the phillips curve macroeconomic policy and the welfare of canadians a review of the two competing paradigms explaining inflation and unemployment fluctuations singles out the keynesian phillips curve as the clear empirical winner over its classic competitors reestimation of the canadian phillips curve for 1957 90 identifies a sharp structural shift toward a high degree of unemployment hysteresis after 1972 the recent attempt of macropolicy to flatten the aggregate demand curve and limit supply side shock accommodation which aims at lower and more stable inflation is then shown to make unemployment higher and more unstable on average to an extent that is an increasing function of the degree of hysteresis understanding and reducing hysteresis and developing a consensus based incomes policy that has a chance of alleviating the dismal trade off should therefore to top research and policy priorities

international coordination of trade and domestic policies the past half century has seen a dramatic multilateral reduction in tariff barriers under general agreement on tariffs and trade gatt negotiations however as tariff barriers have fallen attention has shifted to the use of domestic policies as secondary trade barriers a primary concern is that as countries sign trade agreements that constrain their ability to pursue trade goals through trade policy there will be unilateral incentives for governments to distort their domestic policies as a secondary means of protection 1 increasingly international trade disputes revolve around a country s use of internal regulations as a means of restricting trade the united states has successfully challenged the system of liquor taxes in both japan and korea as discriminating against imported liquor while venezuela and brazil have challenged american standards for reformulated and conventional gasoline as trade protection masquerading as environmentalism gatt contains several articles concerning the international regulation of domestic policies but the question of how to fully incorporate domestic policies within gatt negotiations and other international trade agreements remains contentious indeed at both the ministerial meeting in 1994 at the close of the uruguay round and the recent unsuccessful ministerial conference in seattle many gatt delegates renewed demands for the relationship between trade and various domestic policies e g environmental policy labor standards or competition policy to be examined despite the importance that has recently been placed on international cooperation over domestic policies no theoretical basis exists for considering how to cooperate over both trade and domestic policies within an international agreement previous papers on negotiation over two instruments of protection e g copeland 1989 1990 thomas l hungerford 1991 have assumed asymmetric limitations on cooperation i e they assume that one of the two instruments is either nonobservable or nonnegotiable this paper extends such work by investigating cooperation over two negotiable instruments of protection under symmetric limitations on cooperation and provides insight into the design of international trade agreements that incorporate cooperation over domestic policies i adopt the view that enforcement issues are central to the understanding of international cooperation one of the challenges of international cooperation is the absence of a central authority to enforce the terms of an agreement without access to an external enforcement mechanism international agreements are viable only as long as member countries view continued cooperation to be in their own self interest i e the benefits from cooperating outweigh the potential gains from cheating 2 while the gatt department of economics university of miami p o box 248126 coral gables fl 33124 e mail ederington miami edu i would like to thank bob staiger bob baldwin wolfgang keller phillip mccalman jenny minier seminar participants at the nber conference on trade the environment and natural resources and two anonymous referees for comments on earlier versions of this paper any remaining errors are of course my own for example brian r copeland 1990 examined negotiation over one trade barrier leaving a secondary trade barrier e g nontariff barriers domestic legislation etc to be set noncooperatively he shows that trade liberalization will induce substitution toward the less efficient nonnegotiable instrument of protection due to the unilateral incentives to maintain trade protection facing countries thus within a cooperative framework the two types of barriers serve as imperfect substitutes for each other 2 as stated by kenneth w dam in his review of the gatt institution the best guarantee that a commitment of any kind will be kept particularly in an international setting where courts are of limited importance and even more important marshals and jails are nonexistent is that the parties continue to view adherence to their agreement in their mutual interest thus the gatt system unlike most legal systems is not designed to exclude self help in the form of retaliation rather retaliation subjected to established procedures and kept within prescribed bounds is made the heart of the gatt system dam 1970 pp 80 81

the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

enforcing international trade agreements with imperfect private monitoring to analyse the role that the world trade organization wto plays in enforcing international trade agreements this paper first explores what countries can achieve alone by characterizing optimal private trigger strategies pts under which each country triggers a punishment phase by imposing an explicit tariff based on privately observed imperfect signals of the other country s concealed trade barriers it identifies the condition under which countries can restrain the use of concealed barriers based on pts and establishes that countries will not reduce the cooperative protection level to its minimum attainable level under the optimal pts this paper then considers third party trigger strategies tts under which the wto allows each country to initiate a punishment phase based on the wto s judgement about potential violations by comparing the optimal pts and optimal tts it demonstrates that the wto facilitates a better cooperative equilibrium by changing the nature of punishment triggering signals from private to public which in turn enables countries to use a more efficient punishment such as an asymmetric and a minimum punishment

