The effects of imperfect auditing on managerial compensation

We study the optimal shareholder–manager contract having the property to induce the manager to exert high effort and truthfully reveal firm performance. This contract design problem is solved under the assumption of imperfect auditing, either because of mistakes or because of collusion between managers and auditors. The imperfection of the audit technology is costless up to a threshold, beyond which it causes a distortion in the incentive compatible contract or even prevents its existence. This result may help explain the observed decline in the use of stock options, tracing it back to an unfocused activity or poor performance of auditors.     

Productivity or Discrimination? Beauty and the Exams*

Do good looks make people more productive? An impact of looks on earnings has been found in the empirical literature: plain people earn less than average‐looking people who in turn earn less than good‐looking people. However, an important question remains unanswered: is the impact of beauty due to pure discrimination or productivity? We provide evidence against the hypothesis of Becker‐type discrimination stemming from tastes and in favour of productivity‐related discrimination.     

Le equazioni funzionali nei fondamenti della matematica finanziaria

Nell'articolo si esaminano i principali contributi arrecati al problema dei fondamenti della Matematica Finanziaria dalla «scuola italiana, attraverso l'uso delle equazioni funzionati. Tale analisi consente di descrivere, sia pure in una particolare prospettiva, l'evoluzione bei rapporti tra matematica pura e le applicazioni in ambiente finanziario.

---

Summary This paper is devoted to a review of Italian contributions to the foundations of business mathematics by means of functional equations. Also, some aspects of the historical evolution of the relations between these applications and pure mathematics are described in the context.

     

The Choice Among Interbank Settlement Systems: The European Experience

This paper addresses the choice of banks between alternative channels for interbank payments. The conventional view assumes a tradeoff between the safety of real-time gross settlement (RTGS) and the liquidity savings of multilateral netting. Moreover, correspondent banking is believed to be inefficient, both in terms of liquidity and of administrative costs. In the last decade, however, the impulse of the Committee on Payment and Settlement Systems, technological changes and the management of RTGS systems by central banks have reduced the difference between the various systems. This is especially true for risk, whereas liquidity cost crucially depends on the refinancing policy adopted by the central bank and the co-ordination among the participants. On the basis of the recent evolution of payment systems in Europe, we verify the importance of liquidity, as well as other variables like transaction costs, for the choice of banks among different settlement systems. Cost factors imply that the nature of payments flows (value, commercial versus financial) and some structural features of the banking systems (dimension of the intermediaries, concentration of the banking sector) become important. The analysis is carried out both through a theoretical model and a cross-country comparison based on three data sources: ECB (European Central Bank, EBA (Euro Banking Association) and SWIFT (Society for Worldwide Interbank Financial Telecommunication).     

Collective punishment and public policy

In this paper I shall discuss various philosophical theories of collective punishment: marxian annihilism, metaphysical collectivism and methodological individualism. After refuting metaphysical collectivism and its modified version, I defend a modification of methodological individualism.J. Angelo Corlett has written on a wide variety of philosophical topics. His work appears in journals such asTheory and Decision, Theoria, Journal of Business Ethics, American Psychologist, Social Epistemology, andNew Ideas in Psychology. His main areas of research include ethics, social and political philosophy, and epistemology. He is currently working on a book concerning collective rights, responsibility, and punishment.     

Public Governance and School Performance

Abstract

According to the New Public Governance paradigm, this paper analyses the institutional and organizational conditions that can lead to an improvement in student learning (a typical co-produced outcome) by acting on the promotion of genuine collaborative relationships. The distinctive features of Italian distributed governance and the challenges for school management are discussed by examining TIMSS and INVALSI data. The results show that collaborative public management supports schools in improving student learning, confirming the research hypothesis for primary schools (IV grade) and schools that operate in socially and economically poor contexts.     

Financial constraints and firm dynamics

This study analyzes the effect of financial constraints (FCs) on firm dynamics. We measure FCs with an official credit rating, which captures availability and cost of external resources. We find that FCs undermine average firm growth, induce anti-correlation in growth patterns and reduce the dependence of growth volatility on size. FCs are also associated with higher volatility and asymmetries in growth shock distributions, preventing young fast-growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow-growing firms, particularly if old. The sub-diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution.     

Why Does the Interest Rate Decline Over the Day? Evidence from the Liquidity Crisis

We provide a simple model, able to explain why the overnight (ON) rate follows a downward intraday pattern, implicitly creating a positive intraday interest rate. While this normally reflects only some frictions, a liquidity crisis introduces a new component: the chance of an upward jump of the ON rate, which must be compensated by an intraday decline of the ON rate. By analyzing real time data for the e-MID interbank market, we show that the intraday rate has increased from a negligible level to a significant one after the start of the liquidity crisis in August 2007, and even more so since September 2008. The intraday rate is affected by the likelihood of a dry-up of the ON market, proxied by the 3M Euribor—Eonia swap spread. This evidence supports our model and it shows that a liquidity crisis impairs the ability of central banks to curb the market price of intraday liquidity, even by providing free daylight overdrafts. Such results have implications for the efficiency of the money market and of payment systems, as well as for the operational framework of central banks.