Incomplete Information, Trading Costs and Cross‐autocorrelations in Stock Returns

This paper provides an economic rationale for the cross‐autocorrelation patterns in stock returns in the context of a microstructure model in which investors have incomplete information. The paper shows that in a market in which investors are informed about only a sub‐set of stocks, the emergence of lead‐lag, cross‐autocorrelations is a function of the cost of trading in other stocks based on information about the sub‐set of stocks. If cross‐trading costs are high, informed investors will trade only in the sub‐set of stocks they are informed about; if cross‐trading costs are moderate, informed investors will randomize between trading and not trading in other stocks; and if cross‐trading costs are low, they will trade in all stocks. When informed investors trade only in a sub‐set of stocks, prices of stocks with more informed trading will adjust to common factor information faster than the prices of stocks with less informed trading giving rise to asymmetric lead‐lag cross‐autocorrelations. When informed investors trade in all stocks, asymmetric lead‐lag cross‐autocorrelations will disappear as a result of their cross‐market arbitrage trading. These results provide a number of testable implications for lead‐lag cross‐autocorrelation patterns. The data is consistent with the empirical predictions .
(J.E.L.G12, G14).     

Banks' Inefficiency and Economic Growth: A Micro‐Macro Approach

This paper offers a methodological contribution to the empirical analysis of the relationship between banking and economic growth by suggesting a new indicator for the state of development of the banking system based on a measure of bank microeconomic efficiency. This choice helps to overcome the problem of causality and to capture the effects of banks' activity on growth. This new approach is then applied to analyse the relationship between the banking system and economic growth in the Italian regions, through a dynamic panel technique. The empirical results show the existence of an independent effect exerted by the efficiency of banks on regional growth.     

The Impact of the Rating Agencies' Through‐the‐cycle Methodology on Rating Dynamics

Surveys on the use of agency credit ratings reveal that some investors believe that credit‐rating agencies are relatively slow in adjusting their ratings. A well‐accepted explanation for this perception on rating timeliness is the through‐the‐cycle methodology that agencies use. Through‐the‐cycle ratings are intended to measure default risk over long investment horizons and to respond only to changes in the permanent component of credit quality. A second aspect of the through‐the‐cycle methodology is the prudent migration policy. In a benchmark study with a financial ratio‐based credit‐scoring models – an agency‐rating prediction model and default‐prediction models with various time horizons – we confirm the exclusive focus of agencies on the permanent component of credit quality and we model and quantify the agencies' prudent migration policy. A rating migration is triggered only when the rating predicted by the agency‐rating prediction model differs by at least a threshold level of 1.8 notch steps from the actual agency rating. If triggered, ratings are only partly adjusted by 70 per cent at the downside and 60 per cent at the upside. From a 1‐year point‐in‐time perspective, weighting temporary fluctuations in credit quality, the through‐the‐cycle methodology lowers the rating‐migration probability by a factor of 3.5. Both aspects of the through‐the‐cycle methodology contribute equally to this factor. The partial adjustment of ratings lowers the rating‐reversal probabilities on short term and introduces rating drift, the known serial correlation in agency‐rating migrations.     

Public Capital and Economic Growth: A Convergence Approach

This paper estimates dynamic effects of public capital on output per capita. Based on an open economy growth model, I derive a version of the income convergence equation augmented with public capital. This equation is estimated using panel data of United States and Japanese regions. Sensible results are obtained when public capital is disaggregated into components. In both countries, the infrastructure component of public capital turns out to have significantly positive effects. The implied elasticity of output with respect to infrastructure is somewhere around 0.1 to 0.15. This suggests a modest contribution of infrastructure to postwar growth of the two countries.     

A Simple Characterization of the Second‐best Two‐part and Block‐rate Tariffs Theory and Applications

The general necessary optimality conditions for second‐best discrete multipart tariffs are rather complex. In this paper, we derive a simplified characterization of these conditions for two‐part tariffs and for block‐rate tariffs for given thresholds of these tariffs. The simplified necessary optimality conditions are equivalent to the necessary conditions for a Ramsey‐optimum for goods with continuously variable individually demanded quantities. We demonstrate that this characterization of second‐best multipart tariffs can be helpful, when applying the usual regulatory mechanisms to these tariffs. In particular, we consider Vogelsang–Finsinger (1979) regulation as well as a particular form of price‐cap regulation which is related to the Laspeyres index of prices.     

