Deposit insurance, bank regulation, and financial system risks

Empirical evidence is presented to show that in modern times banks can hedge liquidity shocks but could not do so prior to FDIC insurance. However, the government's limitations in properly pricing FDIC insurance are leading to many current examples of moral hazard. A model is presented to show that if insurance premiums are set to be “actuarially fair,” incentives for banks to take excessive systematic risks remain. Motivated by empirical evidence that money market mutual funds also can hedge liquidity shocks, I consider an alternative government insurance system that mitigates distortions to risk-taking yet preserves liquidity hedging and information synergies.     

金融创新如何缓解信任品市场失灵?——中国食品安全责任强制保险的自然实验

信任品市场(如食品、医药等)存在的问题一直困扰着中国和世界很多国家。关于产品和服务质量的信息不对称(道德风险和逆向选择)会导致信任品市场失灵。缓解信任品市场失灵,一种常见的解决方案是政府监管;而经济学家认为更加基于市场的解决方案(例如强制责任保险等金融创新)可能更为有效。在理论上,强制责任保险有两种相反的效应:保险公司的监督减少了道德风险 vs. 保险加剧了企业的道德风险,但一直亟待实证检验。幸运的是,中国食品安全责任强制保险的改革实验走在了世界的前列。本文利用了中国在不同地区、不同时间推行的这个自然实验,通过双重差分的方法识别出责任保险对于信任品市场的因果效应。本文的研究发现,强制责任保险能显著降低食品安全事故发生概率。这表明政府强制推行的金融创新可以成为信任品市场失灵的一种有效的替代性解决方案。     

Der Einfluss einer staatlichen Grundsicherung auf die Versicherungsnachfrage bei asymmetrischer Informationsverteilung

In this article, we develop a model framework in which the influence of a state assistance on insurance demand in an insurance market with imperfect information can be examined. It turned out that a state subsidy of very low level has no influence on the insurance demand at all. If the state assistance is adequately high, the individuals will prefer government assistance to market insurance. In case of adverse selection, a state assistance can have the consequence that the good risks decide not to buy any insurance while the bad risks purchase full insurance cover. The state assistance can therefore contribute to solve the problem of adverse selection. In case of moral hazard, a surprising result has been found out. The state assistance can bring the measures of loss minimizing to a standstill before the insurance can do it. The state subsidy amplifies the moral hazard behaviour and is therefore not a suitable instrument to solve problems with moral hazard.     

Corporate Financial Policy and the Theory of Financial Intermediation

This paper examines the optimal structure of financial contracts in an economy subject to two forms of moral hazard. Multiple information problems are shown to generate a role for multiple classes of financial claimants. We then show that economic efficiency is enhanced if the financial structure of the economy consists of both direct and intermediated financial contract markets. Consequently, our results demonstrate a motivation for the complementarity between capital markets and depository financial institutions.     

博弈论视角下公估人的理性选择及外部约束

保险公估人是保险业发展不可缺少的重要组成部分,但“公估不公”始终是公估行业发展中的一个难题。作为一种典型的承揽关系,保险人与公估人之间存在着信息不对称,以及由此带来的道德风险。本文从博弈论的角度,构建公估人和保险人之间的策略型博弈,通过求解纳什均衡发现,公估人的理性选择并不总是诚实公正。因此,只有加强外部约束,才能实现...     

以征信体系建设为基础 加快社会信用体系的重建

本文指出信用是现代市场经济的基石。目前中国社会严重的信用缺失源于社会转型过程中道德理念的缺失,而信息不对称所产生的逆向选择和道德风险以及对失信行为惩戒制度的缺位加剧了社会信用缺失的严重性和危害性,因此构造良好的社会信用体系是建设有中国特色社会主义市场经济的当务之急。我们应该加快企业和个人征信体系的建设,以此来促进整个社会信用体系的重建和完善。     

Macroeconomic news announcements and the role of expectations: evidence for US bond,stock and foreign exchange markets

We investigate the impact of scheduled government announcements relating to six different macroeconomic variables on the risk and return of three major US financial markets. Our results suggest that these markets do not respond in any meaningful way, to the act of releasing information by the government. Rather, it is the ‘news’ content of these announcements which cause the market to react. For the three markets tested, unexpected balance of trade news was found to have the greatest impact on the mean return in the foreign exchange market. In the bond market, news related to the internal economy was found to be important. For the US stock market, consumer and producer price information was found to be important. Finally, financial market volatility was found to have increased in response to some classes of announcement and fallen for others. In part, this result can be explained by differential ‘policy feedback’ effects.     

