Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?

When price-cap rules determine the structure of prices for a long period, they suffer a credibility problem and introduce an element of risk especially if a firm’s profits are “too large”. Profit sharing may be seen as a device to pre-determine price adjustments and thus to decrease regulatory risk. We analyse the effects of profit sharing on the incentives to invest, using a real option approach. Absent credibility issues, a well designed profit sharing system may be neutral relative to a pure price cap. With regulatory risk, profit sharing is preferable to a pure price-cap one, if it intervenes for high enough profit levels.

Efficiency and Equity in School Funding: A Case Study for Kansas

This study measures cost inefficiency of Kansas public school districts and applied both mathematical programming and stochastic frontier approach. The empirical study uses two-stage data envelopment analysis model and the cost inefficiency effects model proposed by Battese and Coelli (Empirical Economics 24:325–332, 1995) and applied to a panel data. The results found mean inefficiencies from these two models are very close. The results indicate that Kansas school districts, on average, exhibit cost inefficiency in their operations, however, there is a tendency for inefficiencies to decline over time. The study does not find any strong evidence for lower efficiency due to lower expenditure per-pupil. Instead, we found inconclusive evidences where lower efficiency for certain school districts could be assigned to unfavorable environmental cost conditions.

Testing for the principal’s monopsony power in agency contracts

We develop a test for the presence of the monopsony power of the livestock integrator (principal) on the market for contract growers (agents) and estimate the model with the data on swine industry contract settlements. A natural test for the monopsony power of the principal would compare the estimated values of the marginal revenue products with the actual payments that agents receive for their services. The problem with implementing this approach comes from the fact that agents’ abilities and actions are unobservable. Our approach is based on estimating the slope of the inverse supply function for grower input using generalized method of moments (GMM) estimators. The model specifies the relationships between the observable consequences and unobservable grower characteristics imposing the first order conditions for principal’s profit maximization. The results show that the null hypothesis of no market power cannot be rejected.

The contributions of technical and allocative efficiency to the economic performance of European railways

This paper provides an empirical analysis of the relative contributions of allocative and technical efficiency to the productivity performance of European railways over the period 1972 to 1999. A stochastic frontier approach is used to analyse the cost structure of the railway industry. We estimate a translog cost system in which allocative inefficiency is modelled through an exact relationship between the cost share equations and the cost function. To allow the estimation of such a model using the sample theory approach we assume that the share equation residuals represent deviations from first-order conditions and, therefore, that they represent exclusively allocative inefficiencies. The use of this simplifying assumption renders our analysis computationally tractable, but it could be inconsistent with the economic theory of duality and for that reason caution is required in interpretation of results. Acknowledging this caveat, we find that European railways have experienced significant cost increases due to inefficient behaviour, with a mean value of around 15%. In contrast to previous studies, however, our estimates indicate a larger role for allocative inefficiency, which accounts for around of a half of the total increase in cost inefficiency.

Micro foundations for meso and macro economic theory

The natures of rational thought and rational lives are described as the basis of an adaptive economizing theory which presents an alternative microeconomic foundation contrasting with but complementary to optimal control theory for modeling mesoeconomic order. Contrastingly, that micro foundation seems to imply the inappropriateness of representing macro data as an optimal economic agent. Rather, direct representation of the emergent causal order in the macroeconomic data is suggested.

Team production with inequity-averse agents

This paper analyzes the efficiency of team production when risk-neutral agents exhibit other-regarding preferences. It is shown that full efficiency can be sustained as an equilibrium of a budget-balancing mechanism that punishes some randomly chosen agents if output falls short of the efficient level but distributes output equally otherwise. The result depends on agents being sufficiently inequity-averse.

Firm survival: methods and evidence

This paper surveys the Industrial Organization literature on firm survival. We find that, in retrospect, the econometric specifications used in this area have progressively become more sophisticated, addressing issues such as discrete time, unobserved heterogeneity and competing risks. We also identify a number of firm- and industry-specific covariates that provide largely consistent results across samples, countries and periods. On the other hand, the evidence is less clear-cut with regard to ownership and spatial factors.

