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on Business Economics |
| By: | Enchuan Shao; Pedro Silos |
| Abstract: | We present a model of aggregate fluctuations in which monopolistic firms face sunk costs to enter the production process and labor markets are characterized by search and matching frictions. Entrants post vacancies and are matched to idle workers. Our specification of sunk costs gives rise to a countercyclical net present value of a vacancy; it is always zero in models where entry is free. The model displays a strong degree of amplification and propagation. The time-varying value of a vacancy has implications for the surplus division between firms and workers over business cycle. In the data, we proxy this division using the ratio of corporate profits to output and workers' compensation to output. We document the cyclical behavior of profit's and labor's shares: Profit's share leads the cycle and is procyclical and more volatile than output. Labor's share inversely leads the cycle and is weakly countercyclical and smoother than output. Our model is consistent with the cross-correlations of both shares and the higher volatility of the share of profits. Regarding propagation and amplification, the model matches the persistence of vacancy creation and two-thirds of the observed volatility of market tightness relative to output. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-17&r=bec |
| By: | Vojislav Maksimovic; Gordon Phillips; N. R. Prabhala |
| Abstract: | Mergers and acquisitions are a fast way for a firm to grow. Using plant-level data, we examine how firms redraw their boundaries after acquisitions. We find that there is a large amount of restructuring in a short period following mergers. Acquirers sell 27% and close 19% of acquired plants within three years of the acquisition. Plants in the target's peripheral divisions, especially in industries in which asset values are increasing, and in industries in which the acquirer does not have a comparative advantage, are more likely to be sold by the acquirer. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Plants retained by acquirers increase in productivity whereas sold plants do not. The extent of post-merger restructuring activities and their cross-sectional variation do not support an empire building explanation for mergers. Acquirers readjust their firm boundaries in ways that are consistent with the exploitation of their comparative advantage across industries. |
| JEL: | G3 G34 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14291&r=bec |
| By: | André van Stel; Andrew Burke |
| Abstract: | Despite the fact that the main contribution of entrepreneurship theory to economics has been to provide an account of the performance of markets in disequilibrium, little empirical research on entrepreneurship has examined firm entry and exit in this context. In this paper, we attempt to redress this by modelling the interrelationship between firm entry and exit rates in disequilibrium. Using a data base of Dutch retail industries over the period 1980-2001, we are able to distinguish between displacement (entry causing exit) and replacement (exit causing entry) effects. We introduce a new methodological approach which allows us to investigate whether the relations under consideration differ between situations of undershooting’ (the actual number of firms is below the equilibrium number) and ‘overshooting’ (vice versa). We find that the equilibriumrestoring mechanisms are different in these two situations – being faster in over than undershoots. Our estimation results also imply that for undershooting, a lack of competition between incumbent firms contributes to restoration of equilibrium (creating room for new-firm entry) while in overshooting competition induced by new firms (in particular strong displacement) causes the number of firms to move towards equilibrium. The research helps to embed entrepreneurship theory into mainstream economics in a manner that adds greater insight into the performance of markets in disequilibrium. |
| Date: | 2008–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:eim:papers:h200809&r=bec |
| By: | Gerard Hoberg; Gordon M. Phillips |
| Abstract: | We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals. |
| JEL: | G3 G34 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14289&r=bec |
| By: | Gerard Hoberg; Gordon M. Phillips |
| Abstract: | We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. In competitive industries, we find that high industry-level stock-market valuation, investment and new financing are followed by sharply lower operating cash flows and abnormal stock returns. We also find that analyst estimates are positively biased and returns comove more when industry valuations are high in competitive industries. In concentrated industries these relations are weak and generally insignificant. Our results suggest that when industry stock-market valuations are high, firms and investors in competitive industries do not fully internalize the negative externality of industry competition on cash flows and stock returns. |
| JEL: | G10 G14 G31 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14290&r=bec |
| By: | Otrok, Christopher; Pourpourides, Panayiotis M. (Cardiff Business School) |
