Variance of Firm Performance and Leverage of Small Businesses

We investigate the relationship between leverage and firm performance using small business data from Japan by estimating the effects of leverage on both average firm performance and the variance of firm performance. We find that leverage has a negative effect on average firm performance and a positive effect on the variance of firm performance. This suggests that the problem of moral hazard is severe for highly leveraged firms. However, when highly leveraged firms have sufficient collateral assets, the effects of leverage are positive for average performance, but negative for the variance of performance. This implies that when small firms have sufficient collateral assets, highly leveraged businesses are better performers.     

The distributional effect of the rice policy in Japan, 1986–2010

This study aims to evaluate the distributional effect of the governmental rice policy in Japan on producers, consumers, and government expenditures from 1986 to 2010 using a partial equilibrium model. Policy measures include government purchase of rice, output payment, and acreage control. The simulation result shows that acreage control has been the principal policy measure for transferring income to producers, especially since the enforcement of the WTO Agreement on Agriculture. Acreage control is the policy measure with the lowest total efficiency and highest budgetary efficiency. This result implies that the government’s goal of transferring income to producers with minimum government cost has been achieved through a combination of policy measures.     

Designing division of labor with strategic uncertainty within organizations: Model analysis and a behavioral experiment

For managers who are responsible for designing the division of labor, there are prototypes such as the divisional and functional designs, but insufficient knowledge of what to consider when selecting them. To address this shortfall, we developed a multiple economic game model with a two-step structure to examine the strategic interdependence between the two prototypes. We analyzed the model from three different perspectives: a traditional analysis, an equilibrium analysis, and a behavioral analysis followed by a laboratory experiment. While the first analysis revealed that the functional design would outperform divisional design when individual decisions are exogenous, the game theoretic equilibrium analysis demonstrated that the two prototype designs have similar equilibria when individuals are rational. However, assuming that individuals made autonomous decisions with accessible information under given organizational structures, behavioral analysis derived predictions that the divisional design was more likely to produce favorable consequences than the functional design. This prediction was confirmed by the economic experiment in the laboratory. These results imply that the strategic uncertainty within organizations differs according to the designs and affects organizational consequences.     

The Effects of a Consumption Tax on Effective Demand under Stagnation

This paper investigates the effects of a consumption tax on effective demand under stagnation. The existing work shows that a consumption tax does not influence effective demand in the case of a homogeneous household under stagnation. In this paper there are two types of household. One is the richer household, whose level of total assets is relatively high. The other is the poorer household, which owns fewer total assets. In a lump‐sum transfer, when the ratio of the poorer household to the total population is large (small), imposing a consumption tax decreases (increases) effective demand.     

Do small businesses adjust their capital structure? Evidence from the global financial crisis in Japan

We investigate the extent to which small businesses adjust their capital structures to target levels when their leverage increases substantially during a financial crisis. We examine Japan's Emergency Credit Guarantee (ECG) program during the 2008 global financial crisis. The increased leverage from the use of the ECG program during the crisis increased the probability of default. Additionally, small businesses adjusted their leverage ratios to the target range before the crisis. However, such adjustments were weak during and after the crisis, particularly for target firms in the ECG program.     

Monetary policy and asset prices in an open economy

This paper examines whether central banks should respond to asset price fluctuations in a two-country sticky price model. We compare a monetary policy rule that targets both domestic asset prices and foreign asset prices with several alternative monetary policy rules. This paper shows that this policy rule can produce preferable outcomes because the domestic central bank incorporates important information that both domestic and foreign asset prices possess into its monetary policy. Our model suggests that central banks should consider both domestic and foreign asset prices in a two country framework with asset price fluctuations.     

THE SAVING RATE IN JAPAN: WHY IT HAS FALLEN AND WHY IT WILL REMAIN LOW*

Japan is in the midst of a demographic transition that is larger and more rapid than other OECD countries. We are interested in understanding the role of lower fertility rates and aging for the evolution of Japan's national saving rate. We use a computable general equilibrium model to analyze the response of the saving rate to changes in demographics and total factor productivity. In our model demographic factors account for 2–3 percentage points of the 9% decline in the saving rate between 1990 and 2000 and persistently depress the saving rate in future years.     

Consumption tax and economic growth in an overlapping generations model with money holdings

This paper examines the effect of a consumption tax on economic growth using an overlapping generations (OLG) model with money holdings. We show that the neutrality of the consumption tax does not hold in the money-in-the-utility-function model, because a change in consumption taxation induces the substitution of money holdings for consumption, and the money is the net wealth within the OLG structure. An increase in the consumption tax rate lowers (raises) the growth rate under a low (high) monetary expansion rate. On the other hand, in the cash-in-advance model and the money-in-the-production-function model, the neutrality of consumption taxation holds even within the OLG structure, because in these models there is no substitution of consumption and money holdings.     

Iterated potential and robustness of equilibria

For any given set-valued solution concept, it is possible to consider iterative elimination of actions outside the solution set. This paper applies such a procedure to define the concept of iterated monotone potential maximizer (iterated MP-maximizer). It is shown that under some monotonicity conditions, an iterated MP-maximizer is robust to incomplete information [A. Kajii, S. Morris, The robustness of equilibria to incomplete information, Econometrica 65 (1997) 1283-1309] and absorbing and globally accessible under perfect foresight dynamics for a small friction [A. Matsui, K. Matsuyama, An approach to equilibrium selection, J. Econ. Theory 65 (1995) 415-434]. Several simple sufficient conditions under which a game has an iterated MP-maximizer are also provided.