Individual welfare,social deprivation and income taxation

Summary. In a homogeneous framework where individuals can only be distinguished on the basis of their incomes, we examine the incidence of taxation on the amount of deprivation felt in the society. We conceive deprivation in terms of utility or well-being rather than just in terms of income and we measure it by comparing the deprivation profiles arising in the different situations. We identify the restrictions to be imposed on the utility function which guarantee that a more progressive system of taxes always results in less social deprivation. We show that, in general, it is not possible to get an equivalence and realize a social improvement in terms of social deprivation by substituting a more progressive system of taxes for a less progressive one. Received: September 20, 1999; revised version: March 6, 2002 RID="*" ID="*" This paper forms part of the research programme of the TMR network Living Standards, Inequality and Taxation [Contract No. ERBFMRXCT 980248] of the European Communities whose financial support is gratefully acknowledged. Chakravarty wishes to express his sincere gratitude to the French Ministry of Education for financing his stay at DELTA during which this paper was written. The authors would like to thank Stephen Bazen, Nicolas Gravel and an anonymous referee, whose comments have helped to improve the paper, but they retain sole responsibility for remaining deficiencies. Correspondence to: P. Moyes     

Cleaning house: Stock reassignments on the NYSE

A frequently occurring, yet unexplored, phenomenon of the New York Stock Exchange specialist system is that of reassignments of stocks by specialist firms on the floor of the Exchange. These events change the portfolios at the individual specialist level by reassigning one or more stocks from one individual specialist portfolio to another. We find that reassigned stocks have unusually wide spreads before reassignments and experience a decline in spreads to levels comparable to matched stocks after the reassignment. This improvement in liquidity is associated with a reduced cost of capital for the reassigned firms. We find that portfolio size, and industry and size concentration of the individual specialist portfolios are associated with the decision of specialist firms to reassign stocks.     

Determinants of Profit Reinvestment by Small Businesses in Emerging Economies

We investigate the cross‐country key factors of profit reinvestment decisions using data compiled by the World Bank from over 7,000 businesses in 36 developing countries. We find that, compared to the security of property rights, it is a firm's access to external financing that plays an important role in a firm's reinvestment decision in emerging economies. The extent of private ownership and the firm's competitiveness are additional significant factors correlated with its reinvestment decision. Furthermore, we uncover a firm size effect in that the above factors driving firm reinvestment decisions appears to impact small firms more than relatively larger firms.     

Growth,deregulation and rent seeking in post-war British economy

Post-war political consensus about the need for government action to rectify market failure began to unravel in the 1970s, and even the need for prudential control of banking and finance began to be challenged by the start of the 1980s. Regulatory oversight was relaxed in the belief that emerging techniques in financial engineering would render irrelevant fears of sharp periodic downturns that have historically been the consequence of lightly regulated finance. The outcome of this new policy, embracing the idea of unregulated markets to deliver greater prosperity, is disappointing. We find that the average growth rate of UK GDP and output per person employed for three decades from the start of liberalization was no greater than that in the previous three post-war decades. Cyclical fluctuations were deeper. A remarkable feature of the second period is the sharp rise in income inequality in favour of the very top earners. An illusion of greater prosperity for a wider segment may have been created in the second period due to asset price bubbles and housing inflation.     

Efficiency and concentration

Baumol, Panzar, and Willig [1982] introduced the idea that there may be efficiency gain from merger of two or more firms. This paper shows that the Debreu [1951]-Farrell [1957] type index suggested by Färe [1986] to calculate the gain in efficiency from merger of firms can be related to a concentration formula. We then introduce a dominance relation consistent with the ordering generated by the Färe gain function. Next, it is shown that a normalized form of the gain function satisfying a homogeneity condition becomes a subclass of the Hannah-Kay [1977] concentration indices. A limiting case of this subclass becomes the entropy-based index of concentration.The editor of this paper was Rolf Färe.I wish to express sincere gratitude to Shmuel Nitzan for bringing my attention to this problem. Comments and suggestions from Rolf Färe, Alexis Jacquemin, and two anonymous referees are acknowledged with thanks.     

THE CHOICE OF TRADING VENUE AND RELATIVE PRICE IMPACT OF INSTITUTIONAL TRADING: ADRs VERSUS THE UNDERLYING SECURITIES IN THEIR LOCAL MARKETS

We address two important themes associated with institutions’ trading in foreign markets: (1) the choice of trading venues (between a company's listing in its home market and that in the United States as an American Depositary Receipt [ADR]) and (2) the comparison of trading costs across the two venues. We identify institutional trading in both venues using proprietary institutional trading data. Overall, our research underscores the intuition that the choice of institutional trading in a stock's local market or as an ADR is a complex process that embodies variables that measure the relative adverse selection and liquidity at order, stock, and country levels. Institutions route a higher percentage of trades to more liquid markets, and these trades are associated with higher cumulative abnormal returns. We also find that institutional trading costs are generally lower for trading cross‐listed stocks on home exchanges even after controlling for selection bias.