Is there an Anglo-American corporate governance model?

This paper questions the existence of an Anglo-American model of corporate governance and capitalism. Significant differences between the UK and US models of corporate governance are identified. The UK is a principles orientated system based more on voluntary codes operated on a ‘comply or explain’ basis, whilst the US system is more rules based and litigious. The UK focuses more on ex ante protection of ‘outside’ shareholders, whilst the US focuses on ex post protection of share traders. Institutional investors are expected to play a more prominent and wide ranging role in corporate governance in the UK than the US, though the evidence on their voting behaviour and wider ‘engagement’ activity is not readily available. The explosion of private equity led leveraged buy-out activity in the mid 2000s challenges the efficiency of both models and could be a harbinger of a ‘new capitalism’; relying more on incentive compatible remuneration packages and less on public disclosure and market discipline. Alternatively, it could simply be driven by the tax advantages currently enjoyed by debt over equity, the special deferred capital gains (‘carried interest’) tax treatment enjoyed by private equity, low (long as well as short term) real interest rates (‘cheap money’), and rising equity prices.     

Relative income position,individual and social income satisfaction,and income inequality

Summary The survival probability as estimated by an individual is,ceteris paribus supposed to depend on his relative income position in a set of reference incomes. The relative income position is thus defined in close connection to the preference formation theory of Kapteyn. It is shown that then this survival probability, called ‘utility,’ may be equated to the relative income position. A nice result of this approach is the possibility to formulate a utilitarian welfare function, which leads to the definition of income inequality measures. It is shown that the use of sets of reference incomes may lead to considerably smaller measured inequality.     

Wage and employment effects in the EU of international trade with the emerging economies

The paper investigates whether significant HOS effects are present in the EU from trade liberalization with the emerging economies. Regarding wage inequality, there is only evidence of a trade-induced technological change, but biased towards thelower-skilled-labor-intensive sectors. Relative wages in the EU member states are not affected differently. Trade liberalization under ‘European assumptions’, however, could affect primarily relative factor demand. A flexible cost function approach shows that import competition from the emerging economies influenced relative labor demand in favor of the higher skilled, implying an intrasectoral rather than an intersectoral specialization in skill-intensive activities. JEL no. F11, F14     

Een dynamisch duopoliemodel II

Summary This paper is a continuation of ‘A Dynamic Duopoly Model’ (De Economist, 1970, pp. 458–490). According to the argument given in that paper, each duopolist changes his price twice in each period: first, there is an autonomous change, and, secondly, an induced one to neutralize the effect of the autonomous price change of the other duopolist. In the present paper, however, it is assumed that both duopolists change their prices only once a period. These ‘combined’ price changes are partly autonomous and partly induced; only the duopolist himself could tell in how far they are autonomous or induced. The steady state solution of this model corresponds with the endogenously determined duopoly solution of the earlier investigations.     

Keynes's Approach to Money: An Assessment After Seventy Years

This paper first examines two approaches to money adopted by Keynes in the General Theory. The first is the more familiar ‘supply and demand’ equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing Keynes's ‘finance motive’ or the ‘horizontal’ money supply curve adopt similar methodology. The second approach of the General Theory is presented in Chapter 17, where Keynes drops ‘money supply and demand’ in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of money's role in constraining effective demand. In the penultimate section, I return to Keynes's earlier work in the Treatise on Money as well as the early drafts of the General Theory to obtain a better understanding of the nature of money. I conclude with policy implications.     

Decomposition of GDP Growth in Some European Countries and the United States

Summary  The composition of economic growth can be analyzed in two different ways. In the ‘traditional method’ for the decomposition of GDP growth, total imports are deducted from exports. This approach underestimates the importance of exports for the growth in GDP, and overestimates the importance of domestic expenditure categories. In the alternative methodology proposed in this paper, imports are allocated to all expenditure categories. Although this ‘import-adjusted method’ is more complex than the ‘traditional method’, it has the considerable advantage that the contributions of the expenditure categories to GDP growth provide a better understanding of why GDP growth decelerates or accelerates. The methodology and data requirements for calculating the import content of final demand, and the implications for the decomposition of real GDP growth, are discussed. For six European countries and the United States, the paper shows that applying the alternative methodology provides rather a different economic story.      

