nep-bec New Economics Papers
on Business Economics
Issue of 2010‒05‒02
27 papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Offshore production and business cycle dynamics with heterogeneous firms By Andrei Zlate
  2. Firm ownership and rent sharing By Natália P. Monteiro; Miguel Portela; Odd Rune Straume
  3. Ownership structure and incentives to stock repurchase By Teng, Min; Hachiya, Toyohiko
  4. Managerial Entrenchment and Anti-takeover Provisions in Japan By HOSONO Kaoru; TAKIZAWA Miho; TSURU Kotaro
  5. Leverage constraints and the international transmission of shocks By Michael B. Devereux
  6. Employment Protection, Technology Choice, and Worker Allocation By Bartelsman, Eric; Gautier, Pieter; De Wind, Joris
  7. Product Diversification and Labor Productivity Dispersion in German Manufacturing Industries By Rene Söllner
  8. Why do firms pay for liquidity provision in limit order markets? By Skjeltorp, Johannes A; Odegaard, Bernt Arne
  9. CEO turnover in a competitive assignment framework By Eisfeldt, Andrea; Kuhnen, Camelia M.
  10. Correlated Disturbances and U.S. Business Cycles By Vasco Curdia; Ricardo Reis
  11. Volatility, Nonstandard Employment, and Productivity: An empirical analysis using firm-level data By MORIKAWA Masayuki
  12. Polarization and rising wage inequality: comparing the U.S. and Germany By Antonczyk, Dirk; DeLeire, Thomas; Fitzenberger, Bernd
  13. "Entrepreneurs out of Necessity": A Snapshot By Poschke, Markus
  14. InsiderTrading, Option Exercises and Private Benefits of Control By Cziraki, P.; Goeij, P. C. de; Renneboog, L.D.R.
  15. Rising wage inequality, the decline of collective bargaining, and the gender wage gap By Antonczyk, Dirk; Fitzenberger, Bernd; Sommerfeld, Katrin
  16. How much competition is a secondary market? By Jiawei Chen; Susanna Esteban; Matthew Shum
  17. What drives leverage in leveraged buyouts? An analysis of European LBOS' capital structure By Brinkhuis, S; De Maeseneire, W.
  18. Profit Sharing and Reciprocity: Theory and Survey Evidence By Thomas Cornelissen; John S. Heywood; Uwe Jirjahn
  19. Evidence of Induced Innovation in US Sectoral Capital’s Shares By Andrew T. Young; Hernando Zuleta; Andres Garcia-Suaza
  20. Firm-level exchange exposure in the Eurozone By Elaine Hutson; Anthony O'Driscoll
  21. Classical vs wavelet-based filters Comparative study and application to business cycle By Ibrahim Ahamada; Philippe Jolivaldt
  22. The Procyclical Effects of Bank Capital Regulation By Repullo, R.; Suarez, J.
  23. Predation Under Perfect Information By Argenton, C.
  24. A Corporate Governance Index: Convergence and Diversity of National Corporate Governance Regulations By Martynova, M.; Renneboog, L.D.R.
  25. Delegated agency in multiproduct oligopolies with indivisible goods By Ivan Arribas; Amparo Urbano Salvador
  26. Spillovers of Domestic Shocks: Will They Counteract the "Great Moderation"? By Ashoka Mody; Alina Carare
  27. How did a domestic housing slump turn into a global financial crisis? By Steven B. Kamin; Laurie Pounder DeMarco

  1. By: Andrei Zlate
    Abstract: Cross-country variation in production costs encourages the relocation of production facilities to other countries, a process known as offshoring through vertical foreign direct investment. I examine the effect of offshoring on the international transmission of business cycles. Unlike the existing macroeconomic literature, I distinguish between fluctuations in the number of offshoring firms (the extensive margin) and in the value added per offshoring firm (the intensive margin) as separate transmission mechanisms. The firms' decision to produce offshore depends on the firm-specific level of labor productivity, on fluctuations in the relative cost of effective labor, and on the fixed and trade costs of offshoring. The model replicates the procyclical pattern of offshoring and the dynamics along its two margins, which I document using data from U.S. manufacturing and Mexico's maquiladora sectors. Offshoring enhances the synchronization of business cycles, and dampens the real exchange rate appreciation generated by aggregate productivity differentials across countries.
