POST KEYNESIAN PERSPECTIVES AND COMPLEX ECOLOGIC–ECONOMIC DYNAMICS

This paper considers the implications of complex ecologic–economic dynamics for three broad, Post Keynesian perspectives: the uncertainty perspective, the macrodynamics perspective and the Sraffian perspective. Catastrophic, chaotic and other complex dynamics will be seen as reinforcing the conceptual foundations of Keynesian uncertainty. Predator–prey models will be seen as deeply linked to Post Keynesian macrodynamic models. Finally, certain cases in ecologic–economic systems will be seen as generating such Sraffian, capital theoretic conundra as reswitching. Ecologic–economic models considered besides predator–prey will include fisheries, forestry, lake dynamics and global climatic–economic dynamics.     

Stakeholder Conceptions of Later-Life Consumer Vulnerability in the Financial Services Industry: Beyond Financial Capability?

When the newly re-constituted UK financial services regulator–the Financial Conduct Authority–was launched in 2013, it promised to adopt a new approach to its “consumer protection” objectives. This shift included articulating a new conception of consumer vulnerability, beyond narrow, individualistic, conceptions of vulnerability based on (limited) financial capability, towards a broader conception which takes account of the connection between individual circumstances, situations, and market factors in causing or exacerbating manifestations of consumer vulnerability. Drawing on new empirical research with later-life financial services stakeholders and consumers, this article examines the extent to which equity release stakeholder perceptions of consumer vulnerability align to this new regulatory philosophy, and to the realities of consumer experiences. Our findings indicate that, in contrast to the FCA’s new, broader understanding of consumer vulnerability, the stakeholders in our study tended to understand vulnerability through a narrower lens, focusing predominantly on “information vulnerability,” or on whether or not the consumer “knows what they are doing.” This conception supports the assumption that providing financial advice is sufficient intervention to ensure good consumer outcomes. This assumption is also at odds with our earlier consumer study findings, which revealed a much wider set of vulnerabilities amongst equity release consumers. We reflect on the implications of these findings for the development of the later-life financial services industry, in ways that can more appropriately serve the needs of this consumer population.     

Timeline of a financial crisis: Introduction to the special issue

The economic crisis fueled by risky mortgages and the exotic financial instruments developed from bundling these mortgages caused the largest one-day losses on the US stock market in history (BBC News, 2009a). The resulting financial collapse quickly spread throughout the world, causing economic recessions in much of the EU, Turkey, and many other countries. Since 2008, economists, government agencies, and academics pondered the causes of the financial crisis with an eye toward avoiding such catastrophic collapse in the future. This special issue contributes to the discussion by bringing together academics from marketing, finance, and economics to put the financial crisis into theoretical perspective and propose theoretically viable alternatives to avoid similar economic downturns in the future.     

Considering Market-Based Instruments for Consumer Protection in Higher Education

Based on the economics of consumer protection and contributions from the economics of education, this article presents an analytical framework to deal with the problem of consumer protection in the higher education sector. It is demonstrated that there are not only governmental mechanisms (information provision, quality regulation) but also market-based mechanisms (seller signalling, private certification, private information intermediaries, student screening) to mitigate the informational asymmetry between buyers and sellers of educational services. This informational asymmetry, called students’ ex ante quality uncertainty, provides the central economic rationale for thinking about student protection, quality assurance and consumer information in the higher education marketplace. The basic argument of this paper is that governmental quality assurance is unnecessary in higher education if the market participants themselves, with the help of private third parties (i.e., certifiers and information intermediaries), are able to cope with market failure due to asymmetric information.     

Dark financial profile leading to debt traps – A theoretical framework

This paper proposes a theoretical framework in an attempt to better explain the behaviours of some consumers of financial products during market crises. We review the established notions of irrationality and deception, and then add the construct of disconnection from financial needs, goals and preferences. We propone that these three concepts, respectively, cognitive, behavioural and emotional in nature, create a dark financial profile (DFP) by which these consumers unwittingly build debt. We use bibliometrics to highlight the current gap in the scholarly domains of interest and provide market examples of how the DFP likely deploys in the marketplace. This is the first article to use disconnection in such a context, and to improve the understanding of consumer behaviours in regard to disconnection, irrationality, deception and debt. Thus, we enrich the literature on debt, which has at times ignored the role of the combination of these constructs. We investigate avenues of research for developing further our emerging framework, especially on the notion of disconnection, and suggest that this effort may assist in preparing effective marketing of financial education programs and improving lending practices.     