Does wealth inequality reduce the gains from trade?

This paper refines and tests the hypothesis that the impact of opening to trade on a country’s economic growth is affected by the inequality of its distribution of wealth. Analysis of panel data on 44 developing countries between 1960 and 2000 suggests that the difference in growth rates between the period an economy is open and the period it is closed depends inversely on the degree of wealth inequality prior to opening. There is evidence to suggest that access to credit and lack thereof may lie behind these results, thus highlighting a new aspect of the role of financial development.     

“Mr Keynes and the ‘Classics’” Again: A Methodological Enquiry

Keynes is usually interpreted as proposing, or intending to propose an original theory of employment and income. However, this paper shows that Keynes was actually proposing more than a theoretical alternative. He saw himself breaking away from the ‘Classics’ at the connected levels of theory and methodology. This paper thus argues that modern economists going back to the old story of the relation between Mr. Keynes and the ‘Classics’ can learn something about several controversial issues in macroeconomics and methodology like for instance the role of experiments and formal arguments in economics.The paper is the development of a chapter in my Ph.D. thesis and has greatly benefited from discussion with Mark Blaug, Anna Carabelli, Bill Gerrard, Marc Lavoie, Tony Lawson, Roy Rotheim, and especially Geoff Harcourt and Malcolm Sawyer. Errors and omissions are, of course, solely my responsibility. A first draft of the paper was presented at the UK Autumn HET Conference (Glasgow Caledonian University, September 1999) and the AISPE Conference (University of Florence, September 1999). Finally, the paper was completed when I was visiting Research Professor at the Economics Department and C-FEPS, University of Missouri Kansas City (UMKC), Kansas City (USA) and Visiting Fellow at Clare Hall College and CCEPP, University of Cambridge, Cambridge (UK). I would like to express appreciation to members of those institutions for providing a stimulating and pleasant working environment.     

The spatial effects of trade openness: a survey

This paper surveys the literature on the implications of trade liberalisation for intra-national economic geographies. Three results stand out. First, neither urban systems models nor new economic geography models imply a robust prediction for the impact of trade openness on spatial concentration. Whether trade promotes concentration or dispersion depends on subtle modelling choices among which it is impossible to adjudicate a priori. Second, empirical evidence mirrors the theoretical indeterminacy: a majority of cross-country studies find no significant effect of openness on urban concentration or regional inequality. Third, the available models predict that, other things equal, regions with inherently less costly access to foreign markets, such as border or port regions, stand to reap the largest gains from trade liberalisation. This prediction is confirmed by the available evidence. Whether trade liberalisation raises or lowers regional inequality therefore depends on each country’s specific geography.     

Equalizing opportunity through small business development: A south african perspective

The active development of the small firm sector is thought to present a vehicle highly appropriate to the task of equalizing opportunity in a very unequal society—the developing country of South Africa. This article seeks to evaluate the merits of the above assumption. It calls for a closer understanding of the unique difficulties encountered by a minority business group that has experienced a long history of prejudice and discrimination, namely the black, essentially small business sector of South Africa. The author calls for careful appraisal of available development initiatives in order to effectively serve the interests of this group.     

How Influential is Economics?

Economists often claim that their discipline has a great influence on the economy. An analysis of the existing literature reveals, however, that little convincing empirical evidence exists. The two approaches used are subject to major shortcomings. The ‘Economics Production Function’ relating the input of economic ideas to economic outcomes, is faced with major estimation problems. The ‘Revealed Behaviour Approach’ of choosing to study economics is based on very restrictive assumptions. It is argued that the ‘Case Study Approach’ analysing specific policy instances constitutes a more promising avenue and should be undertaken to identify more general patterns of influence.     

