INITIAL PUBLIC OFFERINGS: GOING BY THE BOOK

In the U.S., and increasingly in other countries as well, IPO securities are marketed to investors in a process known as "book-building"—one that amounts to polling institutional investors to establish a demand schedule for the issue and then allotting stock to individual investors according to the strength of their professed interest. Although book-building methods require use of discriminatory tactics that have attracted strong criticism from investors and regulators, this article defends such practices by demonstrating that book-building is more efficient than alternative methods. It effectively allows issuers to increase the net proceeds of their offerings by making better use of information about market demand conditions.
In the process of explaining the efficiency of the book-building method, this article also offers a plausible explanation for a phenomenon that has long puzzled economists: the systematic underpricing of IPOs. The key to the success of a book-building effort lies in the use of a strategic pricing and allocation policy designed to offset the investor's incentive to understate his or her interest in an IPO. By committing to favor investors who provide strong indications of interest with relatively large allocations of underpriced shares, the investment bank can limit the distortion of investor's incentives in bidding and so increase the level of proceeds the issuing firm can expect to generate from its IPO.     

The Role of Multinational Firms in the Wage-Gap Debate

The observation of an increase in the ratio of skilled to unskilled wages in the high-income countries and in some cases in low/middle-income countries has led to considerable discussion and controversy as to its cause. Virtually none of the analyses have considered a role for multinational investment in explaining the wage-gap phenomenon. This paper adapts the authors' earlier work to consider what role multinationals might play in factor markets. It identifies circumstances under which investment liberalization is likely to raise the wage gap in both the skilled-labor abundant and the unskilled-labor abundant country.     

The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging

In this article we compare three models of the stochastic behavior of commodity prices that take into account mean reversion, in terms of their ability to price existing futures contracts, and their implication with respect to the valuation of other financial and real assets. The first model is a simple one-factor model in which the logarithm of the spot price of the commodity is assumed to follow a mean reverting process. The second model takes into account a second stochastic factor, the convenience yield of the commodity, which is assumed to follow a mean reverting process. Finally, the third model also includes stochastic interest rates. The Kalman filter methodology is used to estimate the parameters of the three models for two commercial commodities, copper and oil, and one precious metal, gold. The analysis reveals strong mean reversion in the commercial commodity prices. Using the estimated parameters, we analyze the implications of the models for the term structure of futures prices and volatilities beyond the observed contracts, and for hedging contracts for future delivery. Finally, we analyze the implications of the models for capital budgeting decisions.     

Testing for a Structural Change in U.S. Wage Determination

Previous tests for structural changes (slope changes) and shifts (intercept changes) in the Phillips curve and union wage determination specify the date of structural change a priori. This article tests for structural changes and shifts without specifying the change point ex ante . The results support the belief that structural changes occurred in the early 1980s. Contrary to some previous research, however, the results do not support a structural shift in the Phillips curve.     

Working-time reduction and employment: experiences in Europe and economic policy recommendations

The paper seeks to evaluate the evidence on the employment effectsof the collective working-time reductions in Europe over thepast 20 years. While theoretical analyses produce contradictoryassessments, most empirical studies show positive employmenteffects but take insufficient account of these conditions underwhich the reductions in working time were implemented. Theseconditions for the success of collective working-time reductionsinclude an active training policy designed to minimise skillshortages in the labour market, the modernisation of work organisation,wage increases in conjunction with productivity gains and amore equal income distribution.     

Evaluation of cooperative research

This report looks at evaluation studies of a number of cooperative academic-industrfy research programmes in Europe, and suggests that indirect economic benefits should be taken into account as well as motives and goals of participating firms.     

Linking of U.S. monetary policy and exchange rates to world soybean markets

The linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists. This paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the United States, Brazil, and Argentina in the EC-12 and Japan import markets. It is argued that U.S. monetary growth may have important impacts on the competitive position of U.S. soybean exports through exchange rates. Two relationships are investigated: (a) the effects of U.S. monetary growth on the agricultural trade weighted exchange rates, and (b) the responsiveness of agricultural commodity prices and U.S. exports to exchange rate movements. Results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both U.S. and Brazil/Argentina exports in the long run. However, during periods of more expansionary U.S. monetary policy there is little evidence of significant increases in market share position for U.S. soybeans and soymeal in world markets.