postwar developments in business cycle theory a moderately classical perspective for issues regarding business cycles the phillips curve or aggregate supply portion of a macroeconomic model s specification is crucial unfortunately the relevant dynamic behavior is poorly understood flexible price models appear inconsistent with the data while existing sticky price models are unlikely to be policy invariant nevertheless current knowledge is adequate to design a rule for monetary policy that would if maintained result in near zero inflation and output fluctuations that are small by historical standards an operational rule of this type is described and some indication of its effectiveness is reported copyright 1988 by ohio state university press

on the benefits of concurrent lending and underwriting this paper examines whether there are efficiencies that benefit issuers and underwriters when a financial intermediary concurrently lends to an issuer while also underwriting its public securities offering we find issuers particularly noninvestmentgrade issuers for whom informational economies of scope are likely to be large benefit through lower underwriter fees and discounted loan yield spreads underwriters both commercial banks as well as investment banks engage in concurrent lending and provide price discounts albeit in different ways we find concurrent lending helps underwriters build relationships increasing the probability of receiving current and future business for many years the 1933 glass steagall act prevented commercial banks from underwriting corporate bonds and equities due to the relaxation and recent repeal of the act many commercial banks have acquired investment banks or developed investment banking capabilities internally to create universal banks that can offer an array of financial services the entry of commercial banks into underwriting markets has increased the potential for financial institutions to offer both lending and underwriting services in particular it has become increasingly common for financial intermediaries to provide loans to a firm while also underwriting the firm s public securities in fact concurrent lending and underwriting has increased substantially over time in 1994 only 1 of seasoned equity issuers received a loan from their underwriter at around the time of issuance but by 2001 over 20 of all deals were concurrent the movement toward concurrent lending and underwriting raises a host of interesting questions first why are deals concurrent

is environmental policy a secondary trade barrier an empirical analysis should international trade agreements be extended to include negotiations over environmental policy the answer depends on whether countries distort levels of environmental regulations as a secondary means of providing protection to domestic industries our results suggest that they do previous studies of this relationship have treated the level of environmental regulation as exogenous and found a negligible correlation between environmental regulation and trade flows in contrast we find that when the level of environmental regulation is modelled as an endogenous variable its estimated effect on trade flows is significantly higher than previously reported jel classification fl f14 f18 est ce que la politique environnementale est une barriere commerciale secondaire une analyse empirique est ce que les accords commerciaux internationaux doivent etre etendus pour couvrir la politique environnementale la reponse depend du degre de distorsion que les pays introduisent dans leur politique environnementale pour proteger leurs industries nationales nos resultats suggerent que cet impact est important des etudes anterieures de cette relation ont traite la politique environnementale comme exogene et ont montre qu il existe une co relation negligeable entre politique envir onnementale et flux commerciaux au contraire nous revelons que quand la politique environnementale est consideree comme variable endoge ne son effet sur les flux com merciaux est plus eleve de maniere significative que ce qu on a note anterieurement

using selection on observed variables to assess bias from unobservables when evaluating swan ganz catheterization distinguishing causal effects from correlations is a key objective of research regardless of field even in medicine controlled experiments are not always practical or ethical in economics and we suspect in most other fields identification strategies based upon observational data are rarely bulletproof in their landmark study a f connors et al 1996 use propensity score matching methods with an extremely rich set of demographic characteristics and health status measures to assess whether swan ganz catheterization 1c 2 a widely used device for monitoring intensive care unit icu patients raises or lowers mortality in their sample of icu patients they find that receiving c within the first 24 hours raises mortality rates casting serious doubt on the value of this procedure for critically ill patients jay bhattacharya azeem m shaikh and edward vytlacil 2007 2008 hereafter bsv observe that since c recipients are sicker on many observed dimensions propensity score matching which ignores selection on unobservables might overstate the negative consequences of c they apply a set of bounds estimators including an extension of shaikh and vytlacil 2004 that incorporates prior information that weekend applications of recent methodology in project evaluation

