mexico and the brady plan mexico has throughout the 1980s been centre stage in the debates and events shaping the sovereign debt problem caught between a sudden collapse of its terms of trade and rising world interest rates mexico suspended debt service payments in august 1982 and ushered in what has since become known as the debt crisis in the following years lending to ldcs dried up and debtor countries were increasingly forced to run high trade surpluses to effect ever growing transfers from poor back to rich countries in the face of falling growth rates and rising inflation in the high debt countries then secretary of the treasury baker proposed the baker plan in return for economic reforms high debt countries would get new access to medium term new loans in addition to rolling over of amortization of old loans new loans had to come both from commercial creditors and the official lending institutions with access to capital markets restored the economic reforms would it was hoped allow the debtors to grow out of debt but experience in the high debt countries showed that the original hopes of the proponents of the baker plan went unfulfilled net transfers out of the borrowing countries went up rather than down as

exploring the niche overlaps between organizational ecology and industrial economics the goal of this essay is to bring the work of organizational ecologists on population dynamics to the attention of economists and to try to engineer an exchange of ideas between the two subjects following a relatively brief exposition of the basic arguments made by organizational ecologists we explore a number of areas where cross fertilization between organizational ecology and industrial economics seems promising these include examining the limits of competitive exclusion exploring how models that focus on selection between firms might apply to selection between products linking models of population dynamics to models which explain changes in market structures over time understanding the sources of structural inertia which limit the ability of firms to react to market events we conclude by making a few observations on what each group of scholars might learn from the other copyright 2001 by oxford university press

rising inequality as a cause of the present crisis the article argues that the economic imbalances that caused the present crisis should be thought of as the outcome of the interaction of the effects of financial deregulation with the macroeconomic effects of rising inequality in this sense rising inequality should be regarded as a root cause of the present crisis i identify four channels by which it has contributed to the crisis first rising inequality creates a downwards pressure on aggregate demand since poorer income groups have high marginal propensities to consume second international financial deregulation has allowed countries to run larger current account deficits and for longer time periods thus in reaction to potentially stagnant demand two growth models have emerged a debt led model and an export led model third in the debt led growth models higher inequality has led to higher household debt as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages fourth rising inequality has increased the propensity to speculate as richer households tend to hold riskier financial assets than other groups the rise of hedge funds and of subprime derivatives in particular has been linked to rise of the super rich

dynamics of niche width and resource partitioning this article examines the effects of crowding in a market center on rates of change in organizational niche width and on organizational mortality it proposes that although firms with wide niches benefit from risk spreading and economies of scale they are simultaneously exposed to intense competition an analysis of organizational dynamics in automobile manufacturing firms in france germany and great britain shows that competitive pressure not only increases the hazard of disbanding but also prompts organizational transformations that give rise to processes of resource partitioning emphasizing the content process distinction in conceptualizing organizational change the article finds that the process effect of changes in niche width and position increases mortality hazards we discuss our findings in light of the processes investigated by the ecological theories of density dependence resource partitioning and structural inertia and point to the theoretical links that help to integrate these theories

forms of trust and conditions for their stability of the three principal approaches to trust we decided to investigate in greater detail the one in which trust is regarded as a belief that the individuals involved hold about a relationship trust was defined as a delegatory relationship based on anticipation of the delegatee s behaviour we reached four main conclusions first the solution to the problem posed by the indeterminacy of trust lies in the differentiation and hierarchisation of the various forms of trust contractual organisational and tacit on the basis of their degree of irreversibility and stability second contractual trust is unstable because it comes up against the problem of guarantees of individual intentions this leads to the third conclusion rational evaluation by individuals cannot by itself establish trust which is based on collective beliefs practices and rules fourth we identified two conditions for the stability of trust the creation of irreversibilities through adherence to a rule and the creation of a confidence interval within which different interpretations of contradictory individual strategies are tolerated thus the viability of the various forms of trust depends on the ability of institutions and organisations to create rules that are likely when applied to produce an interval in which tolerance of mutual intentions is the norm these analyses of trust hence highlight the role of time and period of time in the notion of trust

