ERRATUM NOTIFICATION: OXFORD ECONOMIC PAPERS

Page 10, subsection C of K. D. Patterson's article: The stability of some Annual Consumption Functions should read T₀–t and not t–T₀.     

Galton's fallacy and economic convergence

Friedman (1992) argues that regressing cross-country incomechanges on their final levels can be informative about -convergence(the tendency for the dispersion of income levels to narrow)whereas a similar regression on initial levels of income cannotbe. In this note we show that Bliss's (1999) dismissal of thisargument is in error.     

The Evolution of Fiscal Policy in Australia

This paper examines the evolution of Australian fiscal policyand the fiscal policy framework over the past quartercentury.Following the early 1980s recession, a sustained fiscal consolidationsaw the general government budget balance (for all levels ofgovernment) move from a deficit of 3 per cent of GDP in 1983/4to a surplus of 1 per cent 5 years later in 1988/9. A severerecession in the early 1990s interrupted this process, and thebudget returned to sizeable deficits which peaked at 4 per centof GDP in 1992/3. The second half of the 1990s saw a repeatof the experience a decade earlier, with the budget returningto surplus in 1997/8. In contrast to the 1980s experience, however,the general government sector (for all levels of government)has recorded surpluses for the subsequent 8 years to the present.The paper outlines Australia's macroeconomic experience overthis time and argues that there have been two significant medium-termfactors motivating the extended periods of fiscal consolidation.The first factor, relevant since the mid-1980s, has been thelarge Australian current-account deficits since that time, andthe associated build-up of net foreign liabilities. The secondfactor, which entered the public debate more recently, is adesire to provide fiscal policy flexibility to respond to theageing of the population and the projected rising public costof health services—both influences that are likely tobe of increasing importance over the next generation or so.The paper discusses the introduction and evolution of Australia'smedium-term fiscal framework which has been put in place torespond to these challenges. Footnotes ¹ E-mail addresses: dgruen{at}treasury.gov.au; asayegh{at}treasury.gov.au     

OPTIMAL PRE-COMMITMENT IN MACROECONOMIC POLICY: A GAME THEORETIC ANALYSIS OF FISCAL POLICY

The version of the paper published in Oxford Economic Papers(Volume 42, October 1990, pp. 695–714) erroneously omittedthe figures. This note presents the figures and briefly describesthe results they show. The paper proposed a new solution to the problem of time inconsistency.A subgame-perfect trigger strategy equilibrium was presentedin which the public expected the government to renege on itsoriginally announced policy at some later date. The government'spre-commitment to its announced policy was determined endogenouslyas part of the equilibrium. The equilibrium was illustrated using Blanchard's (1985) modelof fiscal policy. I examined the [political] problem of maintainingaggregate consumption while reducing the level of governmentdebt. The problem of time inconsistency arises in this contextbecause the government has an incentive to renege on its promiseto raise future taxes. Numerical solutions of the model showedthat the government would renege after a period that dependedon its expected tenure and preferences. Figures 1 to 4 showthe behavior of the economy under policies with no pre-commitment([t₀t^*) = 0), a moderate period of precommitment ([t₀t^*) = 33.5),and a long period of pre-commitment ([t₀t^*) = 140.2). Figure 1 shows that governments with greater credibility willprefer to push the costs of falling consumption further intothe future. This is achieved by adopting policies that promiseto raise future revenues while cutting current taxes so thatthe fall in the value of government debt is offset by the risein human wealth [see Figures 2 and 4]. One important consequenceof these policies is that the level of government debt risesduring much of the period of pre-commitment. Figure 5 is used in the appendix to prove proposition 1     

Management Practices, Work--L ife Balance, and Productivity: A Review of Some Recent Evidence

Increasing product-market competition is believed to be a drivingforce behind higher productivity. However, even those criticsof globalization who accept this argument claim that there isa hard trade-off because tougher competition comes at the priceof reducing work—life balance (WLB). Optimists, by contrast,argue that competition can spur better WLB practices and thereforehigher productivity, so there is a ‘win—win’situation. To address this issue we use an innovative surveytool to collect the first international data on management practicesand WLB practices, surveying 732 medium-sized manufacturingfirms in the USA, France, Germany, and the UK. We find thatthe USA has the best management practices but the worst work—lifebalance. When we look within countries, however, we reject thepessimistic ‘trade-off’ model. First, WLB outcomesare significantly associated with better management, so thatwell-run firms are both more productive and offer better conditionsfor their employees. Second, tougher competition increases averagemanagement quality but does not negatively affect employees'working environment. As with many other studies, better WLBpractices are associated with significantly higher productivity.This relationship disappears, however, after controlling forthe overall quality of management. Footnotes ¹ E-mail addresses: nbloom{at}stanford.edu; j.vanreenen{at}lse.ac.uk     

Book briefs

World food marketing systems, Butterworth & Co, London, 1986.