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

trade policy cross border externalities and lobbies do linked agreements enforce more cooperative outcomes abstract we analyze whether linking international cooperation in trade policy to environmental policy or other issues with nonpecuniary externalities promotes more cooperation in both policies or whether cooperation in one is strengthened at the expense of the other in the context of self enforcing agreements we show that if the policies are independent in the government s objective function then linkage promotes cooperation in one policy at the expense of the policy that is easier to enforce under no linkage however if the linked policies are not independent and if these policies are strategic complements then linkage can sustain more cooperation in both issues than no linkage the policies are strategic complements only if i the production externality has cross border effects ii the weight on the externality cost is high iii import competing lobbies are not powerful

disproportional control rights and the governance role of debt we examine the governance role of debt in the context of u s based dual class ownership structures we hypothesize that the use of debt alleviates the conflict between shareholder classes by balancing the power of controlling insiders we document that dual class firms have higher leverage and a greater propensity to issue private debt they also more frequently use cash sweeps and performance based covenants dual class firms with greater agency conflicts and a greater need to access the capital market appear to rely more extensively on debt these findings are consistent with controlling insiders bonding against the agency costs associated with dual class ownership the governance role of debt is further corroborated by the valuation effect of debt for dual class companies private debt issuances trigger greater positive market reactions to the inferior dual class stock in relation to both the superior dual class stock and a matched sample of single class firms further leverage attenuates the previou

control rights and capital structure an empirical investigation we show that incentive conflicts between firms and their creditors have a large impact on corporate debt policy net debt issuing activity experiences a sharp and persistent decline following debt covenant violations when creditors use their acceleration and termination rights to increase interest rates and reduce the availability of credit the effect of creditor actions on debt policy is strongest when the borrower s alternative sources of finance are costly in addition despite the less favorable terms offered by existing creditors borrowers rarely switch lenders following a violation a fundamental question in financial economics is how do firms choose their financial policies extant empirical research on this question has focused primarily on the presence of taxes and bankruptcy costs e g scott 1976 information asymmetry e g myers and majluf 1984 and more recently market timing behavior e g baker and wurgler 2002 however beginning with jensen and meckling 1976 a large body of theoretical research examines how incentive conflicts between managers and external investors affect corporate financial policies in particular theoretical research on financial contracting shows that in the presence of incentive conflicts optimal debt contracts will allocate certain rights to creditors after negative performance in order to help firms secure financing ex ante e g aghion and bolton 1992 and dewatripont and tirole

keynes lucas and scientific progress in one of those marvelous coincidences of intellectual history robert lucas was born the year after the publication of keynes general theory for the first thirty five years of their mutual lives the two apparently coexisted in harmony but their relationship has been tumultuous ever since lucas has frequently criticized keynesian economics as poor science and it is precisely in that spirit that i want to address the debate today we all know the old joke about the professor who uses the same exam questions year after year but changes the answers that joke encapsulates all too well what has happened to macroeconomics these last fifteen years and seems to reflect poorly on economics as a science or does it on second thought the best answers to scientific questions do change as new observations are made as new experiments are run and as better theories are developed the issue is whether the answers to important questions in macroeconomics have changed for good scientific reasons or for other reasons the joke provides the framework for my talk i will pose eight exam questions and for each one i will summarize the answers given by keynes by lucas and his followers and by modern keynesians i pick only questions that are answered differently by keynesians and lucasians and that are central to contemporary macroeconomic debates the focus is on whether the keynesian or new classical answers have greater claim to being scientific each student must answer every question i are expectations rational

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

chief executive officer equity incentives and accounting irregularities this study examines whether chief executive officer ceo equity based holdings and compensation provide incentives to manipulate accounting reports while several prior studies have examined this important question the empirical evidence is mixed and the existence of a link between ceo equity incentives and accounting irregularities remains an open question because inferences from prior studies may be confounded by assumptions inherent in research design choices we use propensity score matching and assess hidden omitted variable bias within a broader sample in contrast to most prior research we do not find evidence of a positive association between ceo equity incentives and accounting irregularities after matching ceos on the observable characteristics of their contracting environments instead we find some evidence that accounting irregularities occur less frequently at firms where ceos have relatively higher levels of equity incentives

on the role of retaliation in trade agreements this paper analyzes the role of retaliation in trade agreements it shows that in the presence of private information retaliation can always be used to increase the welfare derived from such agreements by the participating governments in particular it is shown that retaliation is a necessary feature of any efficient equilibrium we argue that retaliation would not be necessary if governments could resort to international transfers or export subsidies to compensate for terms of trade externalities within the current world trading system though in which transfers are seldom observed whereas export subsidies are prohibited the use of the remaining trade instruments in a retaliatory fashion might be optimal the model is used to interpret the retaliatory use of antidumping observed in the last decades and the proliferation of these measures relative to other trade remedies

