cross country variation in the liquidity effect the role of financial markets this paper examines cross country variation in the liquidity effect the negative response of interest rates to money supply shocks focusing on the role of financial factors in explaining this variation we estimate the liquidity effect for each of 21 countries using var models in which money supply shocks are restricted to be neutral in the long run then regress the estimated liquidity effect on financial market variables across countries we find that financial factors play an important role in determining the magnitude of the liquidity effect and that this evidence is most consistent with generalised versions of limited participation models

business cycle affiliations in the context of european integration we study affiliations for the countries of the european economic and monetary union emu with germany and the usa using various business cycle measures derived from quarterly real gdp these measures are hodrick prescott and baxter king filtered series and annual growth rates by using rolling contemporaneous and maximum over a short lead lag interval correlations we document increasing correlations of emu countries with germany with these typically being largest during the 1990s we also document a strong leading role for the usa in relation to these countries in the period since 1993 thereby correcting the fallacy that the european business cycle was disjointed from the usa for most of the 1990s

trade and direct investment in producer services and the domestic market for expertise foreign producer services can provide substantial benefits for domestic firms we build on earlier monopolistic competition models of intermediate producer services in this paper results show that 1 while foreign services are partial equilibrium substitutes for domestic skilled labour they may be general equilibrium complements 2 service trade can provide crucial missing inputs that reverse comparative advantage in final goods 3 the optimal tax on imported services may be a subsidy and 4 in our dynamic formulation there may be earnings losses for immobile workers along a transition path that suggest potentially important equity consequences of reform jel classification f12 f16 f23 commerce international et investissement direct dans les services de production et le marche interieur de l expertise les services de production en provenance de l etranger peuvent engendrer des avantages substantiels pour les entreprises domestiques dans ce memoire les auteurs construisent sur la base de certains modeles anterieurs de concurrence monopolistique de services de production intermediaires les resultats montrent que 1 alors que les services de l etranger sont des substituts pour le travail domestique specialise en equilibre partiel en equilibre general ils peuvent etre des complements 2 le commerce de services peut fournir des intrants cruciaux qui manquent et ce faisant renverser les avantages comparatifs dans les produits finaux 3 la fiscalite optimale imposee sur les services importes peut etre une subvention et 4 dans la formulation dynamique du modele il peut y avoir perte de revenus pour les travailleurs immobiles le long du sentier de transition ce qui suggere qu il peut y avoir des consequences importantes au plan de l equite associees a certaines reformes

the effects of property rights on economic performance this study augments the neoclassical growth model proposed by mankiw et al 1992 to analyse the effects of the property rights protection on the levels of economic performance measured by per capita gross domestic product gdp across countries the augmented model predicts that 1 the accumulation of physical and human capital and therefore the level of per capita gdp in a country is positively related with the degree of property rights protection as well as with the saving rates and 2 the effects of the saving rates on the level of per capita gdp in a country are positively related with the degree of property rights protection empirical evidence shows that the predictions of the augmented model are consistent with the variations in the levels of per capita gdp across countries

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

borders and business cycles abstract we document that business cycles of u s census regions are substantially more synchronized than those of european countries data from regions within european countries confirm a european border effect within country correlations are substantially larger than cross country correlations these results continue to hold after controlling for exogenous factors such as distance and size we consider the role of four factors that have received attention in the debate about emu sectoral specialization the level of trade monetary policy and fiscal policy we find that the lower level of trade between european countries explains most of the observed border effect

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

an analysis of the use of accounting and market measures of performance in executive compensation contracts prior research has provided useful insights into the structure of compensation plans and their incentive effects however one important limitation of these studies is the virtual absence of any cross sectional analyses of the attributes of compensation contracts 2 this absence is related in part to the problems associated with controlling for other factors that affect compensation that is compensation contracts are