    Date: 2010
  2. By: Natália P. Monteiro (Universidade do Minho - NIPE); Miguel Portela (Universidade do Minho - NIPE, Tinbergen Institute and IZA Bonn); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: We analyse - theoretically and empirically - how private versus public ownership of firms affects the degree of rent sharing between firms and their workers. Using a particularly rich linked employer-employee dataset from Portugal, covering a large number of corporate ownership changes across a wide spectrum of economic sectors over more than 20 years, we find a positive relationship between private ownership and rent sharing. Based on our theoretical analysis, this result cannot be explained by private firms being more profit oriented than public ones. However, the result is consistent with privatisation leading to less job security, implying stronger efficiency wage effects.
    Keywords: rent sharing; private vs public ownership; panel data
    JEL: J45 D21 C23
    Date: 2010
  3. By: Teng, Min; Hachiya, Toyohiko
    Abstract: This paper examines whether and how ownership structure affects stock repurchase by looking at the incentives to adjust capital structure and signal undervaluation through repurchasing. We find that a strong monitoring structure motivates the adoption of an optimal capital structure with which firms maximize corporate value. We also find that firms with a strong monitoring structure tend to initiate a repurchase plan as a value signal; on the other hand, entrenched firms are more sensitive to market performance and tend to have more stock repurchase if they are undervalued. Additionally, we find by looking at the motivation for sending a value-signal that a U-shaped relationship exists between stock repurchase and ownership structure.
    Keywords: Ownership structure, Stock repurchase, Capital structure, Undervaluation, Takeover determent
    Date: 2010–04
  4. By: HOSONO Kaoru; TAKIZAWA Miho; TSURU Kotaro
    Abstract: We analyze the characteristics of Japanese firms that introduced antitakeover provisions after the official guidelines for antitakeover provisions were released in 2005. Our main results are the following. First, firms' operating performance or stock market valuations were not related to the adoption of takeover defense measures. Second, firms' age and their ownership structure were correlated with the adoption of antitakeover provisions. Specifically, companies that were older, had lower proportions of shares held by their directors, or higher cross-shareholding ratios were more likely to adopt takeover defense measures, which suggests that the adoption of such measures is motivated by self-protection on the part of corporate managers and influenced by the conflicts of interest between managers and shareholders. In addition, as controlling shareholders had lower shares of stocks and institutional investors had higher shares of stocks, firms were more inclined to adopt takeover defense measures, suggesting that companies are likely to adopt such measures if their shares are liquid and easy to acquire.
    Date: 2010–04
  5. By: Michael B. Devereux
    Abstract: Recent macroeconomic experience has drawn attention to the importance of interdependence among countries through financial markets and institutions, independently of traditional trade linkages. This paper develops a model of the international transmission of shocks due to interdependent portfolio holdings among leverage-constrained financial institutions. In the absence of leverage constraints, international portfolio diversification has no implications for macroeconomic comovements. When leverage constraints bind, however, the presence of diversified portfolios in combination with these constraints introduces a powerful financial transmission channel, which results in a high correlation among macroeconomic aggregates during business cycle downturns, quite independent of the size of international trade linkages. Conversely, the paper shows that, conditional on leverage constraints binding, international financial integration through equity markets reverses the sign of the international comovement of shocks, leading comovement to switch from negative to positive.
    Keywords: International finance ; International economic integration ; Business cycles ; Financial leverage
    Date: 2010
  6. By: Bartelsman, Eric (VU University Amsterdam); Gautier, Pieter (VU University Amsterdam); De Wind, Joris (VU University Amsterdam)
    Abstract: Using a country-industry panel dataset (EUKLEMS) we uncover a robust empirical regularity, namely that high-risk innovative sectors are relatively smaller in countries with strict employment protection legislation (EPL). To understand the mechanism, we develop a two-sector matching model where firms endogenously choose between a safe technology with known productivity and a risky technology with productivity subject to sizeable shocks. Strict EPL makes the risky technology relatively less attractive because it is more costly to shed workers upon receiving a low productivity draw. We calibrate the model using a variety of aggregate, industry and micro-level data sources. We then simulate the model to reflect both the observed differences across countries in EPL and the observed increase since the mid-1990s in the variance of firm performance associated with the adoption of information and communication technology. The simulations produce a differential response to the arrival of risky technology between low- and high-EPL countries that coincides with the findings in the data. The described mechanism can explain a considerable portion of the slowdown in productivity in the EU relative to the US since 1995.
