Skill acquisition,credit constraints,and trade

In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.     

THE DETERMINANTS AND DYNAMICS OF BID-ASK SPREADS ON THE LONDON STOCK EXCHANGE

We analyze the effect of various factors on the size of spreads on the London Stock Exchange since “Big Bang” and find that the price of a security, volume of transactions, risk associated with security returns, and degree of competition among market makers explain 91 percent of the cross-sectional variation in spreads. The results are consistent with the argument that the inside spread encompasses the order-processing, inventory-adjustment, and adverse-information cost of spreads. We also investigate the speed at which spreads move toward their normal levels after a temporary deviation. Although the speed of adjustment varies across firms, the cross-sectional median of 0.896 indicates it takes more than one period (day) for the adjustment to be completed. The volume of transactions and the degree of competition among market makers are the significant factors that affect the speed of correction in spreads toward their normal levels. This implies private information is incorporated more quickly into prices for stocks with greater competition and high trading volume.     

Acquisitions: Private versus Public

Takeovers of privately held companies represent more than 80% of all takeovers. Despite their significance, studies of such takeovers and their impact on the wealth of shareholders are rare. Using a very large, near exhaustive, sample of listed and privately held UK targets we examine the impact of such takeovers on the risk adjusted return of listed UK acquirers over the period 1981 to 2001. Acquirers earn significant positive returns during the period surrounding the bid announcement although the gains are dependent on target status, mode of payment, and the relative size of those involved. The much quoted conclusion, derived from the experiences of listed firm bidders that the shareholders of acquiring firms fail to gain from takeovers, cannot be generalised. Acquiring a privately held company is an attractive option for maximising shareholder wealth.     

Immiserizing Growth in a Closed Economy

We develop a model with three key features: a factor market distortion, monopoly power in the product market and indivisibilities in consumption. In this setting, multiple equilibria arise, one with high and the other with low equilibrium wages, incomes and output. It is also shown that even in a closed economy, growth may be immiserizing and, finally, that redistribution could be a “rich man's game”.     

Trade, investment and growth: nexus, analysis and prognosis

Patterns of causation between income, export, import and investment growth for 39 developing countries are examined using model selection techniques which are based on ex ante predictive ability criteria to identify the best predictive model for each country. In particular, we look at the incidence of causation and reverse causation between various economic variables which are commonly believed to lead economic growth and find that there is less reverse causation from income to these variables than previously thought. We also construct an index of global business cycle conditions and find that models of countries with high trade exposure, growth rates and investment rates tend to gain in predictive ability from the addition of this variable.     

Vertical trading and uneven development

The phenomenon of vertical trading, in which the center exports a good involving a high degree of processing which leads to economy-wide learning and the periphery exports a good which does not generate such effects, is formalized in a simple dynamic model of trade. It is shown that the periphery can ‘lose’ from such trade relations. Conditions under which this can occur are shown to involve parameters of the learning functions, and the ‘sizes’ of the two countries.     

If at First You Don't Succeed…: Profits,Prices, and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity*

Why are higher quality niches seen as intrinsically more profitable in business circles? Why do high quality products sometimes have a low real price, whereas it is unusual to see low quality products with high real prices? Can markets have quality differentiation as well as quality bunching? How does the rate at which fixed costs change with quality affect market structure? In this article we develop a new model of quality that casts light on such issues.     

Unbalanced growth

Abstract.  We study a model designed to understand the concept of unbalanced growth. We define leading sectors to be those that raise the profits from industrialization for other sectors the most. We identify the leading sectors and show that subsidizing them in sequence will raise welfare if the future is not discounted too strongly.