Effects of the structural change on transaction costs between North America natural gas spot markets

Threshold cointegration between market pairs before and after the potential structural break associated with the shale gas revolution is examined. Pairwise transaction costs differ between the pre- and post-break periods. During the post-break period, five of seven pairwise transaction costs decrease, while the remaining two pair-wise transaction costs increase relative to the pre-break period. Alterations in natural gas flows as the result of the shale gas revolution partially explain the changes in transaction costs.     

The role of transaction costs and risk aversion when selecting between one and two regimes for portfolio models

Estimation of the inputs is the main problem when applying portfolio analysis, and Markov regime-switching models have been shown to improve these estimates. We investigate whether the use of two-regime models remains superior across a range of values of risk aversion and transaction costs, in the presence of skewness and kurtosis and no short sales. Our results for US data suggest that, due to differences in their risk preferences and transactions costs, most retail investors may prefer to use one-regime models, while investment banks may prefer to use two-regime models.     

Double Moral Hazard,Monitoring, and the Nature of Contracts

generalized double-sided moral-hazard model, with risk-averse parties who mutually monitor each other (to get a reasonable idea of outcome/effort). The model considers trade-off between monitoring costs and moral hazard costs, which are endogenously determined by the extent of monitoring. Using this model, we formally prove a generalized version of Coase's conjecture – that the optimal contract minimizes the agency and risk costs. We then show how varying assumptions about the feasibility or cost of monitoring of the outcome or the worker's effort lead to different contracts being optimal. The analysis is then used to explain the nature of contracts observed in practice under many different situations. We will give an explanation as to why industrial workers typically work under wage contracts, while share contracts are common in agriculture and will explain why profit sharing is more common for senior managers than for the production workers. Received September 19, 2000; revised version received October 30, 1997