    Keywords: employment protection legislation, exit costs, information and communications technology, heterogeneous productivity, sectoral allocation
    JEL: J65 O38
    Date: 2010–04
  7. By: Rene Söllner (Friedrich Schiller University Jena, DFG-RTG "The Economics of Innovative Change")
    Abstract: Empirical research has shown tremendous productivity differences, even within narrowly defined industries. A great host of studies is explainsing this productivity disparity by factors such as idiosyncratic technology shocks, input price differences, management skills, or international trade. Although these explanations are undoubtedly important, the current paper suggests that product diversification strategies of firms can also play an important role. Using a matched producer-product panel dataset of German manufacturing industries over the period 2003-2006, we find that the average degree of product diversification across industry establishments is positively related to within-industry labor productivity dispersion.
    Keywords: Product Diversification, Productivity, Industrial Dynamics
    JEL: L11 L22 L25
    Date: 2010–04–19
  8. By: Skjeltorp, Johannes A (Norges Bank); Odegaard, Bernt Arne (University of Stavanger)
    Abstract: In recent years, a number of electronic limit order have reintroduced market makers for some securities (Designated Market Makers). This trend has mainly been initiated by financial intermediaries and listed firms themselves, without any regulatory pressure. In this paper we ask why firms are willing to pay to improve the secondary market liquidity of its shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find some evidence of agency costs, managers desiring good liquidity when they plan insider trades.
    Keywords: Market microstructure; Corporate Finance; Designated Market Makers; Insider Trading
    JEL: G10 G20
    Date: 2010–04–28
  9. By: Eisfeldt, Andrea; Kuhnen, Camelia M.
    Abstract: There is considerable and widespread concern about whether CEOs are appropriately punished for poor performance. The empirical literature on CEO turnover documents that CEOs are indeed more likely to be forced out if their performance is poor relative to the industry average. However, CEOs are also more likely to be replaced if the industry is doing badly. We show that these empirical patterns are natural and efficient outcomes of a competitive assignment model in which CEOs and firms form matches based on multiple characteristics, and where industry conditions affect the outside options of both managers and firms. Our model also has several new predictions about the type of replacement manager, and their pay and performance. We construct a dataset which describes all turnover events during the period 1992-2006 and show that these predictions are also born out empirically.
    Keywords: Executive Turnover; Matching Models; Competitive Assignment; CEO Labor Market
    JEL: J41 J63 J31 J44 M51 G30
    Date: 2010–04–23
  10. By: Vasco Curdia (Federal Reserve Bank of New York); Ricardo Reis (Columbia University - Department of Economics)
    Abstract: The dynamic stochastic general equilibrium (DSGE) models that are used to study business cycles typically assume that exogenous disturbances are independent autoregressions of order one. This paper relaxes this tight and arbitrary restriction, by allowing for disturbances that have a rich contemporaneous and dynamic correlation structure. Our first contribution is a new Bayesian econometric method that uses conjugate conditionals to make the estimation of DSGE models with correlated disturbances feasible and quick. Our second contribution is a re-examination of U.S. business cycles. We find that allowing for correlated disturbances resolves some conflicts between estimates from DSGE models and those from vector autoregressions, and that a key missing ingredient in the models is countercyclical fiscal policy. According to our estimates, government spending and technology disturbances play a larger role in the business cycle than previously ascribed, while changes in markups are less important.
    JEL: E30 E10
    Date: 2010
  11. By: MORIKAWA Masayuki
    Abstract: This paper empirically analyzes the relationship among the volatility of sales, nonstandard employment, and firm productivity by using panel data of more than 8,000 Japanese firms from 1994 to 2006. Globalization and innovation are highlighted as the forces that increase the volatility of firm performance, which, in turn, increases the demand for flexible labor forces. After controlling for various observable firm characteristics, the volatility of a firm's sales growth is a significant determinant of the ratio of nonstandard employees. This relationship is stronger for manufacturing firms. Among the highly volatile firms, the ratio of nonstandard employees has a positive relationship with productivity. These results suggest that the desirable policy mix for the economy is a combination of the provision of sufficient safety net and training opportunities for nonstandard workers and the enactment of reasonable laws and regulations that enable firms to adjust labor input flexibly.