The evolution of the monetary system: Future possibilities

Summary This article discusses in the first place the functioning of floating exchange rates; the tendency to volatility and to unnecessary fluctuations is explained. The conclusion is drawn that the authorities of the main countries should cooperate in exchange rate policies that would bring about a greater stability in exchange rate movements. The article then sketches the historical development which brought us to the present multiple reserve currency system. The functioning of this system is analysed and some suggestions are presented for a more satisfactory management of this system by central banks, possibly along guidelines tobe developed in the IMF. Finally some possibilities are outlined to develop a stabler and better system in the future by creating a more attractive market-oriented SDR-substitution account in the IMF. This article is based on important parts of two speeches which I have given recently: ‘The changing monetary system; evolution and reform’ (20 years' anniversary Central Bank of Malaysia, Feb. 1979) ‘Managing reserves in the 1980s’ (Second International Monetary Conference, Philadelphia, Nov. 1980).     

Negative nominal interest rates: history and current proposals

Given the renewed interest in negative interest rates on base money—or equivalently ‘taxing money’—as a means for overcoming the zero bound on short-term nominal interest rates, this article reviews the history of negative nominal interest rates starting from the ‘taxing money’ proposal of Silvio Gesell up to current proposals that received popular attention in the wake of the financial crisis of 2007/2008. It is demonstrated that ‘taxing money’ proposals have a long intellectual history and that instead of being the conjecture of a monetary crank, they are a serious policy proposal. In a second step, the article points out that besides the more popular debate on a Gesell tax as a means to remove the zero bound on nominal interest rates, there is a class of neoclassical search models that advocates a negative tax on money as efficiency enhancing. This strand of the literature has so far been largely ignored by the policy debate on negative interest rates.     

The market as an open access commons: A neglected aspect of excess capacity

Summary This paper adapts the common property theory of fisheries economics to the analysis of perfectly competitive markets. It demonstrates that the open access characteristics of markets lead to dissipation of available ‘market rents’ through the costs of excess capacity. The conclusion is that an increase in net economic benefits may be generated by restricting the number (capacity) of units operating in perfectly competitive markets. Professor of Economics, Simon Fraser University. The author gratefully acknowledges research support from the Social Sciences and Humanities Reserch Council of Canada. He recognizes helpful discussions with his colleagues Pao Cheng, Arthur DeVany and Zane Spindler, without implicating them in the analysis or conclusions of this paper. Useful referee comments are also acknowledged.     

Preliminary Evidence on the Allocation of U.S. Army Deaths from Operation Iraqi Freedom

Political influence on the use of the nation's war-making resources is considered in this study. Given the ‘tax-like’ consequences arising from military fatalities, rational political agents may engage in behavior that minimizes the negative electoral consequences resulting from the fatalities. An empirical model of the state-by-state allocation of U.S. Army fatalities resulting from Operation Iraqi Freedom is developed and tested. The results suggest that political influence originating in the White House is present in the allocation of fatalities from the military action in Iraq, but that Congressional effects, if any, are much weaker. In particular, population-adjusted fatality rates are lower in states that were highly contested ‘battleground’ states rich in Electoral College votes in the 2004 Presidential election.     

Aspirations,reference groups and the consumer

Summary In this article it has been possible to give an explanation for the existence of nonsymmetrical Slutsky matrices and nonhomogeneous demand functions. For this purpose a relation was made with a number of sociopsychological theories regarding reference groups and aspiration levels. Following the approach of Lakatos, a ‘hard core’ was chosen from within the traditional theory concerning the market behavior of consumers. In particular, this article used the maximization process. The newly constructed theory, based on this ‘core’, appeared to have more content than the traditional theory. With this result an important requirement of Lakatos' approach was met. I should like to thank Professor A. Bosman for his valuable advice and stimulating criticism. Thanks are also due to Mr. R.E. Vercruijsse who translated this paper and to Mr. R.A. Meyer who checked the mathematics. I also benefited from the comments of an anonymous referee.     

