Organized Labor and the Political Economy of Product Market Distortions

Why are economic reforms reversed through strikes and demonstrationsin some countries, but backed by the labor movement in othercountries? Why do product and labor market distortions differso much across countries? This article addresses these questionsby means of a simple, heuristic model of the economy that replicatesin an integrated manner several independent results from therecent political economy literature. Unlike most of this literature,however, the model focuses on the role played by organized labor,rather than by rent-seeking firms and guilds. A two-stage gamebetween the government and organized labor determines the levelof product market distortions (for example, import tariffs).In the first stage, the players may undertake costly actions,such as redistributing income or striking, in order to increasetheir bargaining power. In the second stage, they negotiateover product market distortions and wages. Under very generalassumptions, several policy regimes exist: Changes in the keyparameters of the economy may trigger a switch in the strategyof trade unions from confrontation to cooperation and hencechange the policy regime. Cross-country data highlight that,in spite of its simplicity, the model reproduces some observedempirical regularities.     

Do Banks Follow Their Customers Abroad?

The market share of US business loans made by foreign‐owned banks has increased dramatically since 1980. At the same time, foreign direct investment in the US rose, so that much of the growth in foreign‐owned US‐based bank lending to businesses in the US could conceivably be accounted for by an increase in loans to the nonbank US affiliates of firms headquartered abroad, an expectation consistent with the conventional wisdom that banks "follow their customers" abroad. Our study investigates the lending patterns of US‐based banks from Japan, Canada, France, Germany, the Netherlands, and the UK, countries that account for the vast majority of foreign bank activity in the US. Simultaneously, we look at the borrowing patterns of nonbank US affiliates of firms from those countries. We find that banks from four of the six countries (Japan, Canada, the Netherlands, and the UK) allocated a majority of their loans to non‐home‐country borrowers for some or all of the 1981–1992 period. These findings suggest that the "follow the customer" hypothesis may have a more limited applicability than previously supposed.     

The antecedents of preventive health care behavior: An empirical study

A conceptual model of preventive health care behavior is proposed and tested. Results suggest that preventive health care behaviors are strongly influenced by the value consumers perceive in engaging in such actions. This value is greatly affected by response efficacy, or the person’s belief that a specific action will mitigate the health threat. A separate consideration affecting adherence to a prescribed preventive health care behavior is self-efficacy, or the person’s belief that the target behaviors can be enacted. Additionally, health motivation and health consciousness are also shown to influence preventive health care behaviors. Future research directions and managerial implications of the findings are outlined. Rama K. Jayanti (Ph.D., Louisiana State University) is an assistant professor of marketing, James J. Nance College of Business, Cleveland State University, Cleveland, Ohio. Her primary research interests include services marketing and consumer behavior. She has published articles inJournal of Health Care Marketing; Journal of Consumer Satisfaction, Dissatisfaction, and Complaining Behavior; andJournal of Professional Services Marketing. Alvin C. Burns is a professor of marketing and department chairman at Louisiana State University. His articles have appeared in publications such as theJournal of Marketing Research, Journal of Health Care Marketing, Journal of Advertising, Journal of Advertising Research, andAsian Journal of Marketing. Burns belongs to the American Marketing Association, the Association for Consumer Research, and the Association for Business Simulation and Experiential Learning. He is the lead author ofMarketing Research (Prentice Hall, 1995).     

RESILIENCE TO CONTAGION IN FINANCIAL NETWORKS

We derive rigorous asymptotic results for the magnitude of contagion in a large counterparty network and give an analytical expression for the asymptotic fraction of defaults, in terms of network characteristics. Our results extend previous studies on contagion in random graphs to inhomogeneous‐directed graphs with a given degree sequence and arbitrary distribution of weights. We introduce a criterion for the resilience of a large financial network to the insolvency of a small group of financial institutions and quantify how contagion amplifies small shocks to the network. Our results emphasize the role played by “contagious links” and show that institutions which contribute most to network instability have both large connectivity and a large fraction of contagious links. The asymptotic results show good agreement with simulations for networks with realistic sizes.     

Payout flexibility and capital expenditure

Over the past two decades or so, repurchases have become an appealing method for disbursing cash to shareholders compared to the traditional dividends. Managerial perception as well as empirical evidence suggests that repurchases are inherently more flexible than dividends, which may account for their increasing popularity. The rigidity of dividends and the apparent flexibility of share repurchases could impact firm investments. Firms may forego profitable investment opportunities to maintain their dividend levels, while repurchases could be easily scaled back to fund profitable investment projects without fear of an adverse market reaction. We test the flexibility hypothesis of repurchases by regressing capital expenditures on repurchases and dividends in addition to other control variables. Consistent with our hypotheses, we find an inverse relationship between capital expenditures and repurchases but an insignificant relationship with dividends. Further, we find that the flexibility associated with repurchases is especially evident for firms that are financially constrained, and during the recent financial crisis period when external capital constraints were severe. Finally, we find that flexibility of repurchases with respect to capital expenditures is stronger in the more recent time period during which regulatory changes made repurchases more attractive as a mechanism to disburse cash back to shareholders.     

In memoriam: Marco Avellaneda (1955–2022)

Marco Avellaneda (1955–2022) was a leading figure in the development of mathematical modeling in finance and its dissemination among market practitioners. We provide a sketch of his trajectory and outline some of his main research contributions to mathematical finance.     

A model-free approach to continuous-time finance

We present a pathwise approach to continuous-time finance based on causal functional calculus. Our framework does not rely on any probabilistic concept. We introduce a definition of continuous-time self-financing portfolios, which does not rely on any integration concept and show that the value of a self-financing portfolio belongs to a class of nonanticipative functionals, which are pathwise analogs of martingales. We show that if the set of market scenarios is generic in the sense of being stable under certain operations, such self-financing strategies do not give rise to arbitrage. We then consider the problem of hedging a path-dependent payoff across a generic set of scenarios. Applying the transition principle of Rufus Isaacs in differential games, we obtain a pathwise dynamic programming principle for the superhedging cost. We show that the superhedging cost is characterized as the solution of a path-dependent equation. For the Asian option, we obtain an explicit solution.     

HARI: Characteristics of a new defined lifestyle (DL) retirement planning product

Journal of Financial Services Marketing - Approximately 16% of the world's population lives in countries with some concept of a financial retirement plan. Of the remaining population, many do...