    Date: 2010–04
  12. By: Antonczyk, Dirk; DeLeire, Thomas; Fitzenberger, Bernd
    Abstract: This paper compares trends in wage inequality in the U.S. and Germany using an approach developed by MaCurdy and Mroz (1995) to separate age, time, and cohort effects. Between 1979 and 2004, wage inequality increased strongly in both the U.S. and Germany but there were various country specific aspects of this increase. For the U.S., we find faster wage growth since the 1990s at the top (80% quantile) and the bottom (20% quantile) compared to the median of the wage distribution, which is evidence for polarization in the U.S. labor market. In contrast, we find little evidence for wage polarization in Germany. Moreover, we see a large role played by cohort effects in Germany, while we find only small cohort effects in the U.S.. Employment trends in both countries are consistent with polarization since the 1990s. We conclude that although there is evidence in both the U.S. and Germany which is consistent with a technology-driven polarization of the labor market, the patterns of trends in wage inequality differ strongly enough that technology effects alone cannot explain the empirical findings. --
    Keywords: Wage Inequality,Polarization,International Comparison,Cohort Study,Quantile Regression
    JEL: J30 J31
    Date: 2010
  13. By: Poschke, Markus (McGill University)
    Abstract: "Entrepreneurs out of necessity" identified by the Global Entrepreneurship Monitor survey are a sizeable group across countries. They tend to have low education, run smaller firms, expect their firms to grow less, but are likely to stay in the market. This evidence is a challenge for existing theories of heterogeneous firms.
    Keywords: entrepreneurship, firm size
    JEL: L26 O40
    Date: 2010–04
  14. By: Cziraki, P.; Goeij, P. C. de; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by antishareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.
    Keywords: insider trading;management stock options;timing by insiders;corporate governance;antishareholder mechanisms;anti-takeover mechanisms.
    JEL: G14 G34 M52
    Date: 2010
  15. By: Antonczyk, Dirk; Fitzenberger, Bernd; Sommerfeld, Katrin
    Abstract: This paper investigates the increase in wage inequality, the decline in collective bargaining, and the development of the gender wage gap in West Germany between 2001 and 2006. Based on detailed linked employer-employee data, we show that wage inequality is rising strongly – driven not only by real wage increases at the top of the wage distribution, but also by real wage losses below the median. Coverage by collective wage bargaining plummets by 16.5 (19.1) percentage points for male (female) employees. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates, which is almost exclusively driven by wage differences within and between different industries. Labor demand or firm wage policy related effects contribute to an increase in the gender wage gap. Personal characteristics tend to reduce wage inequality for both, males and females, as well as the gender wage gap. --
    Keywords: Distribution,Gender Wage Gap,Collective Bargaining,Quantile Regression,Sequential Decomposition
    JEL: J31 J51 J52 C21
    Date: 2010
  16. By: Jiawei Chen (UC-Irvine); Susanna Esteban (Universitat Autµonoma de Barcelona); Matthew Shum (Caltech)
    Abstract: Do active secondary markets aid or harm durable goods manufacturers? We build a dynamic equilibrium model of durable goods oligopoly, with consumers who incur lumpy costs when transacting in the secondary market, and calibrate it to U.S. automobile industry data. By varying transaction costs, we obtain a direct measure of the competitive pressure that secondary markets create on durable goods manufacturers. For our calibrated parameter values, closing down the secondary market increases (net) profits of new car manufacturers by 39%. This suggests that regulatory changes that lower liquidity in secondary markets may aid manufacturers.
    Keywords: secondary markets; durable goods; oligopoly; transaction costs; automobile industry; market power
    Date: 2010–04–21
  17. By: Brinkhuis, S; De Maeseneire, W. (Vlerick Leuven Gent Management School)
    Abstract: This paper examines leverage in European private equity led LBOs. We use a unique, self-constructed sample of 126 European private equity (PE) sponsored buyouts completed between June 2000 and June 2007. We find that determinants derived from classical capital structure theories do not explain leverage in LBOs, while they do drive leverage in a control group of comparable public firms. Rather, we document that leverage levels in LBOs are related to the prevailing conditions in the debt market. In addition, our results indicate that reputed private equity sponsors use more debt and that secondary buyouts have higher leverage levels.
    Keywords: leverage, capital structure, buyouts, LBO, financial flexibility
    Date: 2010–03–05
  18. By: Thomas Cornelissen; John S. Heywood; Uwe Jirjahn
    Abstract: The 1/n problem potentially limits the effectiveness of profit sharing in motivating workers. While the economic literature suggests that reciprocity can mitigate this problem, it remains silent on the optimal degree of reciprocity. We present a representative model demonstrating that reciprocity may increase productive effort but may also increase unproductive effort such as socializing on the job. The model implies that reciprocity increases profit up to a point but decreases profit beyond that point. Using detailed survey measures of worker reciprocity, we show that the probability of receiving profit sharing takes an inverse U-shape as reciprocity increases. This supports the general implication of the model and is shown to exist for both positive and negative reciprocity and to remain when a series of ability proxies and detailed industry indicators are included.