dual class shares a review the majority of firms traded in the world s three largest stock exchanges london new york and tokyo follow the one share one vote principle however in other countries dual classes of shares are common place for example 50 percent of the publicly traded dutch firms have non voting equity and approximately 75 percent of the publicly traded danish finnish and swedish firms have shares that differ in their voting rights this paper reviews the arguments as to why firms create dual classes of shares their effect on firm value and the relative prices of shares that differ only in their voting rights copyright 1992 by oxford university press

politically realistic objective functions and trade policy profs and tariffs abstract this paper demonstrates a mathematical correspondence between the deus ex machina tariff formation approach and political economy approach the correspondence implies that the tariff chosen by lobbying influenced policy makers will be equivalent to a tariff chosen by a deus ex machina government that gives too much weight to profits this result allows many political economy issues to be addressed in the simple framework of a deus ex machina government which faces a politically realistic objective function prof

domestic policies in self enforcing trade agreements abstract if all cross country externalities travel through the terms of trade efficient trade agreements may simply target the terms of trade and ignore domestic policies this argument has been advanced by several prominent studies simply put it reads terms of trade agreements are efficient i show that this result breaks down if the following two standard conditions are met first a self enforcement requirement constrains the agreement and second production possibilities are intertemporally linked these conditions imply that a country s current policy mix affects future production possibilities and thus impacts payoffs under potential defection since a terms of trade agreement does not specify a country s policy mix it effectively invites countries to manipulate their own defection temptation to be self enforcing terms of trade agreement must ensure that no country while optimizing its policies on the iso terms of trade schedule will abandon its zone of voluntary cooperation this requirement implies that terms of trade agreements are inefficient and can be improved upon by agreements that target policies directly

rent seeking noncompensated transfers and laws of succession my purpose in this paper is to analyze inefficiencies that may emerge from the noncompensated transfer of valued rights among persons this source of inefficiency has not to my knowledge been fully incorporated either in the economic theory of property rights or in orthodox tax analysis my discussion is based on the elementary fact that all noncompensated transfers are rents to the recipients implications for the emergence of rent seeking behavior follow straightforwardly the now familiar propositions to the effect that rent seeking may dissipate economic value can be applied to a variety of transfer settings only a few of which are explored in this paper 1 to the extent that the efficiency criterion is the relevant norm direct implications may be drawn for policy with respect to the laws or rules for succession

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

trade agreements with domestic policies as disguised protection abstract wto rules prohibit disguised protection in the form of domestic policies how then do governments cooperate over trade and domestic policies when none can verify whether a nation s domestic tax reduction is a protective measure or a reaction to a production externality in this paper each government privately observes whether a production externality associated with its import competing good is high or low this paper finds that in an optimal agreement disguised protection with domestic policies is never used by governments with a high externality and is never commonly realized moreover in an optimal agreement tariffs may be conditional on domestic policies

optimal international agreement and restriction on domestic efficiency the wto s strict treatment of domestic subsidies has not been well received in the existing literature an essential reason is that the consequent restriction on domestic efficiency is hardly compatible with the existing theory of government intervention under which the primary objective of using domestic subsidies domestic efficiency is not sacrificed for another objective we develop a trade agreement model in which the magnitude of a legitimate domestic subsidy with which to address a production externality is private information we find that an optimal agreement substantially restricts domestic efficiency for the international objective of expanding market access

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

economic evaluation of voting power of common stock this paper presents an economic evaluation of common stock voting rights an index of relative voting rights inequality for different classes of stock of the same corporation is constructed and the empirical relationship between the market premium on a superiorvoting stock and the voting inequality index is examined in only three out of the 25 cases could investors have arbitraged between the two classes of stock although in one case the arbitrage opportunity persisted for several months ownership and control of large corporations are two separate functions each shareholder typically holds a relatively small number of shares and hence lacks significant voting power as a result shareholders interest in the management of the firm is typically limited and a majority of them do not participate in the corporation s general meetings 1 thus the investment and financial decisions of the firm are made by a small group the management which effectively controls the firm the possible conflict of interest between these two groups and other various aspects of the separation of control and ownership are the subject of several studies 2 grossman and hart 5 show that even if the directors of the firm do not act in the best interest of the shareholders 3 it may be impossible for them to be disciplined and replaced by a takeover bid this raises the issue of whether theright to control the firm s activities has any economic value to focus the issue suppose a firm issues two classes of stock one with voting rights and the other with no voting rights and assume further that the two classes are entitled to the same pecuniary payoff in every state of the world according to traditional financial theory that asserts that two assets promising the same payoff in every state of nature must sell for the same price the voting rights would be worthless and we should expect the same market price for the two classes of stock however

