JUMPING THE CURSE: EARLY CONTRACTING WITH PRIVATE INFORMATION IN UNIVERSITY ADMISSIONS*

This article introduces a new model of early contracting. Employers who have private information about the applicant's ability worry that applicants who accept their offer are precisely those who were not offered other jobs. To avoid this winner's curse, employers anticipate the time of contracting. The model is developed in the context of university admissions, and is shown to be consistent with several stylized facts in that “market.” We show that, in contrast to received wisdom, allocative efficiency may be improved by the presence of early contracting.     

Heterogeneous Risk Preferences and the Welfare Cost of Business Cycles

I study the welfare cost of business cycles in a complete-markets economy where some people are more risk averse than others. Relatively more risk-averse people buy insurance against aggregate risk, and relatively less risk-averse people sell insurance. These trades reduce the welfare cost of business cycles for everyone. Indeed, the least risk-averse people benefit from business cycles. Moreover, even infinitely risk-averse people suffer only finite and, in my empirical estimates, very small welfare losses. In other words, when there are complete insurance markets, aggregate fluctuations in consumption are essentially irrelevant not just for the average person - the surprising finding of Lucas (1987) - but for everyone in the economy, no matter how risk averse they are. If business cycles matter, it is because they affect productivity or interact with uninsured idiosyncratic risk, not because aggregate risk per se reduces welfare.     

Sustaining Collusion under Economic Integration*

In this paper, we aim at investigating from a game‐theory perspective whether trade liberalization can promote a collusive two‐way trade. We show that, under Cournot competition, economic integration is anti‐competitive if collusive trade is a possible outcome of the repeated game; under price competition, the likelihood of collusive trade is a necessary but not sufficient condition for trade liberalization to be pro‐competitive. Furthermore, we show that economic integration may increase the scope for collusion irrespective of the firms’ strategic variable.     

The performance of black-owned commercial banks: A comparative analysis

The objective of this study was to examine performance differences among black banks of different asset sizes, as compared with average nonminority banks of similar asset size from 1985 to 1991. The study found that large black banks with assets over $50 million outperformed smaller black banks with assets less than $50 million in terms of return on assets (ROA) and return on owners’ equity. Also, when compared with average nonminority banks with assets less than $300 million, the large black banks exhibited a statistically significant higher ROA than average nonminority banks in 1985 through 1987. However, the differences were found to be statistically insignificant in terms of return on owners’ equity (ROE) during the study period. Regression results show that provision for loan loss, high liquidity, and investment in treasury and government securities continue to impact negatively on small black banks’ performance but these factors have no statistically significant impact on large black banks’ performance.     

A random walk through the Gibson paradox

Evidence to support the Gibson paradox is often given in the form of a simple correlation between the nominal interest rate and the log of price level, or in the form of a simple linear regression between these two variables. Authors then show, using standard procedures of statistical inference, that the price level possesses a significant coefficient. We argue that this class of evidence is spurious since the nominal interest rate and the price level (both integrated variables) do not form a cointegrated system.     

Economic Implications of WTO Negotiations on Non‐agricultural Market Access

The economic implications of current WTO negotiations are likely to be far reaching. The World Bank and UNCTAD estimate annual global gains in agriculture and non‐agricultural products (including fish) of about $70−150 billion each under various scenarios and technical assumptions. Liberalising trade in services could be even more important, especially if agreement were reached to facilitate the temporary movement of labour (Mode 4 under the General Agreement on Trade in Services, GATS). Some qualifications, however, are in order. First, gains are likely to be spread unevenly across countries and across sectors; and, second, short‐term adjustment costs might precede long‐term gains. Much depends on how ambitious liberalisation is and on policies to facilitate adjustment. This paper examines the Doha mandate in non‐agricultural market access (NAMA) and the current state of the WTO negotiations, in particular some key proposals being considered at the December 2005 Ministerial Meeting in Hong Kong. We analyse various scenarios and their implications for trade, welfare, output, employment, revenues and preferences, as well as the distributional effects across countries and sectors. We note possible adjustment problems related to balance of payments and structural adjustment, as well as revenue and preference losses. These suggest the need for ‘aid for trade’ to help developing countries realise gains possible from WTO negotiations.