The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

THE LOCATION OF NONMETROPOLITAN HIGH-TECH INDUSTRIES: A Comparison of Regional Determinants

A study of the location of three classifications of high-tech industries in rural areas was undertaken using ordinary least squares, Tobit, and a two-step estimation procedure suggested by Heckman (1976). The results indicate that the location decision for high tech firms is influenced primarily by the county population, adjacency to an SMSA, and the expenditures on public infrastructure (exclusive of education expenditures). However, location near interstate highways was generally not a significant factor. Results were similar between branch and unit (single ownership) plants. Some differences in signs of orders of magnitude occurred among the estimation procedures. Making a choice between Tobit and Heckman approaches depends upon the goal of the research.     

The impacts of Hong Kong’s Currency Board reforms on the interbank market

Among the economies with a Currency Board System (CBS), Hong Kong (HK) is probably the one with the largest and most developed financial sector, as well as the highest capital mobility. Hence, studying HK’s CBS is not only crucial to HK, but also important for the understanding of the modern CBS. This paper outlines the major monetary reforms in HK since the late 1980s. The impacts of these reforms and the 1997–1998 Asian Financial Crisis are then examined empirically. We focus on the differentials between the US and HK interbank interest rates. We assume the conditional-mean equation follows an autoregressive process and the conditional-variance equation follows a generalized autoregressive conditional heteroscedasticity process. This model captures the time-varying level and volatility of the differential. In light of the empirical results we provide an assessment of the reforms in HK.     

Optimal Collective Investment in Generic Advertising, Export Market Promotion and Cost-of-Production-Reducing Research

Optimal investment rules are developed for a producer agency investing in domestic-market generic advertising, export market promotion, and cost-of-production-reducing research. These rules are derived assuming either maximization of producers' surplus or social surplus. The form of the optimality rules differs according to which objective is pursued. Fixed producer agency budgets are also allowed by incorporating a constraint limiting total expenditure on the three activities. Addition of such a constraint substantially alters the structure of the optimal investment rules. Differences in these rules highlight the importance of accounting for the financing mechanism when modeling optimal checkoff fund investment decisions. Optimality rules are simulated using data for the Canadian beef sector. Results suggest historic underinvestment in domestic-market generic advertising but overinvestment in export market promotion. Sensitivity of simulation results underscores the difficulty in assessing optimality of historic producer investment in cost-of-production-reducing research.     

The effects of debt versus equity inflows on savings and growth in developing economies

Zusammenfassung Die Wirkung von ausl?ndischer Kapitalbeteiligung und Kreditfinanzierung auf Ersparnisbildung und Wachstum in Entwicklungsl?ndern. — Zur Bew?ltigung der internationalen Schuldenprobleme von Entwicklungsl?ndern wird h?ufig vorgeschlagen, die Struktur des Kapitalimports zugunsten von Forderungsarten zu verschieben, bei denen sich die Gl?ubiger am wirtschaftlichen Risiko beteiligen, wie dies etwa bei Direktinvestitionen der Fall ist. Die Wahl zwischen Kapitalbeteiligung und Kreditfinanzierung mag jedoch Risiko-Ertrag-Konflikte zwischen Einkommensstabilit?t und erwartetem wirtschaftlichem Wachstum involvieren. Diese Hypothese wird aus einem entscheidungstheoretischen Modell auf der Basis eines Benutzer-Eigentümer Verh?ltnisses abgeleitet und mittels einer L?nderquerschnittsuntersuchung regressionsanalytisch getestet. Es zeigt sich, da\ bei nichtkooperativen Beziehungen zwischen Schuldnern und Gl?ubigern kreditfinanzierte Kapitalimporte einen vergleichsweise starken positiven Einflu\ auf die Ersparnisbildung und das Wirtschaftswachtum im Schuldnerland ausüben. Kapitalbeteiligungen k?nnen deshalb nicht ohne weiteres als vorteilhaft angesehen werden und auch nicht allen L?ndern empfohlen werden, ohne zu bedenken, wie sich soziale Gruppen gegenüber dem Risiko verhalten.

