intergenerational transfers we show that equal division of bequests minimizes rent seeking expenditures by siblings while primogeniture maximizes rent seeking costs our results lend theoretical support to the empirical findings of equal bequests without appeal to complex models of the parent child relationship

dynamic inefficiencies in insurance markets evidence from long term care insurance we examine whether unregulated private insurance markets efficiently provide insurance against reclassification risk the risk of becoming a bad risk and facing higher premiums to do so we examine the ex post risk type of individuals who drop their long term care insurance contracts relative to those who are continually insured consistent with dynamic inefficiencies we find that individuals who drop coverage are of lower risk ex post than individuals who were otherwise equivalent at the time of purchase but who do not drop out of their contracts these findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk this abstract was borrowed from another version of this item

competitive insurance markets with two unobservables i study a screening game in a competitive insurance market in which insurance customers differ with respect to both accident probability and degree of risk aversion it is shown that indifference curves of customers may cross twice thus the single crossing property does not hold when differences in risk aversion are sufficiently large firms cannot use policy deductibles to screen high risk customers types may be pooled in equilibrium or are separated by raising premiums above actuarially fair levels this leads to excessive entry of firms in equilibrium

inter vivos transfers and exchange most parents divide their bequests equally among their children whereas inter vivos transfers are usually unequal we propose that exchange is better for inducing inter vivos transfers than bequests inter vivos transfers can be adjusted quickly to the amount of care are less costly than writing a will and can be kept secret from other family members and the public the results from national longitudinal data show that as expected if a parent gives any inter vivos transfers she is more likely to give to children who provide informal care informal care has no effect on the equality of intended bequests

fertility social mobility and long run inequality dynastic altruistic models with endogenous fertility have been shown to be unable to generate enough intergenerational persistence using a bewley model with endogenous fertility we show that it is possible to recover persistence key ingredients for our result include exponential child discounting discrete number of children diminishing costs of child rearing and an elasticity of intergenerational substitution larger than one our model provides a unified framework of analysis for long run inequality that incorporates fertility choices

compensatory inter vivos gifts parents transfer motives are important for understanding e g macroeconomics income re distribution savings and public finance using data from six biennial waves of the health and retirement study 1992 2002 we estimate censored regression models with nested multilevel error components first we interpret our findings that inter vivos transfers from parents to children are gifts rather than temporary help to overcome liquidity constraints second inter vivos gifts are compensatory in the sense that lifetime poorer children will receive higher transfers than their lifetime richer siblings third inter vivos gifts do not however make up the entire difference in lifetime incomes copyright 2009 john wiley sons ltd

money talks an experimental investigation of cheap talk and burned money we experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes theoretically a large number of equilibria exist side by side in which senders either use costless messages money or a combination of the two we find that senders prefer to communicate through costless messages only when the interest disalignment between sender and receiver increases cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages a behavioral model due to kartik 2009 assuming that sellers bear a cost of lying fits the data best

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

the effects of industry structure on economic exposure abstract a firm is subject to economic exposure if changes in exchange rates affect the firm s value as measured by the present value of its future cash flows this paper shows that in many forms of competition including the most commonly studied case of monopoly the economic exposure of an exporting firm is simply proportional to the firm s net revenues based in foreign currency this simple result breaks down under some but not all forms of competition between the exporting firm and foreign firms in that case the exporting firm needs to know about the price elasticity of its product demand and its marginal cost in order to assess its exposure to exchange rates the key determinant of economic exposure therefore is the competitive structure of the industry in which a firm operates

the use of foreign currency derivatives corporate governance and firm value around the world abstract this paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty nine countries with significant exchange rate exposure derivatives can be used for managers self interest for hedging or for speculative purposes we hypothesize that investors can appeal to a firm s internal firm level and external country level corporate governance to draw inferences on a firm s motive behind the use of derivatives since well governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers self interest consistent with this explanation we find strong evidence that the use of currency derivatives for firms that have strong internal firm level or external country level governance is associated with a significant value premium

in search of capital crunch supply factors behind the credit slowdown in japan the seeming failure of loose monetary policy to reactivate japan s economy has led some observers to suggest that the usual credit channels through which monetary policy affects the real economy are blocked and this is because of a pervasive shortage of bank capital that has induced a leftward shift in the supply of bank credit this is the so called capital crunch hypothesis this paper finds support for the hypothesis in the bank data for 1997 a year during which the landscape of the japanese financial system underwent some fundamental changes

