The political economy of public education

I study the relationship between income inequality and public spending in education in a voting model. Voters collectively choose the uniform quality level of public education, the amount of a public good, and the tax rate on labor income. Parents can decide to opt-out of the public education system by purchasing private education at the desired quality level, and children’s expected income is assumed to be increasing in the quality of education. I show that higher income inequality is associated with higher governmental spending in education if and only if the expected marginal returns to education are larger for the children of relatively low income parents. In turn, better public education tends to reduce future inequality. These results are consistent with most findings in the empirical literature about public investment in education. Lastly, I show that for other kind of publicly provided goods, such as health care, the relationship with income inequality exhibits an ambiguous or opposite sign.     

Financial liberalization,private investment and portfolio choice: Financialization of real sectors in emerging markets

Using firm level panel data, we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing in irreversible long-term fixed investments, firms may choose to invest in reversible short-term financial investments depending on respective rates of returns and the overall uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments.     

The effect of the financial crisis on the retirement plans of older workers in England

This letter revisits the question of how wealth shocks influence retirement behaviour, exploiting the dramatic changes in UK asset prices between 2008 and 2009 as a source of such shocks. We find no evidence that the wealth shocks arising from this recent financial crisis affected the retirement plans of older workers in England.     

Global financial crisis,corporate governance,and firm survival:: The Russian experience

Using a unique dataset obtained from large-scale panel enterprise surveys conducted in 2005 and 2009, we clarify the survival status of Russian industrial firms before and after the global financial crisis and empirically examine the determinants of firm survival. The estimation of the Cox proportional hazard model provided evidence that the independence of company’s governance bodies, their human resource abundance, and influence over corporate management are statistically significant factors affecting the survival probability of the surveyed firms. In particular, the board of directors and the audit committee are likely to play a vital role in reducing the potential exit risk. We also found that there is a significant difference in the viewpoints of economic logic for firm survival held by independent firms and group companies.     

Corporate Restructuring in Japan Part I: Can M‐Form Organization Manage Diverse Businesses?

The purpose of this paper is to examine the recent organizational restructuring in Japan in the framework of organizational economics, assuming that the product/market portfolio of the firm is fixed. How does a firm set about organizing its internal divisions? I first summarize some stylized facts on corporate diversification strategy and multi‐divisional (M‐form) organization in large Japanese firms from different perspectives. I then analyse the problem of choosing an organizational form. In particular, I argue that, precisely because of its related diversification, the multi‐business Japanese firm adopting the M‐form finds it difficult to differentiate its diverse businesses internally.     

Monetary environments and stock returns revisited: A quantile regression approach

We investigate the impact of monetary conditions on stock market returns at different points on the return distributions. Our results reveal no association between stock returns and monetary environments at the lower quantiles. At the upper quantiles, however, we find that expansive monetary conditions lead to significantly larger stock returns. The relationship between returns and monetary conditions at the upper quantiles is also found to be asymmetric, exhibiting a monotonic increase in responsiveness at successive quantiles.     

Democracy,dictatorship, and transformation: A proposal for a constitution-guided systematic change in formerly Soviet republics

A system transformation contains complicated social dilemmas and special-interest problems. Thus it is frequently suggested that democratic decisionmaking is inappropriate for introducing a market economy in the former socialist countries. In this paper I argue that this view rests on a nirvana approach, because it neglects the dynamics of authoritarian governments. It is shown that dictatorships tend to serve even narrower special interests than democracies and are therefore usually less likely to pursue a consistent transformation policy. However, a dictatorship could, under certain cultural and social conditions, have some advantages over democracies. But those conditions are barely present in the formerly socialist countries. Moreover, a dictatorship can by its very nature not be committed and cannot even commit itself to a certain public policy. Hence, there is only one instrument to mitigate social dilemmas in transformation countries: a set of constitutional rules. Some basic properties of a constitutional approach of system transformation are introduced in the last section of the paper.     