international trade and business cycles is vertical specialization the missing link within academic and policy circles it is a given that international trade is important in transmitting business cycles from one country to another most analyses of the effects of the 1997 1998 asia currency crisis on the world economy focused on the trade linkages between the asian crisis countries and the rest of the world with mounting evidence of a slowdown in u s growth questions have already been raised about the effect of a reduction in u s imports on emerging economies indeed the metaphor when the u s sneezes europe catches a cold is often invoked to highlight the importance of these linkages recent empirical research has reaffirmed the above wisdom by finding that pairs of countries with stronger international trade linkages tend to have more highly correlated business cycles the goal of this paper is to examine whether these findings can be explained by standard international business cycle models we focus on the model by david backus et al 1994 which is the workhorse two good internationalbusiness cycle model in the backus et al 1994 model trade is induced by an armington aggregator which combines domestic and foreign intermediate goods to produce the final good while the aggregator has the drawback of forcing the specialization pattern to be determined in advance flying in the face of trade theory it has been very useful in quantitative and empirical applications we add transportation costs to the model in order to be consistent with the empirical research frankel and rose 1998 clark and van wincoop 2001 which deals with the endogeneity of trade by employing instrumental variables such as distance and adjacency we simulate the model and compute the effect of different transportation costs different trade intensities on the correlation of business cycles our main result is that the standard international business cycle model cannot deliver results that are quantitatively consistent with the recent empirical work in a world of fully integrated asset markets the model delivers a qualitatively counterfactual result as high trade intensity is associated with lower businesscycle correlations under portfolio autarky the model delivers increased correlations as trade intensity increases but the increased correlation is only a fraction of what it is in the data we then introduce the idea that an increasing amount of trade is vertical or fragmented countries increasingly specialize in particular stages of a good s production sequence as opposed to producing the entire good allowing for more of this back and forth trade might lead to greater business cycle correlation responsiveness to stronger trade ties however we find that adding the simplest form of vertical specialization to the model also falls short

war and institutions new evidence from sierra leone scholars of economic development have argued that war can have adverse impacts on later economic performance war destroys physical capital and infrastructure and disrupts human capital accumulation and it may also damage institutions by creating political instability destroying the social fabric and endangering civil liberties world bank 2003 understanding war s impact on development is particularly important for sub saharan africa where two thirds of all nations suffered from armed conflict during the 1980s and 1990s the proliferation of armed conflict in the world s poorest region begs the question of what role conflict may be playing in africa s disappointing economic performance yet the net long run effects of war are ambiguous from the point of view of economic theory to the extent that war impacts are limited to the destruction of capital the neoclassical model predicts rapid economic growth postwar converging back to steady state growth several recent papers that study war impacts including in japan donald r davis and david e weinstein 2002 and vietnam miguel and gerard roland 2005 find few persistent local impacts of u s bombing with heavily bombed areas experiencing rapid recovery to prewar population and economic trends this is consistent with the neoclassical model if war s main consequence is to destroy capital war could also affect long run growth either positively or negatively by modifying the scale parameter in the neoclassical growth model for example while the world bank 2003 argues that war has adverse institutional consequences charles h tilly shows how war promoted state formation and nation building in europe historically ultimately strengthening institutions tilly 1975 we study the aftermath of the recent civil conflict in sierra leone one notable aspect of this project is the extensive household data for sierra leone on conflict experiences and on local institutions our results are complementary to the other recent studies mentioned above none of which examines institutional impacts

currency unions and international integration this paper characterizes the integration patterns of international currency unions such as the cfa franc zone we empirically explore different features of currency unions and compare them to countries with sovereign monies by examining the criteria for mundellos concept of an optimum currency area we find that members of currency unions are more integrated than countries with their own currencies for instance we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies business cycles are more highly synchronized across currency union countries than across countries with sovereign monies

leverage decision and manager compensation with choice of effort and volatility abstract we study the incentive effects of granting levered or unlevered stock to a risk averse manager the stock is granted by risk neutral shareholders who choose leverage and compensation level the manager applies costly effort and selects the level of volatility both of which affect expected return the results are driven by the attempt of the risk neutral shareholders to maximize the value of their claims net of the compensation package we consider a dynamic setting and find that levered stock is optimal for high type managers firms with high momentum large firms and firms for which additional volatility only implies a modest increase in expected return

measuring world business cycles using kalman filtering and dynamic factor analysis the authors decompose aggregate output consumption and investment for the g7 countries into factors that are 1 common across all countries and aggregates 2 common across aggregates within a country and 3 specific to each individual aggregate in quarterly data for the period 1970 through 1993 fluctuations in all aggregates contain world and country specific common components that are both statistically significant and quantitatively important the authors find that the world and country specific common components play different roles in different business cycle episodes for each of the seven countries and that either may be dominant during a particular episode copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

financial development and economic growth the case of taiwan this paper examines the relationship between financial development and economic growth in taiwan from 1962 to 1998 using a four variable var model the competing hypotheses of demand following versus supply leading are empirically tested the results from granger causality tests based on vector error correction models vecm suggest unidirectional causality running from financial development measured as the ratio of m2 to gdp to economic growth this result supports the supply leading hypothesis for taiwan this finding highlights the importance of financial development in taiwan s recent growth