    Date: 2010
  19. By: Andrew T. Young (Department of Economics, West Virginia University); Hernando Zuleta (Department of Economics, Universidad del Rosario American University in Bulgaria); Andres Garcia-Suaza (Facultad de Economia, Universidad del Rosario – Bogota)
    Abstract: We use annual data on capital’s share and relative factor prices from 35 US industries from 1960 to 2005 to test the induced innovation hypothesis. We derive, from a production function framework, testable implications for the effect of contemporaneous and lagged factor price ratios on capital’s share of production. The predicted effect is positive or negative depending on the elasticity of substitution between labor and capital. From panel regressions, the estimated effect of the contemporaneous factor price ratio implies an elasticity of substitution that is less than unity, consistent with the consensus from the literature. Based on this, our negative estimated effects for lagged price ratios are both statistically significant and consistent with the induced innovation hypothesis.
    Keywords: induced innovation, biased technical change, capital’s share, labor’s share, elasticity of substitution
    JEL: O31 O47 E25 E23
    Date: 2010
  20. By: Elaine Hutson (School of Business, University College Dublin); Anthony O'Driscoll (School of Business, University College Dublin)
    Abstract: Using a sample of 1,154 European firms from 11 countries, we show that firm-level exchange exposure for Eurozone and non-Eurozone European firms has increased since the advent of the euro, but this rise was smaller for Eurozone than non-Eurozone firms. The increase in firmspecific risk is offset by a substantial reduction in market-level exchange exposure in most Eurozone countries, so the advent of the Eurozone appears to have been associated with a shift in exchange risk from systematic to firm-specific. We also find that Eurozone firms’ exchange exposure is greater than that of non-Eurozone European firms, and univariate testing confirms the significance of this difference. In a multivariate setting, however, after controlling for countryspecific and firm-specific characteristics that potentially influence the extent of exposure – economic openness, governance factors, firm size, industry and several financial ratios – this difference is no longer apparent.
    Keywords: foreign exchange exposure, euro, Eurozone, economic openness
    Date: 2010–04–13
  21. By: Ibrahim Ahamada (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Philippe Jolivaldt (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In this article, we compare the performance of Hodrickk-Prescott and Baxter-King filters with a method of filtering based on the multi-resolution properties of wavelets. We show that overall the three methods remain comparable if the theoretical cyclical component is defined in the usual waveband, ranging between six and thirty two quarters. However the approach based on wavelets provides information about the business cycle, for example, its stability over time which the other two filters do not provide. Based on Monte Carlo simulation experiments, our method applied to the American GDP using growth rate data shows that the estimate of the business cycle component is richer in information than that deduced from the level of GDP and includes additional information about the post 1980 period of great moderation.
    Keywords: Filters, HP, BK, wavelets, Monte Carlo Simulation break, business cycles.
    Date: 2010–03
  22. By: Repullo, R.; Suarez, J. (Tilburg University, Center for Economic Research)
    Abstract: We assess the procyclical effects of bank capital regulation in a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and, as a precaution, hold capital buffers. We find that under cyclically-varying risk-based capital requirements (e.g. Basel II) banks hold larger buffers in expansions than in recessions. Yet, these buffers are insufficient to prevent a significant contraction in the supply of credit at the arrival of a recession. We show that cyclical adjustments in the confidence level underlying Basel II can reduce its procyclical effects on the supply of credit without compromising banks’ long-run solvency targets.
    Keywords: Banking regulation;Basel II;Business cycles;Capital requirements;Credit crunch;Loan defaults;Relationship banking.
    JEL: G21 G28 E44
    Date: 2010
  23. By: Argenton, C. (Tilburg University, Center for Economic Research)
    Abstract: In an oligopoly configuration characterized by high barriers to (re-)entry, a finite horizon, perfect information about demand and costs and the presence of three identical firms, we show that two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately, after which the predators can enjoy higher profits, even if they do not raise their price. Predatory prices are thus observed on the equilibrium path and the predators end up earning more than in the best Bertrand (or even, collusive) equilibrium with three firms.
