Gains from Trade with Lump-sum Compensation

This paper analyses the use of lump-sum compensation to ensure a Pareto improvement under free trade. It first shows how households, which are aware of the free-trade and compensation policy, may falsify autarkic consumption to get larger transfers. Despite consumption falsification, however, trade could still be gainful using lump-sum compensation under certain conditions. This paper also suggests a case in which an incentive-compatible lump-sum compensation scheme exists.     

The Lens Condition with Two Factors

The authors give a simple, constructive proof that the lens condition implies the factor price equalization condition when there are only two factors. Taking stock of the conditions under which the lens condition is equivalent to the factor price equalization condition, there are the conditions of two factors or two goods or two countries, or the condition that the rank of the factor‐use matrix is equal to the number of goods. It is shown that, in an essential sense, there are no other such conditions.     

Return and Risk Premium Seasonalities in three Emerging Asian Markets: Hong Kong,Korea and Taiwan*

In this study, we find that seasonal return patterns differ from that implied by risk premiums in three emerging Asian markets; namely, Hong Kong, Korea and Taiwan. Positive January seasonal returns are found in the Hong Kong and Taiwan markets, while positive February seasonal returns are also found in Taiwan. These findings suggest that investors should place their money in these markets during January but not for the months of June and December in Korea, and for the months of May and November in Taiwan. Corporate managers should also be aware of the need to adjust for such seasonal variations when they use market data to evaluate the risk premium or required rate of return for projects in these markets. The results also show that the size effect may also be priced in some of these markets.     

QUANTO LOOKBACK OPTIONS

The lookback feature in a quanto option refers to the payoff structure where the terminal payoff of the quanto option depends on the realized extreme value of either the stock price or the exchange rate. In this paper, we study the pricing models of European and American lookback options with the quanto feature. The analytic price formulas for two types of European-style quanto lookback options are derived. The success of the analytic tractability of these quanto lookback options depends on the availability of a succinct analytic representation of the joint density function of the extreme value and terminal value of the stock price and exchange rate. We also analyze the early exercise policies and pricing behaviors of the quanto lookback options with the American feature. The early exercise boundaries of these American quanto lookback options exhibit properties that are distinctive from other two-state American option models.     

Currency Options and Export-Flexible Firms

This paper examines the production and hedging decisions of a globally competitive firm under exchange rate uncertainty. The firm is risk averse and possesses export flexibility in that it can distribute its output to either the domestic market or a foreign market after observing the realized spot exchange rate. To hedge against its exchange rate risk exposure, the firm can trade fairly priced currency call options of an arbitrary strike price. We show that both the separation and the full‐hedging results hold if the strike price of the currency call options is set equal to the ratio of the domestic and foreign selling prices. Otherwise, neither result holds. Specifically, we show that the optimal level of output is always less than that of an otherwise identical firm that is risk neutral. Furthermore, an under‐hedge (over‐hedge) is optimal whenever the strike price of the currency call options is below (above) the ratio of the domestic and foreign selling prices.     

China and the World Trade Organization

For nine long years China made determined but unsuccessful efforts to rejoin GATT, having gone through 21 rounds of protracted negotiations. China failed to become a founding member of WTO when it superseded GATT in January 1995. In 1989 GATT was about to work out the final terms of protocol for China's entry as a reforming socialist economy. But the Tiananmen event made the developed country members, led by the US, politicize the issue of China's membership. They also wanted to prise open the vast China market as a condition for China's entry; i.e. China to be admitted as a developed economy. China for its part regarded the price of its WTO membership as too exorbitant without being allowed a reasonable timetable for adjustment. Minister Wu Yi considered the US demands ‘absolutely unacceptable’. Hence the impasse over China's WTO membership continued. Apart from the imperative of trade diplomacy, however, the perceived benefits of WTO membership to China are difficult to capture. They are mainly general and long-term in nature, e.g. facilitating China's further economic reform and integrating China into the global economy. However, the costs and risks to China could be considerable, much depending on the exact protocol terms of China's membership. In general many state-owned enterprises and township-village enterprises would suffer from stiffer foreign competition. The effect of WTO on Chinese agriculture would be minimal, while the impact on the manufacturing sector could be quite disruptive. The service sector could fare even worse if no protective measures were to be taken. That explains why China needs to insist on developing-country terms of entry. Without doubt, China will eventually accede to WTO. It is a gross anomaly for this global multilateral trade body to continue excluding China, the world's 11th largest trading nation, on which also hinge the two other great trading entities of Hong Kong and Taiwan. There is increasing awareness of this point in the EU; and it will sooner or later also prevail in Washington.     

