The economics of shortage and problems of reform in Chinese industry

This paper employs the economics of shortage framework to examine post-Mao reforms in Chinese state-owned industry. Performance has been disappointing because reforms through 1985 failed to fundamentally alter economic agent behavior. The “soft” budget constraints at the enterprise and local government levels continue to generate “quantity” and “expansion” drives. The resultant inflationary pressures have necessitated administrative interventions and thwarted reform progress. The Maoist legacy of active participation by local governments in economic management is high-lighted as a major obstacle to the elimination of paternalism in state-enterprise relations.     

Monetary union and the Maastricht inflation criterion: The accession countries*

We model an accession country facing a Maastricht‐type inflation criterion that specifies an inflation ceiling. In addition to deciding whether or not to satisfy this criterion, the country must decide how much costly economic reform to undertake. If the country puts enough weight on the future that it can credibly meet the inflation criterion no matter what the ceiling is, then the inflation criterion benefits the country but lowers reform. If the country puts less weight on the future, then a criterion with a properly chosen inflation ceiling can increase reform. We derive the inflation ceilings that maximize the country's welfare and its reform.     

Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher''s Commodity Points Revisited

We propose that analysis of purchasing power parity (PPP) and the law of one price should explicitly take into account the possibility of “commodity points”—thresholds delineating a region of no central tendency among relative prices, possibly due to lack of perfect arbitrage in the presence of transaction costs and uncertainty. More than 80 years ago, Heckscher stressed the importance of such incomplete arbitrage in the empirical application of PPP. We devise an econometric method to identify commodity points. Price adjustment is treated as a nonlinear process, and a threshold autoregression offers a parsimonious specification within which both thresholds and adjustment speeds are estimated by maximum likelihood methods. Our model performs well using post-1980 data, and yields parameter estimates that appear quite reasonable: adjustment outside the thresholds might imply half-lives of price deviations measured in months rather than years, and the thresholds correspond to popular rough estimates as to the order of magnitude of actual transport costs. The estimated commodity points appear to be positively related to objective measures of market segmentation, notably nominal exchange rate volatility.J. Japan Int. Econ.December 1997,11(4), pp. 441–479. Department of Economics, University of California, Berkeley, California 94720-3880; and Department of Economics, Northwestern University, Evanston, Illinois 60208-2600.     

Analysis of Beef Producers' Risk Management Perceptions and Desire for Further Risk Management Education

Beef cattle producers were surveyed in Texas and Nebraska to investigate perceptions of sources of risk, the effectiveness of risk management strategies, and interest in further risk management education, particularly production risk, using probit analysis. Important decision variables identified are age, prior use of risk management tools, previous attendances of risk management education, and risk aversion. Severe drought and cattle price variability are identified as primary risk factors with potential to affect farm income. Extremely cold weather and disease are of less importance. Understocking pasture and storing hay are perceived most effective as risk management options.     

Moral agency as victim of the vulnerability of autonomy

This paper draws upon a research study of accountants and HR specialists. The study eschewed hypothetical scenarios and focused upon those situations and scenarios that the interviewees defined as causing them ethical concerns. There are two distinct but related issues arising from the paper. The first is that the singular categorisations of moral reasoning attributed to individuals when faced with hypothetical scenarios by many who write on the issue of moral reasoning, did not correspond to the fluidity in moral choices faced by the interviewees as they experienced their unfolding moral dilemmas. The second issue relates to the unwillingness of the interviewees to give voice to their concerns, not only externally, but also within their employing organisations. The tensions within the two cases featured were held in check only by the diminution of the autonomy of the two principal actors. As a consequence, the exercise of moral agency was denied.     

Capital structure and the control of managerial incentives

We present a theory of capital structure based on the power of shareholders, bondholders and managers to control the incentive conflicts in large corporations. The manager–owner conflict produces a trade-off between inefficiency in the low state and rents in the high state, and the shareholder–bondholder conflict produces under-investment as in Myers [Journal of Financial Economics 19 (1997) 147]. Since managers and bondholders both prefer more efficient actions in the low state, the two conflicts are interdependent. With risk-less levels of debt, there are no shareholder–bondholder agency costs, but managerial control over the incentive-setting process produces excessive rents. With risky debt, shareholders focus more on returns in the high state so that shareholder–bondholder agency costs increase but managerial rents decrease. Efficient levels of debt holder protection facilitate a reduction in manager–owner agency costs that outweighs shareholder–bondholder agency costs, and are decreasing in firm performance. The results are consistent with the separate empirical results relating control to both compensation and leverage, and suggest how future studies can be integrated.     

Real Investment Implications of Employee Stock Option Exercises

This paper examines a real cost of awarding employee stock options. Based on the observation that managers are extremely concerned about earnings-per-share dilution in equity related compensation, we predict and find that firms experiencing significant employee stock option (ESO) exercises shift resources away from real investments towards the repurchase of their own stocks. We further find weak evidence of a decline in subsequent firm performance (as measured by return on assets) for several years following the cut in discretionary investments as a result of stock option exercises, though this result is sensitive to the metric used to measure performance. Collectively, our findings indicate that ESO exercises potentially impose a real cost on the firm in terms of foregone investment opportunities.     

Nonlinear dynamics and competing behavioral interpretations: Evidence from intra‐day FTSE‐100 index and futures data

Extant empirical research has reported nonlinear behavior within arbitrage relationships. In this article, the authors consider potential nonlinear dynamics within FTSE‐100 index and index‐futures. Such nonlinearity can be rationalized by the existence of transactions costs or through the interaction between informed and noise traders. They consider several empirical models designed to capture these alternative dynamics. Their empirical results provide evidence of a stationary basis term, and thus cointegration between index and index‐futures, and the presence of nonlinear dynamics within that relationship. The results further suggest that noise traders typically engage in momentum trading and are more prone to this behavior type when the underlying market is rising. Fundamental, or arbitrage, traders are characterized by heterogeneity, such that there is slow movement between regimes of behavior. In particular, fundamental traders act more quickly in response to small deviations from equilibrium, but are reluctant to act quickly in response to larger mispricings that are exposed to greater noise trader price risk. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:343–368, 2006     

Generational incidence of savings taxation versus capital-income taxation

This paper examines the incidence of capital taxation in a model in which the taxation of capital is clearly justifiable and using analytical techniques from the tax reform literature. The taxation of capital has long been a controversial issue, with much of the literature concluding that savings/capital-income should not be taxed. Recently, however, Blackorby and Brett have shown in a model with several desirable features that it can be optimal to tax capital, and they provide a simple yet compelling argument in favor of both savings taxation and capital-income taxation. We use the Blackorby–Brett model (i.e. a model in which the taxation of capital can be justified) to revisit the question of the incidence of capital taxation. We focus on the generational incidence of capital taxation; that is, the incidence on a young generation and an old generation. However, an interpretation in terms of the incidence on "capital" versus "labor" (as is traditional in the tax incidence literature) is also provided.