Can investors time their exposure to private equity?

Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing realistic, investable strategies that time capital commitments to private equity. This occurs, in part, because investors can only time their commitments to funds; they cannot time when commitments are called or when investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.     

Gamified interactions: whether,when, and how games facilitate self–brand connections

Firms increasingly use games to interact with their customers. Yet, surprisingly little is known about whether, when, and how such “gamified” interactions engage consumers with a firm’s brand, thereby facilitating self–brand connections. Building on flow theory, we show that gamified interactions that are highly interactive and optimally challenging facilitate self–brand connections, because such games lead to emotional and cognitive brand engagement. A field study and three experiments across various product domains and game designs support our theory. We also identify conditions under which consumers do not become engaged with a brand, namely when firms restrict their decisional control either to voluntarily participate in the game (i.e., compulsory play) or to spend as much time as desired playing the game (i.e., time pressure). Our findings advance existing knowledge about the use of games in marketing and provide important implications for how marketers can harness their potential to build self–brand connections.     

Beware of Financial Repression: Lessons from History

Intereconomics - As austerity policies are unpopular with voters and high debt levels are a drag on growth, several economists, most famously Carmen Reinhart and Kenneth Rogoff, have suggested that...     

Relative risk aversion, relative prudence and comparative statics under uncertainty: The case of (μ, σ)‐preferences

From the expected‐utility approach, relative risk aversion being smaller than one and relative prudence being smaller than two emerge as preference restrictions that fully determine the optimal responses of decisions under uncertainty to certain shifts in probability distributions. We characterize the magnitudes of relative risk aversion and relative prudence in terms of the two‐parameter, mean‐standard deviation approach. We demonstrate that this characterization is instrumental in obtaining comparative static results in the two‐parameter setting. We further relate our findings to the results in the expected‐utility framework.     

Economic Implications of Alternative Allocation Schemes for Emission Allowances*

For reasons of political feasibility, emission trading systems may have to rely on free initial allocation of emission allowances in order to ameliorate adverse production and employment effects in dirty industries. Against the background of an emerging European‐wide emission trading system, we examine the trade‐off between such compensation and economic efficiency under output‐based and emissions‐based allocation rules. We show that the emissions‐based allocation rule is more costly than the output‐based rule in terms of maintaining output and employment in energy‐intensive industries. When the international allowance price increases, the inferiority of emissions‐based allocation vis‐à‐vis output‐based allocation becomes more pronounced, as emission subsidies drastically restrict efficiency gains from international trade in emission allowances.     

All–Pay Auctions with Variable Rewards

We study all–pay auctions with variable rewards under incomplete information. In standard models, a reward depends on a bidder's privately known type; however, in our model it is also a function of his bid. We show that in such models there is a potential for paradoxical behavior where a reduction in the rewards or an increase in costs may increase the expected sum of bids or alternatively the expected highest bid.     

Unanticipated exchange rate variability and the growth of international trade

Zusammenfassung Unerwartete Wechselkursschwankungen und das Wachstum des internationalen Handels. - Der Verfasser untersucht die oft zitierte These, die Wechselkursvariabilit?t habe den internationalen Handel beeintr?chtigt. Im Gegensatz zu früheren Arbeiten formuliert und sch?tzt er ein Modell mit zwei Gleichungen. Davon sch?tzt die erste die Bestimmungsgründe der Variabilit?t der realen Wechselkurse mit dem Ziel, zwischen den erwarteten und den unerwarteten Komponenten dieser Variabilit?t unterscheiden zu k?nnen. Die zweite ist eine Gleichung in reduzierter Form für die Bestimmungsgründe des Wachstums realer Exporte. Diese wird zum Testen der Hypothese benutzt, da? nur die unerwarteten Schwankungen der realen Wechselkurse das Wachstum der realen Exporte signifikant beeinflussen. Die Ergebnisse best?tigen diese Hypothese.

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Résumé La variabilité non-prévue des taux de change et l’accroissement du commerce international. - Dans cette étude l’auteur examine l’hypothèse souvent-citée que la variabilité des taux de change a empêché l’accroissement du commerce international. Contraire aux études antérieures, il formule et estime un modèle à deux équations. La première équation évalue les facteurs déterminants de la variabilité des taux de change réels pour différencier entre les éléments prévus et non-prévus de la variabilité des taux de change réels. La deuxième est une équation à forme réduite et contient les facteurs déterminants de l’accroissement des exportations réelles. Ce mod?le est utilisé pour vérifier l’hypothèse que seulement la variabilité non-prévue des taux de change réels a un effet significatif sur l’accroissement des exportations réelles. Les résultats confirment l’hypothèse.

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Resumen Variabilidad no anticipada de la tasa de cambio y el crecimiento del comercio international. - En este trabajo se investiga la muy citada hipótesis de que la variabilidad de la tasa de cambio ha inhibido el crecimiento del comercio internacional. A diferencia de trabajos previos, se formula y estima un modelo biecuacional. La primera ecuación estima las determinantes de la variabilidad de la tasa de cambio real (REER), con el fin de distinguir entre los componentes anticipados y no anticipados de la variabilidad de la REER. La segunda es una ecuación en forma reducida para las déterminantes del crecimiento real de las exportaciones. Se utiliza este modelo para llevar a cabo un test de la hipótesis de que sólo la variabilidad no anticipada de la REER afecta significativamente el crecimiento real del volumen de exportaciones. Los resultados indican que la variabilidad no anticipada de la REER ha inhibido el crecimiento de las exportaciones, mientras que la variabilidad anticipada no ha tenido efecto alguno.

     

Factor Taxation, Income Distribution and Capital Market Integration

This paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists, subject to a fixed revenue requirement. Capital market integration increases the efficiency costs of a tax on capital but simultaneously changes the political equilibrium through its effect on the distribution of factor incomes. These distributional effects are directly opposed in the capital importing and the capital exporting region. While the capital tax rate will always be lowered in the capital importing region, the tax rate in the exporting country will rise when political resistance to market-induced changes in the distribution of income is sufficiently high.