Bankruptcy, Warrants, and State-Contingent Changes in the Ownership of Control

We consider the design of securities that govern the distribution of cash flows and control rights for an investment project. An entrepreneur, endowed with managerial talent, contracts with an outside investor for required capital. Optimal contracts stipulate that the ownership of control and the distribution of cash flows are specified on a state contingent basis to manage the distortions that develop from the use of outside financing and so make the best use of the advantage in project management enjoyed by insiders. Our results illustrate that the use of warrants and convertible securities, which transfer control of the firm to outsiders in good states, and bankruptcy, which transfers control to outsiders in bad states, are related features of optimal contracts. Our model also indicates that firms will benefit from direct access to two types of bankruptcy processes resembling Chapter 7 and Chapter 11 (including deviations from absolute priority) of the bankruptcy code. This results differs from observed practices since stockholders cannot waive their rights for protection under Chapter 11. We show that when direct access to Chapter 7 is highly valuable, market participants have found clever ways to obtain it.Journal of Economic LiteratureClassification Numbers: G32 and G33.     

LESSONS FROM THE SOUTHERN CONE POLICY REFORMS

This article assesses the design of stabilization and liberalizationprograms in the Abstract Southern Cone countries of Argentina,Chile, and Uruguay. With the exception of Chile, the reformswere not as widespread as some believed. Little trade liberalizationtook place in Argentina and Uruguay, although some of the antiexportbias was reduced by eliminating taxes on traditional exports.In all three countries, labor markets remained fairly highlyregulated, though it was easier to dismiss labor. In general,liberalization was gradual: even Chile's trade liberalizationspanned five years. The article also shows that the collapse of the three economiesin the early 1980s cannot be ascribed mainly to terms of tradeand interest rate shocks. The main causes of failure were poorlydesigned programs and poor implementation. These errors includedrestrictive wage legislation (Chile) or political instabilitycombined with a preoccupation with keeping unemployment as lowas possible (Argentina). Monetary policy to deal with growingfiscal deficits was inconsistent with the accompanying exchangerate policy (Argentina throughout its reform period and Uruguaytoward the end of its reforms). Financial deregulation was notmatched by appropriate supervision of the financial institutions. The article suggests several policy lessons for countries attemptingto resume growth and restore external balance through a combinationof liberalization and stabilization policies. First, it findsevidence that reductions in distortions produced efficiencygains in Chile and Uruguay even though Uruguay's reforms wereshort-lived. Second, the article shows that policy inconsistenciesundermined the credibility of the later stages of reform inall three countries, eventually producing a crisis. Third, itpresents data that call into question the use of exchange rate-basedstabilization, because of the slow convergence of domestic pricesand interest rates to international levels, which in turn canproduce unsustainably large capital movements. Fourth, the articlestresses the need for caution in financial deregulation.      

Spatial and temporal impacts on building depreciation

This article explores the relationship between new housing and the existing housing stock in terms of an urban market value hierarchy, considering the importance of the concept of depreciation, as influenced by three factors: the age, location and quality of the building. Based on a sample from the Almond area of Madrid City Centre, the research considers many variables and applies an adapted appraisal approach termed differential depreciation to analyse the evidence of real estate values and the influence of spatial and temporal location factors. The study of the role of depreciation in the value of housing used in this research provides researchers with objective criteria on the functioning of the urban land market. This shows that the relationship between depreciation and the need for renovation is not linear, but instead follows identifiable patterns linked to the era of construction rather than solely the age of the building.     

Estate taxes, consumption externalities, and altruism

We study how the introduction of consumption externalities affects the optimality of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of aggregate consumption and capital. The optimal tax policy that solves this intertemporal suboptimality consists of a tax on capital income and a pay-as-you-go social security system. The latter solves the excess of capital accumulation due to the inoperativeness of the bequest motive and the former solves the suboptimal allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal misallocation of consumption but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest deviates also from optimality. The optimal tax policy in this case consists of an estate tax and a capital income tax.     

