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.     

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.     

The Chilean Agrarian Transformation: Agrarian Reform and Capitalist 'Partial' Counter-Agrarian Reform, 1964–1980

This article, which is published in two parts, is an empirical analysis of the Chilean agrarian reform (1964–1973) and 'partial' counter-agrarian reform (1974–1980). Its aim is to explain and interpret their logic and the changes they brought to Chile's agrarian property regime in particular and Chilean life in general. Chile's agrarian reform was successful in expropriating (under the Frei and Allende administrations, 1964–1973) the great estates of the hacienda landed property system. The capitalist 'partial' counter-reform then redistributed them (under the military, 1974–1980). CORA, the country's agency for agrarian reform, expropriated and subsequently redistributed 5809 estates of almost 10 million hectares, or 59 per cent of Chile's agricultural farmland. A large amount of the expropriated land (41 per cent) benefited 54,000 peasant households with small-sized family farms and house-sites. The rest of the farmland benefited efficient and competitive commercial farmers and agro-business and consolidated medium-sized farms. Of central concern is the role of the agrarian reform and subsequent 'partial' counter-reform processes in fostering the transformation of the erstwhile agrarian structure of the hacienda system toward agrarian capitalism. The redistribution of the agricultural land previously expropriated made possible the formation of an agro-industrial bourgeoisie, small commercial farmers, an open land market and a dynamic agricultural sector. While, however, under military rule, a selected few benefited with family farms and became independent agricultural producers, a large majority of reformed and non-reformed campesinos were torn from the land to become non-propertied proletarians in a rapidly modernizing but highly exclusionary agricultural sector.     

(MIS)UNDERSTANDING COGNITION IN ORGANIZATION STUDIES

The article assesses the contribution made by cognitivist studies to the renewal of organizational theory in the late 1970s and early 1980s and highlights a number of ambivalences in the cognitivist approach. On the one hand, the innovations wrought by the works of Simon, Cyert and March, and Weick have focused organizational analysis on organizational thought, which became a mainstay in the paradigmatic polemic against positivism and structuralism in organizational analysis. On the other hand, the criterion of scientificity, the measurement of the thoughts of organizational actors, and the importance assigned to strategic decision makers in organizations, tie this approach to the rationalist, positivist and structuralist conception that was characteristic of the dominant paradigm in organizational studies and theories until the 1970s.     

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.     

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.     

Investment Policy and Exit-Exchange Offers Within Financially Distressed Firms

This article examines the conflict of interest between shareholders and bondholders in a setting in which firms can renegotiate the terms of existing debt with public debtholders. In particular, we consider one of the most common types of debt restructuring: the exit-exchange offer. Our analysis explores the relation between exit-exchange offers and investment choice by the manager, and it concludes that managers, acting strategically on behalf of shareholders, may select inefficient investment projects in order to enhance their bargaining position vis-a-vis creditors. Holding the upside potential of an investment project fixed, managers/shareholders prefer projects with lower payoffs in states of bankruptcy because it induces individual bondholders to accept poorer terms in a debt-for-debt exit-exchange offer, thus generating a greater residual for shareholders in states of solvency. Additionally, we show how the investment inefficiencies in our analysis depend on (i) the inability of bondholders to coordinate their actions; (ii) the ability of managers to commit to suboptimal investment projects; and (iii) the coupling of an individual bondholder's decision to tender and her decision to consent to allow the firm to strip fiduciary covenants. We suggest conditions under which a ban on coupled exit-exchange offers—or alternatively, constraints on “debt-for-debt” exchanges—would be efficiency-enhancing.     

On the Neutrality of Redistribution in a General Equilibrium Model with Public Goods

Models on private provision of public goods typically involve a single private good and linear production technology for the public good. We study a model with several private goods and nonlinear (strictly concave) production technology. We revisit the question of „neutrality” of government interventions on equilibrium outcomes and show that relative price effects that are absent with a single private good and linear production technology become a powerful channel of redistribution in this case. Contrary to previous results, redistributing endowments in favor of contributors is shown to be neither necessary nor sufficient for increasing the equilibrium level of public good.