Credit spreads on corporate bonds and the macroeconomy in Japan

Using secondary market data on corporate bonds issued in Japan between 1997 and 2005, this paper explores the determinants of the credit spread of corporate bond rates over interest swap rates. We find that the credit spreads properly reflect financial factors at the firm level, including debt-to-equity ratios, volatility, and maturity, particularly for longer-term bonds. In addition, an economy-wide factor common among bond issues unable to be captured by firm-level factors, plays an important role in determining credit spreads, and these economy-wide effects to a great extent cancel out firm-level factors for some subsample periods. We also identify possible factors responsible for the significant economy-wide effects.     

COLLUSION,FLUCTUATING DEMAND,AND PRICE RIGIDITY*

We study an infinitely repeated Bertrand game in which an i.i.d. demand shock occurs in each period. Each firm receives a private signal about the demand shock at the beginning of each period. At the end of each period, all information but the private signals becomes public. We consider the optimal symmetric perfect public equilibrium (SPPE) mainly for patient firms. We show that price rigidity arises in the optimal SPPE if the accuracy of the private signals is low. We also study the implications of more firms and firms' impatience on collusive pricing.     

Network externalities, discrete demand shifts, and submarginal‐cost pricing

Abstract.  The introduction of a new product often causes a massive (discrete) demand shift to the new product. This study demonstrates that if a large‐scale demand shift to a new product is accompanied by network externalities, it may result in 'submarginal‐cost pricing,' by which the seller sets its price below the marginal cost. This finding casts new light on dumping and safeguard issues in the real world. JEL classification: D42     

Working and Training: A Nonlinear Dynamic Analysis of Human Capital Development

We tend to think of workers completing their education and then entering the workforce, where they will gradually develop their skills. In fact, however, a worker's career may be characterized not only by this gradual buildup of job-related skills but also by recurrent education, i.e. the phenomenon whereby a worker alternates between earning-intensive periods and training-intensive periods along his career path. In this study, we build a dynamic optimization model of earning/training decisions of a worker in which these patterns of his career path can be explained in an integrated manner.     

Urban Pollution,Unemployment and National Welfare in a Dualistic Economy

This paper undertakes a comparative static analysis in the Harris–Todaro (H–T) model by accommodating local pollution. Unlike in the classical H–T model where migration proceeds in response to urban–rural differences in expected earnings, we consider labor movement taking place according to the difference in utility, which is influenced by the quality of the local environment. The paradoxical result is that an improvement in pollution‐abatement technology gives rise to an increase in urban unemployment and has no effect on the workers' aggregate welfare.     

新兴市场区位特定优势所带来的超额利润问题探析——服务业和分销业案例

地域优势带来的额外利润问题不仅限于制造业。近年来,跨国公司陆续将服务型和销售型子公司转移至相对低成本的新兴市场,产生了与制造业转移同样的转让定价反避税挑战。在不同的转让定价方法下,处理该类型公司的地域优势问题遇到的挑战有所不同。面对这些挑战,纳税人和税务当局都必须通过客观而严密的经济学分析进行探讨,方能得出一个各方满意的解决方案。     

A TWO FACTOR MODEL OF INCOME DISTRIBUTION DYNAMICS

This paper analyzes empirical income distributions and proposes a simple stochastic model to explain the stationary distribution and deviations from it. Using the individual tax returns data in the U.S. and Japan for 40 years, we first summarize the shape of the income distribution by an exponential decay up to about the 90th percentile and a power decay for the top 1 percent. We then propose a minimal stochastic process of labor and asset income to reproduce the empirical characteristics. In particular, the Pareto exponent is derived analytically and matched with empirical statistics.     

Location choice,competition, and welfare in non-tradable service FDI

We investigate whether non-tradable service FDI is efficient from a welfare point of view. A fixed number of firms strategically decide which markets to locate in and then compete in quasi-Cournot fashion. Considering firm location in two symmetric markets, non-tradable service FDI may or may not be efficient for the source country, depending on the total number of firms, competition in markets and the curvature of the demand function. In contrast, non-tradable service FDI is always efficient for the host country and the overall economy. This implies that any policy that affects firm location between two symmetric markets will not be beneficial from a welfare viewpoint.     

Multi-Sector Model of Tradable Emission Permits

This paper presents a multi-sector model of tradable emission permits, which includes oligopolistic and perfectly competitive industries. The firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market. Specifically, we examine the effects of the initial permit allocation on the equilibrium outcomes, focusing on the interaction among these product and permit markets. It is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm. Under certain conditions, raising a “clean” (less-polluting) firm’s share of the initial permits can lead to reductions in both the product and permit prices. We discuss criteria for the socially optimal allocation of initial permits, considering the trade-off between production inefficiency and consumer benefit.     

Middle Men: The Visible Market‐Makers

This paper presents a framework in which middlemen emerge to intermediate between ex‐ante homogeneous buyers and sellers in the presence of search frictions. Middlemen announce prices, and hold an inventory to provide more sure services. Middlemen can mitigate trade imbalances with price competition. Using this framework I illustrate how the frictionless limit can emerge and how middlemen can implement the short‐side principle for the market price to be Walrasian. The recent progress in the literature on intermediation will also be discussed.