Optimal Lending Contracts and Firm Dynamics

We develop a general model of lending in the presence of endogenous borrowing constraints. Borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced. In the model, the dynamics of debt are closely linked with the dynamics of borrowing constraints. In fact, borrowing constraints must satisfy a dynamic consistency requirement: the value of outstanding debt restricts current access to short-term capital, but is itself determined by future access to credit. This dynamic consistency is not guaranteed in models of exogenous borrowing constraints, where the ability to raise short-term capital is limited by some prespecified function of debt. We characterize the optimal default-free contract—which minimizes borrowing constraints at all histories—and derive implications for firm growth, survival, leverage and debt maturity. The model is qualitatively consistent with stylized facts on the growth and survival of firms. Comparative statics with respect to technology and default constraints are derived.     

A Proposed Arbitration Mechanism to Ensure Free Trade in Livestock Products

Trade negotiations between Canada and the United States are to begin in the near future. For there to be an ongoing free movement of commodities the question of nontariff barriers must be addressed in the negotiations. Livestock commodities are particularly prone to nontariff barriers due to the public health aspects of domestic regulations and the perishability of the products. Potential nontariff barriers in livestock and meat products are identified and the problems of normal negotiation procedures outlined. A proposal for an arbitration mechanism for the settlement of disputes is developed. It's essential elements are pre-approval of changes to regulations, extremely short arbitration periods and decentralized adjudication.
Les négociations de commerce entre le Canada et les États-Unis commenceront bientôt. Pour avoir un mouvement continuel des denrées, la question des barrières nontarifaires doit être adressée dans les négotiations. Les denrées bestiaux sont particulièrement portées aux barrières nontarifaires à cause des aspects de la santé publique dans les régulations domestiques et la nature périssable des produits. On identifie les barrières nontarifaires potentielles en des produits bestiaux et de viande. On indique aussi les problèmes avec les processus de négotiation normale. Une proposition pour un mécanisme d'arbitrage pour la résolution des disputes est developpée. Les elements essentiels de cette proposition sont l'approbation en avance des changements aux régulations, les périodes d'arbitration très courtes et les prononcements de jugements décentralisés.     

PROCYCLICAL RETAIL LABOUR PRODUCTIVITY*

The influence of lagged adjustment and consumer spending on retail labour productivity is investigated. Both influences result in a procyclical productivity pattern.     

Varietal Licensing Standards and Canadian Wheat Exports

Canada's wheat grading system is largely based on visual criteria and it is based on relatively high quality standards. A strict varieties licensing system exists to maintain the integrity of the grade standards. One of the consequences of the licensing system is that higher yielding, lower or different quality wheats have not been grown in Canada until recently. The basic objective of this paper is to examine some of the consequences of the regulatory strategy of limiting wheat production to the traditional high quality wheats. This question is analyzed in the context of important changes in the international grain markets. Using a partial equilibrium trade model this paper estimates that if higher yielding wheats were permitted to be grown, annual producer gains would be 5 to 17 percent of current net farm income.
Le classement des blés au Canada est basé sur des critères visuels qui sont de hautes qualités. Le système actuel d'homologation des variétés est tel que l'intégrité de ce système est maintenue. En conséquent, ce système n'a pas encouragé la cultivation des blés de hauts rendements ou des varietés différentes que tout récemment. L'objectif principal de cette étude est d'examiner quelques unes des conséquences de la stratégic de la réglementation visant à limiter la production du blé aux variétés de hautes qualités. Cette question est adressée dans le contexte des changements importants qui ont eu lieu dans le marché international des grains. A l'aide d'un modèle d'équilibre partiel des échanges, la présente étude démontre gu'en permettant la production des blés de hauts rendements, le gain annuel aux producteurs serait de 5 à 17 pourcent du revenue agricole net.     

Bank Monitoring and Environmental Risk

Abstract:  Loan announcement effects for 152 Canadian companies are examined to investigate the efficiency of monitoring by banks facing lender environmental liability. Market reaction to the announcement of bank debt to 'environmental' firms is more positive and significant than for 'non-environmental' firms and, for firms in industries with a higher likelihood of experiencing spill events, is more positive and significant, reinforcing earlier results that establish a relationship between specific loan/borrower characteristics and announcement period excess returns and providing further evidence on the 'uniqueness' of bank loans by demonstrating the superior ability of banks to monitor corporate borrowers exposed to environmental liability.