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

managerial ownership of voting rights abstract managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities we study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56 9 of the votes and 24 0 of the common stock cash flows we also find significant family involvement in many sample firms and document four case studies in which explicit acquisition premiums were paid for superior voting shares

the managerial regulatory and financial determinants of bank merger premiums this paper analyzes the managerial regulatory and financial determinants of us bank merger premiums we use both individual acquirer and target bank characteristics we also examine state regulation of acquirer and target banks from a geographically dispersed population allowing us specifically to test the effect of a varied state regulatory menu the study finds merger premiums to be related to the characteristics of both acquirer and target banks and the regulatory environments in both acquirer and target bank states we also find evidence that the separation of ownership and control in acquirer and target banks has a significant effect on merger premiums in the last decade the pace of mergers in the us banking industry has been impressive this growth in the number of bank mergers has largely been due to the changing economic and regulatory environment with the reduction in the severity of enforcing strict antitrust guidelines by the reagan administration and more importantly the gradual removal of geographical restrictions by individual states on bank expansion the environment for bank mergers has never been so conducive since the regulatory restrictions are likely to be further relaxed with an increasing number of states permitting interstate banking in the early 1990s the number and dollar value of bank mergers is certain to accelerate accordingly it is important to improve our understanding of bank mergers this paper examines the financial regulatory and managerial determinants of bank merger premiums in examining the financial determinants of the merger premiums we include the financial characteristics of the target banks and the franchise value of its banking market because bank mergers are carefully regulated by state laws we also analyze the regulation in the banks states we examine the state regulation of acquirer and target banks

domestic policies national sovereignty and international economic institutions to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world this question is at the center of the debate over the future role of the wto formerly gatt in the realm of labor and environmental standards in this paper we establish that the market access focus of current wto rules is well equipped to handle the problems associated with choices over labor and environmental standards in principle with relatively modest changes that grant governments more sovereignty not less these rules can deliver globally efe cient outcomes i introduction to what extent must nations cede control over their economic and social policies if global efe ciency is to be achieved in an interdependent world at a broad level this question probes the limits of any international economic institution whether geared toward real or e nancial concerns that is designed to promote global efe ciency while respecting national sovereignty naturally the answer depends upon the particular problem that the institution is meant to solve in other words the answer depends upon the inefe ciency that would arise under unilateral policy choices at a more specie c level this question is at the center of the debate concerning the appropriate scope of the world trade organization wto formerly gatt recently member countries have considered ways to broaden the wto s orientation beyond conventional trade policy measures to include labor and environmental standards there are now initiatives to introduce the issue of labor standards directly onto the negotiating agenda of the wto with the purpose of creating a wto social clause the social clause would specify a set of minimum international labor standards and then permit restrictions to be placed against imports from countries not complying with these minimum standards with regard to environmental policies a wto committee on trade and environment has been established to identify the relationships between trade and environmental measures and to

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

optimal remedies in international trade agreements abstract this paper takes a mechanism design approach to characterize a politically optimal trade agreement under the assumption that governments have private information about the fluctuating political pressure they face from domestic interest groups to restrict trade the optimal mechanism under these changing circumstances involves a remedy system for breach of trade agreements that specifies less than proportional retaliations against deviating parties this result is in contrast to the conventional wisdom in the literature regarding the efficiency of the reciprocity principle as a rule of renegotiation in trade agreements i also consider an institutional structure in which only commensurate retaliations are practical but governments can employ a public randomizing device to authorize retaliations i show that it is optimal to authorize retaliations only randomly this suggests a role for the wto dispute settlement process as a public randomizing device

real business cycles a new keynesian perspective the debate over the source and propagation of economic fluctuations rages as fiercely today as it did 50 years ago in the aftermath of keynes s the general theory and in the midst of the great depression today as then there are two schools of thought the classical school emphasizes the optimization of private economic actors the adjustment of relative prices to equate supply and demand and the efficiency of unfettered markets the keynesian school believes that understanding economic fluctuations requires not just studying the intricacies of general equilibrium but also appreciating the possibility of market failure on a grand scale

