Do Changes in Democracy Affect the Political Budget Cycle? Evidence from Mexico

The previous empirical literature in opportunistic election cycles attempts to identify whether there is a significant impact of the election calendar on economic policy. The econometric analysis implemented in this paper goes a step further, seeking to test whether a country's time-varying degree of democracy affects the way in which economic policy is chosen as elections approach. A simple econometric model is estimated for the case of Mexico's fiscal policy between 1957 and 1997. The estimation reveals the government's strong systematic use of public spending in infrastructure and current transfers as a means to earn votes. Most importantly, we show that the magnitude of the election cycle has been exacerbated during the country's most democratic episodes.     

Initial Margin Requirements, Volatility, and the Individual Investor: Insights from Japan

Initial margin requirements represent: (1) a cost impediment to the wealth constrained investor and (2) a potential way of mitigating excessive volatility. However, prior empirical research finds that margins are not an effective tool in reducing volatility. We consider the possibility that margins primarily affect certain stocks and investors. Specifically, we test whether margins affect individuals who, as a group, we believe to be the investors most affected when margin requirements change. Our initial empirical tests, however, do not support this contention.     

UNIVERSAL BANKS ARE NOT THE ANSWER TO AMERICA'S CORPORATE GOVERNANCE "PROBLEM": A LOOK AT GERMANY, JAPAN, AND THE U.S.

This article objects to a recent tendency of legal and economic scholars to "romanticize" the corporate governance role of German universal banks and Japanese main banks. There are potential conflicts between banks' interests as lenders and as shareholders that are likely to make banks less-than-ideal monitors for outside shareholders. Citing evidence that Japanese corporate borrowers pay above-market interest rates for their bank financing, Macey and Miller interpret the high interest rates as "rents" earned by Japanese banks on their loan portfolios in exchange for (1) insulating incumbent management of borrower firms from hostile takeover and (2) accepting suboptimal returns on their equity holdings.
The main problems with the German and Japanese systems stem from their failure to produce well-developed capital markets. Concentrated and stable shareholdings reduce the order flow in the market, thereby depriving the market of liquidity. And the lack of capital market liquidity– combined with the intense loyalty of the banks towards incumbent management–removes the ability of outside shareholders to make a credible threat of takeover if managerial performance is substandard.
The problem with American corporate governance–if indeed there is one–is not that hostile takeovers are bad, but that there are not enough of them due to regulatory restrictions and misguided legal policies. While U.S. law should be amended to give banks and other debtholders more power over borrowers in the case of financial distress, encouraging U.S. banks to become large stockholders is not likely to improve corporate efficiency. Strengthening the "voice" of American equity holders by eliminating restrictions on the market for corporate control would be the most effective step in improving firm performance.     

From T-Bills to Stocks: Seasonal Anomalies Revisited

This paper employed eleven data series which consist of stocks, bonds, bills, equity premiums, term premiums, and various default premiums to investigate whether January seasonality reported in existing literature is robust across different states of the economy as this has important trading implications. For the periods 1926–1990, small stocks, small stock premiums, low grade bonds, and default premiums (spread between high grade, low grade and government bonds) reveal January seasonality and that the seasonality is robust across different states of the economy except for low grade bond returns and default premiums. January seasonality for low grade bond returns and low grade bond default premiums are primarily driven by results found during periods of economic expansion. Overall, January seasonality is more evident during the economic expansion periods although the magnitude of default premiums is larger during periods of economic contraction. Furthermore, prior findings of strong summer equity returns are primarily driven by the results found during the periods of economic contraction. It is also found that equity returns are generally higher during periods of economic expansion.     

Tactical Opportunities,Risk Attitude and Choice of Farming Strategy: an Application of the Distribution Method

When assessing farming strategies, it is important to account for the opportunities provided for tactically adjusting to outcomes of risk. The hypothesis that accounting for tactical adjustment is more important than accounting for risk attitude was supported in this study with regard to identifying the optimal drainage recirculation strategy for an irrigated dairy farm. Failing to account for tactical adjustment would lead to a sub-optimal choice, costing the farmer about A$3 100 in present value terms. In contrast, failing to account for risk aversion would not affect the strategy chosen. The distribution method was found to be well suited to modelling tactical adjustment.     

THE RETURNS TO ENDOGENOUS HUMAN CAPITAL IN PAKISTAN'S RURAL WAGE LABOUR MARKET

This paper estimates the private returns to human capital in Pakistani rural labour markets. The rich data used permit inclusion of several dimensions of human capital and control for endogeneity resulting from investment in human capital. The results suggest that, without data on determinants of human capital, it would not be possible to disentangle the separate effect of each dimension of human capital on wage differentials nor to distinguish human capital explanations for wage differentials from signalling and credentialist models. With control for endogeneity of human capital and selectivity into wage employment, cognitive achievement, but not schooling attainment separate from cognitive achievement nor long-run health status, affects wage differentials.     

Choice Research: A Wealth of Perspectives

This article is a navigation guide to the twenty papers that emerged from the workshops conducted at the Sixth Invitational Choice Symposium (Estes Park, Colorado, June 2004). The papers are categorized into three broad sets that focus respectively on choice modeling issues, on providing interdisciplinary perspectives on choice, and on relating choice research to real world concerns. Within each category, we offer provide brief integrative overviews linking subsets of papers.