Cooling-Off Periods in the Consumer Laws of the EC Member States. A Comparative Law and Economics Approach

Lawyers tend to see cooling-off periods in consumer laws as a remedy for the problems caused by unequal bargaining power between sellers of goods and consumers. This article takes a different approach and argues that cooling-off periods can be seen as efficiency-enhancing devices. From an economic point of view, cooling-off periods provide a remedy for irrational behaviour on the part of consumers and may cure market failures, in particular problems caused by situational monopolies and asymmetric information. In spite of these important benefits, the economic approach also warns against possible disadvantages. The latter range from a moral hazard problem on the side of the consumer to the adverse counter-productive effects of cooling-off periods. A legislator who is informed by economic analysis may design cooling-off periods in ways that maximise their ability to cure inefficiencies and at the same time minimise their potential detrimental effects. Unfortunately, the relevant EC Directives and the current consumer laws of the Member States are not in perfect harmony with an efficiency enhancing-approach.     

Marketplace literacy education and coping behaviors among subsistence consumer–entrepreneurs during demonetization in India

We study the impact of marketplace literacy education on marketplace coping behaviors in the face of systemic shock due to demonetization, deriving important implications for consumer affairs from this radically distinct context. We study whether and how such education can have positive impact even in the face of such macrolevel disruption that disproportionately affects those with the least resources and renders them even more vulnerable. Marketplace literacy education encompasses awareness and knowledge about marketing as well as self‐confidence and awareness of rights as buyers and sellers. We examine the influence of marketplace literacy in urban and rural areas on coping behaviors of low‐income women consumer–entrepreneurs during demonetization in India, using a retrospective survey. We derive implications to mitigate the effect of future shocks on consumers and entrepreneurs at the vulnerable end of the income spectrum.     

You get what you give: theory and evidence of reciprocity in the sharing economy

We develop an analytical framework of peer interaction in the sharing economy that incorporates reciprocity, the tendency to increase (decrease) effort in response to others’ increased (decreased) effort. In our model, buyers (sellers) can induce sellers (buyers) to exert more effort by behaving well themselves. We demonstrate that this joint increased effort can improve the utility of both parties and influence the market equilibrium. We also show that bilateral reputation systems, which allow both buyers and sellers to review each other, are more responsive to reciprocity than unilateral reputation systems. By rewarding reciprocal behavior, bilateral reputation systems generate trust among strangers and informally regulate their behavior. We test the predictions of our model using data from Airbnb, a popular peer-to-peer accommodation platform. We show that Airbnb hosts that are more reciprocal receive higher ratings and that higher rated hosts can increase their prices. Therefore, reciprocity affects equilibrium prices on Airbnb through its impact on ratings, as predicted by our analytical framework.     

How Verifiable Cheap-Talk Can Communicate Unverifiable Information

This study describes a “cheap-talk” model in which sellers can credibly convey unverifiable information by choosing whether or not to exaggerate verifiable information. We find that unexaggerated claims can communicate favorable unverifiable information if buyers are not too likely to verify claims, and sellers with better information care more about future prices than sellers with worse information. However, there is always another equilibrium in which sellers exaggerate all verifiable claims. Laboratory tests show that when buyers infrequently verify the sellers' claims, players converge to the equilibria close to the example provided in instructions. When buyers are very likely to verify claims, players fail to converge to any equilibrium. Both of these results are consistent with an evolutionary learning model, but inconsistent with the intuitive criteria of Cho and Kreps (1987). We discuss the implications of our results for both consumer and financial markets. Helpful comments were received by an anonymous reviewer, Mark Nelson, many doctoral students at Cornell University, and Accounting workshop participants at the University of Texas at Austin. JEL Classification: C73, C92, G14, M3     

Ethical consumerism and wage levels: Evidence from an experimental market

This paper contributes to the promotion of multidisciplinary research on ethical consumerism by providing experimental evidence on consumer's willingness to reward sellers by paying higher wages to their workers. We analyze repeated interactions occurring between workers, sellers, and consumers within the framework of an experimental market. By successfully performing a task, workers allow sellers to offer a good through a market. Sellers set the price of goods and decide the wages of workers. Consumers enter the market sequentially and decide whether to accept one of the offers or to leave the market. Our data show that, especially in the first periods of the experiment, some sellers opt to pay high wages to their workers. However, this behavior is not rewarded by consumers, whose purchasing choices are almost exclusively driven by self-interest. In our interpretation, the connection between workers and sellers that connotes our experimental design, with workers who allow sellers to enter the market, may induce consumers to believe that eventual sacrifices for paying high wages to workers must be entirely on sellers. Our result suggests that the more salient is made the importance of some stakeholders in allowing the firm's activity, the fewer consumers' may be willing to sacrifice their monetary payoff to improve these stakeholders' condition.     