| Abstract: | Using longitudinal microdata on real wages we estimate a Bayesian dynamic latent factor model to measure the cyclical properties of real wages. We find that the comovement of real wages can be related to a common factor that exhibits a strong correlation with the national unemployment rate. However, our findings indicate that the common factor explains, on average, no more than 9% of wage variation. Furthermore, roughly half of the wages move procyclically while half move countercyclically. These facts are inconsistent with claims of a strong systematic relationship between real wages and the business cycle. We show that these wage dynamics are consistent with models of labor contracting, and inconsistent with a Walrasian labor market. We also confirm findings of previous studies in which skilled and unskilled wages exhibit roughly the same degree of cyclical variation. |
| Keywords: | Wages; Wage Differentials; Business Cycles; Bayesian Analysis |
| JEL: | C11 C13 C22 C23 C81 C82 J31 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2008/19&r=bec |
| By: | Ernst Fehr; Martin Brown; Christian Zehnder |
| Abstract: | We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the positive effects of social preferences on contract enforcement by increasing contract efficiency substantially. This effect is, however, associated with a considerable bilateralisation of market interactions, suggesting that it may aggravate price rigidities. Surprisingly, reputation in fact weakens the wage and price rigidities arising from social preferences. Thus, in markets characterized by moral hazard, reputational incentives unambiguously increase mutually beneficial exchanges, reduce rents, and render markets more responsive to supply and demand shocks. |
| Keywords: | Reputation, Reciprocity, Relational Contracts, Price Rigidity, Wage Rigidity |
| JEL: | D82 J3 J41 E24 C9 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:384&r=bec |
| By: | Holly, S.; Petrella, I. |
| Abstract: | This paper investigates the drivers of industry and aggregate fluctuations. We model the dynamics of a panel of highly disaggregated manufacturing sectors. This allows us to consider directly the linkages between sectors typical of any production system, in a framework where the sectors are fully heterogeneous. We establish that these features are fundamental for the propagation of the shocks in the aggregate economy. Aggregate fluctuations can be accounted for by small industry specific shocks. Moreover, a contemporaneous technology shock to all sectors in the economy, i.e. an aggregate technology shock, implies a positive response in both output and hours at the aggregate level. When this intersectoral channel is neglected we find a negative correlation as with much of the literature. This suggests that the standard technology driven Real Business Cycle paradigm is a reasonable approximation of a more complicated model featuring heterogenously interconnected sectors. |
| Keywords: | Sectors, Technology shocks, Business cycles, Long-run restrictions, Cross Sectional Dependence. |
| JEL: | E20 E32 C31 C51 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0827&r=bec |
| By: | Wolfgang R. Köhler |
| Abstract: | We analyze task allocation and randomization in Principal Agent models. We identify a new rationale that determines the allocation of tasks and show that it can be optimal to assign tasks that are very different to one agent. Similar to randomization, the reason to assign several tasks to one agent is to mitigate the effect of the participation constraint. We show that the allocation of tasks can be used as a substitute if randomization is not feasible. |
| Keywords: | Job design, multi-task agency, ex-ante randomization, moral hazard |
| JEL: | D |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:381&r=bec |
| By: | Stephen Davies (Centre for Competition Policy, University of East Anglia); Matthew Olczak (Centre for Competition Policy, University of East Anglia) |
| Abstract: | Previous empirical assessments of the effectiveness of structural merger remedies have focused mainly on the subsequent viability of the divested assets. Here, we take a different approach by examining how competitive are the market structures which result from the divestments. We employ a tightly specified sample of markets in which the European Commission (EC) has imposed structural merger remedies. It has two key features: (i) it includes all mergers in which the EC appears to have seriously considered, simultaneously, the possibility of collective dominance, as well as single dominance; (ii) in a previous paper, for the same sample, we estimated a model which proved very successful in predicting the Commission’s merger decisions, in terms of the market shares of the leading firms. The former allows us to explore the choices between alternative theories of harm, and the latter provides a yardstick for evaluating whether markets are competitive or not – at least in the eyes of the Commission. Running the hypothetical post-remedy market shares through the model, we can predict whether the EC would have judged the markets concerned to be competitive, had they been the result of a merger rather than a remedy. We find that a significant proportion were not competitive in this sense. One explanation is that the EC has simply been inconsistent – using different criteria for assessing remedies from those for assessing the mergers in the first place. However, a more sympathetic – and in our opinion, more likely – explanation is that the Commission is severely constrained by