nep-bec New Economics Papers
on Business Economics
Issue of 2005‒08‒03
eleven papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. An Exploration into Competition and Efficiency in the Dutch Life Insurance Industry By Jaap Bikker; Michiel van Leuvensteijn
  2. Modern Business Cycle Analysis By Jeremy Greenwood
  3. On Tariff, Quality Choice and Innovation in a Vertically Differentiated Monopoly with Discrete Preferences By Rajat Acharyya; Swapnendu Banerjee
  4. Liquidity risk in securities settlement By Johan Devriese; Janet Mitchell
  5. Financial Structure Change and Banking Income: a Canada-U.S. Comparison By Christian Calmès; Ying Liu
  6. Décomposition par firme et par attribut de la productivité : le cas de l’indice agrégé de Malmquist By Stéphane Mussard; Nicolas Peypoch
  7. Financial intermediation theory and implications for the sources of value in structured finance markets By Janet Mitchell
  8. Actions and Beliefs: Estimating Distribution-Based Preferences Using a Large Scale Experiment with Probability Questions on Expectations By Charles Bellemare; Sabine Kroger; Arthur van Soest
  9. Capital humano: uma nova proxy para incluir aspectos qualitativos By Luciano Nakabashi; Lízia de Figueiredo
  10. Evolucion de la relacion banca-industria en España By Miguel A. Garcia Cestona; Jordi Surroca; Josep A. Tribo

  1. By: Jaap Bikker; Michiel van Leuvensteijn
    Abstract: The lack of available prices in the Dutch life insurance industry makes competition an elusive concept that defies direct observation. Therefore, this paper investigates competition by analysing several factors which may affect the competitive nature of a market and various indirect measurement approaches. After discussing various supply and demand factors whic h may constitute a so-called tight oligopoly, we establish the existence of scale economies and the importance of cost Xinefficiency, since severe competition would force firms to exploit available scale economies and to reduce X-inefficiencies. Both scale economies and X-inefficiencies turn out to be substantial, although more or less comparable to those found for insurers in other countries and to other financial institutions. Further, we apply the Boone indicator, a novel approach to measuring the effects of competition. This indicator points to limited competition in comparison to other sectors in the Netherlands. Further investigations of submarkets should reveal where policy measures in order to promote competition might be appropriate.
    Keywords: Life insurance; market structure; concentration; competition; scale economies; X-inefficiency; profit margins; Boone indicator; translog cost functions; stochastic cost frontier approach.
    JEL: D4 D61 G22 L1
    Date: 2005–07
  2. By: Jeremy Greenwood (University of Rochester)
    Abstract: A discussion of the importance for economics of Kydland and Prescott's (1982) classic "Time to Build and Aggregate Fluctuations". A report submitted to The Royal Swedish Academy of Sciences in support of the The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for Finn E. Kydland and Edward C. Prescott.
    Keywords: Kydland and Prescott (1982), Business Cycle Analysis, Quantitative Theory, Nobel Prize in Economics
    JEL: B22 C68 E13 E32
    Date: 2005–07
  3. By: Rajat Acharyya (Jadavpur University); Swapnendu Banerjee (National University of Singapore)
    Abstract: In a vertically differentiated monopolistic framework with discrete preferences we examine how protecting the low-quality segment raises the incentive for quality innovation. We show how the monopolist facing competitive imports, might fail to exert its complete monopoly power even if there is prohibitive tariff on both the high and low quality segment of the market. On the other hand, given non prohibitive tariff on the high quality segment, the potential gain for the monopolist exhausts at a level much below the prohibitive low-quality tariff level. Also a sufficiently low tariff on the high quality product can force the monopolist to produce the first best qualities irrespective of the tariff level on the low quality product
    Keywords: F13, L12, L15
  4. By: Johan Devriese (National Bank of Belgium, Department of International Cooperation and Financial Stability); Janet Mitchell (National Bank of Belgium, Department of International Cooperation and Financial Stability)
    Abstract: This paper studies the potential impact on securities settlement systems (SSSs) of a major market disruption, caused by the default of the largest player. A multiperiod, multisecurity model with intraday credit is used to simulate direct and second-round settlement failures triggered by the default, as well as the dynamics of settlement failures, arising from a lag in settlement relative to the date of trades. The effects of the defaulter's net trade position, the numbers of securities and participants in the market, and participants' trading behavior are also analyzed. We show that in SSSs - contrary to payment systems - large and persistent settlement failures are possible even when ample liquidity is provided. Central bank liquidity support to SSSs thus cannot eliminate settlement failures due to major market disruptions. This is due to the fact that securities transactions involve a cash leg and a securities leg, and liquidity can affect only the cash side of a transaction. Whereas a broad program of securities borrowing and lending might help, it is precisely during periods of market disruption that participants will be least willing to lend securities. Settlement failures can continue to occur beyond the period corresponding to the lag in settlement. This is due to the fact that, upon observation of a default, market participants must form expectations about the impact of the default, and these expectations affect current trading behavior. If, ex post, fewer of the previous trades settle than expected, new settlement failures will occur. This result has interesting implications for financial stability. On the one hand, conservative reactions by market participants to a default - for example by limiting the volume of trades - can result in a more rapid return of the settlement system to a normal level of efficiency. On the other hand, limitation of trading by market participants can reduce market liquidity, which may have a negative impact on financial stability.