Auctioning divisible goods

Summary. We derive equilibrium bidding strategies in divisible good auctions for asymmetrically informed risk neutral and risk averse bidders when there is random noncompetitive demand. The equilibrium bid schedules contain both strategic considerations and explicit allowances for the winner's curse. When the bidders' information is symmetric, the strategic aspects of bidding imply that there always exist equilibria of a uniform-price auction with lower expected revenue than provided by a discriminatory auction. When bidders are risk averse, there may exist equilibria of the uniform-price auction that provide higher expected revenue than a discriminatory auction. Received: November 4, 1999; revised version: March 9, 2001     

Deviant behaviour? Inequality in Portugal 1565–1770

This study offers an estimate of Portuguese income inequality over a period of more than 200 years. It is presented in three widely spaced benchmarks: 1565, 1700 and 1770. This entirely new index is based in large measure on a little-researched annual personal income tax (décima) instituted in 1641. It covered all social classes, including nobility and clergy and every form of household earnings, and permits therefore a singularly accurate measure. It allows us to conclude that, in contrast with early modern Europe in general, Portugal experienced a notable decline in economic inequality. Several freshly minted quantitative indicators enable us to conclude that the burden of the explanation for this apparently ‘deviant’ behaviour can be ascribed to changes in the functional distribution of income. Significant transformations in Portuguese agriculture—towards labour-intensive products like maize and wine—permanently shifted the wage–rental ratio in favour of labour. The skill premium fell but its contribution was relatively modest. It was a time of sustained economic growth, but this was not associated with pronounced urbanization or industrialization.     

Healthcare resource utilization among commercially insured patients with cold agglutinin disease in the United States

Abstract

Aims: Cold agglutinin disease (CAD) is a rare subtype of autoimmune hemolytic anemia associated with increased thromboembolism risk and early mortality. Healthcare resource utilization (HRU) in CAD has not been reported. We aimed to compare HRU of patients with CAD with a matched non-CAD cohort in the United States.

Materials and methods: Patients with CAD were identified from 2006 to 2016 in the Optum-Humedica database using CAD terms in clinical notes and hematologist review. Patients were required to have Integrated Delivery Network records and ≥6 months’ follow-up before and after the first CAD mention date (index date). Patients with CAD were matched to a non-CAD cohort based on demographics. Multivariate analyses assessed inpatient hospitalizations, outpatient visits, emergency room visits, and transfusion use between cohorts 6 months before and 12 months after the index date.

Results: Of 814 patients with CAD, 410 met inclusion criteria and were matched to 3,390 patients without CAD. Mean age of patients with CAD was 68.0 years; approximately 62% were female. In the 12 months after the index date, mean inpatient hospitalizations (0.83 vs. 0.25), outpatient visits (17.26 vs. 6.77), emergency room visits (0.55 vs. 0.32), and transfusion days (1.05 vs. 0.05) were higher for patients with CAD than the matched non-CAD cohort (all p?<?.0001). Similarly, in the 6 months before the index date, patients with CAD had higher HRU than matched patients without CAD for all measures evaluated.

Limitations: Results of this study are based on patient information from the Optum-Humedica database, which is limited to commercially insured patients and may not represent the overall CAD population.

Conclusions: CAD places a substantial burden on patients and healthcare systems. In addition, the high HRU for patients with CAD observed in the 6 months before diagnosis indicates that disease awareness and better diagnostic practices may be needed.     

Regional Integration and Lobbying for Tariffs Against Nonmembers

We study the impact of regional trading arrangements (RIAs) on tariff policy toward nonmembers in a three-good, three-country political economy model. Comparing free-trade areas (FTAs) with and without rules of origin and customs unions (CUs) with varying degrees of economic and political integration, we show how increasingly deep integration can lead to rising protection against nonmember imports. Other differences between FTAs and CUs, like the extent of free-riding in a CU and any component of a CU's tariff designed to improve the members' terms of trade, are not explicitly accounted for. Nevertheless, the results suggest that FTAs are likely to welfare dominate CUs.     

Relationship between the Mean and the Constant in a Box–Jenkins Time Series Model

In some publications the mean is identified with the constant of a Box–Jenkins time series model. In this paper the relation between both terms is demonstrated. Furthermore, by means of an example, the errors which may be made if one does not use each term adequately are shown.