The essentiality of money in environments with centralized trade

Lagos and Wright (2005) introduced an influential model of monetary exchange in which trade alternates between centralized and decentralized markets and money is essential. A limitation of their model and of the literature that follows is that they do not provide a microfoundation for the process of exchange in the centralized market. In this paper, we show that how one models exchange in the centralized market matters for the essentiality of money by describing the centralized market as a strategic market game and studying conditions under which money is essential.     

Human Capital,Bankruptcy, and Capital Structure

We derive the optimal labor contract for a levered firm in an economy with perfectly competitive capital and labor markets. Employees become entrenched under this contract and so face large human costs of bankruptcy. The firm's optimal capital structure therefore depends on the trade‐off between these human costs and the tax benefits of debt. Optimal debt levels consistent with those observed in practice emerge without relying on frictions such as moral hazard or asymmetric information. Consistent with empirical evidence, persistent idiosyncratic differences in leverage across firms also result. In addition, wages should have explanatory power for firm leverage.     

HOW DO MARKET FAILURES JUSTIFY INTERVENTIONS IN RURAL CREDIT MARKETS?

Understanding of the economic causes and consequences of marketfailure in credit markets has progressed a great deal in recentyears. This article draws on these developments to appraisethe case for government intervention in rural financial marketsin developing countries and to discover whether the theoreticalfindings can be used to identify directives for policy. Before debating the when and how of intervention, the articledefines market failure, emphasizing the need to consider thefull array of constraints that combine to make a market workimperfectly. The various reasons for market failure are discussedand set in the context in which credit markets function in developingcountries. The article then looks at recurrent problems thatmay be cited as failures of the market justifying intervention.Among these problems are enforcement; imperfect information,especially adverse selection and moral hazard; the risk of bankruns; and the need for safeguards against the monopoly powerof some lenders. The review concludes with a discussion of interventions,focusing on the learning process that must take place for financialmarkets to operate effectively.      

Product market competition,competitive strategy,and analyst coverage

This paper examines how product market competition and strategic interactions among peer firms influence analyst coverage. First, we hypothesize that product market competition increases both the demand and supply of analyst coverage. Using three variations of industry concentration ratios and a firm specific measure of competition, we test and find a positive and significant effect of market competition on analyst coverage. Second, we explore an information transfer channel through which product market affects analyst coverage. We hypothesize that information flows more freely among firms selling similar products. Such information flows lowers analyst information collection and processing costs, which in turn increases analyst coverage. Using product similarity index developed by Hoberg and Phillips (J Polit Econ 124(5):1423–1465, 2016) to capture the effect of information transfer, we find that analyst coverage increases with product similarity. Third we examine the role of competitive strategy in analyst coverage. We split our sample into markets of strategic complements and strategic substitutes. We find that the effect of market competition and analyst coverage is more pronounced in markets where firms compete as strategic complements.     

Accrual versus cash-basis accounting methods: An agency-theoretic comparison

In an agency setting with moral hazard, this paper analytically demonstrates that accrual accounting is superior to cash-basis accounting (subject to costs). The main reason is that accrual accounting information more fully reflects the overall effects of managerial actions or efforts on future cash flows than cash flow realizations in any given period. As a result, accrual accounting information is more efficient than cash-basis accounting information for both motivating managers to expend efforts and sharing risks under moral hazard.     

Financial development and asset valuation: The special case of real estate

This paper studies the impact of financial development on asset valuation. We model the agency theoretic perspective of risk-averse investors and financiers in a general equilibrium setting under the framework of rational expectations (i.e., symmetric information). We focus on real estate, as it constitutes a special case of complete market contracting where adverse selection and moral hazard are easily mitigated. Our results illustrate an increase in pareto-efficiency, as financial architecture advances from: (i) banks to capital markets; and (ii) plain vanilla debt to an innovative one with participation clauses. This is attributed to the reduction in agency costs and cross-sectional risk-sharing, leading to an increase in the value of property. Our results predict that an optimal financial system will orient itself towards efficient financial contracts, irrespective of its source of origination. We also rationalize the co-existence of banks and capital markets, and generalize our results under a set of restrictive conditions.     