National Culture and Default on Mortgages

In this paper, we investigate the relationship between national cultural characteristics and default on mortgages (DOM). Using Hofstede's constructs and controlling for other relevant determinants of DOM, our regression analyses show that borrowers from countries with high individualism may default more on their mortgages in both a relatively stable economic period and during a period of crisis. Moreover, we find that borrowers from societies showing lower level of pragmatism and higher level of indulgence default more on their mortgages in a stable economic period. Our findings suggest important implications for multinational financial institutions that provide mortgages across countries.     

Determinates of financial behavior: insights into consumer money attitudes and financial literacy

As consumer requirements for financial services permeate society, they link various financial institutions more closely together, developing divergent financial products. This research develops a conceptual framework for discussing consumer money attitudes, financial literacy regarding financial decisions, and financial behavior. Study findings suggest that consumers who have retention-planning and achievement-esteem attitudes toward money make high-risk financial decisions; anxiety toward money tends to exist mainly in low-risk investors. Financial literacy affects consumer financial behaviors, and demographic variables play segmentation roles. Theoretical contributions and management implications are provided in the study for related research, education departments and financial firms.     

Country and consumer segmentation: multi-level latent class analysis of financial product ownership

The financial services sector has internationalized over the last few decades. Important differences and similarities in financial behavior can be anticipated between both consumers within a particular country and those living in different countries. For companies in this market, the appropriate choice between strategic options and the resulting international performance may critically depend on the cross-national market structure of the various financial products. Insight into country segments and international consumer segments based on domain-specific behavioral variables will therefore be of key strategic importance. We present a multi-level latent class framework for obtaining simultaneously such country and consumer segments. In an empirical study, we apply this methodology and several alternative modeling approaches to data on ownership of eight financial products. Information is available for 15 European countries, with a sample size of about 1000 consumers per country. We find that both country segments and consumer segments are highly interpretable. Also, consumer segmentation is related to demographic variables such as age and income. Our conclusions feature implications, both academic and managerial, and directions for future research.     

Financial market crisis and financial market channel

Before a new financial architecture can be established in the wake of the financial crisis, the increasing importance of the global financial market channel must be fully understood. This importance was illustrated by the unexpectedly strong dampening effects of the financial crisis on the real economy and by the worldwide contagion of the crisis, including its spreading to emerging market economies that were macroeconomically stable. This article argues that the financial sphere is gaining in importance over the real sphere and that the impact of global financial determinants on economic activity is growing ever stronger. The keys to dealing with this change are greater transparency, stronger incentive structures and a stronger regulatory and supervisory framework.     

Reciprocal exchange in rural communities: Consumers' inducements to inshop

Although consumer–retailer exchange behavior has been studied for many years, its treatment has not accounted for factors relating to reciprocal exchange intentions. This article defines reciprocity as the degree to which individuals expect cooperative action, and places reciprocity within the overall framework of consumer–retailer market exchange. In addition, it presents results of an exploratory study of rural consumers' reciprocal intentions to shop with local retailers, indicating that levels of satisfaction with interpersonal reciprocity have greater influence than moral, social, or economic motives. This study also suggests that social desirability, as a bias, is strongly linked to rural consumers' responses. © 1997 John Wiley & Sons, Inc.     

Failure to learn from failure: The 2008 mortgage crisis as a déjà vu of the mortgage meltdown of 1994

This article traces the developments in the market for residential mortgage-backed securities (MBS) during the period 1970–2008. Drawing on an analysis of trade publications, business press, and interviews with practitioners, it shows that an MBS market meltdown in 1994 provided clear signals of problems with MBS. The market participants did not re-evaluate their use of risk management tools or adjust security design in response to the 1994 crisis, suggesting a lack of understanding of the implications of the crisis. The 1994 meltdown showed that MBS were vulnerable to systematic risks and that these risks could precipitate an MBS market crash. Furthermore, the 1994 meltdown demonstrated that large-scale investment in MBS could affect the primary mortgage market, thereby rendering the MBS risks unpredictable. After 1994, MBS investment shifted to MBS backed by mortgages with default risk – a development that led to the crash of 2008. By drawing parallels between the 1994 and 2008 crises, this article shows how the MBS market failed to self-correct. The results suggest that financial market participants do not always incorporate relevant information in their decision-making and that market participants have difficulties in both foreseeing the effect of financial innovations on markets and interpreting these effects.     