Quasi‐geometric discounting: A closed‐form solution under the exponential utility function

This paper studies a discrete‐time utility maximization problem of an infinitely‐lived quasi‐geometric consumer whose labour income is subject to uninsurable idiosyncratic productivity shocks. We restrict attention to a first‐order Markov recursive solution. We show that under the assumption of the exponential utility function, the problem of the quasi‐geometric consumer admits a closed‐form solution.     

A Note on the Most‐Favoured‐Customer Pricing Policy

This paper extends the retroactive most-favoured-customer pricing policy examined by Cooper (1986). He showed that the policy enabled both firms in a duopoly to offer higher prices and to enjoy higher profits. This paper introduces a variable into the most-favoured-customer pricing policy. Then, it shows that there is an equilibrium in which the duopolists can further increase their profits.     

The Stochastic Convergence of CO<Subscript>2</Subscript> Emissions: A Long Memory Approach

In response to equity concerns surrounding the spatial distribution of CO₂ emissions and assumptions of CO₂ convergence within some climate models, this paper examines the convergence of CO₂ emissions within the OECD over the period 1870–2004. More specifically, using the Local Whittle estimator and its variants we examine whether relative per capita CO₂ emissions are fractionally integrated, that is they are long memory processes which, although highly persistant, may revert to the mean/trend in the long run. Our results suggest that CO₂ emissions within 13 out of 18 OECD countries are indeed fractionally integrated implying that they converge over time, albeit slowly. Interestingly though, the countries whose emissions are not found to be fractionally integrated are some of the highest polluters within the OECD, at least in per capita terms. Our results have implications both for future studies of CO₂ convergence and for climate policy.     

A Model of Balance‐of‐Payments Crises due to External Shocks: Monetary vs. Fiscal Approaches

This paper develops a model for balance‐of‐payments (BOP) crises triggered by an external shock. Whether an external shock induces a BOP crisis depends crucially on the sequence of policy actions taken by the government's monetary and fiscal authorities. If the fiscal authority moves first and imposes an exogenous constraint on the monetary authority, an external shock can lead to a BOP crisis. However, if the monetary authority moves first and imposes an exogenous constraint on the fiscal authority, the same shock does not cause a BOP crisis.     

Governance and Management of Collective User‐Based Enterprises: Value‐Creation Strategies and Organizational Configurations

Abstract The evolution of the collective enterprise may be conceptualized in three phases throwing into relief five strategies for the creation of value. The first corresponds to the emergence of a collective enterprise, an innovation in itself. The second, the spread of the innovation by replication, is linked to federalization and to the beginning of standardization. The tension between innovation and standardization begin to make a difference as early as this replication phase, but later it becomes more critical. It forces the collective enterprise to avoid wholesale standardization, an outmoded option, and instead allows space for considering one of the two strategies for the creation of value in keeping both with its distinctive social economy identity and with the new strategic approaches centred on the competences of the enterprise and the creation of value for the user. Thus, the collective user enterprise may move forward by focusing, i.e., by even greater innovation in its provision for a target group of members. The collective enterprise may also progress by hybridization, i.e., through re‐combining in a better way the innovation and standardization required to respond, effectively and efficiently, to a group of owners that is not only very large, but also highly diversified. The authors identify the organizational configuration for each pattern of value‐creation by concentrating on governance structures and the role of managers .     

A New Approach to Random Utility Modeling using the Dirichlet Multinomial Distribution

In this paper we introduce a new econometricapproach to analyzing recreational site choicedata, the Dirichlet multinomial model. Thismodel, which nests the standard conditionalmultinomial logit model, can accommodateover-dispersed data and may provide moreefficient estimators of coefficients andconsequent welfare measures than the standardconditional logit model, which is so widelyused in the Random Utility Model approach torecreation demand. We illustrate thisDirichlet approach using a data set of rockclimbers in Scotland, and study the impacts onper-trip consumers surplus of alternativemanagement strategies for popular rock climbingsites. Results show that the Dirichletmultinomial approach produces coefficient andwelfare estimates having smaller samplingvariability in this case. We also compareclassical welfare measures with their posteriorequivalents, which allow for welfare changes tobe dis-aggregated.     

