Quo vadis, FAO?

The present recession in aid funding and the ongoing transformation of the United Nations development programme and project management approach calls for fresh ideas, particularly from within the UN specialized agencies. In the largest of these, PAO, a process of self-reflection and intellectual fermentation seems to be taking place to some extent in response to the important November 1993 biennial FAO Conference. The Conference marks the end of the third consecutive six-year electoral term of the organization's Director-General. This article presents for debate some critical issues and opportunities which appear timely for consideration by those working within and outside FAO on the design of realistic development policies.     

Information, trade, and derivative securities

Hellwig's (1980) model is used to analyze the value of improvingtrading opportunities by more frequent trading in the underlyingasset, or by trading in a derivative asset. With multiple tradingsessions, uninformed investors behave as rational trend followers,while more informed investors follow a contrarian strategy.As trading becomes continuous, Pareto efficiency is achieved.With trading in an appropriate derivative security, Pareto efficiencymay be achieved in only a single round of trading. All derivativeclaims are then priced on Black and Scholes (1973) principlesand, in the absence of further supply shocks, no trading willtake place in subsequent trading rounds.     

Investment analysis and the adjustment of stock prices to common information

In this article we are concerned with the effect of the numberof investment analysts following a firm on the speed of adjustmentof the firm's stock price to new information that has commoneffects across firms. It is found that returns on portfoliosof firms that are followed by many analysts tend to lead thoseof firms that are followed by fewer analysts, even when thefirms are of approximately the same size. Many analyst firmsalso tend to respond more rapidly to market returns than dofew analyst firms, adjusting for firm size. This relation, however,is nonlinear, and the marginal effect of the number of analystson the speed of price adjustment increases with the number ofanalysts.     

Strategic Environmental Policy, Clean Technologies and the Learning Curve

In the political discussion, it is often emphasized that the environmental service industry (which produces a clean factor of production) benefits from an early and strong environmental policy. This is especially likely if the costs of production are decreasing over time due to learning curve effects. Surprisingly, the environmental service industry has not been integrated into the theory of strategic environmental policy yet. Our main question is whether a national leadership in environmental policy can pay off if profits of the environmental service industry are taken into account. We consider a two-period model with one firm in each country competing on a third market. Emissions can be substituted by the clean factor when deciding upon the production technology. The unit costs of producing the clean factor in the second period are decreasing in the quantity produced in the initial period. We derive the optimal environmental policy for both periods from a national point of view and show that the presence of the environmental service industry can indeed lead to a national leadership in pollution control.     

Auditor liability: A comparison of judge and juror verdicts

This research examines differences between judges and jurors in rendering liability judgments in auditor litigation cases. While any number of case contexts would allow us to contrast and compare judges and jurors, we chose one that we believed would also address a second timely issue, auditor reliance or non-reliance upon the work of others. Within the general context of litigation of an alleged audit failure, we manipulated, between-participants, external auditor reliance on the work of others (relied on outsourced work, relied on in-house internal auditors’ work or did not rely). Our results show differences in the liability assessments of judges and jurors. Judges assign more liability to auditors that rely on the work of in-house internal auditors, less liability to auditors that rely on outsourced internal auditors and the least liability to auditors that choose not to rely on the work of internal auditors (but re-perform the work themselves) while jurors assess higher liability regardless of the work done by the auditors. Mediation analyses suggests the differences found in the overall liability assessments of jurors and judges are partially driven by their divergent attitudes towards the public accounting profession with jurors’ unfavorable attitudes leading to them assign liability regardless of the work performed. Further analysis suggests juror insensitivity to our reliance manipulations may reflect a strict liability perspective (consistent with prior work by Charron and Lowe (2008)); while judges consider other factors when making liability assessments.     

Safety regulation and monitor liability

We propose a simple liability rule when several agents are jointly responsible for monitoring a risky economic activity or certifying its security. Examples are safety controls for drugs or technical systems, environmental liability, or air safety accidents. The agents have private knowledge of their monitoring or avoidance costs. We adopt a mechanism design approach to ensure optimal monitoring incentives. Our innovation is to focus on information that is available or can be proxied when harm has occurred and when typically regulators and/or courts deliberate over fines and damages. By contrast, earlier proposals require more estimations of hypothetical accident scenarios and their ex ante probabilities. We argue that our rule promises substantial savings in information costs for courts and regulators and excludes likely sources of errors. Received: 11 October 2000 / Accepted: 14 September 2001 We are grateful to Doug Bernheim, Lewis Kornhauser, Kai-Uwe Kühn and an anonymous referee for helpful comments and discussions, and to an associate editor in particular for very valuable suggestions. Financial support from the European Commission (TMR Grant ERBFMBICT 972827) and from Thyssen Foundation is gratefully acknowledged.     

The unemployment problem

The paper reviews the unemployment problem in Europe. It showsthat while there is a good deal of heterogeneity in Europeanunemployment experience, a 'European model' of high and persistentunemployment characterizes many of the core continental economies,in contrast to the low unemployment experience of the USA. Theexplanation that this difference is due to a common skill-biasedshock interacting with more rigid labour-market features inthe European case is reviewed, as is the suggestion that theEuropean experience is exceptional on account of the more stringentmacro-environment created by devotion to tight monetary policies.The policy outlook is one in which strongly expansionary economicpolicies seem unlikely to be launched and most of the burdenof fighting unemployment will be borne by labour-market reforms;the bad side-effects of these could be cushioned by resort towage subsidies, supporting a 'European' bias in favour of equality.The 35-hour week is judged to be an unlikely remedy.     

THE TRANSMISSION OF MONETARY POLICY UNDER THE REPO SYSTEM IN SOUTH AFRICA: AN EMPIRICAL ANALYSIS♣

The study examines the influence of the repo rate on the interbank rate and analyses whether the transmission channels of interest rates have changed since the adjustment to the repo system in September 2001. The paper employs the Granger causality test using the ECM framework. The results suggest that the influence of the repo rate on the interbank rate was stronger before the adjustments to the system were made. The interbank rate and the repo rate were found to “reverse” roles in the period after the adjustments to the system. Our results show that the changes to the repo system in 2001 did not lead to the achievement of the intended transmission channel; instead it was found that the system in place before the changes were made was in fact already achieving the transmission path that the authorities hoped to accomplish by changing the system.     

Why costless auditing may reduce social welfare

We analyze a model where both a regulator and a firm may detect and stop bad projects. We show that full auditing by the regulator may be socially suboptimal even with zero auditing costs. The reason is that the firm's own auditing incentive may be crowded out when protected by limited liability. The optimal policy depends on the firm's wealth.