PUBLIC GOODS AND THE DISSOLUTION OF STATES

We present a simple model of the dissolution of states. We combine elements of the literature on the break‐up and integration of states based on models in the fiscal federalism tradition, with elements of the literature that explains the determination of a state's political institutions as a means to credibly promise redistributions in the face of costly, perhaps violent, redistributive conflict. We are able to characterize when the equilibrium involves the dissolution of a country, and when it involves continued unity. We are also able to explore some aspects of the linkages between political institutions and the determination of national boundaries.     

Hedge fund liquidity and performance: Evidence from the financial crisis

We investigate how share restrictions affect hedge fund performance in crisis and non-crisis periods. Consistent with prior research, we find that in the pre-crisis period more illiquid funds generate a share illiquidity premium compensating investors for limited liquidity. In the crisis period, this share illiquidity premium turns into an illiquidity discount. Hedge funds with more stringent share restrictions invest more heavily in illiquid assets. While share restrictions enable funds to manage illiquid assets effectively in the pre-crisis period, they seem insufficient to ensure effective management of illiquid portfolios in the crisis. In a crisis period, funds holding illiquid portfolios experience lower returns and alphas, also when share restrictions are controlled for. Funds with an asset–liability mismatch perform particularly poorly and experience the strongest outflows. Share restrictions are also a proxy for incentives as investors cannot immediately withdraw their money after poor performance. We show that higher incentive fees can offset the share illiquidity discount in the crisis period.     

Rentenversicherung zwischen Nachhaltigkeit und Gerechtigkeit

Compared to other Western European countries, Germany has taken considerable steps to improve the sustainability of financing its public pension system. However, more recently we have observed attempts to revoke some of the enacted reforms before their implementation. If the positive correlation between income and life expectancy is taken into account, one can indeed diagnose a discrimination against low-income earners in the present retirement benefit schedule, and this very group will suffer disproportionately from the increase in legal retirement age enacted in 2007. Therefore, to protect the sustainability of the pension system in the political sphere, it may be necessary to modify the schedule in favor of this group. In other words, sustainability and equity of the pension system must go hand in hand.     

“True exposure”: The analysis of trade liberalization in a general equilibrium framework

Zusammenfassung “Wirkliche ?ffnung”: Die Analyse der Handelsliberalisierung im Rahmen eines Modells des allgemeinen Gleichgewichts. - Das kürzlich entwickelte Konzept der “wirklichen Protektion” wird in diesem Beitrag für die Analyse des Abbaus von Handelsschranken genutzt. Dabei werden die Bedingungen aufgezeigt, unter denen es zu absoluten Preissteigerungen (-Senkungen) der Binnengüter bzw. zu einer Abwertung (Aufwertung) des realen Wechselkurses kommt. Au▾erdem werden die Wirkungen von Einkommenseffekten pr?zisiert. Der Vergleich verschiedener Wechselkursregime, unter denen eine Liberalisierung stattfinden kann, führt zu einer eindeutigen Pr?ferenz für flexible Wechselkurse, die mit freiem Kapitalverkehr verbunden sind. Daher spricht einiges dafür, da▾ eine Liberalisierung des Kapitalverkehrs dem Abbau von Protektion im Handel vorausgehen sollte.

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Résumé “Vraie exposition”: l’analyse de la libéralisation du commerce international en cadre de l’équilibre général. - Cet article applique le concept récemment développé de la “vraie protection” pour une analyse des effets de la libéralisation du commerce international. L’auteur discute les conditions sous lesquelles le niveau de prix des biens non-commerciables accro?t (décro?t) ou le taux de change réel dévalorise (revalorise). De plus, l’effet des changements de revenu est analysé. Une comparaison des régimes alternatifs de taux de change sous lesquelles la libéralisation du commerce peut se passer démontre clairement la supériorité d’ un taux de change flexible avec des mouvements libres des capitaux internationaux. Cela pourrait indiquer qu’il faut libérer les mouvements des capitaux internationaux avant la libéralisation du commerce extérieur.

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Resumen Exposición al riesgo: el análisis de la liberalización del comercio en un marco de equilibrio general. - En este trabajo se utiliza el concepto de “protección verdadera”, desarrollado recientemente, en un análisis de los efectos de la liberalización del comercio. Se discuten las condiciones bajo las cuales el nivel de precios de bienes no transables aumenta (disminuye) o la tasa de cambio real es devaluada (revaluada). Asimismo, se analiza el impacto de cambios en el nivel de ingresos. Una comparación de regímenes de cambio alternativos bajo los cuales puede tener lugar una liberalización del comercio demuestra sin ambiguedades la superioridad de una tasa de cambio flexible con un libre movimiento internacional de capitales. Esto puede indicar que la liberalización del movimiento internacional de capitales debiera preceder a la liberalización del comercio.

     

Report of the Editor 2020

Financial Markets and Portfolio Management -     

The implementation of organic principles and values in the European Regulation for organic food

The paper is based on selected findings of the research project EEC 2092/91 (Organic) revision. It contributes to an improved understanding of the core ethical values associated with and principles of organic farming, analyses reference to such values in the European Regulation (EEC) 2092/91 and its ongoing revision, and contrasts them with current practice of organic agriculture. An analysis of differences in the implementation of the Regulation by national governments and private standards is presented. Ethical values are per se in need of interpretation, so the final section sets out procedural issues arguing for a deliberative model of decision-making, when aiming to achieve a coherent integration in the structure of a regulation.     

The Portuguese Dilemma of Unstable Pensions

Intereconomics - Portugal’s high public debt, its weak economic growth and its great attractiveness for foreign tourists are legend. Less well known is its unstable system of public pensions....     

Economic and political determinants of foreign direct investment

Four models explaining the flow of foreign direct investment in 80 less developed countries are econometrically estimated and compared by ex post forecasts. A politico-economic model which simultaneously includes economic and political determinants performs best. The higher the real per capita GNP and the lower the balance of payments deficit are, the more foreign direct investment is attracted. Among the political determinants the amount of bilateral aid coming from Western countries and multilateral aid has a stimulating effect, while help from communist countries has a negative effect. Political instability significantly reduces the inflow of foreign direct investment.