Faces of hunger. An essay on poverty, justice and development, Studies in applied philosophy, Allen & Unwin, London, 1986. xiii + 178, distributed in South Africa by MacMillan South Africa, Braamfontein.

Decentralization and development — Policy implementation in developing countries, Sage Publications, London, 1983, 319 pp

Soviet interests in the Third World, Sage Publications, London, 1985, xi + 329 pp

No shortcuts to progress — African development management in perspective, Heinemann Educational Books Ltd, London, 1983, xv + 223 pp.

Strategies for African Development, University of California Press, London, 1986, xii + 603 pp.

Labour and poverty In Kenya 1900‐1980, Clarendon Press, Oxford, 1986, xii + 296, £20,00     

Book briefs

Key variables in social investigation, Routledge & Kegan Paul, London, 1986, vii + 276 pp.

Reproductive change in developing countries, Insights from the World Fertility Survey, Oxford University Press, Oxford 1985, xvi + 301 pp, ISBN 0‐19‐828465‐9.

The world crisis in education, The view from the eighties, Oxford University Press, New York, 1985, vii + 353 pp ISBN 0‐19‐503503‐8

Reaching the Urban Poor, Project implementation in developing countries, Westview Press, Boulder Colorado. 1986, vii + 264 pp, ISBN 0‐8133‐7129‐5

Housing policy, An international bibliography, Mansell Publishing Limited, New York, 1986, ix ‐ 398 pp, ISBN 0‐7201‐1785‐2

Agribusiness and the small‐scale farmer: A dynamic partner for development, Westview Press, Boulder, 1985

Agriculture and employment in developing countries: Strategies for effective rural development, Westview Press, Boulder, 1985

Progress in natural resource economics, Clarendon Press, Oxford, 1985

International agricultural trade: Advanced readings in price formation, market structure and price instability 1984

The role of markets in the world food economy, Westview Press, Boulder, 1983     

Local School Finance and Productive Efficiency: Evidence from Ohio

This paper examines the relationship between local financing of education and school district efficiency. In a system of local school finance, the capitalization of school quality in housing prices provides homeowners with verifiable information regarding the impact of school officials’ actions and strong incentives to act upon that information. I find evidence that school districts with a higher percentage of revenues from local sources perform better on state math tests. In addition, the amount of residential property within a school district is positively related to math test passage rates.

Publications

Brian May, The Indonesian Tragedy, Routledge & Kegan Paul, London, 1978, pp. xvii + 438. A$19.95.

Harold Crouch, The Army and Politics in Indonesia. Ithaca andLondon: Cornell University Press, 1978. 377 pp. ISBN 0-8014-1155-6.

International Rice Research Institute (1978). Changes in Rice Farminf in Selecred Areas of Asia. International Rice Research Institute. Los Banos, Laguna, Philippines.

Molster, H.C. (1978). Methods of Estimating Fertiliser Response with an Application 10 Urea Use to Rice in Jogjakarra, Indonesia. Centre for Amicultural Publishing and Documentation, Wageningen.     

Is Numérairology the Future of Monetary Economics?

The paper discusses some fundamental problems in monetary economics associated with the determination and role of the numéraire. The issues are introduced by formalising a proposal, attributed to Eisler, to remove the zero lower bound on nominal interest rates by unbundling the numéraire and medium of exchange/means of payment functions of money. The monetary authorities manage the exchange rate between the numéraire (‘sterling’) and the means of payment (‘drachma’). The short nominal interest rate on sterling bonds can then be used to target stability for the sterling price level. The paper puts question marks behind two key bits of conventional wisdom in contemporary monetary economics. The first is the assumption that the monetary authorities define and determine the numéraire used in private transactions. The second is the proposition that price stability in terms of that numéraire is the appropriate objective of monetary policy. The paper also discusses the merits of the next step following the decoupling of the numéraire from the currency: doing away with currency altogether—the cashless economy. Because the unit of account plays such a central role in New-Keynesian models with nominal rigidities, monetary economics needs to devote more attention to numérairology—the study of the individual and collective choice processes that govern the adoption of a unit of account and its role in economic behaviour.

Zum Stellenwert der Netzwerk?konomik in der Strategie-/Marketingforschung —Eine Analyse empirischer Untersuchungen

Zusammenfassung  

Japanese Banks’ monitoring activities and the performance of borrower firms: 1981–1996

We construct an index measure that quantitatively describes the monitoring activities of Japanese banks. Using micro data on Japanese banks and borrower firms, we examine the effects of bank monitoring on the profitability of borrower firms. We find significant positive effects in the periods 1986–1991 and 1992–1996, although there is no significant effect in the period 1981–1985. We also examine how banks’ monitoring affects borrowers. The results show that the positive effects of banks’ monitoring on borrowers’ profitability are mostly caused by screening effects, not performance-improving effects.

Why is Productivity so Dispersed?

