Adverse selection in credit markets and regressive profit taxation

In many countries, taxes on businesses are less progressive than labor income taxes. This paper provides a justification for this pattern based on adverse selection that entrepreneurs face in credit markets. Individuals choose between becoming entrepreneurs or workers and differ in their skill in both of these occupations. I find that endogenous cross-subsidization in the credit market equilibrium results in excessive (insufficient) entry of low-skilled (high-skilled) agents into entrepreneurship. This gives rise to a corrective role for differential taxation of entrepreneurial profits and labor income. In particular, a profit tax that is regressive relative to taxes on labor income restores the efficient occupational choice.     

Involuntary excess reserves,the reserve requirements and credit rationing in China

Using a sample of 95 banks that covers the period 2000–2011, this article examines Chinese banks’ credit lending behaviour in response to the changes in the reserve requirement ratio in the presence of involuntary excess reserves (IERs) in the banking system. The study finds that Chinese banks with positive IERs one period after a reserve requirement shock experience a significantly increased credit supply in response to an increase in reserve requirement ratio. However, the reserve requirements have no significant impact on the credit supply in Chinese banks that have negative IERs one period after a reserve requirement shock. This article sheds lights on the effectiveness of Chinese monetary policy, which uses reserve requirements as the primary tool to sterilize excess liquidity and restrain credit expansion.     

Adverse selection and corporate governance

This paper examines the impact of corporate governance on the adverse selection component of the bid-ask spread of stocks listed on the Singapore Exchange. These companies have been identified by Credit Lyonnais Securities Asia (CSLA) with the highest level of corporate governance among 25 emerging markets. We measure corporate governance by several criteria: discipline, transparency, independence, accountability, responsibilities, fairness, and social awareness. The results show that corporate governance has an inverse relationship with adverse selection. However, only the transparency dimension exhibits a significant inverse relationship with adverse selection. In addition, Government-Linked Companies (GLCs) are shown to have a smaller adverse selection component than non-GLCs.     

Anticipated regret as an explanation of uncertainty aversion

The paper provides a psychological explanation of uncertainty aversion based on the fear of regret. We capture an agent’s regret using a reference-dependent utility function in which the agent’s utility depends on the performance of his chosen option relative to the performance of the option that would have been best ex post. An uncertain option is represented as a compound lottery. The basic idea is that selecting a compound lottery reveals information, which alters the ex post assessment of what the best choice would have been, inducing regret. We provide sufficient conditions under which regret implies uncertainty aversion in the sense of quasi-concave preferences over compound lotteries.     

Unemployment, credit rationing, and capital accumulation: a tale of two frictions

Summary. This paper develops a model in which two information frictions are embedded into an otherwise conventional neoclassical growth model; an adverse selection problem in the labor market and a costly state verification problem in the credit market. The former allows equilibrium unemployment to arise endogenously while the latter is responsible for equilibrium credit rationing. This structure is used to investigate a theoretical link between the level of unemployment and the extent of credit rationing (and capital formation). The presence of the labor market friction is enough to generate scope for multiple steady state equilibria. The model also generates a large class of endogenous cyclical and chaotic dynamical equilibria. Development trap phenomena may also appear. Received: April 10, 1998; revised version: May 20, 1998     

Adverse selection and bilateral asymmetric information

A simple principal-agent model with bilateral asymmetric information and common values is developed. The agent(s) has private information about his characteristics but does not knowhow these affect outcomes. The principal knows how the characteristics translate into outcomes, but does not observe the characteristics. It is shown that equilibrium contracts aresimple in being designednot to reveal the agent's characteristics. When the agent knows howsome of his characteristics affect the outcome, contracts will be differentiated with respect to precisely those characteristics. An application to the use of genetic information is considered.     

Rational rationing and increasing returns an example

The paper gives an example of an economy where it is rational for a monopolist to control a competitive agent by setting both prices and quantities supplied. There are increasing returns in production, and the competitive agent has a discontinuous offer curve. The monopolist reaches points in the discontinuity by rationing.     

Nonlinearity as an explanation of the forward exchange rate anomaly

This article shows that nonlinearity can provide an explanation for the forward exchange rate anomaly (Fama, 1984 Fama, E. 1984. Forward and spot exchange rates. Journal of Monetary Economics, 14: 319–38. [Crossref], [Web of Science ®] , [Google Scholar]). Using sterling-Canadian dollar data and modelling nonlinearity of unspecified form by means of a random field, we find strong evidence of time-wise nonlinearity and, significantly, obtain parameter estimates that conform with theory to a high degree of precision.     

Agri-environmental schemes: Adverse selection, information structure and delegation

This work analyzes alternative designs of agri-environmental schemes and how different incentive mechanisms impact on their overall efficiency. It focuses on spatial targeting and delegation in an asymmetric information context. First, the optimal contract under adverse selection is modeled. This model underlines the trade-off between information rents and allocative efficiency. The impact of spatial targeting is then addressed. Disaggregated information structures increase the optimal efforts asked of the farmers. It may also involve higher information rents and may reduce the net contributions of some farmers. Finally, the consequences of delegating authority within the principal-agent relationship are investigated. The results illustrate that spatial targeting and delegation, when combined, have asymmetric impacts on farmers' payoffs.     

Adverse selection and statistical discrimination: An analysis of Canadian automobile insurance

Statistical discrimination occurs when a characteristic, such as sex, is used as an indicator of the risk group of an individual. The theory of adverse selection is used to explain the occurrence of statistical discrimination. A model of the market for collision insurance, which is based on the theory of adverse selection, is estimated on Canadian data. The results suggest that adverse selection occurs in this market. Simulations of the effect of prohibiting sexual discrimination in the 21–24 age group indicate that the premiums for single females would increase substantially and that a significant proportion would no longer purchase collision insurance.     