option prices and the underlying asset s return distribution this work examines the relation between option prices and the true as opposed to risk neutral distribution of the underlying asset if the underlying asset follows a diffusion with an instantaneous expected return at least as large as the instantaneous risk free rate observed option prices can be used to place bounds on the moments of the true distribution an illustration of the paper s results is provided by the analysis of the information concerning the mean and standard deviation of market returns contained in the prices of s p 100 index options although it seems natural that the prices of claims to various parts of the underlying asset s distribution should contain information about the shape of that distribution cox and ross 1976 established that an option s price equals its expected payoff discounted at the risk free rate where the expectation is taken over the risk neutral rather than the true distribution of the underlying asset linking the risk neutral distribution implicit in option prices to the true distribution remains a comparative mystery a necessary condition for the risk neutral pricing methodology to be applicable is that the true and the risk neutral distribution share a common support the only information about the true distribution that can be obtained from observed option prices alone is information about that support this paper demonstrates though that observed option prices when used in conjunction with simple assume d restrictions on the true distribution do contain information about the noncentral moments of the true distribution not directly implied by those assumed restrictions alone the intuition for the result that option prices can be useful in placing bounds on the moments of the true distribution is straightforward first we generalize the results in lo 1987 to show how the expected payoff to a call can be bounded above in terms of any chosen set of the noncentral moments of the return on the underlying asset second we establish restrictions on the

the economics of worldwide stagflation the last fifteen years have witnessed dramatic changes in economics not only in the manner in which the economics profession views economics but also in the manner in which the general public views economics and economists by the late 1960 s there had emerged more or less a consensus macroeconomic framework that is an agreed upon structure to be used to study economic problems at the aggregate level robert solow stated as quoted in leijonhufvud 1968

the foundations of trust macro and micro this comment on beugelsdijk s 2006 critique of trust and its measurement argues that it misses the mark and that there is neither a theoretical nor an empirical foundation for thinking that the macro and micro foundations of trust or its measurement are different from each other generalised trust is more than a simple illusion hiding behind institutional structures

the structure and incentive effects of corporate tax liabilities this paper describes situations in which tax liabilities assume the form of a negative position in a call option this structure motivates an examination of the investment decisions of taxed corporations in the presence of risk it is shown that the structure of the tax liability creates an incentive to underinvest in more risky projects and an incentive for conglomerate merger these effects are then evaluated in the presence of conflicts of interest between stockholders and bondholders and under alternative assumptions about the tax code and about the timing of investment and financing decisions this paper makes an observation regarding the functional form assumed by the tax liabilities of corporations with potentially redundant deductions and evaluates its consequences for investment incentives interest and other deductions against taxable income can be taken for the most part only to the extent of that income in a single period model this gives the net tax liability a familiar structure it can be viewed as a call option where the exercise price on the call is the allowable deductions the tax paying entity holds a positive position in the assets which generate the taxable income and a negative position in a call option on those assets the analogy between options and the structure of tax liabilities calls attention to some interesting incentive effects concerning risk using their model of option valuation black and scholes 5 showed that the value of an option is increasing in the variance of the asset it is written on other authors have generalized this result and studied its implications for corporate financing see jagannathan 16 jensen and meckling 17 and green 15 the importance of the risk attributes of the underlying asset in option valuation suggests that taxation may have important incentive consequences for investment decisions involving risk it has been recognized in the public economics literature for some time that asymmetries in the tax schedule can affect risk taking behavior early papers by mossin 20 and stiglitz 25 studied individual portfolio decisions over a riskless and a risky asset our analysis differs from these in a number of respects the most important of these is our use of market valuation rather than expected utility in the decision maker s objective function this is surely a more appropri

entry and exit in disequilibrium most entrepreneurship theory depicts disequilibrium as the most common state for entrepreneurial activity and yet remarkably very little empirical research investigates the role of entry and exit in this type of external environment drawing on economics and organizational ecology we outline reasons why the interrelation between entry exit and incumbent firms is likely to vary when the actual number of firms is higher or lower than the number that a market can sustain we also introduce a new empirical methodology to explain entry and exit levels in two different types of disequilibria comprising situations when markets under and over shoot carrying capacity using a data set on the retail industry we find that in undershoots a lack of competition between incumbent firms restores equilibrium by creating room for new firm entry in contrast in overshoots competition induced by new firms in particular strong displacement restores equilibrium we also find that equilibrium restoring mechanisms are faster in over than undershoots the results highlight that the behaviour and impact of entry and exit varies depending on the type of disequilibrium

macroeconomic performance and collective bargaining an international perspective this paper critically reviews the research on how collective bargaining systems influence macroeconomic performance in industrialized countries the review considers effects of bargaining level coordination and corporatist institutional arrangements key empirical results turn out to be quite fragile and much of the paper explores issues of measurement and specification that account for the fragility the paper concludes that complementarities between key institutions and between institutions and the economic environment may be more important for macroeconomic performance than the effects of individual institutions and it suggests research strategies

