Adverse Selection and Competing Deposit Insurance Systems in Pre-Depression Texas

In 1910, Texas instituted a unique deposit insurance program for its state chartered banks by providing a choice between two separate plans: the depositors guaranty fund, similar to insurance schemes in several other states, and the depositors bond security system, which required the procurement of a privately issued guarantee of indemnity. While, under most deposit insurance schemes, the incentive to monitor the financial condition of individual banks simply devolves from depositors to regulators, the bond security system established in Texas distinguished itself by attempting to reintroduce market discipline through the indemnity requirement. Using a probit model with heteroscedasticity, we find evidence that the choice of insurance coverage led to risk-sorting among the banks, with relatively conservative and financially secure institutions opting for the comparatively rigorous bond security system. In addition, the bank failure record indicates the risk differentials between banks in the two plans persisted over time and even possibly grew, suggesting the bond security system at least partially avoided the moral hazard incentives associated with the fixed-rate depositors guaranty plan. These findings support the general view that market discipline is effective in banking.     

Vorwort der Schriftleitung

Ohne Zusammenfassung     

The East Asian Dollar Standard, Fear of Floating, and Original Sin

Before the crisis of 1997/98, the East Asian economies—except for Japan but including China—pegged their currencies to the US dollar. To avoid further turmoil, the IMF argues that these currencies should float more freely. However, the authors’ econometric estimations show that the dollar's predominant weight in East Asian currency baskets has returned to its pre‐crisis levels. By 2002, the day‐to‐day volatility of each country's exchange rate against the dollar had again become negligible. Most governments were rapidly accumulating a “war chest” of official dollar reserves, which portends that this exchange rate stabilization will come to extend over months or quarters. From the doctrine of “original sin” applied to emerging‐market economies, the authors argue that this fear of floating is entirely rational from the perspective of each individual country. And their joint pegging to the dollar benefits the East Asian dollar bloc as a whole, although Japan remains an important outlier.     

The Innovation Potential and Thematic Leadership of Austrian Industries: An Interpretation of the Technology Delphi with Regard to the Old Structures/High-performance Paradox

The Austrian Technology Delphi searched for problem-oriented fieldsof potential leadership of Austrian scientists and firms. This study classifies the Delphi results according to standard industry classifications in order to facilitate their use by industrial economists and to propose an explanation of the old structures/high performance paradox. It reveals that expertsawarded the top marks for innovativeness to low- and high-qualification as well as to mainstream and research intensive industries, not to medium qualification and to marketing and labour-intensive ones. This implies that innovation is by no means restricted to high-tech industries and that the standard industry classifications are not well suited to deal with aspects of technology policy. Old structures need not hinder high performance.     

What can sector accounts tell about the financial crisis?

The current sovereign debt crisis is widely believed to have been caused by insufficient budget discipline. However, the financial sector accounts reveal that public as well as private borrowing in the euro area was dwarfed by the synchronised explosion of assets and liabilities of financial corporations. The paper suggests that the current concentration on a speedy cutback of public debt is premature at best. Policy should pay more attention to the main causes of the crisis: the excesses of the financial sector and the flaws in the design of the heterogeneous currency union.     

Die mittelfristigen Folgen der Wechselkurspolitik für Leistungsbilanz und Inflationsrate

Summary Nowadays it is uncontested that price elasticities of demand for exports and imports are high enough to secure an improvement of the current account of the balance of payments in the case of an exchange rate devaluation. Indeed it may take some time until the effects materialize and the primary effect may even run in the opposite direction. However, doubts arise about the favourable reaction of the current account if secondary price and wage effects are taken into consideration—what has been done more thoroughly in recent times.The present study deals with the medium term aspects of exchange rate changes in Austria. In order to quantify exchange rate effects on foreign trade and prices double weighted exchange rate indices and double weighted foreign trade price indices were computed and a simple econometric model was built. Behavioural equations for quantities and prices of exports and imports (as far as possible, disaggregated for raw materials, energy and manufactures), for domestic prices and wages were estimated. In addition to this model exchange rate effects on tourism were considered separately. In order to evaluate the consequences of the revaluation of the Austrian Schilling simulations were run under the assumption that in the period 1972 till 1976 Austria had kept constant the average exchange rate of the currencies of its main trading partners (competitors). The main results are as follows: If Austria had pursued a constant exchange rate policy in terms of the export weighted exchange rate index during the years 1972 to 1976 instead of actually revaluating the Schilling by 19 percent the volume of exports would have been higher by 1 billion Schilling (at 1970 prices) whereas the volume of imports would have been lower by 16 billions Schilling; measured in current prices exports and imports would have been higher by 59 billions and 60 billions, respectively, and the receipts from tourism would have grown faster by 12 billions. Therefore, the trade balance would have deteriorated by 1 billion and the current account would have improved by 11 billions. By 1976 consumer prices and wages would have reached a higher level (+7 3/4 percent and +5 1/4 percent, respectively). The results of this study are not in contradiction to those obtained in comparable work for other countries.There is some indication pointing to a further deterioration of the current account in the longer run: The revaluation caused profit squeeze which hits exporters as well as import competing domestic producers may weaken investment and the ability to maintain market shares. The revaluation could favour the sheltered sector of the economy in comparison to the exposed sector and shift the structure of the economy to the disadvantage of the current account.     

Defining and developing competence: A strategic process paradigm

In this paper, competence is defined in operational terms as the degree to which the firm or its subunits can reliably meet or exceed objectives. Two antecedents to competence (and thus competitive advantage) are then developed and defined. These are the ‘comprehension’ of the management team working on developing competence and the ‘deftness’ of their task execution. Empirical results from a study of 160 new initiatives in 40 organizations from 16 countries suggest that: (1) it is feasible to operationalize and measure these constructs; (2) comprehension and deftness are important correlates of an organization's degree of competence as defined; and (3) a process-centered paradigm for understanding competence development shows promise.