bequest behavior and the effect of heirs earnings testing the altruistic model of bequests that parents transfer resources to children because of altruistic concern is a reasonable a priori assumption however economic theories of altruistic transfers have produced many counterintuitive conclusions and consequently much debate when applied to bequests these theories predict that inheritances will compensate for earnings differences between siblings as well as between parents and children this paper tests these implications using a new data set centered on federal estate tax returns little support can be found for an altruistic theory of bequests this finding has implications for macroeconomic policy government transfer programs and inequality copyright 1996 by american economic association

foreign exchange exposure of us tourism related firms abstract to date literature on foreign exchange risk has paid a particular attention to multinationals in trade related industries the tourism sector is also sensitive to the exchange rates between travelers home countries and their destinations suspecting that the exposure of domestic tourism related firms to foreign exchange risk results from price elasticity of demand the current study tested the cash flow exposure of sample firms accounting for nonlinearity asymmetry and lagged effects as a result a significant percentage 78 of domestic tourism related firms was found to have significant foreign exchange exposure this study also found that exchange rate exposure for tourism related firms was nonlinear asymmetric and lagged the evidence implied that several tourism related firms are passive regarding their exposure and may face financial burdens caused by demand fluctuations implications and suggestions are presented along with the findings of the study

socio economic studies on suicide a survey abstract in this paper we review economic theories and empirical studies on the socio economic aspects of suicide through our survey we would like to emphasize the importance of studying suicide by employing a rational approach that complements the medical perspective on suicide we first introduce major economic theories of suicide and then present a summary of a variety of empirical studies from the socio economic perspective to shed light on the mixed empirical evidence we employ a meta regression method to investigate how the existing empirical results vary we have identified a publication bias not highlighted previously in the existing literature with respect to several commonly employed socio economic factors several characteristics of existing studies have been identified as influencing the qualitative outcome we then discuss the recent developments in economic studies on suicide on the basis of the authors ongoing project on suicide in the concluding section we point out some issues for further studies

investment in manufacturing exchange rates and external exposure abstract this paper introduces a new measure of external exposure which emphasizes exposure to external markets both through export sales and imported inputs into production and uses this measure to explore the linkage between exchange rates and investment in us industry on average manufacturing sectors have evolved to being primarily import exposed by the early 1980s in low price over cost markup sectors markups are relatively unresponsive to exchange rate changes whereas sectoral investment patterns are strongly affected by contrast high markup industries absorb much of the exchange rate fluctuations in markups and pass relatively little through to real investment

the rational nonpurchase of long term care insurance only a tiny fraction of the nonpoor population currently purchases private insurance coverage against long term care ltc costs studies generally attribute the failure to purchase private coverage to unawareness by potential purchasers of the benefits of coverage and a misperception that medicare currently covers long term care i explore alternative reasons for failure to purchase coverage by well informed expected utility maximizing risk averse individuals for whom ltc is associated with a large increase in mortality and for whom family members represent an alternative source of care there may be no demand for ltc insurance even if it is made available at actuarially fair premiums because the main consequence of coverage is to enhance the expected value of one s estate

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

long term care policy with nonlinear strategic bequests abstract we study the design of long term care ltc policies when children differ in their cost of providing informal care parents do not observe this cost but they can commit to a bequest rule specifying a transfer gift or bequest conditional on the level of informal care care provided by high cost children is distorted downwards in order to reduce the rent of low cost ones social ltc insurance is designed to maximize a weighted sum of parents and children s utility when the ltc benefit is uniform and children have no weight in social welfare the risk of becoming dependent is fully insured otherwise the insurance coverage of parents is adjusted to enhance the utility of the caregivers parents are never fully insured against the risk of having a high cost child a general policy conditioning ltc benefits on transfers provides full insurance even against the risk of having high cost children quite surprisingly the level of informal care induced by the optimal uniform or nonuniform policy always increases in the children s welfare weight

linear and nonlinear exchange rate exposure abstract this paper presents a new methodological approach to examine exchange rate exposure which takes account of the role of the market portfolio and macroeconomic variables in exposure regressions exchange rate regimes based on periods of depreciation and appreciation and nonlinear exposure within each regime we show that the stock market s own exposure to exchange rates should be taken into account before considering industry exposure in addition we adjust the exchange rate and the stock market for common economy wide factors that are unrelated to exchange rates within this framework we show that exposure to bilateral exchange rates is statistically and economically important and that industries with extensive international trade are more often exposed than industries with low levels of international trade the signs of exposure coefficients in each regime are consistent with the extent to which an industry exports we also show that nonlinear exposure is often statistically and economically significant interestingly there is little evidence that industries are exposed to a currency basket