The impact of credit rationing on the real sector: a study of the effect of mortgage rates and terms on housing starts

Various studies of the impact of credit rationing on the housing sector have examined its effect on mortgage terms and flows. If credit rationing has a significant effect on the economy, it must affect the real sector, i.e. housing starts. This paper examines the causal relationships between six different variables which describe mortgage rates and terms and single family housing starts. Two different types of tests for economic causality are used. The results indicate that neither credit rationing nor mortgage rates affect housing starts for the period 1963–1980. There is some evidence that housing prices have a causal relationship to housing starts, possibly reflecting speculative motives. On balance, the results are consistent with the rational expectations theory.     

论政府与企业信用建设

企业信用建设,是一项系统工程,我国企业信用建设是在计划经济体制向市场经济体制转轨的背景下进行的.市场经济多年的实践表明,市场竞争不能自发地为企业提供一套完整的信用规则与制度,政府对企业信用建设的介入是必不可少的.本文从企业信用建设中政府自身的角色定位、职能转变和对企业信用建设的引导、监管两方面探讨了政府与企业信用相互间的关系.     

Peak-load pricing with different types of dispatchability

Journal of Regulatory Economics - We extend the theory of peak-load pricing by considering that the production with different technologies can be adjusted within their capacity at different speeds....     

Life satisfaction and self-employment in different types of occupations

In this research, we investigate whether a positive relationship between life satisfaction and self-employment (versus paid employment) exists while simultaneously considering two occupational dimensions: white-collar versus blue-collar work and high-skilled versus low-skilled work. Using Eurobarometer data for a large number of European countries (2008–2012), our findings confirm that self-employed workers are more satisfied with their lives than paid employees are. A life satisfaction premium is also found when the self-employed and paid employees are compared within similar occupations in terms of collar type and skill level. Finally, self-employment can help to overcome low life satisfaction scores associated with blue-collar and low-skilled work.     

Information and credit access: using bankruptcy as a signal

Legally, a bankruptcy flag can appear on an individual's credit report for up to 10 years after the filing. The flag affects an individual's credit score, and in turn, an individual's access to credit. In this article, we investigate how the bankruptcy flag affects access to credit along three dimensions–loan acceptance, the price of the loan as is determined by the interest rate, and the amount of credit the household receives. Using the Panel Study of Income Dynamics and the Survey of Consumer Finances, we estimate a series of two-stage models corrected for sample selection and adjusted to account for the household's level of creditworthiness. We find that the bankruptcy flag increases the probability of being denied access to a loan. The flag also increases interest rates for unsecured loans and lowers the credit limits available to households. The findings have important implications with respect to current bankruptcy code and the impact that information, such as the bankruptcy flag, can have on the efficiency of the credit markets.     

我国出口信用保险存在的问题及其对策研究——以宁波为例分析

出口信用保险是世贸组织规则允许的贸易促进措施,是各国政府支持出口、防范收汇风险的国际通行做法。目前,出口信用保险已成为世界大多数国家支持出口的一个重要手段。与发达国家相比,我国的出口信用保险起步晚,发展比较落后。存在着较多问题。因此,从我国出口信用保险的现状出发,分析我国出口信用保险发展中存在的问题,并针对性提出相应对策,对我国出口信用保险的进一步发展,充分发挥出口信用保险对出口贸易的支持作用,有着重要的意义。     

Marx on Ricardo: an explanation of some important misunderstandings

Ricardo's theory of value and distribution is reconstructed by proceeding along the lines of Marx's critique of Ricardo. It is thus an anti-critique of Marx's reading of Ricardo. The chapter ‘On Value’ in Ricardo's Principles is shown to be a consistent and rigorous treatment of the determinants of prices of production. According to Ricardo labor-values merely serve to approximate more elaborate standards of value. Marx's criticism is shown to rest crucially on his own misinterpretation of Ricardo's definitions and presupposes his own – faulty – theory of surplus value. Therefore Ricardo's theory can – contrary to Marx's theory of surplus value – still be regarded as a fruitful complement to Sraffa's model.     

A demographic-economic explanation of political stability: Mauritius as a microcosm

"This paper examines current models of economic and political development--social modernization theory, political and economic characteristics of stable regimes, and cross country analysis of political stability--and tests them on the Indian Ocean Island of Mauritius. The analysis continues with a causal explanation for political stability in Mauritius' recent history, derived from an examination of economic policies and demographic patterns. Political change in Mauritius over the past sixty years seems to be explained best by a model for political stability which integrates specific economic and demographic factors. The model, applicable to development in other third world nations, revises Malthus' conclusion that population and economic conditions move in an oscillatory relationship and replaces it with a more comprehensive theory, suggesting that political stability is a function of both economic development and a repeating cyclical relationship between economics and population."     

Adverse selection in annuity markets: Evidence from the British Life Annuity Act of 1808

We study adverse selection using data from an 1808 Act of British Parliament that effectively opened a market for life annuities. Our analysis indicates significant selection effects. The evidence for adverse selection is strongest for a sub-sample of annuitants whose annuities were purchased by profit-seeking speculators, a sub-sample in which “advantageous selection” resulting from multi-dimensional heterogeneity is unlikely to have been significant. These results support the view that adverse selection can be masked by advantageous selection in empirical studies of standard insurance markets.