A Holy Alliance: Collusion in the Renaissance Europe Alum Market

On June 11, 1470, representatives of Pope Paul II and Ferdinand, King of Naples concluded a cartel agreement to restrict competition in the sale of alum. The agreement was one element of a broader plan to monopolize the sale of alum throughout Christendom. We discuss the background of the cartel agreement and analyze its terms (which include arrangements to facilitate detection of and reduce the profitability of defection) and the constraints that limited, but did not eliminate, Rome’s ability to extract economic profit from the European alum market.     

Neuerscheinungen versicherungswissenschaftlicher Bücher

Ohne Zusammenfassung Ausgew?hlt von Dr. Andrea Uber, Berlin     

Entrepreneurial risk,investment, and innovation

I estimate the effect of uncertainty on risky innovation using a panel of 11,417 manufacturing firms. I find that an increase in uncertainty has a large negative effect on the risky innovation of entrepreneurial firms, while it does not have any significant impact on other firms. This negative effect is stronger for the less diversified entrepreneurial firms in the sample. The estimation results are consistent with the innovation dynamics generated in a model in which entrepreneurs are risk averse and cannot diversify the risk of their business.     

Approaching rainfall-based weather derivatives pricing and operational challenges

Review of Derivatives Research - This article approaches some of the current rainfall derivatives pricing and operational challenges through an empirical application to Comunidad Valenciana, Spain....     

Do banks price discriminate spatially? Evidence from small business lending in local credit markets

In this paper we explore the effects of bank–borrower physical proximity on price and non-price aspects of small business lending in local credit markets. Along the price dimension, our analysis reveals that interest rates increase with bank–borrower distance and decrease with the distance between borrower and other competing banks. Along the quantity dimension, we observe that more distant borrowers are more likely to experience binding credit limits. We also show that the quantity effects of bank–borrower distance are concentrated among less transparent firms. Our findings are consistent with pricing based on marginal costs that reflect information-based factors, and are in contrast to the established paradigm, where banks adopt spatial discriminatory pricing rules when lending to small-sized enterprises.     

Insider employee stock option trading and stock prices

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991–2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors’ reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, ‘through the cycle’, evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.     

Assessing financial distress dependencies in OTC markets: a new approach using trade repositories data

In this paper, we study the relationships among financial market sub-segments as a way to identify potential financial distress through increased co-movements among them. To study how sub-markets are mutually co-dependent, we combine granular data on over-the-counter derivatives by trade repositories and the joint probability of distress (JPoD) approach introduced by the International Monetary Fund. We define an indicator that combines several distress drivers and observe that results on co-dependencies are similar to those that would be expected: similarities between financial and contractual terms seem to be responsible for stronger co-movements among sub-markets. However, high values for JPoD even in correspondence of quite dissimilar sub-markets suggest the presence of other drivers that should be investigated in future research. To the best of our knowledge, this is the first empirical study on systemic risk assessment based on micro-founded trade repositories’ data on interest rate swaps.     

How Would David Ricardo Have Taught the Principle of Comparative Advantage?

If David Ricardo had lived beyond the age of 51, how might he have delivered a lecture on comparative advantage? I argue that Ricardo infers the direction of comparative advantage and the size of the gains from trade by interpreting the four numbers in his Principles of Political Economy and Taxation for cloth and wine traded between England and Portugal as amounts of labor embodied in the quantities actually traded. He illustrates diagrammatically the gains from trade as the overall labor that England would save if it were to liberalize wheat imports by repealing the Corn Laws. Postulating a concave production function for wheat, Ricardo also depicts the concomitant rise in the profit rate, describing it as an equally important contemporary gain from trade for England. His interpretation differs radically from the textbook versions of the “Ricardian trade model,” and suggests a more authentic way of presenting the principle of comparative advantage.