中国“二元经济”结构下的土地银行研究

土地问题是中国社会问题的核心。从中国的＂二元经济＂结构入手,研究土地银行是非常有意义的课题。本文研究发现,二元分割的经济结构对土地产权的交易更容易产生＂败德行为＂,并加深＂二元经济＂的对立;不完整的产权制度造成了比较混乱的＂多中心主体＂的利益格局,出现＂弱化一方,增强另一方＂的经济权利的现象,造成土地资源配置的低效率;＂土地货币＂却是政府对土地定价权独占的衍生物,通过控制＂土地货币＂的发行量来增减财政收入。但它们严重地妨碍了土地资本化的深化,并且不利于土地银行业务的拓展。     

Moral hazard,adverse selection,and health expenditures: A semiparametric analysis

Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care consumption. We propose a two‐step semiparametric estimation strategy to identify and estimate a canonical model of asymmetric information in health care markets. With this method, we can estimate a structural model of demand for health care. We illustrate this method using a claims‐level data set with confidential information from a large self‐insured employer. We find significant evidence of moral hazard and adverse selection.     

Private monitoring,collusion, and the timing of information

When a principal's monitoring information is private (nonverifiable), the agent should be concerned that the principal could misrepresent the information to reduce the agent's wage or collect a monetary penalty. Restoring credibility may lead to an extreme waste of resources—the so‐called burning of money. A more realistic and efficient outcome is feasible when the private information arrives in time to rescale the agent's effort. Rescaling is more effective than pure monetary penalties because effort has different values to different parties whereas money is equally valuable to all parties. Furthermore, when rescaling is feasible, private monitoring is more efficient than public monitoring subject to collusion because nonmonetary penalties are ineffective to deter collusion.     

Dual foreign currency markets and the role of expectations: Evidence from the Pacific Basin countries

This paper analyzes the role of expectations about the government policy in the official foreign currency market in determining the black market premium. We use data for the recent float from six emerging markets of the Pacific Basin where active black markets for foreign currency exist, namely, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand. To test the impact of anticipated and unanticipated shocks to the official exchange rate on the black market premium, we employ the two-step procedure of Hoffman et al. [Hoffman, D.L., Low, S.A., Schlagenhauf, D.E., 1984. Tests of rationality, neutrality and market efficiency: a Monte Carlo analysis of alternative test statistics. J. Monet. Econ. 14, 339–363] which provides corrected F-statistics and allows us to draw valid inference in the presence of generated regressors. The main finding of our analysis is that anticipated and unanticipated shocks to the official exchange rate have an impact on the black market premium in all six Pacific Basin countries. These results suggest that portfolio balance models provide the suitable theoretical framework for analyzing the behaviour of the black market premium in the markets for foreign currency in the Pacific Basin countries. Furthermore, this implies that economic agents in these countries are sensitive to expected returns in foreign exchange.     

Hostages, free lunches and institutional gaps: the case of the European Currency Union

This paper argues that the strong member states of the European Currency Union are hostages of a financially distressed member state so that they are compelled to provide financial support. Moreover, due to the dynamics of the interaction game, a debt relief is a free lunch for the distressed country. This fosters moral hazard of distressed countries. In the absence of capital market control, European politics do not effectively monitor fiscal politics of member states. The lack of a long-term strategy of the European Currency Union to deal with distressed states has undermined the credibility of politics. This lack is also explained by a lack of a European Insolvency Charter. A viable Union requires such a charter with rules for handling distress. Moreover, politics should determine a mechanism to coordinate politics and capital markets in their monitoring of fiscal and economic policy of member states.     

An experimental approach to the effectiveness of an incentive system against moral hazard in the insurance market

Although traditional Japanese insurance theory has tended to assume the basic altruism of policyholders, this assumption may not be warranted. Many people might be opportunists rather than altruists. So in the actual insurance market, moral hazard may occur not accidentally but naturally. Without effective incentive mechanisms, policyholders may deviate from their original purpose. It is important to design penalties as negative incentives for the control and prevention of moral hazard. We test these propositions here by means of a game theory and questionnaire. The reason why we use a game theory and carry out the questionnaire is that it is not suitable to apply the econometric model to collect reliable data about moral hazard.     

Expansion of commercial banking powers … or,universal banking is the cart,not the horse

This short essay deals with universal banking in an environment in which a government safety net (for example deposit insurance) results in a moral hazard problem for banks. It argues that universal banking significantly exacerbates the problem. Specifically, universal banking extends the distortion of incentives caused by moral hazard to other sectors of the economy.