Discipline and Liquidity in the Interbank Market

Using 20 years of panel data, I demonstrate that high-risk banks have consistently paid more than safe banks for interbank loans and have been less likely to use these loans as a source of liquidity. The economic importance of this effect was relatively small until the mid-1990s, when regulatory and institutional changes began to impose more of the costs of bank failure on uninsured creditors. Subsequently, interbank-market price discipline roughly doubled, and risk-based rationing effects increased by a factor of six. In imposing this discipline, lenders seem to care most about credit risk at borrowing institutions.     

The production and consumption of bar iron in early modern England and Wales

Errata . The Economic History Review 59: 1, 64
The production and consumption of bar iron in early modern England and Wales. An estimate made of the bar iron production in England shows two periods when production grew rapidly, 1540-1620 and 1785-1810. Both of these were related to the adoption of new technology-the finery forge in the first case, and potting and stamping and then puddling in the second. Imports of iron from Spain declined sharply after 1540, but those from Sweden became significant from the mid-seventeenth century, and those from Russia after 1730. Consumption grew rapidly in the late sixteenth century, and again during the eighteenth. Hence, the industrial revolution was the culmination of a long period of growth.     

Legal Penalties and Audit Quality: An Experimental Investigation*

The purpose of this paper is to investigate the impact of legal penalties on audit quality under different legal regimes. We investigate whether audit quality is affected differentially due to the complexity inherent in legal regimes and the frequency of imposing legal penalties. Economic theory predicts that players adopt equilibrium strategies that reflect the expectation that a penalty will be incurred, but the actual occurrences of penalties, if consistent with this expectation, should not prompt an individual to modify his or her strategy. However, learning theory suggests that players' choices will be repeated in the future based on outcomes. We found that penalties triggered both increases and decreases in effort, and seemed to introduce a “shock” that increased the variability of effort. We also observed a “funnel” effect — that is. greater changes in effort closer to the imposition of penalties, and smaller changes as more periods go by without a penalty.     

Unions and Police Productivity: An Econometric Investigation

We examine the effect of unionization on police productivity in large U.S. metropolitan areas. We define police output in the context of a production function model that draws also on the crime literature. We estimate the resulting model using a data set that includes published and unpublished government statistics as well as our own survey of police departments. Results suggest that the effect of unions on police productivity varies according to categories of police performance. In particular, if performance is stratified according to the severity of crimes, unions seem to have an insignificant effect on police productivity with respect to serious crimes. For minor crimes, unionization alters the parameters of police production function, leading to diminished productivity.     

Privatization and Reformation*

This paper presents a simple model of a government contemplating the pre-sale reform of a public enterprise. While the government is less efficient at such reform than the eventual owner, failure to reform may be considered an indicator of low commercial value by potential purchasers. Consequently, the government may be unable to avoid socially wasteful restructuring if it wishes to maximize its net sales revenue. The results presented in this paper provide a number of insights and policy recommendations for governments embarking on a privatization program.