The role of R&D in high-technology trade: An empirical analysis

Conclusion This paper attempts to establish the relationship between the level of R&D activities of a country and its trade performance in high-technology products. Empirical evidence based on the limited data used in the paper shows that this relationship appears to be quite significant. An analysis of the implications of this relationship reveals that the low level of R&D in Canada is due to, among other factors, the prevalence of foreign ownership of Canadian manufacturing industries, and the resource-based characteristic of the Canadian economy. Given the nature of foreign-owned firms, the paper suggests that countries should not rely on them as a crucial instrument in the creation of an indigenous capacity to produce high-technology products which are competitive at the world level. Instead, domestic policies aimed at the development and nurturing of the countries' own scientific and technological skills are required. The views expressed in this paper are those of the author. They should not be construed as the official views of the Ministry of State for Science and Technology of the Government of Canada. Research assistance provided by Tom Wudwud and Penny Robinson is well appreciated. The author, however, is responsible for any omissions or errors that remain.     

Informed Trading Around Earnings Announcements: Another Look

This study is an empirical test of the Easley, O'Hara, and Srinivas (1998) multimarket sequential trade model of stock and option markets. We employ two approaches to determine the information content of signed stock and option trades executed around quarterly earnings announcements. The first approach expands the vector autoregression (VAR) technique of Hasbrouck (1991a) to include signed option trade volumes and inter‐trade durations. Estimates from the VAR models provide insight into whether both equity and option trades are viewed as informative by the equity specialist. The second approach focuses on the information content of the earnings releases to determine whether signed equity and option trades executed prior to the announcements are informed. Results indicate that although informed traders prefer to transact in both markets around earnings announcements, option market transactions contain no incremental information.     

Pricing Perpetual Options for Jump Processes

Abstract

We consider two models in which the logarithm of the price of an asset is a shifted compound Poisson process. Explicit results are obtained for prices and optimal exercise strategies of certain perpetual American options on the asset, in particular for the perpetual put option. In the first model in which the jumps of the asset price are upwards, the results are obtained by the martingale approach and the smooth junction condition. In the second model in which the jumps are downwards, we show that the value of the strategy corresponding to a constant option-exercise boundary satisfies a certain renewal equation. Then the optimal exercise strategy is obtained from the continuous junction condition. Furthermore, the same model can be used to price certain reset options. Finally, we show how the classical model of geometric Brownian motion can be obtained as a limit and also how it can be integrated in the two models.     

Boekbesprekingen

Ohne Zusammenfassung     

Uniform and Non-Uniform Second-Best Input Taxes

We investigate second-best, input-based taxes foragricultural nonpoint pollution control when marketprices are endogenous and production isheterogeneous. Theoretically, we derive the optimalforms of taxes which take account of heterogeneity(non-uniform taxes) and a tax which does not (auniform tax). Empirically, we use a multi-factor,market-equilibrium simulation model to determineoptimal tax rates and associated equity effects,particularly differences in landowner gains/lossesacross a heterogeneous region. When market prices areendogenous, second-best tax policies result inpecuniary externalities that affect existingenvironmental externalities. In particular, thepecuniary externalities amplify the effect of producerheterogeneity on determination of sub-regionaldifferences in tax rates and returns to land,particularly for the uniform policy. With endogenousprices, the uniform tax rate is considerably higherthan any of the non-uniform rates and, ironically, thenon-uniform taxes result in less dispersion oflandowner gains across sub-regions than the uniformtax.     

An examination of the equity market price linkage between Australia and the European Union using leveraged bootstrap method

The paper examines the equity market price interaction between Australia and the European Union – represented by the UK, Germany and France – based on the Toda–Yamamoto causality test, which is bootstrapped with leveraged adjustments. A new information criterion is used to choose the optimal lag order. Weekly MSCI data covering the period 1988 to 2001 is used, divided into two subperiods to allow for a structural break arising from the ERM crisis of 1992. Results show that, during the period before the ERM crisis, no significant causal links exist between Australia and any of three EU countries. During the period after the ERM crisis, Australia also had no causal links with Germany and France but it had with the UK, with causality running from the UK to Australia but not vice-versa. Thus, Australian investors may find the German and French, but not the UK, equity markets, attractive venues for their international diversification. German and French, but not British, investors may also obtain the same benefit from the Australian equity market.     

The Greek Debt Crisis: Likely Causes,Mechanics and Outcomes

We use insights from the literature on currency crises to offer an analytical treatment of the crisis in the market for Greek government bonds. We argue that the crisis itself and its escalating nature are very likely to be the result of: (i) steady deterioration of Greek macroeconomic fundamentals over 2001–09 to levels inconsistent with long‐term EMU participation; and (ii) a double shift in markets’ expectations, from a regime of credible commitment to future EMU participation under an implicit EMU/German guarantee of Greek fiscal liabilities, to a regime of non‐credible EMU commitment without fiscal guarantees, respectively occurring in November 2009 and February/March 2010. We argue that the risk of contagion to other periphery EMU countries is significant; and that without extensive structural reforms, the sustainability of the EMU is in question.     

Delaying retirement in Spain

We study the reform of the Spanish public pension system in a multiperiod, general equilibrium, overlapping generations model economy populated by heterogeneous households. Our households differ in their place of birth, in their age, in their education and, endogenously, in their employment status, in their wealth, and in their pension entitlements. They receive a stochastic endowment of efficiency labor units each period. And they face a disability risk and a survival risk. They understand the link between the payroll taxes that they pay and the public pensions that they receive. And they decide how much to consume and to work, and when to retire from the labor force. We calibrate this economy to Spanish data, and we use it to study the consequences of delaying three years the statutory retirement ages in 2010. We find this reform is sufficient to solve the sustainability problems that plague the current Spanish public pension system. Our model economy predicts that under the current rules, the pension system fund will run out in 2028 and in the reformed economy it will last until 2050. We also find that it is moderately expansionary, and that it improves social welfare from the year 2015 onwards. We conclude that policymakers should seriously consider delaying the statutory retirement ages in Spain sometime in the near future.     

Food safety and product liability

This paper focuses on the U.S. product liability system for food poisoning cases and makes six key points. First, current legal incentives to produce safer food are weak, though slightly stronger in outbreak situations and in markets where foodborne illness can be more easily traced to individual firms. Far less than 0.01% of cases are litigated and even fewer are paid compensation. Second, even if potential plaintiffs can overcome the high information and transaction costs necessary to file lawsuits, monetary compensation provides only weak incentives to pursue litigation. Firms paid compensation in 56% of the 294 cases examined in this study and the median compensation was only $2,000 before legal fees. Third, indirect incentives for firms may be important and deserve more research. For example, firms may be influenced by costly settlements and decisions against other firms in the same industry. Fourth, confidential settlements, health insurance, and product liability insurance distort legal incentives to produce safer food. Fifth, the ambiguity about whether microbial contamination is “natural” or an “adulterant” hinders the legal system from effectively dealing with food safety issues. Sixth, a brief comparison of the incentives from U.S. and English legal systems suggests that more research is needed to understand the strengths, weaknesses, and relative impact of each country's legal system on the incentives to produce safer food.