the pre-merger market structures in many markets. We show that, typically, divestment remedies return the market to the same structure as existed before the proposed merger. Indeed, one can argue that any competition authority should never do more than this. Crucially, however, we find that this pre-merger structure is often itself not competitive. We also observe an analogous picture in a number of markets where the Commission chose not to intervene: while the post-merger structure was not competitive, nor was the pre-merger structure. In those cases, however, the Commission preferred the former to the latter. In effect, in both scenarios, the EC was faced with a no-win decision. This immediately raises a follow-up question: why did the EC intervene for some, but not for others – given that in all these cases, some sort of anticompetitive structure would prevail? We show that, in this sample at least, the answer is often tied to the prospective rank of the merged firm post-merger. In particular, in those markets where the merged firm would not be the largest post-merger, we find a reluctance to intervene even where the resulting market structure is likely to be conducive to collective dominance. We explain this by a willingness to tolerate an outcome which may be conducive to tacit collusion if the alternative is the possibility of an enhanced position of single dominance by the market leader. Finally, because the sample is confined to cases brought under the ‘old’ EC Merger Regulation, we go on to consider how, if at all, these conclusions require qualification following the 2004 revisions, which, amongst other things, made interventions for non-coordinated behaviour possible without requiring that the merged firm be a dominant market leader. Our main conclusions here are that the Commission appears to have been less inclined to intervene in general, but particularly for Collective Dominance (or ‘coordinated effects’ as it is now known in Europe as well as the US.) Moreover, perhaps contrary to expectation, where the merged firm is #2, the Commission has to date rarely made a unilateral effects decision and never made a coordinated effects decision. |
| Keywords: | tacit collusion, collective dominance, single dominance, coordinated effects, merger remedies |
| JEL: | L13 L41 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-28&r=bec |
| By: | Brown , W.; Bryson , A.; Forth , J. |
| Abstract: | For most of the twentieth century, collective bargaining provided the terms on which labour was commonly employed in Britain. However, the quarter century since 1980 has seen the collapse of collectivism as the main way of regulating employment. Our argument is that the tacit settlement between organized labour and employers was undermined by increasing product market competition. The paper first provides an overview of the changing map of collective bargaining, focusing on the private sector. It then moves on to ask why the retreat took place, and to explore the part played by product market competition and, in particular, by the profitability of different industries. The paper concludes with an analysis of the consequences of privatisation. |
| Keywords: | collective bargaining, trade unions, competition, privatisation. |
| JEL: | D40 J30 J50 L33 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0831&r=bec |
| By: | Tobias Adrian; Hyun Song Shin |
| Abstract: | We study a contracting model for the determination of leverage and balance sheet size for financial intermediaries that fund their activities through collateralized borrowing. The model gives rise to two features: First, leverage is procyclical in the sense that leverage is high when the balance sheet is large. Second, leverage and balance sheet size are both determined by the riskiness of assets. For U.S. investment banks, we find empirical support for both features of our model, that is, leverage is procyclical, and both leverage and balance sheet size are determined by measured risks. In a system context, increased risk reduces the debt capacity of the financial system as a whole, giving rise to amplified de-leveraging by institutions by way of the chain of repo transactions in the financial system. |
| Keywords: | Financial leverage ; Financial risk management ; Assets (Accounting) ; Repurchase agreements ; Bank liquidity |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:338&r=bec |
| By: | Lixin Cai; C. Jeffrey Waddoups |
| Abstract: | Using data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, our research indicates that unobserved heterogeneity substantially biases cross-sectional estimates of union wage effects upward for both males and females. Estimates of the union wage premium for male workers between the ages of 25 and 64 fall from 8.7 percent to 5.2 percent after controlling for unobserved heterogeneity. For females aged 25 to 63 the estimated 4.0 percent cross-sectional union wage premium falls to 1.9 once unobserved heterogeneity is controlled for. Our results also indicate positive sorting by unobserved skills into union membership, especially among low skilled male and female workers. There is also evidence of negative sorting into unions among the most highly skilled. |
| Keywords: | union wage effects; fixed effects models; panel data |
| JEL: | J31 J51 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:585&r=bec |
| By: | Ippei Fujiwara; Yasuo Hirose; Mototsugu Shintani |
