Corporate governance structure and product market competition

This article assesses the effects of the competitive structure of a product market on a firm’s corporate governance structure. Our model demonstrates that shareholders strategically determine the corporate governance structure, including the manager’s stock ownership and his controlling power over the firm, in order to maximize their utility in the product market competition. We find that the manager’s stock ownership is lower and his controlling power over the firm is higher when the firm’s product is more profitable or when competition within the product market is more severe. The inefficiency of the wealth transfer from shareholders to the manager also affects the corporate governance structure.     

ASYMMETRY OF CUSTOMER LOSS AND RECOVERY UNDER ENDOGENOUS PARTNERSHIPS: THEORY AND EVIDENCE*

This article is inspired by real‐world phenomena that firms lose customers based on imprecise information and take a long time to recover. If consumers are playing an ordinary repeated game with fixed partners, there is no clear reason why recovery happens slowly. However, if consumers are playing an endogenously repeated game, a class of simple efficient equilibria exhibits the asymmetry of fast loss and slow recovery of customers after a bad signal. Exit is systematic, but formation of a new partnership is random. We also give empirical evidence of our equilibria at an individual‐firm level.     

FAIR RETIREMENT UNDER RISKY LIFETIME*

A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime and compare the laissez‐faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare, allowing for a compensation for unequal life expectancies, and (2) the maximin on realized lifetime welfare, allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles as well as raising the retirement age. This result is robust to the introduction of unequal life expectancies and unequal productivities.     

Does Tax Competition Reduce Corruption?

A vast literature asserts that competition among jurisdictions can mitigate corruption. However, empirical studies do not fully support such a conventional view. This paper points out a drawback of the conventional view, that is, it ignores the role played by the owners of immobile factors. Within a standard tax competition model, we amend the conventional view by incorporating the lobbying of the immobile factor owners, and show that fiscal decentralization can aggravate corruption. We also demonstrate that social welfare can be higher under decentralization than under centralization in some cases, whereas the immobile factor owners' lobbying will prevent such a superiority of decentralization from being the outcome. Moreover, we provide an example to show that a better policy outcome and a higher level of corruption can co‐exist, which contrasts with the general belief.     

Asymmetry Effects of Exchange Rate Changes on Domestic Production: Evidence from Nonlinear ARDL Approach

Currency depreciation is said to have positive or negative effects on domestic production. Previous studies that tried to address this issue using Australian data have been inconclusive at best but mostly showed no effects. One common feature of all studies is that they have assumed that the effects of exchange rate changes are symmetric. In this paper, we use the concept of partial sum and separate appreciations from depreciations to test whether the effects are symmetric or asymmetric. Application of the nonlinear ARDL approach of Shin et al. (2014) reveals that indeed the effects of changes in the real effective exchange rate of the Australian dollar are asymmetric in the short run as well as in the long run. While in the short run both appreciations and depreciations affect Australian domestic production, only effects of appreciation last into the long run, a unique finding.     

SEPARATING EFFICIENCY AND EQUALITY,AUTOMATION, AND PIKETTY'S THEORY OF INCREASING CAPITAL SHARE

Despite disincentive effects, it is more efficient to tackle inequality by general equality promotion policies, including tax/transfers, than by trying to pursue equality in specific issues or policies. The latter policy also has the same degree of disincentive effects as the general policy but has additional distortive effects. While Piketty' concern with inequality is well taken and his proposal to reduce inequality has merits, his argument on the inevitability of increasing capital share under capitalism and the condition of rate of returns to capital being larger than the rate of growth in incomes (r > g) is not correct. (JEL D3, D6, H)     

Is there Causal Relationship between Money Supply Growth and Inflation in China? Evidence from Quantity Theory of Money

This study examines the causal relationship between Chinese money supply growth and inflation, using the bootstrap Granger full‐sample causality test and sub‐sample rolling‐window estimation test to determine whether such a relationship in China supports the quantity theory of money. The result indicates that there is a unidirectional relationship from inflation to money supply growth. However, considering structural changes in two series, we find that short‐run relationships using full‐sample data are unstable, which suggests that full‐sample causality tests cannot be relied upon. Then, we use a time‐varying rolling‐window approach to revisit the dynamic causal relationship, and the results show that money supply growth has both positive and negative impacts on inflation in several sub‐periods, and in turn, inflation has the same effects on money supply growth for China. These findings are basically consistent with the modern quantity theory of money from the perspective of money supply and price level. When money supply growth does not outweigh output growth, inflation should not be curbed only by decreasing money supply. It notes that a stable money supply growth is critical to price level stability and economic development in China.     

Economic Integration,Monopoly Power and Productivity Growth without Scale Effects

This paper considers how monopoly power affects the relationship between economic integration and economic growth that is not biased by a scale effect. In a two‐country model of trade, productivity growth is generated by firm‐level investment in process innovation, and the location of economic activity is determined by relative market size, trade costs and imperfect knowledge diffusion. Equilibrium features the partial concentration of manufacturing and the full concentration of innovation in the larger country. Increased economic integration raises the concentration of manufacturing in the larger country, and when monopoly power is strong, leads to decreased product variety, accelerated productivity growth and greater national welfare. With weak monopoly power, however, it raises product variety and dampens productivity growth, but may benefit or hurt welfare.     

Environmental Ramsey Policy and Sustainable Balanced Growth

We study the link among economic growth, renewable natural resources and environmental policy. The context is a general equilibrium model of endogenous growth and environmental policy. We examine the conditions under which sustainable growth is both feasible and optimal, where the latter takes the form of second‐best optimal environmental Ramsey policies. We also investigate the conditions for an inverted U‐shaped relation between environmental policies and sustainable growth. We show that the combination of environmental production externalities and second‐best optimal Ramsey policies can lead to both local and global indeterminacy. The introduction of environmental policy, although well‐intentioned and designed to correct for market inefficiencies, triggers an expectations coordination problem; thereby differences in environmental quality and economic growth can be explained among countries with the same fundamentals.     

How Significant Is Sub‐Saharan Africa's Demographic Dividend for Its Future Growth and Poverty Reduction?

Sub‐Saharan Africa will be undergoing substantial demographic changes over the next 15 years with the rising working‐age share of its population. The opportunity of African countries to convert these changes into demographic dividends for growth and poverty reduction will depend on several factors. The outlook will likely be good if African countries can continue the gains already made under better institutions and policies, particularly those affecting the productivity of labor, such as educational outcomes. If African countries can continue to build on the hard‐won development gains, the demographic dividend could account for 11–15% of gross domestic product (GDP) volume growth by 2030, while accounting for 40–60 million fewer poor in 2030. The gains can become more substantial with better educational outcomes that allow African countries to catch up to other developing countries. If the skill share of Africa's labor supply doubles because of improvements in educational attainment, from 25 to about 50% between 2011 and 2030, then the demographic dividends can expand the regional economy additionally by 22% by 2030 relative to the base case and reduce poverty by an additional 51 million people.