Funding Versus Control in Intergovernmental Relations

Governmental programs are occasionally required by one level of government in a federal system, but funded through taxes or fees raised at another level. This arrangement creates opportunities for one government to exploit the fund-raising capabilities of another. But separating the functions of mandating and funding the program may, in some instances, generate a more efficient allocation of collective goods. A review of mechanisms that might be used to restrict this arrangement to situations in which efficient collective goods provision can be assured reveals that the relationship between central and decentralized governments provides the best protection against exploitation.     

The Guernsey Literary and Potato PeelPie Society [Random House Reader＇s Circle [Paperback]]

The letters comprising this small charming novel begin in 1946, when single, 30-something author Juliet Ashton （nom de plume Izzy Bickerstaff） writes to her publisher to say she is tired of covering the sunny side of war and its aftermath. When Guernsey farmer Dawsey Adams finds Juliet＇s name in a used book and invites articulate -- and not-so-articulate -- neighbors to write Juliet with their occasionally contrived letters jump from incident to incident -- including the formation of the Guernsey Literary and Potato Peel Pie Society while Guernsey was under German occupa- tion -- and person to person in a manner that feels disjointed. But Juliet＇s quips are so clever, the Guernsey inhabitants so enchanting and the small acts of heroism so vivid and moving that one forgives the authors （Shaffer died earlier this year） for not being able to settle on a single person or plot.     

Corporate equity ownership, investment, and product market relationships

This paper examines the effect of corporate equity ownership on investment when firms have product market relationships. Firms have incentives to hold long equity positions when their products are complements. These equity positions induce the firms to increase their real investment expenditures. In contrast, firms have incentives to hold short equity positions when their products are substitutes. These short positions commit the firms to a more aggressive product market stance, and also result in increased real investment expenditures. Our model offers an explanation for the empirical relationship between the establishment of corporate equity stakes and increased investment spending documented by Allen and Phillips (2000).     

Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles

This paper provides strong evidence for a positive feedback loop between property prices and mortgage supply, using data from the U.S. commercial property and mortgage markets over the 1991 to 2011 period. The empirical analyses control for the endogeneity of property prices, mortgage flows, mortgage interest rates, and loan to value ratios, and provide two main findings. First, exogenous increases in mortgage supply, measured with the growth of the CMBS market, significantly reduce property cap rates. Second, volatility of past price changes and the “biggest loss” in property values in the past significantly affect mortgage supply. This positive feedback loop may be an important driving force for real estate cycles.     

The tools of cooperation and change

Employers can choose from lots of tools when they want to encourage employees to work together toward a new corporate goal. One of the rarest managerial skills is the ability to understand which tools will work in a given situation and which will misfire. Cooperation tools fall into four major categories: power, management, leadership, and culture. Choosing the right tool, say the authors, requires assessing the organization along two critical dimensions: the extent to which people agree on what they want and the extent to which they agree on cause and effect, or how to get what they want. The authors plot on a matrix where various organizations fall along these two dimensions. Employees represented in the lower-left quadrant of the model, for example, disagree strongly both about what they want and on what actions will produce which results. Those in the upper-right quadrant agree on both dimensions. Different quadrants call for different tools. When employees share little consensus on either dimension, for instance, the only methods that will elicit cooperation are "power tools" such as fiat, force, and threats. Yugoslavia's Josip Broz Tito wielded such devices effectively. So did Jamie Dimon, current CEO of J.P. Morgan Chase, during the bank's integration with Bank One. For employees who agree on what they want but not on how to get it--think of Microsoft in 1995--leadership tools, such as vision statements, are more appropriate. Some leaders are blessed with an instinct for choosing the right tools--Continental Airlines' Gordon Bethune, General Electric's Jack Welch, and IBM's Lou Gerstner are all examples. Others can use this framework to help select the most appropriate tools for their circumstances.     

Disruptive innovation for social change

Countries, organizations, and individuals around the globe spend aggressively to solve social problems, but these efforts often fail to deliver. Misdirected investment is the primary reason for that failure. Most of the money earmarked for social initiatives goes to organizations that are structured to support specific groups of recipients, often with sophisticated solutions. Such organizations rarely reach the broader populations that could be served by simpler alternatives. There is, however, an effective way to get to those underserved populations. The authors call it "catalytic innovation." Based on Clayton Christensen's disruptive-innovation model, catalytic innovations challenge organizational incumbents by offering simpler, good-enough solutions aimed at underserved groups. Unlike disruptive innovations, though, catalytic innovations are focused on creating social change. Catalytic innovators are defined by five distinct qualities. First, they create social change through scaling and replication. Second, they meet a need that is either overserved (that is, the existing solution is more complex than necessary for many people) or not served at all. Third, the products and services they offer are simpler and cheaper than alternatives, but recipients view them as good enough. Fourth, they bring in resources in ways that initially seem unattractive to incumbents. And fifth, they are often ignored, put down, or even encouraged by existing organizations, which don't see the catalytic innovators' solutions as viable. As the authors show through examples in health care, education, and economic development, both nonprofit and for-profit groups are finding ways to create catalytic innovation that drives social change.     

A note on January returns in the U.S. government bond market: The term effect

This study documents a previously unobserved January effect in the market for riskless debt. Long-term government bonds have significantly lower returns in January than in the rest of the year. This January effect is opposite in sign to the January effects that have been previously documented in the markets for equity and the markets for risky debt. Tax-loss selling in the equity markets in conjunction with parking the proceeds may provide a possible explanation for the negative January effect in the market for government bonds.     

The Agricultural task force report — The benefit of Hindsight

In September 1967, the Federal Government established a Task force on Agriculture which was given the major objective of assessing agricultural goals and policies in Canada. The Task Force submitted its report, Canadian Agriculture In The Seventies , to the Federal Minister of Agriculture in December 1969.     

Debt,investment, and product market competition: A note on the limited liability effect

This paper extends a model by Brander and Lewis [Brander, J., Lewis, T., 1986. Oligopoly and financial structure: The limited liability effect. American Economic Review 76, 956–970] on the relationship between capital structure, investment and product market competition based on the limited liability effect of debt. Empirical papers (see for example Campello [Campello, M., 2003. Capital structure and product markets interactions: Evidence from business cycles. Journal of Financial Economics 68, 353–378], and Chevalier [Chevalier, J., 1995a. Capital structure and product market competition: Empirical evidence from the supermarket industry. American Economic Review 85, 415–435; Chevalier, J., 1995b. Do LBO supermarkets charge more? An empirical analysis of the effect of LBOs on supermarket pricing. Journal of Finance 50, 1095–1112]) generally reject the limited liability theories in favor of the predatory theories because leverage leads to less investment and weaker product market competition. This paper shows that when firms also have an investment choice, leverage can lead to weaker product market competition in a limited liability model. In addition, non-zero leverage is still optimal within this model based solely on the limited liability effect. In predatory models debt is motivated by issues outside of product market concerns, for example to solve an agency problem. Finally, this model is also consistent with the investment decisions documented empirically.