| Date: | 2008–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000002352&r=bec |
| By: | Kenneth P. Brevoort; John D. Wolken |
| Abstract: | Deregulation and technological change have reduced the transactions costs that led to the dominance of local financial service suppliers, leading some to question if distance still matters in banking. This debate has been particularly acute in small business banking, where transactions costs are believed to be particularly high. This paper provides a detailed review of the literature on distance in banking markets, highlighting the reasons why geographic proximity is believed to be important and examining the changes that may have affected its importance. Relying on new data from the 2003 Survey of Small Business Finances, we examine how distances between small firms and their financial service suppliers changed over the 1993-2003 decade. Our analysis reveals that distances increased, though the extent varied substantially across financial services and supplier types. Generally, increases were observed in the early half of the decade, while distances declined in the following five years. There was also a trend towards less in person interaction between small firms and their suppliers of financial services. Nevertheless, most relationships remained local, with a median distance of 5 miles in 2003. The results suggest that distance, while perhaps not as tyrannical as in the past, remains an important factor in banking. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-34&r=bec |
| By: | Jaap Abbring (VU University Amsterdam); Pierre-André Chiappori (Columbia University); Tibor Zavadil (VU University Amsterdam) |
| Abstract: | This paper empirically analyzes moral hazard in car insurance using a dynamic theory of an insuree's dynamic risk (ex ante moral hazard) and claim (ex post moral hazard) choices and Dutch longitudinal micro data. We use the theory to characterize the heterogeneous dynamic changes in incentives to avoid claims that are generated by the Dutch experience-rating scheme, and their effects on claim times and sizes under moral hazard. We develop tests that exploit these structural implications of moral hazard and experience rating. Unlike much of the earlier literature, we find evidence of moral hazard. |
| Keywords: | insurance; moral hazard; selection; state dependence; event-history analysis |
| JEL: | D82 G22 C41 C14 |
| Date: | 2008–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20080075&r=bec |
| By: | Lawless, Martina |
| Abstract: | One of the most robust empirical results in international economics is the existence of a negative relationship between trade flows and distance. More recent research on exporting activity at the firm level has established an apparently equally robust result— few firms export, and exporting firms do not sell in all possible markets. This paper uses data on US exports across 156 countries to decompose exports to each market into the number of firms exporting (the extensive margin) and average export sales per firm (the intensive margin). We show how the effects of distance and a range of other proxies for trade costs have different impacts on the two margins. We find that distance has a negative effect on both margins, but the magnitude of the coefficient is considerably larger and more significant for the extensive margin. Most of the variables capturing language, internal geography, infrastructure and import cost barriers work solely through the extensive margin. We show that these results are consistent with the predictions of a Melitz-style model of trade with heterogeneous firm productivity and fixed costs. |
| Keywords: | Gravity Model of Trade; Heterogeneous Firms; Extensive Margin |
| JEL: | F14 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10230&r=bec |
| By: | André van Stel; Roy Thurik; Andrew Burke |
| Abstract: | The recent work of Kim and Mauborgne (2005a) has sought to turn strategic management on its head. They note that the field has been dominated by Porter’s (1980, 1985) competitive strategy and it has placed too much emphasis on the importance of competition and rivalry. By contrast they argue in favour of an alternative strategic approach – blue ocean strategy – where firms focus on value innovation, creating consumer demand and exploiting untapped markets. So far empirical analysis in this debate has been focused on case study evidence and hence has been limited in its ability to generalise. The massive appeal of the blue ocean strategy is in stark contrast with the paucity of research testing the viability and relevance of this alternative strategic approach. In this paper we use a comprehensive data set on the Dutch retail industry in order to bring some statistical evidence to the debate. We investigate the prevalence of blue ocean versus competitive strategy in this industry over the period 1982-2000. Our results show that blue ocean strategy and competitive strategy coexist within the same competitive theoretical framework. The results highlight that the dominance of either form of strategy is not categorical but rather determined by the market conditions in which the firms operate. |
| Date: | 2008–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:eim:papers:h200801&r=bec |
| By: | Benoit Dostie |