inheritances intergenerational transfers and the accumulation of health research on inheritances has largely focused on the motives of the bequeathing regardless of the motivations of the giving generation prior to death wealth is transferred and this additional money may have an impact on the receiving generation in particular inheritances may be correlated with individuals health for several reasons first there may be a causal effect inheritances provide additional financial resources allowing recipients to purchase inputs to health and health care a large literature on socioeconomic status ses and health investigates the effect of financial resources on health second inheritances may signal the overall strength of a dynasty this dynastic strength would manifest itself in both better health and more ability to leave a bequest inheritances could be associated with better health because parents who will eventually bequeath wealth to their children may have disproportionately higher ses which improves the health outcomes of the children third bequests and a bequest motive may signal a stronger interest in one s child this reminder to the child could improve his emotional well being this paper

strategic communication with lying costs i study a model of strategic communication between an uninformed receiver and an informed but upwardly biased sender the sender bears a cost of lying or more broadly of misrepresenting his private information the main results show that inflated language naturally arises in this environment where the sender almost always claims to be of a higher type than he would with complete information regardless of the intensity of lying cost there is incomplete separation with some pooling on the highest messages the degree of language inflation and how much information is revealed depend upon the intensity of lying cost the analysis delivers a framework to span a class of cheap talk and verifiable disclosure games unifying the polar predictions they make under large conflicts of interest i use the model to discuss how the degree of manipulability of information can affect the trade off between delegation and communication copyright 2009 wiley blackwell

why parents play favorites explanations for unequal bequests economists have invested a great deal of effort in trying to understand the motivation for family transfers yet recent empirical work testing the seemingly appealing models of altruism and exchange has led to decidedly mixed results a major stumbling block has been the lack of adequate data we take a fresh look at the issue using responses to an innovative survey question that directly asks mother about the planned division of their estates we find that both altruism and exchange are frequently offered as explanations of behavior and are of nearly equal importance furthermore the explanations are consistent with observable characteristics of the mother lending support to the validity of the question we also find that among step or adopted families genetic ties play an important role because motivating factors appear to differ across families the lack of a consensus among previous researchers about motives ought not to be surprising

testing for evidence of adverse selection in the automobile insurance market a comment in 1994 puelz and snow presented empirical evidence of adverse selection in the market for automobile collision insurance using data from a private insurer they claimed to have found strong evidence of adverse selection in the insurer s portfolio their test was based on individuals choice of deductible in each risk class from the models of rothschild and stiglitz 1976 and wilson 1977 it is well known that if residual adverse selection is present in some risk classes insurers will offer menus of contracts from which insureds will self select at equilibrium higher risk individuals will choose the smaller deductible and will be charged the higher price per unit of insurance dionne doherty and fombaron 2000 an empirical test of the theory is to verify in each risk class whether lower deductibles are chosen by insureds with higher accident proba

international evidence on the determinants of foreign exchange rate exposure of multinational corporations in this paper we explore some of the potential determinants of foreign exchange fx exposure and firm value we contribute to previous research on stock returns and firm value as we have access to a unique survey database and can include as determinants in our empirical analysis the objectives and emphasis on risk management as well as considering previous factors including the nature of the business environment we can also examine any regional influences as our sample includes uk us and asia pacific multinational companies mncs as predicted by theory we find some evidence that mncs with greater foreign operations have a larger magnitude of fx exposure however our proxy for the emphasis of fx management does not have the predicted negative association with the magnitude of fx indicating that managers may focus on short term cash flows in their fx management rather than firm value with regard to the potentially differential regional role of our variables a range of interesting results is found arguably in our most notable such finding we see that the contribution of overseas business to total revenues has no association with the magnitude of fx exposure for us mncs it has a positive role for uk mncs consistent with theory and a negative role for asia pacific mncs which could be explained by macroeconomic and or financial characteristics of the mncs in the sample

caregivers in the family daughters sons and social norms daughters are the principal caregivers of their dependent parents in this paper we study long term care ltc choices by bargaining families with mixed or same gender siblings ltc care can be provided either informally by children or formally at home or in an institution a social norm implies that daughters suffer a psychological cost when they provide less informal care than the average child we show that the laissez faire lf and the utilitarian first best fb differ for two reasons first because informal care imposes a negative externality on daughters via the social norm too much informal care is provided in lf second the weights children and parents have in the family bargaining problem might differ in general from their weights in social welfare we show that the fb allocation can be achieved through a system of subsidies on formal home and institutional care except when children and parents have equal bargaining weights these subsidies are gender speci fic and refl ect pigouvian as well as paternalistic considerations