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

market structure and market access the authors examine an issue at the nexus of domestic competition policy and international trade the interaction between goods trade and market power in domestic trade and distribution sectors theory suggests a set of linkages between service sector competition and goods trade supported by econometrics involving imports of 22 oecd countries compared with 69 exporters competition in services affects the volume of goods trade additionally because of interaction between tariffs and competition the market structure of the domestic service sector becomes increasingly important as tariffs are reduced empirically service competition apparently matters most for exporters in smaller poorer countries the results also suggest that while negotiated agreements leading to cross border services liberalization may boost goods trade as well they may also lead to a fall in goods trade when such liberalization involves foreign direct investment leading to increased service sector concentration

optimal compensation and pay performance sensitivity in a continuous time principal agent model this paper studies the optimal contract between risk neutral shareholders and a constant relative risk aversion manager in a continuous time model several interesting results are obtained first the optimal compensation is increasing but concave in output value if the manager is more risk averse than a log utility manager second when the manager has a log utility a linear contract is optimal when there is no explicit lower bound on the compensation and an option contract is optimal when there is an explicit lower bound third optimal effort is stochastic state dependent fourth consistent with empirical findings and contrary to standard agency theory predictions the relationship between pay performance sensitivity and firm performance and that between pay performance sensitivity and firm risk can be nonmonotonic this paper was accepted by wei xiong finance

cyclical and causal patterns of inflation and gdp growth empirical foundations for the view that high inflation impairs gdp growth are examined using annual data for 115 countries over the period 1960 1995 taking into account country heterogeneity and time specific symmetric shocks as well as endogeneity of inflation and dynamics of gdp growth dynamic panel data models of the effects of inflation on growth are estimated no evidence is found supporting the view that inflation is in general harmful to gdp growth on the other hand there is a negative correlation between contemporaneous intra country inflation and growth for periods characterized by positive oil price shocks

global output growth and volatility spillovers this article examines discernable patterns of real gross domestic product gdp growth co movements across 29 countries using consistent time series data 1912 2008 of these countries only 12 are found to form three statistically significant groupings i e g6 six organization for economic co operation and development oecd european countries g4 four anglo saxon countries and g2 two major asian countries one may then conclude that inter alia geographical proximity cultural ties and the level of socio economic and financial ties among countries determine the global systematic co movements of growth rates our results indicate that any recession in the us initially engulfs other anglo saxon countries as well as g6 and g2 countries before exerting its adverse knock on effects to the rest of the world a multivariate generalized autoregressive conditional heteroscedasticity mgarch model is also used to examine the transmission of gdp growth across these three groups and their corresponding vol

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

national treatment in the gatt the national treatment nt clause is the first line defense in the gatt and in most other trade agreements against opportunistic exploitation of the inevitable incompleteness of the agreement this paper examines the role of nt as it applies to internal taxation under the gatt it is shown that despite severely restricting the freedom to set internal taxes nt may improve government welfare but it will not completely solve the incomplete contract problem it is meant to remedy furthermore it requires a high degree of economic sophistication on behalf of trade negotiators in order for this beneficial effect to materialize

financial globalization and real regionalization over the period 1972 1986 the correlations of gdp employment and investment between the united states and an aggregate of europe canada and japan were respectively 0 76 0 66 and 0 63 for the period 1986 to 2000 the same correlations were much lower 0 26 0 03 and 0 07 real regionalization at the same time u s international asset trade has significantly increased for example between 1972 and 1999 united states gross fdi and equity assets in the same group of countries rose from 4 to 23 percent of the u s capital stock financial globalization we argue that these two trends are intimately related we document that the correlation of real shocks between the u s and the rest of the world has declined we then present a model in which international financial market integration occurs endogenously in response to less correlated shocks financial integration further reduces the international correlations in gdp and factor supplies we find that both less correlated shocks and endogenous financial market development are needed to account for all the changes in the international business cycle

output volatility in australia a number of papers have documented a significant decline in real gdp volatility in several major oecd economies some authors have presented evidence to suggest that this is the outcome of a one off structural break from a high to low volatility state whilst others have estimated regime switching models that indicate low volatility regime states have dominated in recent years this article provides further evidence on the general properties of output volatility for australia including evidence of a significant moderation in output volatility for the country that occurred in the early 1980s estimates of various garch models of real gdp growth are also provided to further examine shorter term volatility features of the australian economy that are associated with its business cycle a regime shift dummy is maintained in all models of the conditional variance in order to account for the regime shift in volatility and evidence is found of significant business cycle effects including leverage effects and asy