| Abstract: | In this article, we estimate the determinants of hours of work for Ontario and Quebec using Statistics Canada Labour Force Surveys. We first illustrate that intensity – hours worked per employed person - has decreased in Quebec relative to Ontario between 1997 and 2005. We then proceed to show that differences in average observed characteristics between the two provinces explain at most 10 % of the difference. We next analyze in more details the impact of industry, occupation, public sector status and union status on the distribution of hours of work. We find that if the size and distribution of unions in Quebec were the same as in Ontario, the proportion of workers in Quebec working reduced hours would decrease significantly while the proportions working long or very long hours would increase. <P>Nous étudions dans cet article les déterminants des heures travaillées par travailleur au Québec et en Ontario à l'aide des Enquêtes sur la population active (EPA) de Statistique Canada. Nous montrons tout d'abord que le différentiel dans l'intensité de la main d'oeuvre a augmenté en défaveur du Québec sur la période 1997-2005. Nous estimons ensuite que les différences dans les caractéristiques moyennes des deux provinces expliquent à peine 10 % du différentiel. Nous analysons finalement de façon plus détaillée l'impact de la structure industrielle, de la structure occupationnelle, de l'appartenance au secteur public et de l'appartenance à un syndicat sur la distribution de heures travaillées. Nous trouvons que ce dernier facteur est le plus important : l'imposition de la structure de syndicalisation ontarienne au Québec diminue de façon significative la proportion de travailleurs à temps réduit et augmente la proportion faisant de longues ou très longues heures. |
| Keywords: | Ontario, Québec, hours of work, unions, Ontario, Québec, heures travaillées, syndicalisation |
| Date: | 2008–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2008s-21&r=bec |
| By: | Zhijun (ESRC Centre for Competition Policy, University of East Anglia) |
| Abstract: | Fighting collusion has long been a challenge in organizations, whilst favoritism in organizations has long been attacked as one of the most important sources of workplace conflicts. This paper links the phenomena of collusion and favoritism together which seem to be irrelevant. We show that favoritism cannot benefit organizations where collusion is not a serious concern; meanwhile favoritism is not effective in dealing with well-organized collusion; however, strategic use of favoritism can bring conflicts among collusive subordinates and undermine the efficiency of collusion, therefore it is effective in fighting collusion. |
| Keywords: | collusion, favoritism, tournaments |
| JEL: | C72 D82 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-27&r=bec |
| By: | Skander J. Van den Heuvel |
| Abstract: | Agents with standard, time-separable preferences do not care about the temporal distribution of risk. This is a strong assumption. For example, it seems plausible that a consumer may find persistent shocks to consumption less desirable than uncorrelated fluctuations. Such a consumer is said to exhibit temporal risk aversion. This paper examines the implications of temporal risk aversion for asset prices. The innovation is to work with expected utility preferences that (i) are not time-separable, (ii) exhibit temporal risk aversion, (iii) separate risk aversion from the intertemporal elasticity of substitution, (iv) separate short-run from long-run risk aversion and (v) yield stationary asset pricing implications in the context of an endowment economy. Closed form solutions are derived for the equity premium and the risk free rate. The equity premium depends only on a parameter indexing long-run risk aversion. The risk-free rate instead depends primarily on a separate parameter indexing the desire to smooth consumption over time and the rate of time preference. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-37&r=bec |
| By: | Ojo, Marianne |
| Abstract: | This paper traces developments from the inception of the 1988 Basel Capital Accord to its present form (Basel II). In highlighting the flaws of the 1988 Accord, an evaluation is made of the Basel Committee’s efforts to address such weaknesses through Basel II. Whilst considerable progress has been achieved, the paper concludes, based on one of the principal aims of these Accords, namely the management of risk, that more work is still required particularly in relation to hedge funds and those risks attributed to non bank financial institutions. |
| Keywords: | risk;management;regulation;banks;Basel;Committee |
| JEL: | K2 G21 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10051&r=bec |
| By: | Enrique G. Mendoza; Marco E. Terrones |
| Abstract: | This paper proposes a methodology for measuring credit booms and uses it to identify credit booms in emerging and industrial economies over the past four decades. In addition, we use event study methods to identify the key empirical regularities of credit booms in macroeconomic aggregates and micro-level data. Macro data show a systematic relationship between credit booms and economic expansions, rising asset prices, real appreciations, widening external deficits and managed exchange rates. Micro data show a strong association between credit booms and firm-level measures of leverage, firm values, and external financing, and bank-level indicators of banking fragility. Credit booms in industrial and emerging economies show three major differences: (1) credit booms and the macro and micro fluctuations associated with them are larger in emerging economies, particularly in the nontradables sector; (2) not all credit booms end in financial crises, but most emerging markets crises were associated with credit booms; and (3) credit booms in emerging economies are often preceded by large capital inflows but not by financial reforms or productivity gains. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:936&r=bec |