    Keywords: Securities settlement, liquity risk, contagion
    JEL: G20 G28
    Date: 2005–07
  5. By: Christian Calmès (Département des sciences administratives, Université du Québec en Outaouais et LRSP); Ying Liu (Bank of Canada)
    Abstract: Data suggest that the Canadian financial structure, and particularly indirect finance (e.g., banking), have become more market-oriented. we associate this financiel trend in part with the regulatory changes that have occured in Canada since the 1980s. Financial intermediaries are increasingly involved with financial market activities --e.g. off-balance sheet (OBS) activities such as underwriting securities. For this reason, we analyze the noninterest income attributable to financial market activities. We find that the variance of Canadian banks' aggregate operating-income growth is rising because of the increased contribution of noninterest income. This component is by nature quite volatile compared to interest income. Consequently, our analysis corroborates the U.S. finding of Stiroh (2004), and Stiroh and Rumble (2005): By contributing to banking income volatility, market-oriented activities do not necessarily yield straightforward diversification benefits to Canadian banks.
    Keywords: Regulatory changes, indirect finance, noninterest income, diversification
    JEL: G20 G21
    Date: 2005–07–26
  6. By: Stéphane Mussard (GREDI, Université de Sherbrooke and Université de Perpignan); Nicolas Peypoch (GEREM, Département des Sciences Economiques, Université de Perpignan)
    Abstract: Le but de cet article est de démontrer que l’indice de Malmquist agrégé satisfait la propriété de multi-décomposabilité. Cette dernière permet de combiner la décomposition par firme et la décomposition par attribut qui est caractérisée par le progrès technique et la variation d’efficacité.
    Keywords: Agrégation, Indice de Malmquist, Multi-décomposition
    JEL: D21 D24
    Date: 2005
  7. By: Janet Mitchell (National Bank of Belgium, Department of International Cooperation and Financial Stability)
    Abstract: Structured finance instruments represent a form of securitization technology which can be defined by the characteristics of pooling of financial assets, delinking of the credit risk of the asset pool from the credit risk of the originating intermediary, and issuance of tranched liabilities backed by the asset pool. Tranching effectively accomplishes a "slicing" of the loss distribution of the underlying asset pool. This paper reviews the finance literature relating to security design and securitization, in order to identify the economic forces underlying the creation of SF instruments. A question addressed is under what circumstances one would expect to observe pooling alone (as with traditional securitization) versus pooling and tranching combined (as with structured finance). It is argued that asymmetric information problems between an originator and investors can lead to pooling of assets and tranching of associated liabilities, as opposed to pooling alone. The more acute the problem of adverse selection, the more likely is value to be created through issuance of tranched assetbacked securities. Structured finance instruments also help to complete incomplete financial markets, and they may also appear in response to market segmentation.