ownership concentration corporate control activity and firm value evidence from the death of inside blockholders we analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders we find shareholder wealth increases ownership concentration falls and extensive corporate control activity ensues share price responses are related to the deceased s equity stake control group holdings fall for two thirds of the firms due to either the estate s dispersal or inheritors selling stock a majority of firms become targets of control bids three quarters of bids are successful one third are hostile our evidence is broadly consistent with stulz s 1988 model of the relationship between ownership concentration and firm value the objective of this paper is to assess how changes in insider ownership concentration affect firm value corporate governance and the control of public companies we obtain our evidence on these issues by examining the effects of the death of an inside blockholder that is a member of the firm s control group as defined by securities and exchange commission sec disclosure rules who holds 5 percent or more of a firm s equity overall we find that the death of an inside blockholder an exogenous event is value enhancing reduces ownership concentration and leads to extensive corporate control activity our analysis has three components one we use market based evidence to evaluate how changes in ownership concentration affect firm value by analyzing the share price response to the death of an inside blockholder financial market efficiency implies that share prices capitalize gains or losses from changes in ownership concentration and future control events expected to ensue from an inside blockholder s death thus such valuation effects provide a test of the continuing controversy as to whether ownership concentration promotes managerial entrenchment or aligns insider and noninsider interests we find that the share price response to the death of an inside blockholder is significantly positive when the level of ownership concentra

the new keynesian synthesis the new keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity but the past five years have seen important breakthroughs in this second area this paper will describe these breakthroughs discuss our current understanding of nominal rigidity and assess the work that remains to be done

a theory of the optimal cost barrier to corporate takeovers this paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation supported by governance structures that allow managers to resist hostile takeovers more vigorously this effect is most pronounced in firms where workers pay for their job by accepting low wages early in their careers firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

will international rules on subsidies disrupt the world trading system international disputes over subsidies have become a prominent feature of the world trading system the creation of the world trade organization wto as a successor to the general agreement on tariffs and trade gatt was nearly prevented by disputes in the uruguay round of gatt negotiations over the issue of negotiating disciplines on agricultural subsidies an issue which continues to plague the ongoing doha round of wto negotiations and ongoing disputes over subsidies that violate existing wto rules have led to the largest amount of authorized retaliation in gatt wto history yet despite their evident importance the international rules that govern subsidies have received little formal attention

the market value of corporate votes theory and evidence from option prices this paper proposes a new method using option prices to estimate the market value of the shareholder voting rights associated with a stock the method consists of synthesizing a nonvoting share using put call parity and comparing its price to that of the underlying stock empirically we find this measure of the value of voting rights to be positive and increasing in the time to expiration of synthetic stocks the measure also increases around special shareholder meetings periods of hedge fund activism and m a events the method is likely useful in studies of corporate control and also has asset pricing implications

what determines the value of corporate votes this paper studies the determinants of the value of voting rights in u s corporations results support the hypothesis that the price of a vote is determined by the expected additional payment vote holders will receive for their votes in case of a control contest the size of this differential payment is a function of the probability that a vote is pivotal in a control contest and the magnitude of the private benefits obtainable by controlling the company simple proxies for these two factors explain up to 30 percent of the variation of the voting premium across companies and through time my findings also suggest that the value of managerial perquisites are at least partially reflected in the price of votes

differentiated bids for voting and restricted voting shares in public tender offers abstract this paper develops a model for takeover bid premiums of voting and restricted voting shares when the bidder wants 100 of the target firm for this special case a higher bid premium may be offered either to the voting or to the restricted voting shareholders we also analyze consequences of the equal offer and one share one vote principles and investigate the model s explanatory power on swedish data

does the nairu have the right dynamics the nairu view of the relationship between inflation and the unemployment rate is that there is a value of the unemployment rate the nairu below which the price level forever accelerates and above which the price level forever decelerates this view imposes two important restrictions on the dynamics of the price process this can be seen by examining a simple version of the nairu equation

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

negotiated trade restrictions with private political pressure we consider a home government with political pressure to restrict trade the foreign country is compensated with a portion of the tariff revenues or quota rents but cannot directly observe the political pressure abroad in this setting the two countries negotiate over the volume of trade and transfer of rents depending on the level of political pressure we determine globally optimal incentive compatible trade policies in which the home government has no incentive to overstate or understate the pressure for protection