executive compensation and principal agent theory the empirical literature on executive compensation generally fails to specify a model of executive pay on which to base and test hypotheses regarding its determinants in contrast this paper analy

agoa and apparel who captures the tariff rent in the presence of preferential market access he african growth and opportunity act agoa was signed by presidentclinton in may 2000 and quickly became one of the most high pro lespecial and differential treatment sdt programmes implemented agoaintends to encourage higher levels of trade and direct investment in support ofpositive economic and political developments throughout sub saharan africa us congress 2000 thirty six countries were designated to be eligible for theagoa preferences for 2003 the main feature of agoa like other sdt programmes such as the unitedstates version of the generalised system of preferences gsp is the duty freeaccess granted to certain products however agoa goes beyond the standardgsp provisions and includes a wide range of textiles and apparel in the list ofproducts to receive preferential market access the trade data indicate that asmall group of apparel exporters have been the main bene ciaries of agoapreferences so far and there has not been signi cant change in the exports of anyother product from the eligible countries in this paper we analyse the impact of agoa s preferences on prices re ceived by apparel exporters in a perfectly competitive market with homogeneousgoods exporters who enjoy duty free access should bene t from a price increase

how does globalization affect the synchronization of business cycles this paper examines the impact of rising trade and financial integration on international business cycle comovement among a large group of industrial and developing countries the results provide at best limited support for the conventional wisdom that globalization has increased the degree of synchronization of business cycles the evidence that trade and financial integration enhance global spillovers of macroeconomic fluctuations is mostly limited to industrial countries one striking result is that on average cross country consumption correlations have not increased in the 1990s precisely when financial integration would have been expected to result in better risk sharing opportunities especially for developing countries this abstract was borrowed from another version of this item

the tenuous trade off between risk and incentives empirical work testing for a negative trade off between risk and incentives has not had much success the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade off i argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees when workers operate in certain settings firms are content to assign tasks to workers and monitor their inputs by contrast when the situation is more uncertain they delegate responsibility to workers but to constrain their discretion base compensation on observed output

business cycles and the exchange rate system some international evidence this paper investigates the differences in time series behavior of key economic aggregates under alternative exchange rate systems we use a postwar sample of 49 countries to compare the behavior of output consumption trade flows government consumption spending and real exchange rates under alternative exchange rate systems pegged floating and cooperative systems such as the ems we then examine evidence from two particular episodes involving canada and ireland of changes in the exchange rate system aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems we find little evidence of systematic differences in the behavior of macroeconomic aggregates or international trade flows under alternative exchange rate systems these results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities

declining output volatility in germany impulses propagation and the role of monetary policy the decline in output volatility in germany is analysed a lower level of variance in an autoregressive model of output growth can be either due to a change in the structure of the economy a change in the propagation mechanism or a reduced error term variance reduced impulses in germany the decline output volatility is due to a decline in the persistence of the growth process this is in contrast to the us results where a break in the variance seems to dominate the decline in persistence a change in the conduct of monetary policy the establishment of another monetary policy regime could be part of an explanation for the change in propagation stochastic simulations with a new keynesian dsge model support the hypothesis

optimal contracts in a continuous time delegated portfolio management problem this article studies the contracting problem between an individual investor and a professional portfolio manager in a continuous time principal agent framework optimal contracts are obtained in closed form these contracts are of a symmetric form and suggest that a portfolio manager should receive a fixed fee a fraction of the total assets under management plus a bonus or a penalty depending upon the portfolio s excess return relative to a benchmark portfolio the appropriate benchmark portfolio is an active index that contains risky assets where the number of shares invested in each asset can vary over time rather than a passive index in which the number of shares invested in each asset remains constant over time fund managers compensation schemes in a delegated portfolio management setting have been of special interest to both academics and practitioners academic interest stems in part from the rapid growth of managed funds over the last two decades gompers and metrick 1998 report that by december 1996 mutual funds pension funds and other financial intermediaries held discretional control over more than half of the u s equity market it is thus of importance to study the impact of institutional trading on asset prices and to integrate into one model both asset pricing and delegated portfolio management compensation as advocated by brennan 1993 allen and santomero 1997 and allen 2001 it is also important to understand the relationship between a manager s trading strategies and his implicit incentives or career concerns see e g brown harlow and starks 1996 brown goetzmann and park 1997 chevalier and ellison 1999 and chen and pennacchi 2000 these concerns include internal promotion from a small to a large fund higher outside offers and the flow of money through the fund under management 1 the importance of fund manager compensation is also underscored by congressional passage in 1970 of the amendment to