The Organisational Evolution of the Childcare Regime in Germany: Issues and Dynamics of a Public‐private Partnership

In many European countries, institutional childcare has developed as a field shaped by both statutory and associative agency, the German system being emblematic for this. In Germany, a considerable proportion of childcare services are provided by nonprofit organizations under public regulation. Departing from a historical overview, the article elaborates on the mixed economy of welfare in that system and sheds light on recent transformations of the existing public‐private partnership. It is argued that with a range of cultural and civil‐society‐related evolutions, the system is going to adopt elements of a market regulation that are prone to change the rules of games within the partnership as such.     

Regional Convergence in the Russian Federation: Spatial and Temporal Dynamics

Journal of Quantitative Economics - Set in the context neoclassical growth theory the discussion of economic convergence is revisited in the context of the Russian Federation. Compared to previous...     

Parallelism in the Lab and the Field: Testing Robustness of the Minimum‐Contributing‐Set Mechanism

Efforts to "test" public‐goods provision mechanisms in field settings encounter a fundamental obstacle: investigators cannot determine whether the aggregate valuation of the public good exceeds the cost. Experimental laboratory settings can fix the provision of the public good to be efficient. This allows investigation of the performance of the mechanism under potential field settings. This paper reports the results of a set of laboratory experiments designed to test the robustness of the minimum‐contributing‐set (MCS) mechanism to field conditions. The reported results support further use and investigation of the MCS mechanism for the provision of step‐level public goods.     

The CES‐‐Translog Production Function, Returns to Scale and AES

The translog functional form imposes no a priori restrictions on the substitution possibilities between the factor inputs, by relaxing the assumption of strong separability, and the CES–translog cost function specification allows for testing homothetic technology with Hicks‐neutral technical change. In this paper an n ‐factor CES–translog production function is presented which develops the parameters to directly assess scale effects from those due to technology in the production structure. In addition, by applying Shephard's lemma it was possible to derive the input demand functions, as well as the partial elasticities of substitution and the cross‐partial price elasticities of demand for a generalized CES–translog production structure.     

ω‐Homothetic Preferences: Theory and Applications

This paper develops a new class of homothetic preferences which generate Marshallian demand curves for individual goods which can be concave, convex or linear in own price under the assumption that agents treat aggregate price indices as given (as in Dixit‐Stiglitz, 1977). The preferences are represented by a cost function which has two parameters: one determining the curvature of the Marshallian demand; the other determining the elasticity of demand when all prices are equal. The elasticity of demand varies with relative prices. Illustrative examples are given of Cournot duopoly and exchange rate pass‐through.     

European Nominal and Real Convergence: Joint Process or Rival Dynamics?

Recent empirical studies have revealed that the convergence speeds of nominal and real variables are fairly different. This paper studies the temporal evolution of the mutual influence between the convergences of a nominal and of a real variable. It refers first to σ-convergence analysis. In order to compare nominal and real paths, the evolutions of the cross-sectional variances of the two variables are connected. Then, nominal and real convergence processes are studied, as reciprocally conditioned within the same system. Nominal and real convergence were negatively correlated in the 1980s, while the 1990s have been characterized by a simultaneous convergence movement.     

Testing for Convergence Clubs in Income Per Capita: A Predictive Density Approach*

The article proposes a technique, based on the predictive density of the data, conditional on the parameters of the model, to jointly tests for groups of unknown size in a panel and to estimate the parameters of each group. The procedure is applied to the problem of identifying convergence clubs in scaled income per capita data. The steady‐state distribution of European regional data clusters around four poles of attraction with different economic features. The distribution of income per capita of OECD countries has two poles of attraction and each group clearly identifiable economic characteristics. We share the uncommonness of being different. J. P. Roche     

Using Scanner Data to Estimate Country Price Parities: A Hedonic Regression Approach

This paper uses scanner data from the bar-code readers of retailers to provide estimates of inter-country price parities at the level of the basic heading. The use of such data is appealing given its extensive coverage of transactions, information on weights, prices and characteristics of items at a highly detailed level. The study uses dummy variable hedonic and exact/superlative hedonic index number formulations applied to an inter-country context for both bilateral and multilateral comparisons. Unlike conventional methods, such methods are not confined to matched samples comparisons and thus make use of the entire sample. Their application extends to price survey data using checklists on characteristics. The application is to scanner data on about 1 million transactions for television sets over two months in three countries. It is, to the authors' knowledge, the first such use of scanner data and application of the above hedonic frameworks in this context.