symposium on keynesian economics today no book in economics has been more praised more vilified or more discussed than the general theory of employment interest and money by john maynard keynes keynes wrote the book in the midst of a depression so great that it was clear to all observers that the economy was not working well in the united states the unemployment rate reached a peak of 25 percent in 1933 and it remained above 14 percent for the rest of the decade indeed the severity and persistence of the depression threatened the very existence of free market economies in the general theory keynes offered a diagnosis and treatment of this malady the book sparked a revolution in economics what is left of the keynesian revolution today the 1970s were a hard time for keynesians as the phillips curve seemed to disappear so did the burgeoning consensus in macroeconomics keynes had emphasized how shifts in aggregate demand cause economic fluctuations but in the 1970s shifts in aggregate supply seemed at least as important critics questioned whether keynesian macroeconomics could be built on solid microeconomic foundations and new classical macroeconomics took a turn on center stage but intellectual ideas ebb and flow most economists were not willing to embrace theories of the business cycle based on continuous market clearing it is therefore not surprising that keynesian ideas surged again to prominence in the 1980s the first two papers in this symposium discuss two strands of new keynesian economics like keynes new keynesians begin with the premise that persistent unemployment and economic fluctuations are central and continuing problems recessions and depressions represent market failure on a grand scale coming in the wake of the new classical revolution new

real wages real interest rates and the phillips curve this article argues that any analysis of a phillips curve should include the real interest rate in addition to inflation and real wages as any changes in the interest rate changes the labour capital input mix in the production process leading to a change in the level of employment in the economy to justify this argument a phillips curve model is developed which includes the real interest rate in addition to inflation and real wages after the diagnosis of the time series properties of the data an error correction model is developed and estimated using a set of us annual data from 1948 to 1996 the estimated parameters of the model do suggest that one should really take into consideration of the real interest rate while analysing the phillips curve a non nested test f test also suggests that the phillips curve model with real interest rate as an additional variable performs better than the conventional method that does not include the real interest rate

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

dual class ipos a theoretical analysis we consider an incumbent who wishes to sell equity to outsiders at an ipo to implement his firm s project he may be talented lower cost of effort comparative advantage in project implementation or untalented the project may have high intrinsically more valuable but showing less signs of success in the near term or low near term uncertainty under a single class share structure the incumbent has a greater chance of losing control to potential rivals if he undertakes the project with high near term uncertainty since outsiders may vote for the rival if they believe the project is not progressing well a dual class share structure allows the incumbent to have enough votes to prevail against any rival but may be misused by untalented incumbents to dissipate value our results help to explain firms choices between dual class and single class ipos and the post ipo operating performance of dual class versus single class firms

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

corporate governance and equity prices evidence from the czech and slovak republics the 1992 czechoslavakia mass privatization program involving about 1 500 eneterprises and implemented through a voucher scheme with competitive bidding was a bold step in changing the ownership and governance of a large part of the economy it represents a clear test case of one approach and other countries may benefit from its lessons at the time much skepticisism was voiced about mass privatization it would lead to diffuse ownership and no effective corporate governance would result but innovative forces led to the emergence of investment funds that collected much of the individuals voucher points leading to a much more concentrated ownership structure it has been expected that this concentrated ownership would lead to improved corporate governance but the jury is still out so far only limited and largely anecdotal evidence is available on the impact investment funds have on the way firms are being managed too little time has passed and too many shocks have occurred for example the split of the czech and slovak republics to expect to find discernible changes in corporate governance on measures of actual firm performance an alternative approach is to investigate whether firms that ended up with more concentrated ownership and possibly improved governance sell for higher prices either in the last voucher round or in the secondary market since then in a forward looking financial market one can expect prices to incorporate the effects of better ownership on future firm performance and associated dividends to shareholders put differently one would expect that two firms with different shareholding structures but otherwise identical would trade at different prices with the firm with a more concentrated ownership and presumably better corporate governance trading at a higher price on a cross sectional basis ownership structure may thus be significant in explaining relative share prices the author explores this line of reasoning controlling for a number of firm and sector specific variables he finds 1 majority ownership by a domestic or foreign investor has a positive influence on firm prices 2 firms with many small owners have lower prices 3 ownership by many small scale investors makes it easier for any single investor to establish effective control but such control does not necessarily translate into higher prices the author also provides two possible explanations of why higher prices appear to be associated only with majority ownership by a single investor he finds 1 the corporate legal framework and the difficulty in collecting proxy votes in the czech and slovak republics may prevent a small investor from making the necessary changes in the way firms are managed thus keeping prices low and 2 commercial banks are both managers of invesment funds and creditors of individual firms funds managers may face conflicts of interest and not be interested in increasing the value of equity alone but also the value of credits this could explain why prices are relatively lower for those firms in which investment funds have effective control

