PRINCIPAL AND AGENCY TRADES BY STOCKBROKERS ARE COMPLEMENTARY: THE WELFARE EFFECTS OF DEREGULATING AGENCY TRADING AND BANNING PRINCIPAL TRADES

This paper models the demand for stockbrokers' services in Australia, consisting of two related services, agency trades and principal trades. The relationship between agency and principal trades is estimated. The results indicate that the two services are complements rather than substitutes. Using unique accounting information, a model of agency and principal trading activities is estimated to determine the welfare effects of (i) deregulating brokerage commissions and (ii) a ban on principal trading by brokers. The results show a sizeable welfare gain to investors (amounting to about 60% of the gross revenue of brokers) stemming from deregulation of the minimum charge for agency trades. The loss in profitability by brokers due to deregulation is also computed and shown to be negligible. The results also show that due to complementarity, a ban on principal trading, even with deregulation of agency trading, can impose an arbitrarily high cost on investors which could, in principle, offset the gains from agency deregulation.     

Endogenous Growth and Negative Externalities

Received March 5, 2001; revised version received August 5, 2002 Published online: April 30, 2003     

Expenditure patterns on food and non food items of Khayelitsha households,Western Cape,South Africa

Food insecurity or lack of access to adequate and nutritious food is a major determinant of under‐nutrition. Expenditure patterns accompanied by unemployment, low level of education, inflation and high food prices have a direct negative impact on food availability within households (Moller, 1997). Ghany and Schwenk (1993) found that as household income increases, the proportion of expenditures on food decreases, the proportion of expenditures on clothing, rent, fuel, and light stayed the same and that of sundries increased. The aim of this study was to investigate household expenditure patterns on food and non‐food items in Khayelitsha. A total of 20 households (10 from the formal and 10 from the informal settlements) were randomly selected from those willing to participate in the study. A questionnaire with open ended and closed questions was used to collect data. The questionnaire comprised four sections namely: biographical information, socio‐economic information which used wealth quintiles to assess households’ social economic status, total expenditure information and a food/hunger scale was used to assess households’ food availability. The findings revealed that households from informal settlements spent more money (62.2%) as a proportion of their income on food compared to households from the formal settlement (39%). There was higher unemployment rate (100%) at the informal settlement compared to the formal settlement (40%). Wealth quintiles scales did not reflect the social status of the households as equipment and assets owned by households were only used as fallback position during times of economic hardships. Households used different purchasing strategies; food and non‐food items were mainly purchased from outside the township (60%). Forty percent of the households bought their items from local shops and spazas because they allowed them to buy items whenever little money was available or to take items on credit. All the respondents preferred to buy bread and small items from spazas and local shops. Prices of items in the spazas and local shops were higher compared to prices of items in bigger shops outside the townships. The food/hunger scale and wealth quintiles showed that informal settlement households were more food insecure (as they were all unemployed and about 50% of the households ran out of food always) and had fewer assets compared to the formal settlement households. The implications of these findings underscore the need to improve socio‐economic conditions of low resource households through empowerment programs. These programs can be in the form of training in management/decision making, work related skills/literacy (to help them access formal employment), business management/income generation skills (to help them to be self‐employed), budgeting, and food gardening. This approach can help to increase the resource base and alleviate food insecurity in low resource households.     

A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis

We examine investment behavior among exchange-listed Korean manufacturing firms before and after the 1997 financial crisis using firm-level panel data. Starting with the standard Q-theory of investment, we augment it by allowing for a sales accelerator and the possibility of cash constraints, categorizing firms based on their age, size and affiliation to an industrial conglomerate (i.e., chaebol). We find that Tobin’s Q is a robust determinant of investment in a pooled sample for 1992–2001, but that it became more important for small firms and less important for chaebol-affiliated firms after the crisis. Investment by chaebol firms also became more sensitive to the availability of internal cash balances after the crisis. We interpret this as reflecting a shift in the Korean economy to a stronger market orientation after the crisis and to a business climate in which the quality of potential projects became more important relative to capital market imperfections in determining the destination of investment funds.     

Network neutrality and the nature of competition between network operators

The neutral architecture of the Internet is being challenged by various parties, such as network operators providing the connections to end-users, who are interested in gaining control of the information exchanged over the Internet. What are the effects on competition and welfare of such practices? Currently, there exists very little economic theory on network neutrality. This paper provides a preliminary analysis of the type of economic modeling that can address network neutrality, as well as of the type of results that can be expected.     

AN EMPIRICAL EXAMINATION OF RELATIONSHIP MAGNITUDE

Based upon a review of the extant literature, it is proposed that the structure of an interorganizational relationship is composed of relationship type and the under‐researched construct of relationship magnitude. Specifically, it is hypothesized that relationship magnitude, a second order construct composed of trust, commitment, and dependence, affects relationship type, which affects the perception of value of the relationship. The results of a survey analyzed through structural equation modeling support these hypotheses.     

The Effect of Earnings–Announcement Timing on Earnings Management

This paper examines whether firms which delay earnings announcements engage in earnings management. The cross–sectional version of the modified Jones 1995 model is used to estimate 'normal' accruals. Prior research has documented that, on average, delayed earnings announcements are associated with negative earnings surprises. Our evidence suggests that the market anticipates unfavorable earnings news when it observes reporting delays. As a consequence, late reporters appear to make the most of a bad situation by employing income–decreasing accruals in big–bath–type earnings management and in contractual renegotiations. We find that the magnitude of income–reducing abnormal accruals is related to the reporting lag.     

Comparative Advantage in Demand: Experimental Evidence of Preferences for Genetically Modified Food in the United States and European Union

The United States (US) exports more than US$6 billion in agricultural commodities to the European Union(EU) each year, but one issue carries the potential to diminish this trade: use of biotechnology in food production. The EU has adopted more stringent policies towards biotechnology than the US. Understanding differences in European and American policies towards genetically modified (GM) foods requires a greater understanding of consumers’ attitudes and preferences. This paper reports results from the first large‐scale, cross‐Atlantic study to analyse consumer demand for genetically modified food in a non‐hypothetical market environment. We strongly reject the frequent if convenient assumption in trade theory that consumer preferences are identical across countries: the median level of compensation demanded by English and French consumers to consume a GM food is found to be more than twice that in any of the US locations. Results have important implications for trade theory, which typically focuses on differences in specialization, comparative advantage and factor endowments across countries, and for on‐going trade disputes at the World Trade Organization.     

The endless need for regulation in telecommunication: An explanation

Telecommunication services have existed as a legal monopoly nearly throughout its entire history. In 1998, telecom market liberalisation was achieved across the European Union (EU) through the introduction of competition among telephone services. Asymmetrical obligations were deemed necessary in order to compensate the market power of the former monopolist.As the evolution of asymmetrical regulation in Spain illustrates, obligations and the telecommunications operators subject to them increased with the regulatory framework established in 2002 in the EU. This new regulatory framework may continue to expand through the inclusion of functional separation as another possible asymmetrical obligation. In short, it seems that the regulatory pressure on the telecommunications industry is increasing, despite the lapse in time since the liberalisation of the industry.In this paper, a methodology developed by the Austrian School of Economics is applied in order to explain why the telecommunication market is subject to increasing regulation in Europe, rather than deregulation, after more than 10 years of liberalisation. In particular, Mises's theory of price control is used to explain the evolution of the regulation of local loop unbundling.