Taxpayer resistance,guarantee uncertainty,and housing finance subsidies

In the absence of external guarantees, a private firm's debt trades in the market at rates reflective of its private default risk. Not all firms go it alone, however. There are entities, government-sponsored enterprises (GSEs), whose debt obligations enjoy federal guarantees. Federal guarantees affect housing finance indirectly in that they tend to enhance the creditworthiness of the debt obligations of the housing intermediary which lessens the debtholder's exposure to default. The market investor then becomes a willing buyer of GSE debt at a lower (subsidized) rate as a result of the government guarantee.Due to the fact that the subsidy rests on the presumption that the GSE debt will be bailed out by the government it can be seen that the subsidy in turn rests upon the presumption by the GSE debtholder that the taxpayers will honor the guarantee in the event of a GSE default. Hence, government subsidies to the housing intermediaries rest not on ongoing government outlays but rather on the confidence that the taxpayers will be willing, if called upon, to cover GSE losses, i.e., the confidence of a bailout.This article analyzes the effects on the GSE subsidy and on the taxpayer, if the debt markets charge for bailout risk. Bailout risk pricing is an economic event. When debtholders seek to protect themselves by pricing for bailout risk, this increases GSE borrowing costs and cuts into both GSE borrowers' subsidies and stockholder earnings. Higher borrowing costs leave the GSE in a weakened condition and increase the ex ante bailout cost to the taxpayer. When bailout risk premiums become priced by the market, it substantially lessens the government's ability to subsidize housing finance or other GSE activities.     

Taxes and capital structure: evidence from firms' response to the Tax Reform Act of 1986

While the theoretical relation between taxes and capital structurehas been extensively analyzed, the empirical evidence on thisissue has thus far been inconclusive. One of the main difficultiesconfronting previous empirical studies of the cross-sectionalrelationship between taxes and leverage was the control of interveningvariables. The Tax Reform Act of 1986 (TRA), which drasticallychanged the tax regime, provides a unique opportunity to assessthe interaction between taxes and leverage decisions in a controlledenvironment. We test the relationship between leverage and certaintax-related variables for a large sample of companies in theyears surrounding the enactment of the TRA. The results supportthe tax-based theories of capital structure. The findings indicatethat there exists a substitution effect between debt and nondebttax shields, and that both corporate and personal tax ratesaffect leverage decisions.     

Teaching Interactive Media Design

In todays, computer-centered society, designing interactive media has emerged as a new profession. Interactive design is often associated with spread of computers as a communication and interaction tool. However, interactive design has been a staple of artists and designers for many centuries. We present a historical perspective upon interactive design and point out the close relationship of this field with different fields of art and design. We argue that interactive media design is a distinct and evolving field and that it is imperative to teach it as such. In this paper, we have adopted this perspective and detailed a new four-year under-graduate curriculum on interactive media design education. This curriculum stresses the various components of interactive media design and its close relationship with computer science. This revised version was published online in July 2006 with corrections to the Cover Date.     

Entry and product quality under price regulation

Spence (1975, footnote 5, p. 420) has shown that, in equilibrium, a price-regulated monopoly will supply a socially suboptimal level of quality. This tendency to undersupply quality has been used to justify an expansion of regulatory controls to the quality dimension in certain regulated industries (e.g., electricity and telecommunications). In this paper, we examine the effects of entry on equilibrium product quality in an industry which is price-regulated. A generalized conjectural variation model is used which allows both monopolistic and oligopolistic market structures. Using this model, we find that regulation generally leads to a socially nonoptimal (either too high or too low) level of quality, where the direction of the resulting departure from optimal quality depends upon the conjectures that firms form. Spence's result is obtained as a special case. We then demonstrate that a policy that encourages (or, at least, does not discourage) entry into the regulated market will cause equilibrium quality to move in a social-welfare-improving direction, regardless of the direction of the original distortion.     

Embargoes and corporate goals

A recent article in Food Policy, ‘US-Soviet grain embargoes: regulating the MNCs’, by Erik Lindell,¹ broached the problem of controlling and regulating multinational corporations (MNCs) during recent US-Soviet grain embargoes. While agreeing with Lindell's analysis as far as it goes, Peter Okaiyeto provides a conceptual framework to improve our understanding of why MNCs behave as they do, demonstrating that MNCs will undermine those global interests of their national governments that run counter to their own interests.     

Personal and nonpersonal incentives in mail surveys: Immediate versus delayed inducements

A mail survey was conducted to empirically investigate contributions to charity as a method of stimulating responses to a mail survey. The research design included a control group and four experimental groups with the following treatments: a prepayment of $1.00 enclosed with the questionnaire (immediate personal reward), $1.00 promised upon return of the questionnaire with the respondent identified (delayed personal reward, no anonymity), $1.00 promised upon return of the questionnaire with no identification of the respondent (delayed personal reward, anonymity), and the promise of $1.00 contribution to a respondent-selected charity (delayed non-personal reward). The $1.00 prepayment yielded a statistically significant higher response rate than the $1.00 promised to charity or $1.00 promised upon return of the questionnaire. This study generally supports existing empirical foudnations of equity theory. An immediate personal reward yields a higher response rate than a delayed personal or non-personal reward.     

A trade without collective bargaining

The contract cleaning industry has hitherto managed to avoid the establishment of collective bargaining machinery. Will this situation be remedied in the light of the N.B.P.I, report, pressure from the unions concerned and the T.U.C. ?     

Devaluation and its consequences in developing countries

To analyze the role of the trade and payments regime in economic development the National Bureau of Economic Research undertook a major research project on this issue. In this article a brief report on some of the findings pertaining to the effect of exchange rates, i. e. devaluation under exchange control is provided.