Loanable Funds, Monitoring and Banking

This paper studies financial intermediation in a general equilibriumoverlapping generations model. Indivisible investment projects combine withinformational imperfections to create a (hidden action) moral hazard problemand introduce a role for third-party monitoring. Agency costs at theintermediary level are also considered. Under some conditions, monitors canbe viewed as banks facing a non-trivial portfolio diversification problem.Equilibria are derived in which a large nationwide bank coexists with anumber of community-regional banks, a structure of strong empiricalrelevance. Policies such as a mandatory reserve requirement are shown tohave substantial effects on the levels of investment in the economy.     

'Technoscience' Education: Empowering Citizens Against the Tyranny of School Science

The status quo for school science and technology is unacceptable. While the former often is required for admission to university engineering, as well as to science programmes, the latter is deemed most appropriate for less able, concrete thinkers. This situation persists, despite the fact school science tends to generate large groups of citizens who are relatively scientifically and technologically illiterate, largely as a result of its preoccupation with identifying and training potential scientists and engineers. This practice is tyrannical. It must be abandoned forthwith. A realistic alternative is a combined technology and science programme – perhaps called 'technoscience' education – that would treat science and technology as equals. Such courses may, as well, be more democratic in the sense that technological problem solving often is more natural to everyday situations that everyone may find useful, not just future scientists or engineers. A framework for combined technology and science courses is described and defended here. Originally developed through collaborative action research amongst practising teachers of science, the approach appears to be feasible, under certain – perhaps ideal – conditions. A number of changes to science and technology education may be necessary for broader implementation, not the least of which is a general retrenchment in expectations for pre-determined learning, along with adjustments to teacher education. Nevertheless, the approach is recommended because of its emphasis on: personalization, inclusion, problematization, explicitness, apprenticeship, authenticity, contextualization and freedom. This revised version was published online in July 2006 with corrections to the Cover Date.     

Substance, Form and PFI Contracts

The Private Finance Initiative (PFI) was launched by the United Kingdom Government in 1992 in order to encourage the private sector in the UK to become more involved in public sector development projects. A key theme of the initiative was that the public should receive 'value for money'. This article investigates the accounting issue as to whether or not the private or the public sector should record any property related to PFI projects on balance sheet. It argues that although both HM Treasury and the Accounting Standards Board (ASB) might agree on the accounting principles, the practical impact is that in order for related properties to stay off the public sector's balance sheet, substantial risk needs to be transferred to the private sector. As a consequence of this, the objective of providing value for money to the public may not be achieved.     

Disentangling the Dividend Information in Splits: A Decomposition Using Conditional Event-Study Methods

While folklore in finance holds that split valuation effectsare due to dividend increases associated with splits, littleis known about magnitudes of dividend and nondividend componentsof split announcement effects. We find that splits and dividendsare indeed informational substitutes, a notion we characterizemore precisely, but a significant portion of split valuationeffects, 46% according to our estimates, cannot be attributedto dividend information in splits. Our techniques extend theliterature on conditional event-study methods and we illustratetheir practical value in testing hypotheses and analyzing datanot amenable to analysis by standard procedures.     

Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility

The relationship between the relative risk aversion measure for the utility function for consumption and that for the value function for wealth is a derived relationship whose properties depend on how consumption and wealth are defined and measured. This fact together with information concerning estimates for these two relative risk aversion measures is used to give another perspective on the equity premium puzzle, and to explain why it is that the habit formation utility function is effective in eliminating that puzzle. A time separable utility function that can serve as an alternative to the assumption of habit formation is also presented.     

Catching up with the Americans

This paper develops an international version of the consumption-based capital asset pricing (CCAPM), which we refer to as “catching up with the Americans.” Previous CCAPM research develops the concept of “catching up with the Joneses,” where a representative economic agent exhibits higher marginal utility of consumption as a result of higher past per capita consumption in his own country. Catching up with the Americans, on the other hand, is an international habit-preference hypothesis. It extends the idea of catching up with the Joneses by stating that consumers of non-U.S. countries gain higher marginal utility of consumption as a result of higher past American consumption growth. Contrary to much of the CCAPM literature, we test this version of the model using long bond rates rather than equity returns. However, like most of the previous research on the CCAPM, the catching up with the Americans model fails to explain the relationship between consumption and asset returns.     

TRENDS IN RURAL WAGES,WEST JAVA, 1977–83

This paper examines monthly wage data collected by the Agro Economic Survey from seven villages in the Cimanuk River Basin of West Java, where data on agricultural and non-agricultural wages and prices of nine essential commodities were collected twice monthly between 1977 and 1983. Movements in money wages deflated by both the rice price and a weighted index of basic commodities are analysed in detail and differences between lowland and upland villages are discussed.     

A Personal Agenda for the Next Decade

The paper sets a broad agenda touching several areas of policy. It starts from the least likely policy at this point of time, the use of the tax system for redistribution. It discusses prudent macroeconomic coordination without the strings of the Maastricht Treaty in business troughs. Regulation of financial markets, agricultural policies, and health issues are coming up on a desirable agenda of the United States, but are probably important for all countries, as are social security policy and climate change.