Differentiated interchange fees

Payment networks typically differentiate interchange fees across different merchant sectors. This paper shows that it is generally efficient for a regulator to leave the decision on the structure of interchange fees to payment networks.     

Disentangling liberalization and privatization policies: Is there a political trade-off?

We empirically investigate the political determinants of liberalization and privatization policies in six network industries of 30 OECD countries (1975–2007). We unbundle liberalization and privatization reforms and study their simultaneous determination in a two-equation model. Unlike previous studies, we account for cross-effects between the two pro-market measures. Our findings unveil that both right-wing and left-wing governments implement liberalizations and privatizations, showing a common trend under the so-called neo-liberalism wave. However, although the privatization rate is higher than liberalization in right-wing environments, the opposite occurs under left-wing governments. We argue that ideological cleavages still affect pro-market reforms, particularly the combination of privatization and liberalization policies. We conclude that different deregulation patterns should be expected under governments characterized by different political ideologies. Our results shed new light on the literature investigating the political-economic rationale underpinning pro-market choices.     

Regulation and the market for checks

This paper presents an analysis of the market for checks using the monopoly problem as an approximation. The need for such an analysis arises due to the following policy proposal: from time to time, the Turkish government considers increasing the lump-sum amount that drawee banks are legally responsible to pay per bad check. The purpose of this proposal is to ease out firms' liquidity needs especially during recessions. We show that banks will tend to restrict the quantity of checks as a response to such a policy action. We report that a percentage point increase in banks' obligation per bad check could lead up to a 1.7% decline in the total supply of checks on the margin. This means that such a policy change may harm the real economy rather than providing support. We establish that the extent of the monopoly distortion depends on three main factors: (i) the elasticity of demand for checks, (ii) how fast the fraction of bad checks increases with the total supply of checks, and (iii) the degree of preference heterogeneity.     

Paradoxical price effects on insurance markets

In this paper we analyze a paradox phenomenon in certain insurance markets of some countries: in spite of there being strong competition, increasing prices can be found in some submarkets. As a reason for this, we need to note the special distribution of insurance products, a distribution primarily based on intermediaries — and, as a result, there is an increasing part for ‘intermediation’ costs within insurance products' cost structure due to competition for the intermediaries. We build an oligopolistic model assuming that the market is saturated, which is able to explain the overemployment of intermediaries and the high commissions involved. We analyze possible interventions and laws/regulations and suggest that the problem can be solved only with major regulation. Finally, we have come up with an empirical analysis to test the model.     

Ambiguity and perceived coordination in a global game

In a global game, larger ambiguity is shown to decrease the amount of coordination each player perceives. Consequently, small uncertainty tends to select the Pareto dominated equilibrium of the game without uncertainty. Implications for models of financial crises are drawn.     

Mechanism design with collusive supervision

We analyze an adverse selection environment with third party supervision. The supervisor is partly informed of the agent's type. The supervisor and the agent collude while interacting with the principal. Contracting with the agent directly and ignoring the presence of the supervisor constitutes the no-supervision benchmark. We show that delegating to the supervisor reduces the principal's payoff compared to the no-supervision benchmark under a standard condition on the distribution of the agent's types. In contrast, if the principal contracts with both the agent and the supervisor, there exists a mechanism that improves the principal's payoff over the no-supervision payoff.     

Regulating Availability with Demand Uncertainty

Abstract. I evaluate a new German regulation that requires retail discounters to guarantee the availability of their products in bargain sales. The regulation is meant to prevent loss leaders. Retailers undermine the regulation's rationale by claiming that rationing is due to demand uncertainty. This paper shows that under demand uncertainty the regulation has ambiguous welfare effects. Effectively, it raises production, which, under imperfect competition, tends to be beneficial. However, the regulation overshoots and decreases welfare if it requires availability for a state of high demand that is relatively unlikely. In this case more sophisticated regulation is required.