linear and nonlinear foreign exchange rate exposures of german nonfinancial corporations this paper investigates whether the low significance of the impact of foreign exchange rate risk on firm value reported in previous studies can be explained by the fact that only the linear exposure component has been estimated or that exchange rate indices were used for a comprehensive sample of german firms empirical evidence is presented for the existence of significant linear and nonlinear exposures which can be identified for bilateral as well as multilateral foreign exchange rates the percentage of foreign sales measures of firm liquidity and industry sectors are significant determinants of the exposure

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

inter vivos transfers and intended bequests abstract empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior however these two models are unable to explain the strong tendency for inter vivos transfers to be negatively related to the income of the recipient while bequests bear no relationship to income this paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone in particular the model developed here predicts differing behavior with respect to inter vivos transfers and bequests due to liquidity constraints and uncertainty about the recipient s permanent income the empirical work uses data from the health and retirement study and the asset and health dynamics study the patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well off children while bequests are divided equally across children further the results support the predictions of the model in that differences in inter vivos transfers arise from differences in current income while differences in bequests result when indicators of the children s permanent incomes differ

exchange rate exposure and industry characteristics evidence from canada japan and the usa abstract this paper examines industry level exchange rate exposures for canada japan and the usa measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns some industries in all three countries display significant exposures moreover for each country the exchange rate is important for explaining industry returns at the economy wide level to explore whether exchange rate exposures are systematically linked to the activities of the industries we model exposure as a function of industry characteristics for all three countries the relation between exposure and industry characteristics is broadly consistent with economic theory jel f3

corporate financial policies and performance around currency crises this paper studies firm level leverage and performance measures before and after a currency crisis using data from 17 countries we show that prior to a crisis companies that expect to benefit from currency depreciations increase their leverage more than companies that are expected to be harmed by the depreciation profitability and financial fragility ratios display consistent patterns we provide evidence that the asian crisis is different from the previous european and latin american ones in asia all firms become more fragile after the crisis and their profitability declines and leverage increases further whereas elsewhere there are clear signs of recovery after a crisis occurs

resolving the exposure puzzle the many facets of exchange rate exposure theory predicts sizeable exchange rate fx exposure for many firms however empirical research has not documented such exposures to examine this discrepancy we extend prior theoretical results to model a global firm s fx exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges for a typical sample firm pass through and operational hedging each reduce exposure by 10 15 financial hedging with foreign debt and to a lesser extent fx derivatives decreases exposure by about 40 the combination of these factors reduces fx exposures to observed levels

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

how strong are bequest motives evidence based on estimates of the demand for life insurance and annuities this paper presents new empirical evidence in support of the view that a significant fraction of total saving is motivated by the desire to leave bequests specifically i find that social security annuity benefits significantly raise life insurance holdings and depress private annuity holdings among elderly individuals these patterns indicate that the typical household would choose to maintain a positive fraction of its resources in bequeathable forms even if insurance markets were perfect evidence on the relationship between insurance purchases and total resources reinforces this conclusion

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

financial constraints competition and hedging in industry equilibrium we analyze the hedging decisions of firms within an equilibrium setting that allows us to examine how a firm s hedging choice depends on the hedging choices of its competitors within this equilibrium some firms hedge while others do not even though all firms are ex ante identical the fraction of firms that hedge depends on industry characteristics such as the number of firms in the industry the elasticity of demand and the convexity of production costs consistent with prior empirical findings the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries

trade and exposure are firms that engage in trade more vulnerable to exchange rate risk in this paper we examine the relationship between exchange rate movements firm value and trade our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity firm size industry affiliation and country affiliation the results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements there is little evidence of a systematic link between exposure and trade indeed what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure this may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk and therefore are the most likely to hedge their exposure

investment pass through and exchange rates a cross country comparison using detailed data from the united states canada the united kingdom and japan we examine the implications of exchange rates for time series of sectoral investment both theoretically and empirically we show that investment responsiveness to exchange rates varies over time positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production important differences exist in investment endogeneity across high and low price over cost markup sectors with investment in low markup sectors often significantly more responsive to exchange rates cross country differences in investment response are only partially explained by industrial organization arguments