On the measurement of differences in the commodity composition of imports or exports

Conclusion Following earlier reservations concerning the use of Glejser et al.’s index, this paper has attempted to show that Glejser et al.’s basic ideas concerning the measurement of the extent of specialization in imports and exports did not depend on the use of a specific index. Any measure of the inequality of the ratios (M _i/M_gi) defined earlier (and similarly for exports) could, in fact, be used. The empirical section of this paper, which looked at the commodity composition of the exports and imports of Denmark, Ireland and the United Kingdom, before and after they joined the EEC, confirmed that there was a positive correlation between the various indices proposed.     

Aid-for-trade facilitation

‘Aid for Trade’ is an ongoing and high-profile discussion associated with the Doha negotiations of the World Trade Organization. It also relates to questions of how best to achieve the Millennium Development Goals. Questions remain, however, about whether foreign aid spent on trade facilitation increases trade flows of developing countries. Does it work differently from aid in general? Using detailed data on aid flows from the OECD, the analysis here estimates the relationship between specific types of aid and trade flows, both globally and of the aid recipients. The findings indicate that aid spent on promoting trade is positively associated with global trade. For most types of such aid-for-trade facilitation, it is relatively more strongly associated with recipient exports than their imports. In contrast ‘other’ types of aid are more strongly associated with recipient imports. Based on elasticities estimated over 16 years of trade and aid data for 40 donor countries and about 170 country trading pairs, our results suggest that a 1% increase in aid-for-trade facilitation (of about US220 million in 2008) correlates to about US 220 million in 2008) correlates to about US 290 million of additional exports from the aid receiving countries.     

How to Share Our Risks Efficiently? Principles for Optimal Social Insurance and Pension Provision

The efficient organisation of social insurance is an important problem for modern societies. The paper discusses evidence that shocks in labour income have largely persistent effects and analyses the implications of this observation for the optimal design of institutions for wage contracting, social security, and pensions. In an optimal contract, wages reflect variations in individual productivity for incentives reasons. However, the optimal contract insures workers against firm specific shocks. These can better be born by shareholders who can diversify risks on capital markets. Progressive income taxation provides further insurance. On top of that there is scope for additional insurance based on ‘verifiable’ information on unemployment and health conditions. As final form of ‘insurance’, the paper analyzes the role of self-insurance. Income shocks can be absorbed partially by precautionary saving. The individual’s saving plans for retirement and for precaution are, therefore, related issues. In an institutional setting with mandatory saving for retirement, an integration of disability and unemployment insurance on the one hand and the pension system on the other hand in a lifetime savings account allows for this interrelation. The paper analyzes how to deal with the uncertainty in the return on savings in the framework of a lifetime saving account.     

Opinions on the Tax Deductibility of Mortgages and the Consensus Effect

Summary We present the results of a survey-experiment – using a representative sample of the Dutch population – in which we relate respondents’ opinion about a restriction of the tax deductibility of mortgages to their estimates about other people’s opinions. We find a strong consensus effect; meaning that respondents’ estimates of others’ opinions are related to their own opinion. Furthermore, we find that the size of the effect is not affected by the ambiguity of the question posed. The provision of arguments pro and contra the tax provision and monetary incentives for accuracy reduce the consensus effect, but only so in conjunction. Finally, we find that house owners display a significantly stronger consensus effect. Our results suggest that both cognitive and motivational factors are responsible for the consensus effect. Aside from the consensus effect, our survey gives interesting insights into people’s opinion on tax deductibility of mortgages. A majority consider a general restriction to be unfair, but a proposal to restrict only mortgages as of a certain size meets with much more approval. We thank Marcel Das and Corrie Vis of CentERdata for their excellent support in conducting the survey-experiment and two referees of this journal and Dirk Engelmann for helpful comments. Financial support from the Faculty of Economics and Business administration is gratefully acknowledged.