True Spreads and Equilibrium Prices

Stocks and other financial assets are traded at prices that lie on a fixed grid determined by the minimum tick size. Observed prices and quoted spreads do not correspond to the equilibrium prices and true spreads that would exist in a market with no minimum tick size. Using Monte Carlo Markov Chain methods, this paper estimates the equilibrium prices and true spreads. For large stocks, most of the quoted spread is attributable to the rounding of prices and the adverse selection component is small. The true spread and the adverse selection component are greater for mid-sized stocks.     

INTERPRETING THE DYNAMICS OF PUBLIC SECTOR BUDGETING: A DIALECTIC OF CONTROL APPROACH

Developing a dialectic of control theoretical framework, the paper shows how the theory may be applied to explain turbulence in public sector budgeting. Applying the framework to fieldwork research in two large UK local authorities, the study explores the knowledge and intentionality of actors engaged in budgeting. Focusing on a crisis in educational funding, cognitive issues based around unreliability of cost and planning data were significant factors behind tactical successes for local budgetees. Central government, however, was able to exert power through its ability to change the rules, leading to new structures for public education provision. The dialectical framework avoids the reductionism and functionalism that characterises some of the budget gaming literature and also has potential implications for interpreting step changes in public funding.     

THE PRIVATE FINANCE INITIATIVE IN LOCAL GOVERNMENT

This paper distinguishes between the Private Finance Initiative (PFI) and the more general Public Private Partnerships (PPP). It traces the growth of the initiative since its start in 1992 to the current day and considers the implications of PFI for the public finances. A number of economic issues are discussed including bidding costs, financing costs and whole life costing. The importance of risk transfer in the value for money analysis of PFI projects is emphasised and the extent to which risk actually is transferred is questioned. Finally, the contribution of PFI towards modernising public service is recognised but the Audit Commission's recommendation that a wider range of procurement tools ought to be considered is noted.     

A Dynamic Adjustment Model for U.S. Agriculture: 1948-79

A multioutput model is developed within the adjustment cost framework to analyze the structure of dynamic adjustments in U.S. agriculture during the post-war period. An important feature of this model is that the econometric model is consistent with dynamic economic theory. Fluctuations in capital stocks, variable inputs, and outputs are explained by changing opportunity costs. Empirical results indicated that durable equipment, farm-produced durables, and family labor exhibited significant rigidity in adjustment as a response to exogenous shocks. Surprisingly, the hypothesis that real estate was a variable input could not be rejected. The univariate flexible accelerator hypothesis, which is widely maintained in most agricultural adjustment studies, is inconsistent with the data.     

Foreign travel and the risk of harm

Systematic data on the risk of fatal and non-fatal injury from external causes to those who travel abroad for purposes of business or pleasure are seldom recorded and are consequently hard to come by. In this paper, the risk of fatal injuries to foreign travellers using historical and newly acquired data from national databases is estimated. Overall, it appears from these data that the risk of fatal injury to foreign travellers lies in the range of 20 to 90 per 100 000 person-years of exposure for many destinations worldwide, although different rates may pertain in selected situations where special conditions apply, for example, where there is heavy participation in risky sports or increased driving. This level of fatal injury risk is not noticeably different from that of staying in one's home country if one lives in a Western-style industrial country, although the types of hazards responsible may vary in type and proportion. With increasing levels of travel, and the growing popularity of more adventurous pursuits, it is possible that risks could be increasing in this sector.     

Ben S. Bernanke,Timothy F. Geithner,and Henry M. Paulson Jr.: Firefighting: The financial crisis and its lessons

Business Economics -     

BEN BERNANKE AND THE ZERO BOUND

From 2000 to 2003, when Ben Bernanke was a professor and then a Fed Governor, he wrote extensively about monetary policy at the zero bound on interest rates. He advocated aggressive stimulus policies, such as a money‐financed tax cut and an inflation target of 3%–4%. Yet, after U.S. interest rates hit zero in 2008, the Fed under Chairman Bernanke took more cautious actions. This paper asks when and why Bernanke changed his mind about zero‐bound policy. The answer, at one level, is that he was influenced by analysis from the Fed staff that was presented at the Federal Open Market Committee (FOMC) meeting of June 2003. This answer raises another question: why did the staff's views influence Bernanke so strongly? I seek answers to this question in the social psychology literature on group decision‐making. (JEL E52, E58)