shifting wage norms and their implications at least since the early 1970 s it has been apparent that the cyclical variations in inflation summarized by the short run phillips curve are only one part of the inflation problem that confronts modern industrial economies another part is the relative persistence of an established rate of inflation there is a good deal that we do not understand about this persistence but i find the most useful way to model it is to start with the concept of a relatively stable wage norm by which i mean a norm for the rate of wage increase the model distinguishes sharply between the cycle and the trend in inflation with the wage norm determining the trend the variations in inflation of the typical business cycle take place around the existing wage norm and generate the empirical short run phillips curve the wage norm itself is affected little if at all by the typical business cycle historically the wage norm has been shifted by prolonged departures from typical business cycles or by other extreme economic developments figuring out more precisely what it takes to shift wage norms or what might keep them from shifting is a central challenge for understanding inflation better before turning to its implications let me sketch the behavioral underpinnings of the wage norm model and the empirical evidence about wage norms the norm rate of wage increase has no allocational significance and describes the trend of nominal wages independent of real aggregate demand or relative demand effects in this respect it is like the anticipated rate of inflation in many familiar models wages are not determined in an auction like labor market that clears over any reasonable interval of time rather they are established by wage setting firms with a profit maximizing interest in their long run relation with their employees in some cases in a bargaining situation with unions under both the implicit and explicit contracts that thus dominate wage setting keeping up with the norm is the neutral standard for firms an individual firm that raises wages in line with the norm neither improves nor worsens its relative position as an employer a firm that wants to expand employment will typically offer a higher wage than would be required just to keep up with the norm relative wages and relative employment levels are thus codetermined in this process when most firms want to expand employment as in a cyclical upturn the same behavior is part of the process producing the modest cyclical rise in inflation that we observe as the short run phillips curve thus the onset of cyclical inflation is not a sign that capital and labor resources are being overutilized nor is it a sign that inflation is on an accelerating path or even that wage norms are shifting up in analyzing u s postwar data i have found the wage norm shifted up substantially by the end of the 1960 s and down again though not by as much by the end of the 1980 82 recession see my 1983 paper the first episode was a period with a historic expansion that ended with several years of very low unemployment rates the second was a recession of unusual length and severity that ended with the highest unemployment rates since the 1930 s there is also evidence of a small shift down in the wage norm after the weak economic performance of 1957 61 which featured two recessions with only an aborted recovery in between i also found evidence for germany the united kingdom and japan of upward shifts in wage norms in manufacturing industries after the 1960 s and downward shifts in the early 1980 s see my 1986 paper all these episodes suggest the kinds of extreme cyclical developments that have shifted wage norms in the postwar period the brookings institution 1775 massachusetts avenue nw washington d c 20036 in preparing this paper i benefited from discussions with charles schnl t7 e

portfolio management and appropriation of private benefits of control in many countries around the globe portfolio managers utilize well accepted models assuming that a partial stake of ownership is proportionally valued this assumption is incorrect in markets in which traded firms or publicly held firms are controlled by major owners who would take any possible measure to protect and maintain a lock on control so they can secure a sellable asset to another control seeker in this case estimation of key parameters such as volatility expected returns and diversification effect may be grossly distorted we would argue that a major trigger for the value of the benefits of control is the ability of control owners to transfer assets from their own portfolio to a controlled publicly traded firm while it is obvious that these transfers will take place if and only if it is beneficial to the control owners the impact on the minor shareholders may not necessarily be negative and may vary depending on several parameters thus the benefits of control are not entirely private i e appropriation and diversion of the resources of publicly traded firms for the benefit of the control owners this paper aims to model the effect of the benefits of control on the value of a minority held public firms it focuses on two related issues that are discussed in the literature on the benefits of control what drives the value of the benefits of control given the empirical evidence that control seekers are willing to pay a significant premium for control and secondly can these benefits be rationally modeled to better understand these issues it then models a specific drive on the part of control seekers who in addition to their stake in a publicly traded firm own a private portfolio it could be argued that they may transfer inferior investments to the public firms that they control exploiting less than perfect transparency however while they own this valuable option of transferring inferior investments into the public firm these actions may still be beneficial to the minority shareholders we establish a model and derive a simulation procedure that are applied to several cases in which transfers are made in exchange for cash or equity instances of full disclosure or partial transparency the likelihood that the control owners actions will be contested in court level of risk and other parameters then we will compare the results to empirical finding the final model will be greatly simplified so that the end formula can be easily used by practitioners