‘Crooks,thieves, and receivers’: transaction costs in nineteenth‐century industrial Birmingham1

The existence of cooperation and trust between competing economic agents is taken for granted by much of the literature on industrial districts. This article explores the structure of the Birmingham jewellery‐making district and the problems created by the opportunistic behaviour of many of its members. Archival sources show that the district was plagued by endemic dishonesty and that proximity did not generate trust and cooperation. The absence of barriers to entry into the trade created a district where social sanctions could not be used to reduce moral hazard. All these factors threatened to destroy the district during the crisis of the 1880s. The article shows how firms joined together to create the Birmingham Jewellers Association, to establish and enforce ‘rules of the game’, with the aim of reducing transaction costs.     

Genetic Information: Comparing Alternative Regulatory Approaches When Prevention Matters

We compare the alternative approaches used for regulating genetic information in the health insurance market when prevention measures are available. In the model, firms offer insurance contracts to consumers who are initially uninformed of their risk type but can obtain such information by performing a costless genetic test. A crucial ingredient of our analysis is that information has decision‐making value since it allows for the optimal choice of a self‐insurance action (secondary prevention). We focus on the welfare properties of market equilibria obtained under the different regulatory schemes and, by using an intuitive graphical analysis, we rank them unambiguously. Our results show that Disclosure Duty weakly dominates the other regulatory schemes and that Strict Prohibition represents the worst regulatory approach.     

Combining Judgment and Models

This paper proposes a parsimonious and model‐consistent method for combining forecasts generated by structural microfounded models and judgmental forecasts. The method delivers along several dimensions. First, it improves the forecasting performance of the model. Second, it allows interpreting the judgmental forecasts through the lens of the model. Finally, it provides a framework to assess the informational content of the judgmental forecasters. I illustrate the proposed methodology with a real‐time forecasting exercise using a simple neo‐Keynesian dynamic stochastic general equilibrium model and the Survey of Professional Forecasters.     

Social capital and trade associations in America,c. 1860–1914: a microhistory approach1

This microhistory explores the activities of one of the many trade associations created in the nineteenth century in the US. Qualitative evidence is used to engage with the concepts of competition, cooperation, and social capital. This article explores the reasons why cooperation emerged between competing economic agents, as an intended outcome of associational activity. It is argued that trade associations are forms of voluntary association consciously established to achieve economic aims and create networks of sociability. These, in turn, generated social capital used by economic agents to avoid ruinous competition and to capture political, economic, and social resources.     

The Signaling Effect of Tax Policy

The paper focuses on the signaling value of a tax when agents are less informed than the government on the effect of their consumption. The policy making process is analyzed as a game in which the government wants to influence consumers' behaviors through tax policy, consumers being rational and Bayesian. The marginal cost of public funds induces the government to provide biased information to pursue budgetary objectives. We analyze the tax distortion that is required for credibility.     

Monitoring Managers: Does It Matter?

We study how well‐incentivized boards monitor CEOs and whether monitoring improves performance. Using unique, detailed data on boards' information sets and decisions for a large sample of private equity–backed firms, we find that gathering information helps boards learn about CEO ability. “Soft” information plays a much larger role than hard data, such as the performance metrics that prior literature focuses on, and helps avoid firing a CEO for bad luck or in response to adverse external shocks. We show that governance reforms increase the effectiveness of board monitoring and establish a causal link between forced CEO turnover and performance improvements.     

Voluntary Reserve Targets

We study monetary policy implementation through an operating regime involving voluntary reserve targets (VRTs). Operating regimes based on reserve requirements may lead to a collapse in interbank trade, as they have since the financial crisis. We show that, no matter the abundance of reserves, VRTs encourage market activity and support the central bank's control over interest rates. We consider (i) the impact of anticipated and unanticipated liquidity injections by the central bank on market outcomes and (ii) a comparison with the implementation framework currently adopted by the Federal Reserve. Overall, a VRT framework may provide several advantages over other frameworks.     

Liquidation Value and Loan Pricing

This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements (repo), we show that borrowers pay a premium of 1.1 to 2.6 basis points when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize this premium when making their collateral choices. Loan-level credit registry data suggest that the results extend to the corporate loan market as well.