    Keywords: Structured finance, securitization
    JEL: G10 G12 G20
    Date: 2005–07
  8. By: Charles Bellemare; Sabine Kroger; Arthur van Soest
    Abstract: We combine the choice data of proposers and responders in the ultimatum game, their expectations elicited in the form of subjective probability questions, and the choice data of proposers ("dictators") in a dictator game to estimate a structural model of decision making under uncertainty. We use a large and representative sample of subjects drawn from the Dutch population. Our results indicate that there is considerable heterogeneity in preferences for equity in the population. Changes in preferences have an important impact on decisions of dictators in the dictator game and responders in the ultimatum game, but a smaller impact on decisions of proposers in the ultimatum game, a result due to proposer's subjective expectations about resopnders' decisions. The model which uses subjective data on expectations has better predictive power and lower noise level than a model which assumes that players have rational expectations.
    Keywords: Ultimatum game, inequity aversion, subjective expectations
    JEL: C93 D63 D84
    Date: 2005
  9. By: Luciano Nakabashi (Cedeplar-UFMG); Lízia de Figueiredo (Cedeplar-UFMG)
    Abstract: The role of human capital on the development process has been recognized as a crucial element by many researchers. Nevertheless, many empirical results have showed no correlation between human capital and income per capita level or between human capital and growth rates. It is argued that the interaction between the two variables is more complicated than predicted by endogenous model of growth as the one developed by Lucas-Uzawa. Other problem that is usually mentioned is the proxy´s lack of quality because it does not take into account the disparities in the educational system when different nations are compared. The main goal of this paper is to employ a proxy for human capital that tries to take into account this characteristic and compare with Mankiw, Romer and Weil 1992’s results.
    Keywords: Human capital, empirical results, new proxy
    JEL: C21 E10 I20 O11 O41 O50
    Date: 2005–06
  10. By: Miguel A. Garcia Cestona; Jordi Surroca; Josep A. Tribo
    Abstract: Definir el papel que juega el sistema financiero en general, y los bancos en particular, a la hora de facilitar las inversiones y crecimiento de las empresas, impulsar la adopc ión de innovaciones tecnológicas y las mejoras en la productividad, o en la mejor supervisión de la actuación de los directivos ha sido siempre un tema que ha generado encendidos debates y para el que se han elaborado numerosas comparaciones internacionale s. Se observan dos soluciones extremas a este problema: por un lado, el modelo anglo-americano, con mercados financieros importantes e instituciones financieras no tan involucradas en la propiedad o financiación de las empresas; y por otro lado el modelo germano-japonés, con un número reducido de bancos, de tamaño importante y que han jugado un papel más activo en la supervisión y control de las entidades no financieras con las que colaboran. El caso español correspondía, tradicionalmente, a una situación intermedia con bancos importantes pero no excesivamente involucrados y con la presencia de mecanismos de mercado de una cierta importancia, especialmente cuando lo comparábamos con la situación presente en otros países europeos. En este trabajo intentamos ver hasta qué punto los bancos siguen siendo importantes en la financiación de las empresas, analizando sus participaciones accionariales y determinando hasta qué punto son accionistas activos y alternativos al mercado. En este sentido, una de las preguntas claves consiste en entender qué ha pasado con la estructura de propiedad de las empresas españolas y, en particular, de aquellas que cotizan en bolsa. Este es un elemento crucial ya que en la mayoría de países europeos es habitual una estructura de propiedad altamente concentrada y donde la caracterización de los grandes accionistas resulta relevante. Otra cuestión que merece nuestra atención es la evolución de las grandes empresas de propiedad estatal, que durante la última década han experimentado importantes procesos de privatización, por otro lado generalizados en todas las economías. Los sectores de la energía, telecomunicaciones y transporte, entre otros, han visto cambios dramáticos en su propiedad. Dado su importante peso específico en la economía y mercados nacionales, analizaremos cómo ha afectado dicha privatización a los diferentes mecanismos de gobierno, la eficiencia y el valor de las empresas.
    Date: 2005–07
  11. By: Maria Belen Usero; Zulima Fernandez
    Abstract: This study examines the relationship between erosion of the first-mover’s market share and the differences in competitive behaviour of pioneer firms and followers. Particularly, we pay particular attention to market actions related to innovation, pricing and promotion, and to non-market actions related to judicial issues. The empirical study has been carried out with companies that are present in a dynamic context, such as the European mobile telephone industry. Our results show that when followers take more non-market actions than pioneers the negative effect on the firstentrant’s advantage is more significant. On the contrary, we have not found a significant impact of innovating and pricing actions.
    Date: 2005–07

This nep-bec issue is ©2005 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.