bequests as signals an explanation for the equal division puzzle in the united states more than two thirds of decedents with multichild families divide their estates exactly equally among their children in contrast gifts given before death are usually unequal these findings challenge the validity of existing theories regarding the determination of intergenerational transfers in this paper we develop a theory that accounts for this puzzle based on the notion that the division of bequests provides a signal about a parent s altruistic preferences the theory can also explain the norm of unigeniture which prevails in other societies

exchange rate exposure abstract in this paper we examine the relationship between exchange rate movements and firm value we estimate the exchange rate exposure of publicly listed firms in a sample of eight non us industrialized and emerging markets we find that exchange rate movements do matter for a significant fraction of firms though which firms are affected and the direction of exposure depends on the specific exchange rate and varies over time suggesting that firms dynamically adjust their behavior in response to exchange rate risk exposure is correlated with firm size multinational status foreign sales international assets and competitiveness and trade at the industry level

a theory of decisive leadership abstract we present a theory that rationalizes voters preferences for decisive leaders greater decisiveness entails an inclination to reach decisions more quickly conditional on fixed information although speed can be good or bad agency problems between voters and politicians create preferences among voters for leaders who perceive high costs of delay and have little uncertainty about how to weigh different aspects of the decision problem and hence who make decisions more rapidly than typical voters officials who aspire to higher office therefore signal decisiveness by accelerating decisions in elections candidates with reputations for greater decisiveness prevail despite making smaller compromises and therefore earn larger rents from office holding

exposure to exchange rate movements abstract this paper suggests an approach to measuring a firm s exposure which depends on the stochastic relationship between the firm s real rate of return and exchange rate movements using a simplified two country model exposure is shown to depend on the extent to which individual asset prices adjust with exchange rates the distribution of such adjustments between countries and the relationship between domestic inflation and exchange rate movements while the distribution of real and nominal positions across countries is also a determinant of exposure it is shown that purely domestic firms no foreign assets or liabilities will typically be exposed

descent rules and strategic transfers evidence from matrilineal groups in ghana abstract traditional descent systems can roughly be divided into patrilineal and matrilineal in the latter a man s heir is not his own child but rather his sister s son the paper examines the implications of this social norm for the pattern of inter vivos transfers using household level data from rural ghana where the largest ethnic group is traditionally matrilineal in particular it tests the predictions of a model of strategic behavior according to which children should respond to the threat of disinheritance by increasing transfers to their parents during lifetime to induce a donation of land before the default matrilineal inheritance is enforced i find that the credibility of customary norms enforcement as proxied by the presence of a nephew in the father s household significantly increases the probability of receiving transfers from children for akans but not for the other groups the effect is specific to nephews and not to other co resident boys this pattern of behavior can affect asset accumulation decisions across generations

people on the verge of death evidence from impacts of celebrity suicides we attempt to identify the population who are vulnerable to emotional shocks by exploiting an unprecedented series of celebrity suicides in south korea during the last decade including one of the most famous actresses as well as a former president our conservative estimates show that for 5 out of 11 celebrity suicides observed 1 celebrity suicide on average yielded to more than 10 excessive suicides per day over a time frame of at least 2 weeks the results indicate that a significant number of people are very much mentally unstable to end their life by emotional shocks that should be irrelevant to their economic status

screening by the company you keep joint liability lending and the peer selection effect we look at an economic environment where borrowers have some information about the nature of each other s projects that lenders do not we show that joint liability lending contracts similar to those used by credit cooperatives and group lending schemes will induce endogenous peer selection in the formation of groups in a way that the instrument of joint liability can be used as a screening device to exploit this local information this can improve welfare and repayment rates if standard screening instruments such as collateral are unavailable

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental

inheritance patterns in migration prone communities of the peruvian highlands abstract on the basis of detailed information on inheritance practices collected in the course of an in depth survey of three andean communities of peru and unlike most empirical studies which rely on remittance functions we have been able to estimate an inheritance function with a view to identifying the main factors associated with particular patterns of land bequests a central result is that the positive relationship between caring and a favourable access to land bequest indeed exists yet is only observed for migrant children whether urban or rural long distance or short distance migrants combined with other findings and observations this result strengthens the case for an interpretation based on an active role of potential heirs in the determination of inheritance outcomes it therefore calls into question the strategic bequest theory which presumes that parents are the ultimate decision makers in this matter in addition our study shows that inheritance patterns are complex besides migration and caring behavior personal characteristics of potential heirs such as gender birth order and family status having children or not do appear to influence division of parental land