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Résumé Les effets de l’influx de la dette et du capital propre sur l’épargne et la croissance en économies développantes. — L’élément commun des beaucoup de propositions données pour faciliter les problèmes de la dette extérieure des pays développants est l’intention de changer la structure des importations de capital vers l’augmentation du rapport des créances qui basent sur quelque forme de partager les risques, p.e. la participation en capital propre. Cependant, le choix entre le capital propre ou des influx des capitaux financés par des dettes peut induire un conflit de ?rendement-risque? entre la stabilité de revenu et la croissance attendue. Cette hypothèse est dérivée d’un modèle choix-théorique basé sur l’approche agent-principal et testée empiriquement en appliquant l’analyse de régression trans-pays. Les auteurs démontrent que, dans un cadre non-coopératif des relations débiteurcréditeur, des transferts financés par des dettes ont une influence plus positive sur l’épargne et la croissance économique. La participation en capital propre ne peut pas être évaluée supérieure sans ambigu?té et c’est pourquoi elle ne peut pas être recommendée pour tous les pays, indépendant des attitudes sociales envers le risque.

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Resumen El efecto del endeudamiento sobre el ahorro y el crecimiento eneconomías en desarrollo comparado con el de las inversiones directas. — En varias propuestas para aliviar el problema de la deuda externa de los países en desarrollo se sugiere alterar la composición de las importaciones de capital en el sentido de aumentar la proportión de derechos con participación en el riesgo económico, es decir, la participación de la inversión directa. La elección entre inversión directa y deuda considera la relación inversa riesgo-beneficio que existe entre la estabilidad del ingreso y el crecimiento esperado. Esta tesis se dériva de un modelo teórico de elección basado en el enfoque agente-principal, que es sometido a un test empírico de regresión sobre una muestra de países. Se muestra que en el marco de relaciones deudor-acreedor de tipo no cooperativas las transferencias de financiamiento por deuda ejercen una influencia positiva relativamente superior sobre el ahorro y el crecimiento económico. La participación directa en el capital no resulta superior en todos casos y por ello no puede ser recomendada para todos los países, independientemente de las actitudes frente al riesgo que prevalezcan.

     

Infrastructures and Societal Change. A View from the Large Technical Systems Field

Infrastructural and societal changes intertwine in multiple ways. This makes the societal implications of infrastructural projects difficult to assess and anticipate. Yet in present day network societies this task is particularly urgent. This paper first identifies two positions that tend to monopolize and deadlock debates. Next it examines two decades of research in the Large Technical System (LTS) research field for alternative approaches to this issue, before finally suggesting distinguishing between the four increasingly indirect moments of (co-) construction of infrastructures and societies. These may be related causally, but also add their own moments of contingency, agency, and choice.     

Standardization Process of Systems Technologies: Creating a Balance between Competition and Cooperation

Many firms are experimenting with how to standardize new technologies. They may use proprietary technologies for their products and services, and let them compete in the market selection. Alternatively, they can cooperate to jointly set a standard and experiment with combinations of market process and cooperation. If firms let the market decide, they can compete with technologies and need not invest time and effort in hammering out a standard. If they do incur the costs of negotiated standardization, they may enable end users to realize the benefits of standards. A hybrid standardization process combines the advantages of both market selection and negotiated decision making. This paper presents a contingency framework to identify conditions that will affect the preferred standardization process for vendors who introduce new technologies. A major contingency that this paper points to is the systemic nature of technologies in information and communication technology industries. The more systemic the technology is (in a way to be clarified), the less likely that firms will establish a hybrid standardization process. One advantage of decomposing technology systems in smaller components (modules) is that this approach enables firms to combine market selection with negotiated selection of standards.     

The Cost of Capital of Cross‐listed Firms

This paper analyses the cost of capital of firms with foreign equity listings. Our purpose is to shed light on the question whether international and domestic asset pricing models yield a different estimate of the cost of capital for cross‐listed stocks. We distinguish between (i) the multifactor ICAPM of Solnik (1979) and Sercu (1980) including both the global market portfolio and exchange rate risk premia and (ii) the single factor domestic CAPM. We test for the significance of the cost of capital differential in a sample of 336 cross‐listed stocks from nine countries in the period 1980–99. Our hypothesis is that the cost of capital differential is substantial for firms with international listings, as these are often large multinationals with a strong international orientation. We find that the asset pricing models yield a significantly different estimate of the cost of capital for only 12% of the cross‐listed companies. The size of the cost of capital differential is around 50 basis points for the US, 80 basis points for the UK and 100 basis points for France.