Employment shifts, economic reform and the changes in public/private sector wages in Mexico: 1987–1997

Over the last decade, the public sector in Mexico experienced substantial fiscal reform, divestiture of public enterprises, and the elimination of many regulations affecting pay and employment. This study analyzes the changes in the public/private sector differences in wages during the 1987–1997 period. The results from analyzing microdata from the Encuesta Nacional de Empleo Urbano show that relative public sector wages increased from 1987 to 1997. Most of the relative wage increase in the public sector can be explained by increases in the price of skills and by changes in sorting across sectors. The results have important public policy implications since they suggest that public sector workers earn more and their wages have grown faster than those of their private sector counterparts. As such, policies contemplating public sector reform should take into account the effect of these measures on the inter-sectoral income distribution and the overall economic growth. First version received: April 2000/Final version received: December 2000     

On the fundamental thought behind voting rules

The theme is Arrow's requirement in his theorem of 1951 on methods for group choice, that the choice be independent of irrelevant alternatives. The attention is drawn to (1) his own explanation of this requirement in 1972, which is a quite different understanding than has been discussed in the voluminous literature on the theorem, (2) that Arrow, in fact, in 1985 showed an understanding for how irrelevant alternatives might in a meaningful way influence the group choice, (3) that admittedly the border-line between irrelevant and relevant alternatives in Arrow's original statement is arbitrary, and (4) that Arrow, if he had observed the final thought in the origin of the group theory by Borda, which he admittedly did not, might have realized that Borda's method stringently estimates the relevance of each alternative for the result.The author expresses his surprise that a theoretical conclusion based on an arbitrary fundament has been admired so long.     

Problems and environment of small businesses in the Czech Republic

The impressive and spontaneous build-up of the private small and medium-sized enterprises (SMEs) in the Czech Republic in 1990–93 coincided with the similarly dramatic changes in the public administration and in the whole environment for decision-making. The resulting problems of SMEs in the Czech Republic seem to be common to all economies in transition. A lot of the problems are caused by the macroeconomic policy for which this sector is not the most important part of the national economy. The paper shows some conflicts between macroeconomic anti-inflationary (monetary and fiscal) policies, and interests of small businesses. The authors stress the importance of SMEs during the period of transition. Informal aspects of the functioning of small firms are discussed, especially their relation with banks and public administration. The paper offers some empirical evidence and available statistics on SMEs developments during 1990–94 focusing particularly on manufacturing.     

How do investment patterns of independent and captive private equity funds differ? Evidence from Germany

Empirical literature emphasizes a positive contribution of private equity investors, which results from their combined provision of capital, monitoring, and management support. The aim of this study is to show that these previous results, which are based mostly on the analysis of US independent closed-end private equity funds, cannot be generalized since the private equity industry should not be treated as homogenous. We argue that it is necessary to distinguish between different types of private equity providers because their differing governance structures, strategic goals and experiences have a decisive influence on their value adding activities. The results of this study—which uses a data set of 179 German private equity-backed companies—are consistent with the conjecture that independent and corporate private equity providers tend to have a more pronounced role in corporate governance and monitoring of the companies they finance, than bank-dependent and governmental funds which often serve only as bridge investors.      

Board of Directors and CSR in Banking: The Moderating Role of Bank Regulation and Investor Protection Strength

This paper brings together research on boards of directors as the backbone of corporate governance and corporate social responsibility (CSR) practices in the banking industry. The underlying idea is that some characteristics of bank boards, in particular independence and gender diversity, may impact the CSR commitments of banks. By making use of a sample of 159 banks in nine countries during the period 2004–2010, our empirical evidence suggests that banks with more independent directors and more female members on their boards incline toward socially responsible behaviour. Our results also suggest that institutional factors play a significant role in these effects. They show that in greater regulatory and stronger investor protection environments, board independence and gender diversity have more influence on the social behaviour of banks.     

Debt contracts in the presence of performance manipulation

Empirical evidence suggests that firms often manipulate reported numbers to avoid debt covenant violations. We study how a firm’s ability to manipulate reports affects the terms of its debt contracts and the resulting investment and manipulation decisions that the firm implements. Our model generates novel empirical predictions regarding the use and the level of debt covenant, the interest rate, the efficiency of investment decisions, and the likelihood of covenant violations. For example, the model predicts that the optimal debt contract for firms with relatively strong (weak) corporate governance (i.e., cost of manipulation) induces overinvestment (underinvestment). Moreover, for firms with strong (weak) corporate governance, an increase in corporate governance quality leads to tighter (looser) covenant, more (less) frequent covenant violations and lower (higher) interest rate. Our model highlights that the interest rate, which is a common proxy for the cost of debt, neither accounts for the distortion of investment efficiency nor the expected manipulation costs arising under debt financing. We propose a measure of cost of debt capital that accounts for these effects.     

The raw material basis of global value chains: allocating environmental responsibility based on value generation

A new approach to allocate environmental responsibility, the ‘value added-based responsibility’ allocation, is presented in this article. This metric allocates total environmental pressures occurring along an international supply chain to the participating sectors and countries according to the share of value added they generate within that specific supply chain. We show that – due to their position in global value chains – certain sectors (e.g. services) and countries (e.g. Germany) receive significantly greater responsibility compared to other allocation approaches. This adds a new perspective to the discussions concerning a fair distribution of mitigation costs among nations, companies and consumers.     

Carbon taxes and the double dividend hypothesis in a recursive-dynamic CGE model for Spain

A carbon tax is potentially a policy that can reduce CO₂ emissions and mitigate climate risks, at lowest economy-wide costs. We develop a dynamic CGE model for Spain to assess the economic and environmental effects of a carbon tax, and test the double dividend (DD) hypothesis. We simulate the impact of three carbon taxes: €10, €20 and €30 per ton of CO₂. For each tax, four ‘revenue recycling’ scenarios are examined: a reduction of taxes on capital, on labor, on value-added tax, and a scenario in which revenues are not recycled. We find a DD for taxes of €10/ton and lower, within five to seven years of implementation. We estimate an annual CO₂ emissions reduction of around 10% with this tax. Under some circumstances, the DD can be achieved for a tax of €20/ton. In any case, recycling revenues to cut pre-existing taxes reduces costs of imposing carbon taxes.