Many papers have documented wide variations in productivityeven in narrowly defined industries. Some have argued that thisprimarily reflects measurement problems due, for example, tocomparing across different products. Others argue that thisreflects persistent differences in performance due, for example,to management. This paper looks at productivity differencesnot within an industry but within a firm. We use data on productivityof different branches within lines of business of a major UK-basedwholesaler. Using these productivity data for comparisons is,we argue, more likely to compare like with like than comparingbetween firms. We document sustained differences in productivityeven between branches within the same line of business. We alsodiscuss the extent to which they are correlated with differencesin management and find that such differences ‘account’for around 40 per cent of the difference in productivity. Footnotes ¹ E-mail addresses: r.griffith{at}ifs.org.uk; j.e.haskel{at}qmul.ac.uk;a.neely{at}cranfield.ac.uk     

Publications

Rudolf S. Sinaga and members of the Rural Dynamics Study, Agro-Economic Survey, Rural Institutions Serving Small Farmers and Labourers in the Village of Sukagalih, Garut Regency, West Java, mimeo, pp. 49. Available from Agro-Economic Survey, Jalan Taman Malabar 7, P.O. Box 200, Bogor, Indonesia. $3.s.

Joachim K. Metzner Man and Environment in Eastern Timor, Development Studies Centre Monograph No. 8, Australian National University, 1977. pp. xxix + 380, SA6.00.

James C. Scott, The Moral Economy of the Peasant Rebellion and Subsistence in Southeast Asia, New Haven and London, Yale University Press, 1976, pp. ix + 246, $15.00.

T. H. Hull and Jon E. Rohde, Prospects for Rapid Decline of Mortality Rules in Java. Working Paper No. 16. Population Institute, Gadjah Mada University, Yogyakarta, January 1978, pp. 101.

Mackie, J. A. C. ed., The Chinese in Indonesia. Five Essays. Melbourne, Thomas Nelson in association with The Australian Institute of International Affairs, 1976. With contributions by J. A. C. Mackie, Charles A. Coppel, K. D. Thomas, J. Panglaykim, and Wang Gungwu.

Indonesia's Family Planning Story: Success and Challenge (Population Bulletin Vol. 32, No. 6, November 1977, a publication of the Population Reference Bureau, Inc. Washington, D. C., U. S. A.)     

Publications

Mubyarto & Boediono, (Editors), Ekonomi Pancasila, Yogyakarta, Gadjah Mada University Press, 1981, pp. 263, Rp 3500.

Michael Beenstock, Health, Migration and Development, Farnborough, Gower Publishing Company, pp. vi + 183. A$23.00.

Zuidberg, Lida C. L. (ed), Family Planning in Rural West Java: The Serpong Project, Leiden, Rijksuniversiteit/Universitas Indonesia, 1978, pp. 325.

Charles Himawan, The Foreign Investment Process in Indonesia: The Role of Law in the Economic Development of a Third World Country, Singapore, Gunung Agung, 1980. Pp. xvi + 332.

Lepi Tanadjaja Tarmidi, Die Rolle der Textilindustrie im Entwicklungsprozess Indonesiens I966–1975, Hamburg University Dissertation, Hamburg, 1979. Pp. x + 240.

University of Wisconsin Land Tenure Centre, Land Tenure and Agrarian Reform in East and Southeast Asia: An Annotated Bibliography, Boston: G. K. Hall, 557 pp + xxviii, US$51.50.     

Book Reviews

Mari Pangestu, Economic Reform, Deregulation, and Privatization: The Indonesian Experience, Centre for Strategic and International Studies, Jakarta, 1996, pp. vi + 192. Rp 15,000.

Colin Barlow and Joan Hardjono (eds), Indonesia Assessment 1995: Development in Eastern Indonesia, Research School of Pacific and Asian Studies, ANU, Canberra, and Institute of Southeast Asian Studies, Singapore, 1996, pp, xxx + 287. S$29.90; US$25.00; A$25.00.

Kosuke Mizuno, Rural Industrialization in Indonesia: A Case Study of Community-Based Weaving Industry in West Java, IDE Occasional Paper Series no 31, Institute of Developing Economies, Tokyo, 1996, pp. viii + 114.     

The Rocky Road to Implementation of Basel II in the United States

This paper contends that the problems US officials have encountered in their efforts to implement Basel II reflect inherent weaknesses in the structure of the approach. It begins with a brief overview of the original Basel Accord on Capital Adequacy (Basel I) and a summary of the Basel II approach, with emphasis on the Pillar I weights for credit risk. Next an analysis of the Fed’s bifurcated approach to implementation of Basel II is followed by an examination of three unanticipated obstacles: (1) perceived competitive inequities within the USA; (2) the surprisingly lower and variable capital charges revealed in the fourth quantitative impact study; and (3) the request by four leading banks for permission to implement the simpler, Standardized Approach rather than the Advanced Internal Ratings Approach (A-IRB). These reflect the erosion of several crucial predeal understandings as described by Kane (J Financ Serv Res 32(1):39–53, 2007a). The paper concludes with a consideration of whether it may have been possible to achieve equivalent improvements in risk management with lower compliance costs and less uncertainty about the impact on financial stability.