a continuous time version of the principal agent problem this paper describes a new continuous time principal agent model in which the output is a diffusion process with drift determined by the agent s unobserved effort the risk averse agent receives consumption continuously the optimal contract based on the agent s continuation value as a state variable is computed by a new method using a differential equation during employment the output path stochastically drives the agent s continuation value until it reaches a point that triggers retirement quitting replacement or promotion the paper explores how the dynamics of the agent s wages and effort as well as the optimal mix of short term and long term incentives depend on the contractual environment the understanding of dynamic incentives is central in economics how do companies motivate their workers through piece rates bonuses and promotions how is income inequality connected with productivity investment and economic growth how do financial contracts and capital structure give incentives to the managers of a corporation the methods and results of this paper provide important insights to many such questions this paper introduces a continuous time principal agent model that focuses on the dynamic properties of optimal incentive provision we identify factors that make the agent s wages increase or decrease over time we examine the degree to which current and future outcomes motivate the agent we provide conditions under which the agent eventually reaches retirement in the optimal contract we also investigate how the costs of creating incentives and the dynamic properties of the optimal contract depend on the contractual environment the agent s outside options the difficulty of replacing the agent and the opportunities for promotion our new dynamic insights are possible due to the technical advantages of continuous time methods over the traditional discrete time ones continuous time leads to a much simpler computational procedure to find the optimal contract by solving an ordinary differential equation this equation highlights the factors that determine optimal consumption and effort the dynamics of the agent s career path are naturally described by the drift and volatility of the agent s pay offs the geometry of solutions to the differential equation allows for easy comparisons to see how the agent s wages effort and incentives depend on the contractual environment finally continuous time highlights many essential features of the optimal contract including the agent s eventual retirement in our benchmark model a risk averse agent is tied to a risk neutral principal forever after employment starts the agent influences output by his continuous unobservable effort input the principal sees only the output a brownian motion with a drift that depends on the agent s effort the agent dislikes effort and enjoys consumption we assume that the agent s utility function has the income effect that is as the agent s income increases it becomes costlier to compensate him for the effort also we assume that the agent s utility of consumption is bounded from below

competition competition policy and the gatt the authors argue that further moves to liberalize trade and to implement existing gatt rules and principles may have a greater impact on global competition than would the pursuit of harmonization of competition policy they also suggest that current gatt rules and case law provide scope for disputes to be brought before the gatt that relate to both the application and the nonapplication of existing domestic competition laws of gatt contracting parties this leads to de facto discrimination between domestic and foreign products little use has been made of the gatt in this connection perhaps existing indirect avenues for raising competition related disputes in the gatt should be pursued more actively this would help identify what specific government policies might be the subject of multilateral negotiations and explicitly incorporated into the gatt framework

understanding the evolution of world business cycles abstract this paper studies the changes in world business cycles during the period 1960 2003 we employ a bayesian dynamic latent factor model to estimate common and country specific components in the main macroeconomic aggregates output consumption and investment of the g 7 countries we then quantify the relative importance of the common and country components in explaining comovement in each observable aggregate over three distinct time periods the bretton woods bw period 1960 1 1972 2 the period of common shocks 1972 3 1986 2 and the globalization period 1986 3 2003 4 the results indicate that the common g 7 factor explains on average a larger fraction of output consumption and investment volatility in the globalization period than it does in the bw period

moral hazard with bounded payments we study the moral hazard problem with general constraints on how little or much the agent can be paid as a function of output we provide a characterization and existence result using only very simple methods in the dual problem of minimizing costs for a given effort level a constraint that harms the principal will always result in a contract that pays according to the constraint on some range of outcomes for the case of a simple fixed minimum feasible payment the resultant contract will be option like we show how the strike price and intensity of incentives once the strike price is exceeded vary in the minimum payment and the outside option of the agent when the principal can also choose the effort to induce then even if the constraint harms the principal he may optimally choose a contract that never pays the minimum or maximum we show that this can only occur if the problem without the payment constraints fails a form of concavity

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

incentives and performance in the presence of wealth effects and endogenous risk abstract two of the most widely tested predictions of agency theory are that there exists a negative association between an agent s pay performance sensitivity pps and the risk of output and that pps enhances performance empirical evidence has been mixed this paper proposes a new utility function and develops a model that introduces a wealth effect and also allows the agent to control the idiosyncratic risk of output when risk is endogenous the paper shows that the two predictions may not hold

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite