Rollover Risk and Market Freezes

The debt capacity of an asset is the maximum amount that can be borrowed using the asset as collateral. We model a sudden collapse in the debt capacity of good collateral. We assume short‐term debt that must be frequently rolled over, a small transaction cost of selling collateral in the event of default, and a small probability of meeting a buy‐to‐hold investor. We then show that a small change in the asset's fundamental value can be associated with a catastrophic drop in the debt capacity, the kind of market freeze observed during the crisis of 2007 to 2008.     

'Once I Get You Up There, Where the Air is Rarified': Health, Safety and the Working Conditions of Airline Cabin Crews

The working environment of the modern aircraft and the conditions in which airline cabin crews operate are issues which have been largely ignored in the industrial relations literature. This article considers recent trends in airline industrial relations and argues that the aircraft cabin is host to a number of hazards which pose serious threats to the health and safety of those who work in it.     

The Use of Debt and Equity in Optimal Financial Contracts

We consider risk-neutral firms that must obtain external finance. They have access to two kinds of stochastic investment opportunities. For one, return realizations are costlessly observed by all agents. For the other, return realizations are costlessly observed only by the investing firm. We examine the optimal allocation of investment between the two projects and the optimal contract used to finance it. The optimal contractual outcome can be supported by appropriate (and determinate) quantities of debt and equity issues. Investments in projects with CSV problems are associated loosely with debt. Investments in projects with observable returns are associated with equity. Journal of Economic Literature Classification Numbers: G21, E51.     

PROSPECTS FOR ‘CLOSING THE GAP’ IN SOCIOECONOMIC OUTCOMES FOR INDIGENOUS AUSTRALIANS?

Practical reconciliation' and more recently 'closing the gap' have been put forward as frameworks on which to base and evaluate policies to address Indigenous disadvantage. This paper analyses national-level census-based data to examine trends in Indigenous wellbeing since 1971. There has been steady improvement in most socioeconomic outcomes in the last 35 years; a finding at odds with the current discourse of failure. Evidence of convergence between Indigenous and non-Indigenous outcomes, however, is not consistent. For some outcomes, relatively rapid convergence is predicted (within 25 years), but for the majority of outcomes, convergence is unlikely to occur within a generation, if at all.     

A CGE analysis of the impact of trade liberalization between the U.S. and Mexico

This study examines the effects of free trade between the U.S. and Mexico on the sectoral trade balance of the U.S. The empirical findings indicate that free trade would benefit the overall trade balance of the U.S., but the benefit will be small in the near to medium term for two reasons. First, there is a huge disparity between the economic sizes of the two countries. Second, a sizable share of Mexican exports already enter the U.S. under the Generalized System of Preferences (GSP) or at low rates under maquiladora production-sharing arrangements. The relatively low tariff rates already in effect allow most of the benefits of trade between the U.S. and Mexico to be realized and therefore limit the potential benefits to the U.S. from free trade.     

ENERGY INTENSITY IMPROVEMENTS IN STEEL MINIMILLS

Over the past 20 years, U.S. steel manufacturing has experienced an episode of creative destruction. Iron-ore based plants closed, and new electric arc furnace (EAF) plants–the "minimills"–opened. The steel industry is an energy intensive segment of manufacturing, and the changeover causes major change in energy use. The analysis here links a plant-level database from the Bureau of the Census with publicly available sources and obtains measures of the best practice energy use in minimills. The analysis examines how technical efficiency, vintage, and capacity utilization affect plant-level electricity use per ton of steel. This measure of electricity use gives a plant's "energy intensity." Plants in the sample keep operating even during deep recessions, suggesting that energy, e.g., BTU, taxes may fall short of the fullest potential for reducing energy use. During recession, plants actually may continue to operate at lower output rates and higher energy intensities rather than close down. Substantial potential exists for energy improvements of as much as 1 billion kWh per year. New facilities exhibit energy intensity improvement of 6.2 kWh/ton per year. This finding is consistent with engineering estimates. Realizing this potential among all plants would require policies that assist capital turnover.     

ANALYZING POSTSECONDARY RETURNS: DOES EDUCATIONAL LOAN DEFAULT PLAY A ROLE?

The economic benefits of a traditional college education relative to a high school degree are well known to students and economists alike. However, little is known about the economic returns associated with associate and vocational degrees. Using a large micro-data set of former guaranteed student loan borrowers, this paper analyzes post-schooling returns for bachelors as well as associates and vocational students. The analysis further extends the existing literature by controlling for individual characteristics that income studies typically do not measure. By including the default status of the educational loan used to finance the postsecondary education, the intrinsic individual characteristics of commitment and initiative are controlled for and are found to significantly increase earnings.     

Municipal demand-side policy tools and the strategic management of technology life cycles

This research is particularly concerned with public policy instruments which may help to accelerate the development and diffusion of sustainable innovations and support local economic development. While sustainable technology sectors are in high demand, firms still face significant barriers in developing and diffusing their technologies in regions throughout the world (Hoff, 2012). This area has been less explored in the extant research yet recent experiences suggest that supply side tools may not always have positive benefits for supporting clean technology evolution, or for taxpayers. Leveraging innovation policy and technology life cycle literature, we develop a model of demand-side policy instruments which could be applied at different stages of the technology s-curve in order to accelerate the adoption of sustainable technologies. Implications for managers, public policy actors and researchers are considered.     

The Informational Content of Initial Public Offerings

The ability of capital markets to distinguish firms of different value by the size of their initial equity offerings is attenuated when insiders can sell equity more than once. A model is developed in which there is price risk from holding equity between periods. When the uncertainty is small, there must be pooling in the first period. When uncertainty is large, the pooling equilibria dominate the separating equilibrium.