Foreign bank entry,bank efficiency and market power in Central and Eastern European Countries1

This article analyses the implications of the recently observed sharp expansion of foreign banks in the Central and Eastern European Countries (CEECs) as measured by equity ownership. We show that the mode of foreign entry has a pivotal impact on the post‐entry performance of banks in CEECs. Foreign greenfield banks are characterized by superior cost efficiency, compared with domestic and foreign‐acquired banks. The efficiency of foreign‐acquired banks deteriorates in the initial year of acquisition, but improves thereafter. Banks acquired by foreigners have less market power relative to domestic and foreign greenfield banks. Overall, the CEEC banking sectors have benefited from the increased foreign bank participation, both in terms of higher efficiency and more competition.     

How do financial cycles affect public debt cycles?

We employ the duration framework to study determinants of public debt cycles in 57 advanced and emerging economies over the 1960–2014 period, with a particular focus on the impact of financial cycles. The results suggest that the association between financial and debt cycles is asymmetric. Debt expansions preceded by overheating in credit and financial markets tend to last longer than other expansions, but there is no significant association between financial cycles and debt contractions. There is strong evidence of duration dependence in both phases of the cycle, with the likelihood of expansions and contractions to end increasing with the length of their respective spells. Higher initial level of debt increases the spell of contractions (persistence of adjustment effort hypothesis) and reduces the spell of expansions (debt sustainability hypothesis). The results are robust to the inclusion of global factors, openness, political stability, and debt crisis indicators as additional controls.     

Strategic Behavior and Consolidation in the Agricultural Biotechnology Industry

We develop a model explaining the consolidation patterns in the agricultural biotechnology industry. Among different consolidation and cooperation mechanisms, we consider collaborative and licensing agreements, joint ventures, acquisitions, and exchanges of ownership and spin-offs. The key results derive from the benefits of coordinated actions, distinction between transferable and nontransferable payoffs, the substitutability, complementarity, and the importance of the managers' noncontractible investments, and access and expansion of markets. Results from the model are used to examine the cooperation and consolidation activities for four major players in the agricultural biotechnology industry, DuPont , Dow Chemical , Monsanto , and Novartis .     

Pareto Optimal Trade in an Uncertain World: GMOs and the Precautionary Principle

Optimal trade policy in an uncertain world is examined. Decision-maker attitudes toward uncertainty are represented in terms of the Gilboa–Schmeidler (1989) maximin expected-utility (MMEU) model. The central result is that in a two-country, general-equilibrium setting with both trading partners possessing an MMEU preference structure, Pareto optimality can require one trading partner to absorb all uncertainty in the economy if its set of priors is a subset of its trading partners. An immediate corollary is that autarky is Pareto optimal if the trading partner with the more inclusive set of priors either chooses or is endowed with a nonstochastic technology.     

Bank size, market concentration, and bank earnings volatility in the US

We examine whether bank earnings volatility depends on bank size and the degree of concentration in the banking sector. Using quarterly data for non-investment banks in the United States for the period 2004Q1-2009Q4 and controlling for the quality of management, leverage, and diversification, we find that bank size reduces return volatility. The negative impact of bank size on bank earnings volatility decreases (in absolute terms) with market concentration. We also find that larger banks located in concentrated markets have experienced higher volatility during the recent financial crisis.     

Buy low,sell high: Price gaps and neoclassical theory

This paper considers the simple neoclassical economics of price gaps in the absence of income effects. Our guiding principle is that price gaps reflect a fundamental economic principle: buy low and sell high. It is demonstrated that neoclassical theory makes clear and economically testable predictions about these price gaps.     

Remarks on Afriat’s theorem and the Monge–Kantorovich problem

The famous Afriat’s theorem from the theory of revealed preferences establishes necessary and sufficient conditions for the existence of utility function for a given set of choices and prices. The result on the existence of a homogeneous utility function can be considered as a particular fact of the Monge–Kantorovich mass transportation theory. In this paper we explain this viewpoint and discuss some related questions.     

Quality Measurement and Contract Design: Lessons from the North American Sugarbeet Industry

This paper examines contracts used in the North American sugarbeet industry. Though quite similar in many respects, the contracts we study vary across processing firms in the set of quality measures used to condition contract payments to growers. This is somewhat surprising, given the homogeneous nature of the processors' finished product (refined sugar). It seems unlikely that processors differ significantly in how they value the various attributes of a sugarbeet, and such a difference is perhaps the most natural reason to expect variation in the structure of quality incentives across processors. Previous attempts to explain the observed variation in sugarbeet contracts have focused on differences in organizational form across firms. In this paper, we provide an alternative explanation that relies on variation across production regions in growers' ability to control the relevant measures of sugarbeet quality.