The Chilean Agrarian Transformation: The Pre-Agrarian Reform Period (1955–1965)

Today Chilean agriculture has recovered from years of diminishing returns. The same arduous work carried out by a declining workforce has suddenly attained higher productivity and, therefore, achieved economic growth. This article suggests that Chile has undergone a series of fundamental changes in the last quarter of the twentieth century, which have intensified its capitalist development. It analyses the agrarian structure of the hacienda system during the period immediately before the agrarian reform, looking particularly at the transition to modern capitalism, agricultural growth and the land question. It argues that before the implementation of the agrarian reform, the country had not finished its transition to modern capitalism due to the persistence of the antiquated hacienda system. It further suggests that the land reform process – implemented and consolidated from 1964 to 1980 – permitted the culmination of the long-postponed transition to modern capitalism and gave rise to the ascendancy of an agro-industrial bourgeoisie and an export-oriented agriculture integrated into the world economy.     

VERTICAL RESTRAINTS UNDER ASYMMETRIC INFORMATION: ON THE ROLE OF PARTICIPATION CONSTRAINTS*

The impact on vertical contracting of a type‐dependent reservation utility is investigated within a sequential monopolies environment with asymmetric information. The welfare and private properties of contracts controlling both the retail price and the sales level are compared with those restricting only sales. When firms choose contracts non‐cooperatively, retail price restrictions are desirable for the upstream supplier although detrimental to consumers, whenever the retailer reservation utility has a relevant impact on optimal contracts. If this impact is relatively weak and contracts are chosen cooperatively, vertical price control fails to maximize firms' joint‐profit although it would be beneficial to consumers.     

Identifying Human-Capital Externalities: Theory with Applications

The identification of aggregate human-capital externalities is still not fully understood. The existing ( Mincerian ) approach confounds positive externalities with wage changes due to a downward sloping demand curve for human capital. As a result, the Mincerian approach yields positive externalities even when wages equal marginal social products. We propose an approach that identifies human-capital externalities, whether or not aggregate demand for human capital slopes downward. Another advantage of our approach is that it does not require estimates of the individual return to human capital. Applications to U.S. cities and states between 1970 and 1990 yield no evidence of significant average-schooling externalities.     

On the Relative Equitability of a Family of Taxation Rules

A taxation problem consists of collecting a given amount of taxes out of a population whose gross income vector is given. A tax rule R is more equitable than a rule R′ when the after‐tax income vector generated by R Lorenz dominates that generated by R′. In this paper, we present a one‐parameter family of tax rules whose members are fully ranked in terms of relative equitability, for any (finite) income distribution.     

Measuring the Agency Cost of Debt

We adapt a contingent claims model of the firm to reflect the incentive effects of the capital structure and thereby to measure the agency costs of debt. An underlying model of the firm and the stochastic features of its product market are analyzed and an optimal operating policy is chosen. We identify the change in operating policy created by leverage and value this change. The model determines the value of the firm and its associated liabilities incorporating the agency consequences of debt.     

Do Creditor Rights Increase Employment Risk? Evidence from Loan Covenants

Using a regression discontinuity design, we provide evidence that there are sharp and substantial employment cuts following loan covenant violations, when creditors gain rights to accelerate, restructure, or terminate a loan. The cuts are larger at firms with higher financing frictions and with weaker employee bargaining power, and during industry and macroeconomic downturns, when employees have fewer job opportunities. Union elections that create new labor bargaining units lead to higher loan spreads, consistent with creditors requiring compensation when employees gain bargaining power. Overall, binding financial contracts have a large impact on employees and are an amplification mechanism of economic downturns.     

The Creditor Channel of Liquidity Crises

This paper presents a model to study the transmission of liquidity shocks across financial institutions through the creditor channel. In the model, a borrower institution obtains funds from a large institutional lender and small investors. When the large lender's asset market is hit by a liquidity shock, it might decide to withdraw funding extended to the borrower. The potential withdrawal by the large lender causes small investors to panic and to close positions even if the large lender does not. Facing funding problems, the borrower has to cut its activities, contributing to further shocks to the supply of market liquidity. The original shock is exacerbated, which reinforces withdrawals by all creditors. The model helps explain how the spreading of liquidity shocks from the broker–dealer sector to the hedge fund sector and the feedback contribute to a systemic crisis.