Employment protection: Do firms' perceptions match with legislation?

Drawing from harmonized surveys of firms around the world, we compare employers' responses with actual labor legislation. Employers' concerns about labor regulations are closely related to the relative stringency of labor laws. Medium and large firms, as well as innovating firms, are those most negatively affected by onerous labor regulations.     

Managing M&A Risk with Collars,Earn‐outs,and CVRs*

M&A transactions expose both the bidder and target shareholders to a number of major risks both prior to the close of the deal and during the post‐close integration phase. The main pre‐closing risk is the possibility that fl uctuations of bidder and target stock prices will affect the terms of the deal and reduce the likelihood the deal closes. After the closing, a major risk for bidder shareholders is the failure of the target to perform up to expectations, thus resulting in overpayment. This article describes a number of tools that can be used to manage such risks, using a number of examples to illustrate the structure and pricing of such tools. In the case of pre‐closing risks, offers with “collars” can protect target company shareholders from a drop in bidder company share prices while at the same protecting acquirers from excessive dilution. Post‐closing instruments such as earn‐outs and contingent value rights can be used to manage the risk of substandard performance and the overpayment that would result from underperformance.     

The emergence of institutions in Hayek’s theory: two views or one?

Hayek opposes the explanation of the emergence of institutions as “spontaneous (unintentional) order”, which he considers correct, against “constructivism” (viewed as erroneous). This dichotomy exhibits some inconsistencies, for, on Hayek’s account, constructivist ideologies seem able both to prevent the evolutionary emergence of norms and to generate institutions coherent with deliberate, intentional, purposes. If this is so, are there then two views on the emergence of institutions in Hayek’s theory? The paper consequently discusses whether constructivism and evolution of norms are two alternative kinds of explanation, and in particular whether the former can be interpreted in evolutionary terms.     

Powerless: gains from trade when firm productivity is not Pareto distributed

Most trade models featuring heterogeneous firms assume a Pareto productivity distribution, on the basis that it provides a reasonable representation of the data and because of its analytical tractability. However, recent work shows that the characteristics of the productivity distribution crucially affect the estimated gains from trade. This paper thoroughly compares the gains from trade obtained under three different productivity distributions (Pareto, lognormal, and Weibull) and investigates their policy implications. We find that both the magnitude of the welfare gains and the relative importance of the fixed versus variable trade costs change significantly. Hence, relying blindly on a single distribution is dangerous when performing trade policy analysis.     

Methodological Issues in Cross-Linguistic and Multilingual Advertising Research

This article discusses methodological issues related to language in advertising research. We introduce a framework that distinguishes between cross-linguistic research settings, where several languages are used in the study and different samples of respondents are studied in their own language, and multilingual research settings, where only a single language is used and multilingual respondents are studied either in their native or nonnative language. We review key principles that govern cross-linguistic and multilingual effects in advertising research to formulate guidelines for research design and data analysis. In the cross-linguistic context, these principles address nonuniform cross-linguistic differences in responses (related to nonequivalence of individual questionnaire items) versus uniform response effects (related to nonequivalence of verbal response category labels). In the multilingual context, we bring together evidence that shows how—even when comprehension is not a problem—stimuli, questions, and response categories may be processed differently in respondents' native versus nonnative language.     

Banks as Continuous Reinvention

Of the several debates that revolve around the work of the economic historian and political economist Karl Polanyi, one that continues to exercise minds concerns his analysis of, and political attitudes toward, post-war capitalism and the welfare state. Simplified a little, it is a debate with two sides. To borrow Iván Szelényi's terms, one side constructs a ‘hard’ Karl Polanyi, the other a ‘soft’ one. The former advocated a socialist mixed economy dominated by redistributive mechanisms. He was a radical socialist for whom the market should never be the dominant mechanism of economic coordination. His ‘soft’ alter ego insisted that the market system remain essentially intact but be complemented by redistributive mechanisms. The ‘double movement’ – the central thesis of his ‘Great Transformation’ – acts, in this reading, as a self-correcting mechanism that moderates the excesses of market fundamentalism; its author was positioned within the social-democratic mainstream for which the only realistic desirable goal is a regulated form of capitalism. In terms of textual evidence there is much to be said for both interpretations. In this article I suggest a different approach, one that focuses upon the meaning of Polanyi's concepts in relation to their socio-political and intellectual environment.     

International trade and financial integration: a weighted network analysis

The authors analyse patterns of international trade and financial integration using complex network analysis. The combination of both binary and weighted approaches delivers more precise and thorough insights into the topological structure and properties of international trade and financial networks (ITN and IFN). It is found that the ITN is more densely connected than the IFN, while both types of network display a core–periphery structure. This hierarchical organization is more pronounced in financial markets, suggesting that the bulk of trade in financial assets occurs through a handful of countries acting as hubs. High-income countries are better linked and form groups of tightly interconnected nodes. This kind of structure can explain why the recent financial crisis has spread rapidly among advanced countries while reaching emerging markets only in a second phase.     

Choice and self: how synchronic and diachronic identity shape choices and decision making

Research on the role of identity in choice varies widely across fields like psychology, philosophy, consumer behavior, and economics, in both the key questions addressed and the methods of investigation. Although a large literature has established how salient aspects of identity affect attitudes and norms, less is known about how beliefs concerning identity are shaped and how these beliefs affect decision making. In this review, we cover recent insights into these issues and summarize some newer, developing approaches to understanding (i) how people judge the persistence of identity, (ii) how beliefs about future changes in identity are formed and how they affect choices, (iii) the formation of beliefs about future changes in identity and how these beliefs affect decisions, and (iv) the historical and economic antecedents of identity norms and their consequences for economic behavior. We introduce a distinction between synchronic and diachronic approaches, and highlight important unresolved questions that will help these fields to more fully understand the role that identity plays in shaping choices.     

Stochastic continuous time growth models that allow for closed form solutions

We find a closed form solution that maximises the expected utility of an agent’s inter-temporal consumption subject to a stochastic technology, which is a linear combination of AK and Cobb–Douglas technologies. Additionally, we consider two cases of agent preferences: (i) Constant Relative Risk Aversion (CRRA) preferences, which treat optimal consumption as a linear function of capital, and (ii) Hyperbolic Absolute Risk Aversion (HARA) preferences, which treat optimal consumption as an affine function of capital. By establishing a minimum (subsistence) level of consumption in the HARA model, we are able to create a framework that more accurately represents real-world circumstances than previous studies have done. Furthermore, for both the CRRA and HARA cases we show the suitable, consistent stochastic differential equation which describes the capital dynamics. Finally, we perform a numerical simulation based on the CRRA case and calibrate US data for the HARA case.     

POINTS OR PRISON? THE EFFECTS OF DIFFERENT SANCTIONS ON DRIVING BEHAVIOR

We compare two reforms aimed at reducing road accidents in Italy. The Penalty Points System (PPS) provides drivers with a score and curtails points after infractions. The license is temporarily suspended when points are exhausted. Losing points is easy, but the penalty is mild. The Road Homicide (RH) introduces heavy penalties in the rare event of injuries and/or fatalities. In terms of probability and intensity of the penalty the two policies are therefore diametrically opposed. We find that injuries and fatalities decrease more with PPS than with RH. Comparing costs and benefits, we conclude that strong penalties are not beneficial. (JEL D91, K14, K42, R41)