Greasing the Wheels of Trade: A Profile of the Dutch Transaction Sector***

How many resources does a nation spend on transactions costs to ‘grease the wheels of trade’? To examine this question the Dutch economy is used as a case study. The Netherlands are known as a nation of traders and this image was derived in the seventeenth century from successes in long distance trade, shipping and financial innovations. Despite its historical background the trading sector has never been adequately measured. In this paper, we present a first attempt in measuring and describing the Dutch transaction sector. Measurement by means of occupational data points out that approximately 25% of Dutch workers is employed in transaction jobs, and 29% if one includes transport tasks. We make the case that traditional industrial sector categories overestimate the true transaction character of an economy. Traditional ‘trade’ sectors employed 13% of the workers in 1807 and 39 percent in 1998, but these figures conceal the fact that all organizations employ jobs which have transformation and transaction tasks. A counterfactual exercise suggests that the growth of the transaction sector share in employment over two centuries was not 200% but 42%.     

Robust planning: a new paradigm for demand chain planning

This paper proposes a new paradigm for tactical demand chain planning (DCP), called robust planning, based on risk assessment of the supply and demand chain. The concepts of supply chain management (SCM), and its extension demand chain management (DCM), have been at the center of much recent research. One of the reasons for this is that, over the last years, a significant number of information systems have emerged, which claim to support the concept. The paper argues that these systems mostly adopt a myopic view of planning, based on pure deterministic planning methods. It demonstrates that such an approach fails to coop with the considerable uncertainty of the planning information. The proposed robust planning paradigm is then introduced and its impact explained, using the well-known example of the beer game. It holds the promise of reducing the number of re-planning cycles, through a better characterization of the expected service level performance over a medium planning horizon. Finally, a case study will show the value of robust planning in a European chemical enterprise.     

Liquidity biases in asset pricing tests

Microstructure noise in security prices biases the results of empirical asset pricing specifications, particularly when security-level explanatory variables are cross-sectionally correlated with the amount of noise. We focus on tests of whether measures of illiquidity, which are likely to be correlated with the noise, are priced in the cross-section of stock returns, and show a significant upward bias in estimated return premiums for an array of illiquidity measures in Center for Research in Security Prices (CRSP) monthly return data. The upward bias is larger when illiquid securities are included in the sample, but persists even for NYSE/Amex stocks after decimalization. We introduce a methodological correction to eliminate the biases that simply involves weighted least squares (WLS) rather than ordinary least squares (OLS) estimation, and find evidence of smaller, but still significant, return premiums for illiquidity after implementing the correction.     

Tax rates as strategic substitutes

This paper analytically derives conditions under which the slope of the tax-reaction function is negative in a classical tax competition model. If countries maximize welfare, a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions. The strategic tax response is crucial for understanding tax competition games, as well as the welfare effects of partial tax unions (whereby a subset of countries coordinate their tax rates). Indeed, contrary to earlier findings that have assumed strategic complementarity in tax rates, we show that partial tax unions might reduce welfare under strategic substitutability.     

Market transparency,liquidity externalities,and institutional trading costs in corporate bonds

We develop a simple model of the effect of public transaction reporting on trade execution costs and test it using a sample of institutional trades in corporate bonds, before and after initiation of the TRACE reporting system. Trade execution costs fell approximately 50% for bonds eligible for TRACE transaction reporting, and 20% for bonds not eligible for TRACE reporting, suggesting the presence of a “liquidity externality.” The key results are robust to changes in variables, such as interest rate volatility and trading activity that might also affect execution costs. Market shares and the cost advantage to large dealers decreased post-TRACE. These results indicate that market design can have first-order effects, even for sophisticated institutional customers.     

Measuring immigration's effects on labor demand: A reexamination of the Mariel Boatlift

Why do immigration shocks tend to have benign effects on native wages? One reason is that immigrants as consumers contribute to the demand for their services. We model an economy where workers spend their wages on a locally produced good, then test it via a reexamination of the 1980 “Mariel Boatlift” using Wacziarg's Channel Transmission methodology. Current Population Survey data on workers in 9 different retail labor markets and Survey of Buying Power data on retail spending by consumers in Miami and four comparison cities are used. We find strong evidence that the Mariel Boatlift augmented labor demand.     

Tracking the numbers: Across accounting and finance,organizations and markets

This introductory essay reviews recent advances in the emergent field of social studies of finance (SSF) and, subsequently, sets out to illustrate how a closer engagement with SSF might benefit research interests in accounting and vice versa. Finally, it provides a sketch of how mutual engagements across the fields might be intensified in what is identified as an emerging accounting and finance track in the discourse of social science. The prospects of a broader field of research exploring the use of financial numbers across social settings, markets, organizations and cultures are projected, and the possibility of articulating a strong sociological programme of research is considered.     

Peaks vs Components

We analyze the cross‐national distribution of gross domestic product (GDP) per capita and its evolution from 1970 to 2009. We argue that peaks are not a suitable measure for distinct convergence clubs/equilibria in the cross‐country distribution of GDP per capita, because the number of peaks is not invariant under non‐linear strictly monotonic transformations of the data such as the logarithmic transformation. Instead, we model the distribution as a finite mixture, and determine its number of components via statistical testing. We find that the number of components in the cross‐country distribution changes from three to two in the mid 1990s.     

Distribution dynamics of regional GDP per employee in unified Germany

We investigate to what extent convergence in production levels per worker has been achieved in Germany since unification. To this end, we model the distribution of GDP per employee across German districts using two-component normal mixtures. While in the first year after unification, the two-component distributions were clearly separated and bimodal, corresponding to the East and West German districts, respectively, in the following years they started to merge showing only one mode. Still, using the recently developed EM-test for homogeneity in normal mixtures, the hypothesis of just a single normal component for the whole distribution is clearly rejected for all years. A Posterior analysis shows that about a third of the East German districts were assigned to the richer component in 2006, thus catching up to levels of the West. The growth rate of a mover district is about 1% point higher than the growth rate of a non-mover district which had the same initial level of GDP per employee.