Productivity Growth and Some of Its Determinants in the Deregulated U.S. Railroad Industry

This study analyzes the effects of an important postderegulation innovation on rail freight productivity: the elimination of cabooses and related crew members. It also analyzes the overall growth of productivity in rail freight between 1983 and 1997 (using a translog rail cost function estimated over a sample of Class I railroads between 1983 and 1997). The results indicate that elimination of cabooses and associated crew members from freight trains reduced costs by 5-8% on the typical Class I railroad in 1997, equivalent to an annual cost saving of $2 billion to $3.3 billion for all Class I railroads. Moreover, if Class I railroads had no other technological advances since 1983, their 1997 costs (with 1997 factor prices) would have been 36-43% higher than they in fact were. Finally, the results show that overall productivity growth in rail freight did not decelerate between 1983 and 1997; if anything, it accelerated slightly.     

WHAT WILL HAPPEN TO THE EURO?

The Stability Pact ‐ intended to make EMU governments run prudent budgets ‐ is losing its credibility. This article asks the question: what will happen if national debts start to rise again and some governments then have difficulty borrowing? It suggests that there will be calls for bailout, that the EU's political structures will not cope well with the resulting arguments over which countries will pay, and that the eventual and painful result will be a return to the principle that currencies and political areas coincide.     

Corporate Board Composition, Protocols, and Voting Behavior: Experimental Evidence

We examine voting by a board designed to mitigate conflicts of interest between privately informed insiders and owners. Our model demonstrates that, as argued by researchers and the business press, boards with a majority of trustworthy but uninformed “watchdogs” can implement institutionally preferred policies. Our laboratory experiments strongly support this conclusion. Our model also highlights the necessity of penalties on insiders when there is dissension among board members. However, penalties for dissent appeared to have little impact on the experimental outcomes.     

Equity Volatility and Corporate Bond Yields

This paper explores the effect of equity volatility on corporate bond yields. Panel data for the late 1990s show that idiosyncratic firm‐level volatility can explain as much cross‐sectional variation in yields as can credit ratings. This finding, together with the upward trend in idiosyncratic equity volatility documented by Campbell, Lettau, Malkiel, and Xu (2001), helps to explain recent increases in corporate bond yields.     

Open-bank assistance transactions and prompt corrective action

Open-bank assistance (OBA), provided to troubled banking institutions by the FDIC to prevent their failure, has been criticized extensively on grounds that closed-bank transactions, especially early closed bank transactions, are less expensive to the FDIC. This article analyzes a case in which OBA makes public policy sense, under conditions in which uncertainty is introduced into the valuation of a bank's nonperforming assets. Under such uncertainty, the FDIC may play a role by providing to the acquiror of the troubled institution essentially costless (to the FDIC) standby insurance on the ultimate workout values of the nonperforming assets. If properly structured, such an OBA transaction would meet critics' objections by minimizing FDIC cost and creating incentives for the early recapilization of troubled banks.     

The Contradictions of Free Market Doctrine: Is There a Solution?

The article considers six standard arguments in favour of an unfettered free market: (1) the freedom to consume; (2) the freedom of the seller; (3) the freedom of the producer; (4) freedom from government interference; (5) lower costs; (6) promotion of democracy. It demonstrates that each of these arguments turns out to be incoherent on closer examination. The ground of this incoherence it is shown, is the market doctrine's systematic omission of non-business costs and benefits from its analysis, a methodological blindness which can only be overcome by a wider-lensed comprehension of economic value.