Saving government failure theory from itself: recasting political economy from an Austrian perspective

The economic approach to politics revolutionized the way scholars in economics and political science approached the study of political decision-making by introducing the possibility of government failure. However, the persistent and consistent application of neoclassical models of economics also seemed to suggest that once the full costs were accounted for, this failure was an illusion. This paper counters these arguments, typically associated with George Stigler, Gary Becker and Donald Wittman, by focusing on the underlying economic theory. We develop an alternative model of political economy grounded in the Austrian conception of the dynamic market process.

How large is liquidity risk in an automated auction market?

We introduce a new empirical methodology that models liquidity risk over short time periods for impatient traders who submit market orders. Using Value-at-Risk type measures, we quantify the liquidity risk premia for portfolios and individual stocks traded on the automated auction market Xetra. The specificity of our approach relies on the adequate econometric modelling of the potential price impact incurred by the liquidation of a portfolio. We study the sensitivity of liquidity risk towards portfolio size and traders' time horizon, and interpret its diurnal variation in the light of market microstructure theory.

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The interrelations between legal and economic processes: a consideration of the reactions

The responses to my 1972 article on the interrelations between legal and economic processes are summarized and critiqued. The principal authors are James Buchanan, Peter Boettke, and William Fischell. My replies center on the normative character of their proposed alternative interpretations vis-à-vis my strictly positive approach. My positivist approach considers law as made rather than found; that law is not something transcendental and given but a matter of human social choice through pragmatic processes; that belief system and material interest influence law making and the law that is made influences belief system and material interests. The article thus is a defense of undertaking an objective, positivist analysis of law and government as they exist in actual political economies (legal-economic nexuses).

Austrian themes,data, and sports economics

This paper uses data from Major League Baseball and themes from Moneyball by Michael Lewis to empirically illustrate Kirznerian entrepreneurship. While Kirzner envisioned competition in markets for profit, the sports economics literature shows that sporting competition has things in common with market competition. This is important because a strength of sports economics, namely, the abundant data, can help overcome a perceived weakness of Austrian economics, namely, the lack of empirical content. This paper describes and empirically confirms how certain front office decision makers of the Oakland Athletics were alert to opportunities that were being overlooked by other baseball executives.

The organizational goal and work effort: an efficiency wage model

This paper sets up an efficiency wage model which combines goal-attainment theory and the expectancy-valence approach. Taking account of the psychological work motivation, we find that the aspiration for goal attainment may be a substitute for unemployment as an instigator of work motivation in full employment. In addition, since raising the firm’s goal has a diverse impact on the high and low need-for-achievement workers, a higher goal-setting does not appear capable of increasing worker effort within firms. This finding reconciles the conflicting experimental results in industrial psychology literature.

Modeling probabilities of patent oppositions in a Bayesian semiparametric regression framework

Previous econometric analyses of patent data rely on regression methods using purely parametric forms of the predictor for modeling the dependence of the response. These approaches lack the capability of identifying potential non-linear relationships between dependent and independent variables. In this paper, we present a Bayesian semiparametric approach making use of Markov Chain Monte Carlo (MCMC) simulation techniques which is able to capture these non-linearities. Using this methodology we reanalyze the determinants of patent oppositions in Europe for biotechnology/pharmaceutical and semiconductor/computer software patents. Our semiparametric specification clearly finds considerable non-linearities in the effect of various metrical covariates which has been not been discussed previously. Further, a formal model validation based on ROC-methodology which splits the data in a training and a validation data set shows a significant improvement of the explanatory and the predictive power of our approach compared to purely parametric specifications.