Sustainable consumption and the financial sector: analysing the markets for responsible investment in Hong Kong and Japan

The origins of the modern socially responsible investment (SRI) movement can be traced to the turbulent period in the 1960s when powerful social undercurrents including environmentalism and anti‐war activism fuelled a rise, in a radical change, in the way society viewed faith, values and commerce. Today, nearly 1 out of every US$9 under professional management in the US is currently invested using social investment strategies while the European green and ethical investment market is estimated to be €1 trillion or as much as 10–15% of the total funds under management. While some preliminary figures and analyses exist for countries outside these two regions, SRI has been, to date, largely explored within the context of North America and Europe. This is unfortunate as the sustainability of SRI as a consumer market is going to depend, to a great extent, to what happens outside of North America and Europe, and most notably in the rapidly developing Asian economies. In this article, I will explore the development of SRI as a mainstream financial consumer instrument in industrialized (Japan) and emerging (Hong Kong/China) economies of the Asia Pacific region. To fully analyse the SRI market development in Hong Kong and Japan, I will examine the following three issues and questions: first, how does the sustainable consumption framework offer a useful lens from which to explore SRI, and why is the Asia Pacific market and policy context so important for the broader issue of sustainable consumption? Second, what precisely is SRI and how did it develop into an important global financial investment vehicle? Third, how did the SRI market develop in the case of Hong Kong and Japan? I will then conclude the article with some analysis on the important lessons SRI market development in Hong Kong and Japan hold for market sustainability of the financial sector and sustainable consumption.     

Consumer Policy in a Market Economy Considerations from the Perspective of the Economics of Information,the New Institutional Economics as well as Behavioural Economics

The question concerning when a governmental intervention in the market system is justified has occupied economists from the very beginning and has been a controversial discussion topic for just as long. Against this background, with respect to modern consumer policy, which still represents a relatively young field in the theory of economic policy, it is vital to find sound economic reasons for governmental regulations in order to protect consumers. Therefore, the article attempts to assess what the various economic literatures have added to our understanding of good consumer policy. For this reason, those policy implications that might flow from different theoretical approaches in order to broaden the foundation of an economic justification for consumer policy will be analysed. For this purpose, the consumer policy implications of the Economics of Information will be described, including a denomination of some certain problems all of which are not covered satisfactorily by this approach. Subsequently and in order to amend the informational economics framework, further economical approaches from New Institutional Economics, Behavioural Economics as well as Behavioural Consumer Research, which provide a complementary analysis of consumer behaviour in consideration of the respective decision-making situations and determining constraints (formal and informal rules, cognitive and emotional boundaries), will be discussed comparatively with respect to their consumer policy implications.     

Sovereign credit ratings,capital flows and financial sector development in emerging markets

How does the sovereign credit ratings history provided by independent ratings agencies affect domestic financial sector development and international capital inflows to emerging countries? We address this question utilizing a comprehensive dataset of sovereign credit ratings from Standard and Poor's from 1995–2003 for a cross-section of 51 emerging markets. Within a panel data estimation framework, we examine financial sector development and the influence of sovereign credit ratings provision, controlling for various economic and corporate governance factors identified in the financial development literature. We find strong evidence that our sovereign credit rating measures do affect financial intermediary sector developments and capital flows. We find that i) long-term foreign currency sovereign credit ratings are important for encouraging financial intermediary development and for attracting capital flows. ii) Long-term local currency ratings stimulate domestic market growth but discourage international capital flows. iii) Short-term ratings (both foreign and local currency denominated) retard all forms of financial developments and capital flows. There are important implications in this research for policy makers to encourage the provision of longer-term credit ratings to promote financial development in emerging economies.     

A Multi-Attribute Negotiation Support System with Market Signaling for Electronic Markets

Despite the rapid growth of technology and Internet-based markets, many of the current systems limit themselves to price as the single dimension variable and offer, if at all, only minimal negotiation support to the consumer. In the real world, commercial transactions take into account many other parameters both quantitative and qualitative such as product quality, speed, reputation, after sales service, etc. This paper discusses how these multiple attributes can be captured to augment standard negotiation processes in order to support electronic market transactions. Using a combination of utility theory and multicriteria decision-making, we propose heuristic algorithms to discover potential trades. In addition, the approach is included within a larger framework that incorporates market-signaling mechanisms. This not only allows for the systematic evolution of negotiation positions among buyers and sellers but can ultimately lead towards improving both market transparency and efficiency. To illustrate the multiple criteria model coupled with the dynamic market signaling framework, we report in this paper the implementation of a Web-based clearinghouse that serves the real estate market.