call options and the risk of underlying securities abstract merton 1973 in his seminal article theory of rational option pricing showed that the rationally determined price of a call option is a non decreasing function of the riskness of its associated common stock in deriving his results merton made restrictive assumptions about the way the market prices payoff distributions and used the rothschild stiglitz 1970 measure to compare the riskiness of securities i show by means of an example that the merton result will not in general be true i then derive a sufficient condition for the option on one stock to have higher market value than the option on another stock when both the stocks have the same price and explain why the merton result is valid in the black scholes environment

from sick man of europe to economic superstar germany s resurgent economy in the late 1990s and into the early 2000s germany was often called the sick man of europe indeed germany s economic growth averaged only about 1 2 percent per year from 1998 to 2005 including a recession in 2003 and unemployment rates rose from 9 2 percent in 1998 to 11 1 percent in 2005 today after the great recession germany is described as an economic superstar in contrast to most of its european neighbors and the united states germany experienced almost no increase in unemployment during the great recession despite a sharp decline in gdp in 2008 and 2009 germany s exports reached an all time record of 1 738 trillion in 2011 which is roughly equal to half of germany s gdp or 7 7 percent of world exports even the euro crisis seems not to have been able to stop germany s strengthening economy and employment how did germany with the fourth largest gdp in the world transform itself from the sick man of europe to an economic superstar in less than a decade we present evidence that the specific governance structure of the german labor market institutions allowed them to react flexibly in a time of extraordinary economic circumstances and that this distinctive characteristic of its labor market institutions has been the main reason for germany s economic success over the last decade

trust institutions and the generally speaking question a reply to uslaner in his critical reply on my article uslaner points to several issues amongst others the lack of observations in the principal components analysis and the fundamental relationship between micro and macro trust on the one hand and institutions on the other hand of these two i hold the second one to be most important and i will therefore focus on this issue i will also use this opportunity to position our trust discussion in the broader context of contemporary economic research on culture copyright the author 2008 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

fundamental properties of bond prices in models of the short term rate this article develops restrictions that arbitrage constrained bond prices impose on the short term rate process in order to be consistent with given dynamic properties of the term structure of interest rates the central focus is the relationship between bond prices and the short term rate volatility in both scalar and multidimensional diffusion settings typical relationships between bond prices and volatility are generated by joint restrictions on the risk neutralized drift functions of the state variables and convexity of bond prices with respect to the short term rate the theory is illustrated by several examples and is partially extended to accommodate the occurrence of jumps and default a standard approach to modeling the term structure of interest rates is to derive sets of arbitrage free bond prices using as an input an exogenously given short term rate process see e g vasicek 1977 and cox ingersoll and ross 1985 while this approach is widely used there is no theoretically sound work establishing systematic answers to such fundamental questions as when are bond prices a decreasing function of the shortterm rate when are bond prices a convex function of the short term rate are bond prices a decreasing function of the short term rate volatility this article demonstrates that it is possible to develop results addressing these questions in relation to all sets of economically admissible i e noarbitrage bond prices

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

the relationship between arbitrage and first order stochastic dominance this paper joins together two fields of research in financial economics the first field studies stochastic dominance while the second field studies arbitrage pricing the two fields are linked together through the derivation and the proof of a characterization theorem the characterization theorem gives necessary and sufficient conditions for the existence of arbitrage opportunities in terms of the existence of two assets one of which first order stochastically dominates the other and the price of a particular contingent claim examples are provided to demonstrate the theorem s content this paper joins together two fields of research in financial economics the first field studies portfolio choice from the perspective of stochastic dominance see hadar and russell 5 6 hanoch and levy 7 levy and kroll 13 the second field studies arbitrage pricing its characterization and implications see ross 15 kreps 12 harrison and kreps 8 harrison and pliska 9 in these fields it is well known that the existence of arbitrage opportunities implies first order stochastic dominance and that the converse does not hold this paper provides a set of conditions under which the converse is true given complete markets the existence of an arbitrage opportunity is characterized in terms of the existence of two traded assets one of which stochastically dominates the other along with one additional condition the additional condition is roughly that state contingent prices must be zero over the states where the first asset dominates the second the theorem has a qualification however it is applicable only in markets which are complete not in the arrow debreu sense but in a weaker sense in the sense that all contingent claims on the primary assets must trade in many applications especially with respect to continuous trading models this condition is usually satisfied see duffie 2 and harrison and pliska 9 in the case of stochastically dominated assets this paper shows that the relationship of the assets to the state contingent prices is important in identifying arbitrage opportunities in this sense this paper is related to a recent paper of jagannathan 10 jagannathan studies the relationship of second order stochastic dominance not first order to call option valuation this characterization theorem relating arbitrage opportunities to stochastic dominance should provide a valuable tool in the area of stochastic dominance this theorem specifies conditions under which two assets can be compared using first order stochastic dominance on an individual basis for inclusion in the