| By: | Pol Antrà s; Robert W. Staiger |
| Abstract: | The rise of offshoring of intermediate inputs raises important questions for commercial policy. Do the distinguishing features of offshoring introduce novel reasons for trade policy intervention? Does offshoring create new problems of global policy cooperation whose solutions require international agreements with novel features? Can trade agreements that are designed to address problems that arise when trade predominantly takes the form of the exchange of final goods be expected to perform in a world where offshoring is prevalent? In this paper we provide answers to these questions, and thereby initiate the study of trade agreements in the presence of offshoring. We do so by deriving the Nash and internationally efficient trade policy choices of governments in an environment in which some trade flows involve the exchange of customized inputs, contracts governing these transactions are incomplete, and the matching between final-good producers and input suppliers may involve search frictions. By characterizing the differences between Nash and internationally efficient policies in this environment, and by comparing these differences to those that would arise in the absence of offshoring of customized inputs, we seek to understand the implications of offshoring for the role of trade agreements. Our findings indicate that the rise of offshoring is likely to complicate the task of trade agreements, because in the presence of offshoring, (i) the mechanism by which countries can shift the costs of intervention on to their trading partners is more complicated and extends to a wider set of policies than is the case when offshoring is not present, and (ii) because the underlying problem that a trade agreement must address in the presence of offshoring varies with the political preferences of member governments. As a consequence, the increasing prevalence of offshoring is likely to make it increasingly difficult for governments to rely on simple and general rules -- such as reciprocity and non-discrimination -- to help them solve their trade-related problems. |
| JEL: | D02 F02 F13 F5 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14285&r=bec |
| By: | Galina Hale; Joao A. C. Santos |
| Abstract: | Modern corporate finance theory argues that although bank monitoring is beneficial to borrowers, it also allows banks to use the private information they gain through monitoring to "hold-up" borrowers for higher interest rates. In this paper, we seek empirical evidence for this information hold-up cost. Since new information about a firm's credit-worthiness is revealed at the time of its first issue in the public bond market, it follows that after firms undertake their bond IPO, banks with an exploitable information advantage will be forced to adjust their loan interest rates downwards, particularly for firms that are revealed to be safe. Our findings show that firms are able to borrow from banks at lower interest rates after they issue for the first time in the public bond market and that the magnitude of these savings is larger for safer firms. We further find that among safe firms, those that get their first credit rating at the time of their bond IPO benefit from larger interest rate savings than those that already had a credit rating when they entered the bond market. Since more information is revealed at the time of the bond IPO on the former firms and since this information will increase competition from uninformed banks, these findings provide support for the hypothesis that banks price their informational monopoly. Finally, we find that while entering the public bond market may reduce these informational rents, it is costly to firms because they have to pay higher underwriting costs on their IPO bonds. Moreover, IPO bonds are subject to more underpricing than subsequent bonds when they first trade in the secondary bond market. |
| Keywords: | Corporate bonds ; Credit ratings |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-14&r=bec |
| By: | Ozturk, orgul |
| Abstract: | Using international and intertemporal variations in minimum wages, employment protection laws, minimum wage regulations and female work behavior within the OECD, empirical analysis provide evidence that higher minimum wages are associated with lower female labor force participation and employment. This association is more significant in countries with more stringent employment protection laws, lower female tertiary educational enrollment and higher fertility. In addition to the extensive margin analysis, it is shown that minimum wage levels are positively correlated with the ratio of part-time workers. That is, minimum wages are associated with not only lower participation and employment rates among women but also with higher marginalization of female work. This association is stronger in countries with more inflexible labor markets and less active labor market policies. Moreover, existence of a subminimum wage for youths implies further reduction of employment while increasing part-time job incidence for females, when the minimum wage increases. |
