How Banks Price Loans to Public‐Private Partnerships: Evidence from the European Markets

This article presents the findings of a recent analysis of the drivers of credit spreads in project finance loans to public‐private partnerships, or PPPs, an increasingly popular form of procurement worldwide. PPPs are project finance transactions in which project output is a function of government policy in fields such as health, transport, and education. Because of the controversy that now surrounds the use of private finance in PPPs, understanding the determinants of the cost of debt in such highly leveraged projects is of interest to policy makers as well as originators and participants in the transactions. Using a large sample of credit spreads on debt extended to PPP projects in Europe over the past 15 years, the authors' study reports that market risk is the only significant driver of PPP debt credit spreads in a large portfolio of PPP debt; at the same time, technical risks appear to be diversified “away” by the structuring of the projects. Most important, and contrary to standard debt pricing models, factors like loan size, maturity, and leverage do not show up as significant determinants of the cost of debt in PPPs, reflecting a high degree of confidence by lenders that loans will be repaid or recovered. These results support the view that the use of project finance in PPPs is premised on effective risk management as well as confidence in the private sector's ability to manage public projects.     

Globalization and financial development

This paper argues that globalization is a key factor in stimulating institutional reforms in developing countries that promote financial development and economic growth. Advanced countries can help in this process by supporting the opening of their markets to goods and services from emerging-market countries. By encouraging these countries to increase their participation in global markets, advanced countries can create exactly the right incentives for developing countries to implement the reforms that will enable them to have high economic growth.     

The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory

It is somewhat common for heterodox economists to come to the defense of neoclassical microeconomic theory. This is due to many reasons, but perhaps the commonest one is ignorance. It seems that most heterodox economists are not aware of the many critiques or that as a collective they completely undermine neoclassical theory. The objective of the article is to dispel ignorance by using the existing criticisms to delineate a systematic critique of the core components of neoclassical microeconomic theory: the supply and demand explanation of the price mechanism and its application to competitive markets. The critique starts by examining the choices, preferences, utility functions, and demand curves, followed by examining production, costs, factor input demand functions and partial equilibrium, and ending with perfect competition and the supply curve. In the conclusion, the implications of the results will be extended to the firm and imperfectly competitive markets, and then the question whether general equilibrium theory or game theory can save neoclassical microeconomic theory.     

Prior-knowledge and opportunity identification

An entrepreneur’s prior knowledge and experience play a critical role in his ability to identify and exploit entrepreneurial opportunities. Although entrepreneurship research has acknowledged the role that prior information and prior knowledge play in opportunity recognition, few studies have explored their role in entrepreneurial discovery. We test the role of a particular prior knowledge in entrepreneurial discovery within a laboratory setting. Participants were randomly assigned to one of two treatment groups. Those in the propitious treatment were given prior knowledge that oriented them toward the arbitrage opportunity within the experiment, and those in the unpropitious treatment were given prior knowledge that oriented them away. As hypothesized, those in the propitious treatment were significantly more likely to discover the arbitrage opportunity.     

Aligning Incentives at Systemically Important Financial Institutions: A Proposal by the Squam Lake Group

To address the moral hazard problem that can motivate bank executives to take excessive risks and to fail to raise capital when needed, a group of 13 distinguished financial economists recommends that systemically important financial institutions be required to issue contingent convertible debt (CoCos) and to hold back a substantial share—as much as 20%—of the compensation of employees who can have a meaningful impact on the survival of the firm. This holdback should be forfeited if the firm's capital ratio falls below a specified threshold. The deferral period should be long enough—the authors suggest five years—to allow much of the uncertainty about managers' activities to be resolved before the bonds mature. Except for forfeiture, the payoff on the bonds should not depend on the firm's performance, nor should managers be permitted to hedge the risk of forfeiture. The threshold for forfeiture should be crossed well before a firm violates its regulatory capital requirements and well before its contingent convertible securities convert into equity. The Swiss Bank UBS has paid bonuses to its top 6,500 executives that have been structured in exactly this way. Management forfeits its deferred compensation if the bank's regulatory capital ratio falls below 7.5%, and its contingent convertible debt is set up to convert into equity if the bank's capital ratio falls below 5%.     

Technology Flows Matrix Estimation Revisited

This paper revisits the methodological problems of estimating matrices showing how technological advances--measured by industry research and development outlays--flow from industries of origin to using industries. An early effort relied upon the analysis of 15 112 US patents. Several alternative methods are explored to address methodological questions concerning the choice of carrier matrices, the handling of diagonal elements, and the treatment of capital goods flows. Technology flow matrices estimated using diverse combinations of assumptions are tested for goodness-of-fit relative to the original patent-based matrix and for their ability to "predict' productivity growth in Solowian regression equations. Although some anomalies emerge, the best results are obtained using combined first-order transactions and capital flows matrices with diagonal elements adjusted to reflect the ratio of internal process to all R&D spending. However, flow data compiled using the Leontief inverse matrix add explanatory power in productivity growth regressions.     

Transparency of medicines data and safety issues–a European/US study of doctors’ opinions: what does the evidence show?

Over the past 10 years, European pharmaceutical regulators (especially the European Medicines Agency [EMA]) have enacted a wave of transparency policies. Since 2010, the overwhelming majority have focused on releasing more scientific medicines information online and providing open access to regulatory data. Amongst other benefits, EMA expects its policies to build public trust and provide outsiders with a better understanding of regulatory decision-making. Yet, few studies have empirically examined the EMA’s transparency policies, especially on the end users of ‘transparent’ information (e.g. medical doctors or patients). This paper presents standout findings from a November 2014 survey conducted in Spain, Germany, France and the United Kingdom with a sample of 1005 general practitioners and medical specialists treating either multiple sclerosis, rheumatoid arthritis, osteoporosis, idiopathic pulmonary fibrosis or HIV/AIDS. The study found that 76% of respondents think it is a bad idea to release information into the public domain before possible safety issues have been investigated by the regulators and (relevant) pharmaceutical company. The results also suggested that medical doctors in Europe have a poor understanding of pharmaceutical regulatory activities. In particular, the majority were largely unaware of the current activities of the EMA, did not have good knowledge of how the regulators assess the safety of medicines (e.g. only 17% said they had good knowledge of how EMA assess the safety of medicines) and were unfamiliar with regulatory documents frequently used by regulators and industry to discuss the safety of medicines (e.g. in approving a medicine).     

HUMAN RESOURCE MANAGEMENT PRACTICES AND EMPLOYEE JOB SATISFACTION IN NONPROFIT ORGANIZATIONS

The purpose of this study is to establish a measurement scale for human resource management (HRM) practices in nonprofit organizations and to analyze their impact on employee job satisfaction. An exploratory factor analysis (EFA) using a principal components was performed. The analyzed sample is composed of 62 organizations with 2,030 employees. The results demonstrate that 8 out of 20 analyzed variables determine the measurement scale of HRM practices in these organizations. These variables are related to psychological demands, active work and development possibilities, social relations and leadership, and the degree of coherence in the organization with its principles. According to the results, these practices have an impact on employee job satisfaction. We believe that these results are relevant due to the lack of similar studies and the relevance of nonprofit organizations as job creators in the European Union.