Price,private demand and optimal provision of public R&D investment: An application to Italian agriculture, 1960–1995

The current paper presents a model in which public R&D stock is included as a quasi-fixed input in a variable cost function. Its price affects the long run desired level, while its shadow price indicates whether under (over) investment occurs in the short run. Two alternative R&D prices and, thus, two different long-run desired levels, are defined. One concerns the private (farmer) perspective, in which farmers express demand under the assumption of costless R&D. The other considers the societal point of view, in which the objective is the optimal public R&D supply conditioned on its cost. Application of the above model to the Italian agricultural context (1960–1995) suggests a significant difference between these private and social desired R&D levels. The latter are, on average, closer to the observed values, though over-investment has emerged since the mid-eighties.

Estimation of Asymmetric Stochastic Volatility Models for Stock-Exchange Index Returns

The objective of this paper is to put forward a new autoregressive asymmetric stochastic volatility model for modeling volatility and to compare results obtained for this model with an autoregressive stochastic model and another asymmetric volatility model, such as, asymmetric generalized autoregressive conditional heteroskedasticity model. The results obtained from the estimation by maximum likelihood have shown the volatility behavior is asymmetric in the majority of cases. This fact is better shown by the ARSVA model, than the rest of alternative models. Moreover, the ARSVA model is able to reproduce other stylized facts of such series, such as high kurtosis, no autocorrelation of returns, slow decreasing of the autocorrelation function of the squared returns and high persistence.

Measuring environmental efficiency of industry: a case study of thermal power generation in India

Technical and environmental efficiency of some coal-fired thermal power plants in India is estimated using a methodology that accounts for firm’s efforts to increase the production of good output and reduce pollution with the given resources and technology. The methodology used is directional output distance function. Estimates of firm-specific shadow prices of pollutants (bad outputs), and elasticity of substitution between good and bad outputs are also obtained. The technical and environmental inefficiency of a representative firm is estimated as 0.06 implying that the thermal power generating industry in Andhra Pradesh state of India could increase production of electricity by 6/ while decreasing generation of pollution by 6%. This result shows that there are incentives or win–win opportunities for the firms to voluntarily comply with the environmental regulation. It is found that there is a significant variation in marginal cost of pollution abatement or shadow prices of bad outputs across the firms and an increasing marginal cost of pollution abatement with respect to pollution reduction by the firms. This result calls for the use of economic instruments like pollution taxes instead of command and control regulation used currently in India to reduce air pollution.

Did efficiency of Indian public sector banks converge with banking reforms?

This paper examines the issue of convergence of efficiency levels among Indian public sector banks (PSBs) during the post-reforms period spanning from 1992/1993 to 2005/2006. The empirical results indicate that the majority of PSBs have observed an ascent in technical efficiency during the post-reforms years. Further, the inefficient PSBs have been noted to be catching up with the efficient ones. That is, the banks with low level of efficiency at the beginning of the period are growing more rapidly than the highly efficient banks. In sum, the study confirms a presence of convergence phenomenon in the Indian public sector banking industry.

Money, Income and Inflation in Equilibrium – The Case of Greece

The specification of the linear long-run relationship among money, income and the opportunity cost of holding money has been a popular study in economic literature. In the specific case of Greece, numerous articles investigated this relationship using quarterly data, mainly of the period after 1960. The objective of this article is to investigate the same long-run relationship using annual data and covering the historical period between 1858 and 1938. The results of the used cointegration analysis are presented along with the findings of other authors who covered the post war era of the Greek Economy.

Micro-heterogeneity and aggregate productivity development in the German manufacturing sector

A decomposition of aggregate productivity growth of German manufacturing firms that pertain to 11 different industries at a roughly two-digit level observed over the period 1981–1998 is performed. Productivity is measured by a nonparametric frontier function approach. The decompositions of productivity allow for an explanation of the aggregate outcomes by the quantification of the effect of structural change and the contributions of entering and exiting firms. Our results show that these forces drive aggregate productivity to a considerable extent. Remarkably, the large productivity improvements after the German reunification are mainly driven by structural change.