| Keywords: | Labor market regulations; female work; minimum wage; OECD; time series data |
| JEL: | J58 J88 J68 J20 |
| Date: | 2006–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10222&r=bec |
| By: | Sarai Criado (Banco de España); Adrian van Rixtel (Banco de España) |
| Abstract: | This paper provides an overview of the most important structured finance instruments in the context of the development of the financial turmoil that started in the third quarter of 2007 and continued into 2008. These financial market tensions were triggered by concerns about exposures of financial institutions to the most risky segment of the US mortgage markets -the so-called subprime mortgage market- and related financial instruments, which predominantly were related to structured finance. As structured finance has developed very fast in recent years and often involves highly complex financial instruments and techniques, which may not be understood completely beyond a small circle of financial market experts, the aim of this paper is to provide an introduction to these instruments that may serve to better understand the specific characteristics of the financial turmoil. In this context, the paper proposes a specific classification of structured finance and discusses both securitizations and credit derivatives with the aim of explaining their specific contributions to the development of the financial turmoil. To this extent, the paper differentiates between two main categories of structured finance instruments. The first one played an important role in the initiation and propagation of the turmoil and includes mortgage-backed securities (MBS), asset backed commercial paper (ABCP) and collateralized debt obligations (CDOs), both cash flow and synthetic. The second category of structured finance instruments involves those that have been more instrumental in monitoring the crisis, both for market participants and policymakers. The main instruments here are credit default swaps (CDS), of which examples are presented for both single name and index contracts. Finally, the paper provides an overview of the specific contagion channels involving various structured finance instruments. This will be conducted on the basis of examples for hypothetical financial institutions that are nevertheless representative for real world developments such as they occurred in the course of 2007 and 2008. |
| Keywords: | financial turmoil, financial markets, financial institutions, structured finance, securitization, credit derivatives |
| JEL: | G10 G15 G21 G24 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:0808&r=bec |
| By: | Björn Bartling; Urs Fischbacher |
| Abstract: | To fully understand the motives for delegating a decision right, it is important to study responsibility attributions for outcomes of delegated decisions. We conducted an experiment in which subjects were able to delegate the choice between a fair or unfair allocation, and used a punishment option to elicit responsibility attributions. Our results show that, first, responsibility attribution can be effectively shifted and, second, this constitutes a powerful motive for the delegation of a decision right. Furthermore, we propose a formal measure of responsibility and show that this measure outperforms measures based on outcome or intention in predicting punishment behavior. |
| Keywords: | Delegation, decision rights, moral responsibility, blame shifting |
| JEL: | C91 D63 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:380&r=bec |
| By: | Marcel Fratzscher; Luciana Juvenal; Lucio Sarno |
| Abstract: | This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. It employs a Bayesian structural VAR model that requires imposing only a minimum of economically meaningful sign restrictions. We find that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 32% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been much less relevant, explaining less than 7% and exerting a more temporary effect on the US trade balance. Our findings suggest that sizeable exchange rate movements may not necessarily be a key element of an adjustment of today's large current account imbalances, and that in particular relative global asset price changes could be a more potent source of adjustment. |
| Keywords: | Asset pricing ; Foreign exchange rates ; Balance of trade |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-031&r=bec |
| By: | Kristin Kleinjans (School of Economics and Management, University of Aarhus, Denmark) |
| Abstract: | Occupational segregation by gender is prevalent and can explain some of the gender wage gap. I empirically investigate a possible explanation for this segregation: the gender difference in preferences for competition, which in recent experimental studies has been found to affect economic outcomes. I find that women’s greater distaste for competition decreases educational achievement. It can also explain part of the gender segregation in occupational fields. Specifically, accounting for distaste for competition reduces gender segregation in the fields of Law, Business & Management, Health, and Education. |
| Keywords: | competition, gender differences, occupational choice, expectations |
| JEL: | D84 J24 J16 I21 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2008-09&r=bec |