    Keywords: predation;predatory pricing;collusion;dynamic game;Bertrand competition
    JEL: D43 L13 L41
    Date: 2010
  24. By: Martynova, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: The issue of appropriate corporate governance framework has been a focal point of recent reforms in many countries. This study provides a comprehensive comparative analysis of corporate governance regulatory systems and their evolution over the last 15 years in 30 European countries and the US. It proposes a methodology to create detailed corporate governance indices which capture the major features of capital market laws in the analysed countries. The indices indicate how the law in each country addresses various potential agency conflicts between corporate constituencies: namely, between shareholder and managers, between majority and minority shareholders, and between shareholders and bondholders. The analysis of regulatory provisions within the suggested framework enables us to understand better how corporate law works in a particular country and which strategies regulators adopt to achieve their goals. The 15-year time series of constructed indices and large country-coverage (30 European countries and the US) also allows us to draw conclusions about the convergence of corporate governance regimes across the countries. To our best knowledge, this is the first study that intends to address the convergence debate empirically. The analysis is based on a unique corporate governance database that comprises the main changes in corporate governance regulations in the US and all European countries between 1990-2005.
    Keywords: governance regulation;convergence;corporate governance;agency problem;ownership and control;LLSV
    JEL: G3 G34 G38 K2 K22 K40 G32
    Date: 2010
  25. By: Ivan Arribas (ERI-CES); Amparo Urbano Salvador (ERI-CES)
    Abstract: This paper focuses on oligopolistic markets in which indivisible goods are sold by multiproduct firms to a continuum of homogeneous buyers, with measure normalized to one, who have preferences over bundles of products. Our analysis contributes to the literature on delegated agency games with direct externalities and complete information, extending the insights by Berheim and Whinston (1986, a , b) to markets with indivisibilities. By analyzing a kind of extended contract schedules - mixed bundling prices - that discriminate on exclusivity, the paper shows that efficient equilibria always exist in such settings. There may also exist inefficient equilibria in which the agent chooses a suboptimal bundle and no principal has a profitable deviation inducing the agent to buy the surplus-maximizing bundle because of a coordination problem among the pricipals. Inefficient equilibria can be ruled out by either assuming that all firms are pricing unsold bundles at the same profit margin as the bundle sold at equilibrium, or imposing the solution concept of subgame perfect strong equilibrium, which requires the absence of profitable deviations by any subset of principals and the agent. More specific results about the structure of equilibrium prices and payoffs for common agency outcomes are offered when the social surplus function is monotone and either submodular or supermodular.
    Keywords: Multiproduct Price Competition, Delegated Agency Games, Mixed Bundling Prices, Subgame Perfect Nash Equilibrium, Strong Equilibrium
    JEL: C72 D21 D41 D43 L13
    Date: 2010–04
  26. By: Ashoka Mody; Alina Carare
    Abstract: Even prior to the extreme volatility just observed, output growth volatility-following protracted decline-was flattening or mildly rising in some countries. More widespread was an increasing tendency from the mid-1990s for shocks in one country to transmit rapidly to other countries, creating the potential for heightened global volatility. The higher sensitivity to foreign shocks, in turn, appears related to stepped-up vertical specialization associated with the integration of emerging markets in international trade. Increased international spillovers call for stronger ex post coordination mechanisms when shocks are large but the best ex ante prevention strategy probably is sensible national policies.
    Keywords: Business cycles , Cross country analysis , Developed countries , Economic integration , Economic policy , Emerging markets , External shocks , Globalization , Industrial production , International trade , Production growth , Spillovers ,
    Date: 2010–03–25
  27. By: Steven B. Kamin; Laurie Pounder DeMarco
    Abstract: The global financial crisis clearly started with problems in the U.S. subprime sector and spread across the world from there. But was the direct exposure of foreigners to the U.S. financial system a key driver of the crisis, or did other factors account for its rapid contagion across the world? To answer this question, we assessed whether countries that held large amounts of U.S. mortgage-backed securities (MBS) and were highly dependent on dollar funding experienced a greater degree of financial distress during the crisis. We found little evidence of such "direct contagion" from the United States to abroad. Although CDS spreads generally rose higher and bank stocks generally fell lower in countries with more exposure to U.S. MBS and greater dollar funding needs, these correlations were not robust, and they fail to explain the lion's share of the deterioration in asset prices that took place during the crisis. Accordingly, channels of "indirect contagion" may have played a more important role in the global spread of the crisis: a generalized run on global financial institutions, given the opacity of their balance sheets; excessive dependence on short-term funding; vicious cycles of mark-to-market losses driving fire sales of MBS; the realization that financial firms around the world were pursuing similar (flawed) business models; and global swings in risk aversion. The U.S. subprime crisis, rather than being a fundamental driver of the global crisis, may have been merely a trigger for a global bank run and for disillusionment with a risky business model that already had spread around the world.
    Date: 2010

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