wage led growth in the eu15 member states the effects of income distribution on growth investment trade balance and inflation this paper estimates a multi country demand led growth model for eu15 countries a decrease in the share of wages in national income in isolation leads to lower growth in finland france germany greece italy luxembourg netherlands portugal spain sweden and the united kingdom whereas it stimulates growth in austria belgium denmark and ireland however a simultaneous decline in the wage share leads to an overall decline in eu15 gdp hence eu15 as a whole is a wage led economy furthermore austria and ireland also experience negative effects on growth when they decrease their wage share along with their trading partners the results indicate that a decline in the wage share has had significant negative effects on growth in the eu15 countries and supports the case of wage coordination we present different wage led recovery scenarios taking into account further effects of a change in the wage share on prices nominal unit labour costs investment and net exports

a note on the theory and measurement of trust in explaining differences in economic growth this paper takes issue with the trend to attribute differences in economic growth rates to differences in interpersonal trust i discuss the world values survey wvs measure that is used to operationalise trust at the macro level i hypothesise that there is a mismatch between the theoretical argument and the empirical operationalisation of trust instead of measuring trust the wvs measure may instead proxy the well functioning of institutions i provide circumstantial evidence for this thesis by a principal components analysis of trust and institutions and a robustness test of zak and knack s 2001 trust and growth economic journal vol 111 295 321 seminal study on trust and economic growth

collective wage bargaining and the role of institutional stability a cross national comparison of macroeconomic performance since the advent of the economic crisis interest in the efficacy of collective wage bargaining institutions has increased as the labour market was required to bear the burden of economic adjustment and became an important policy field for institutional reform in many countries in this article the role of institutional stability trust and certainty for the efficacy of collective bargaining systems is investigated and their effects on macroeconomic outcomes inflation and unemployment are analysed we argue that stability of the institutional framework of collective bargaining is of major importance for its efficacy as it reduces uncertainty and provides the necessary basis for trust among bargaining actors thus we hypothesise that institutional change and instability are associated with significant transaction costs and have at least temporarily negative effects on economic outcomes the hypotheses are confirmed by an empirical analysis which uses data of 34 industrialised countries from 1965 to 2014

addressing uncertainty in economics and the economy this article explores the way society in general and economists in particular deal with fundamental uncertainty it is argued that uncertainty is interdependent with the evolution of institutions and behaviour including that designed to help society cope with uncertainty whilst some mainstream theory does address uncertainty it employs a much narrower concept than fundamental uncertainty generally in spite of the evident increase in fundamental uncertainty during the crisis most mainstream theory ignores it although ignoring uncertainty can sometimes be a successful coping mechanism it is argued that as a blanket coping mechanism ignoring uncertainty seriously limits the realism of theory and therefore also practice and policy it is concluded that economists should embrace uncertainty by tailoring methodologies and theories to address it this would provide a more fruitful basis for policy aimed at reducing uncertainty in the economy and also reducing our own uncertainty

who is afraid of political instability abstract an unstable macroeconomic environment is often regarded as detrimental to economic growth among the sources contributing to such instability much of the blame has been assigned to political issues this paper empirically tests for a causal and negative long run relation between political instability and economic growth but finds no evidence of such a relationship sensitivity analysis indicates that there is a contemporaneous negative relationship but also that in the long run and ignoring institutional factors the group of african countries plays the determining role

europe s hunger games income distribution cost competitiveness and crisis the dominant view both on the mainstream right and on the left holds that the eurozone crisis is a crisis of labour cost competitiveness with trade imbalances and hence foreign indebtedness being driven by divergences in relative unit labour costs rulcs between surplus and deficit countries to re balance eurozone growth the mainstream solution is a deflationary policy of internal devaluation i e cutting the wage share by as much as 30 in the deficit countries the progressive view holds that the surplus countries should adjust by raising their wage shares we argue that both sides of this debate are wrong and unhelpful europe s trade imbalances are determined by domestic and world demand whilst rulc divergences play only a negligible role eurozone growth can only be revived when eurozone demand growth is restored not by lowering wages here and or raising them there the current deflationary adjustment forced on the wage led economies of greece italy portugal and spain is self destructive it is a confidence killer not only deepening the free fall of southern european incomes but also damaging their productive base and productivity growth the outlook is depressing further increases in already high unemployment rates inequality measures and poverty rates inconceivable in prosperous europe just a few years ago and arguably dystopian