Models of export instability and empirical tests for less-developed countries

Alternative models are developed in which export earnings instability is generated by domestic supply, domestic demand or foreign demand fluctuations. Their relative merits over the 1957–1972 period are examined through multiple regression analysis for a sample of 50 LDCs, with breakdown into sub-samples based on the type of commodity exported and the nature of foreign markets. The results suggest that export instability originates mainly from foreign sources - especially variations of market shares in foreign markets and commodity groups. However, domestic supply and demand fluctuations are the dominant factors for countries highly-dependent on food exports. Geographic concentration is an important factor for countries dependent on food exports and developed-country markets.     

Goal interdependence and quality in services marketing

Service quality is considered an important competitive edge because it generates repeat sales, positive word of mouth, customer loyalty, and competitive product differentiation. This study examines the impact of a company's cooperative or competitive orientation and the service provider's warm or cold communication style on customer evaluation of service quality. Results from 83 participants in a simulated bank interview experiment indicate that when the bank communicated a cooperative orientation they perceived it as offering a higher-quality service than when it had competitive or individualistic goals. The warmth of the service personnel contributed to high-quality service, liking the bank representative, future confidence in dealing with the bank, satisfaction with the interview, and willingness to be interviewed by the bank representative in the future. These results were interpreted as suggesting that companies who can demonstrate a strong cooperative orientation toward customers and whose service providers demonstrate warmth will be considered to offer high-quality services. © 1995 John Wiley & Sons, Inc.     

Housing Quality in the Forward Contracts Market

Developers often conduct forward sales (or presales) before building completion to relieve financial risk and burden. However, there are worries that housing units sold in this way will turn out to be substandard because developers, who have been paid for the unfinished units, may have incentives to cut costs by lowering the quality. This is a typical moral hazard problem. Nonetheless, forward sales have been very popular in some Asian cities such as Hong Kong, Singapore, and Taiwan. A plausible explanation is that the market has efficiently adjusted the forward price for this potential quality problem according to developers’ reputations. This paper aims to theoretically explain and empirically test (1) whether reputation is reflected in forward prices and (2) whether the expected quality level matches with the actual quality level. Using the forward and spot sales data of the Hong Kong real estate market, we found that even though housing quality was not observable during presales, the market was able to capitalize developers’ reputations into forward prices accurately. This suggests that the optimal strategy for developers is to stick to the quality level implied by their reputations. A paper submitted to Journal of Real Estate Finance and Economics. A Special Issue for the 2005 NUS-HKU Symposium on Real Estate Research.     

Cultural tourism as salvation for petty capitalists: the pedicab drivers of the Las Vegas of the east

‘Petty capitalism’ refers to the informal self-employment engaged in by the unskilled poor in order to earn or augment their income. In the tourism industry, they work as unlicensed souvenir vendors, street-food hawkers, drivers, prostitutes, etc. The pedicab drivers of Macao belong to this category of petty capitalists. Drawing on thematic interviews supplemented by observational data, this article documents how the pedicab drivers of Macao survive and keep a sense of self-worth after the near annihilation of their industry as a result of urbanization, and how tourism has been, in addition to government support, a positive social change agent that allowed them to survive. The small literature on pedicabs either documents the marginal lifestyle and poverty of their drivers as informal tourism workers, often in the developing world, or look at pedicab as a sustainable activity in the tourism sector. The findings of this article address two gaps, namely, (1) a lack of documentation on the working life of the pedicab drivers as petty capitalists in a highly urbanized environment and on their degree of self-worth (2) a comparative lack of testimonials on how tourism can be a powerful agent in the ‘worldmaking’ that is in the creation of change.