Trust and reciprocity: extensions and robustness of triadic design

Our paper reconsiders the triadic design proposed by Cox (Games and Economic Behavior 46:260–281, 2004) to identify trust and reciprocity in investment games. Specifically, we extend the design in two directions. First, we collect information on investors’ choices by using both the direct-response (as does Cox) and strategy methods. Using the latter, we are able to condition reciprocity on initial inequality, which is endogenous when investigating reciprocity. We demonstrate that the triadic design provides evidence for reciprocity once that initial inequality is considered. Second, we elicit expectations and test their coherence with the triadic outcomes. By examining the relationship between trust actions and expected gains, we analyze whether investors’ expectations are consistent with their behavior. Finally, we test for the existence of an emotional bias, i.e., whether expectation mismatches induce trustees to change actual choices from the planned ones.     

Production Theory: Accounting for Firm Heterogeneity and Technical Change

The paper presents a new framework to assess firm level heterogeneity and to study the rate and direction of technical change. Building on the analysis of revealed short‐run production functions by Hildenbrand ( 1981 ), we propose the (normalized) volume of the zonotope composed by vectors‐firms as indicator of inter‐firm heterogeneity. Moreover, the angles that the zonotope's main diagonal form with the axes provide a measure of the rates and directions of productivity change. The proposed framework also accounts for n‐inputs and m‐outputs and, crucially, the measures of heterogeneity and technical change do not require many of the standard assumptions from production theory.     

Multiple equilibria and global indeterminacy in an endogenous growth model with congestible public goods

This paper extends the findings in Chen and Lee (2007) to show that the use of congestible public goods can produce both local and global indeterminacy in a two‐sector endogenous growth model with productive public services financed by income taxation. Basically, we observe the effects on growth rates by changing parameters, and compare the case of a single steady‐state with the emergence of dual steady‐states, identifying the feasible ways to avoid a possible low‐growth poverty trap. The novelty of our analysis is to detect the presence of global indeterminacy by making use of the Bogdanov‐Takens bifurcation theorem. Some examples are also provided to achieve concrete policy implications.     

Goodwill write-off and financial market behaviour: An analysis of possible relationships

The aim of this contribution is to verify whether there exists a reaction of financial markets to the new accounting method for goodwill introduced by SFAS 142 and IAS 36. Our research hypothesis is that financial markets should have no significant reaction to the goodwill write-off following the impairment test, since the latter's outcome represents an economic estimate without financial significance. The hypothesis was checked by the analysis of the companies added to the Standard & Poor's Europe 350 index over a three-year period, taking note of goodwill write-off announcements and relating them with the stock market prices and their volatility. The results demonstrate a correlation between the goodwill write-off and the behaviour of financial markets, while the same connection cannot be evinced for prices volatility. Also, what comes out from our analysis is that markets need a relatively long period, over one semester, before absorbing in full the effects resulting from the write-off announcement.     

EU Economic Partnership Agreements and WTO negotiations. A quantitative assessment of trade preference granting and erosion in the banana market

The paper provides a quantitative assessment of the impact on the banana market of the expansion of trade preferences the European Union granted Africa, Caribbean and Pacific (ACP) countries with the Economic Partnership Agreements (EPA) and of the possible erosion of these preferences as a result of different possible conclusions, if any, of on-going WTO negotiations. The results of the simulations performed suggest that the impact of the EPA on production and consumption of bananas in the EU will be limited, while benefits for ACP countries will be significant (at the expense of Most Favoured Nation (MFN) exporters). An agreement between the EU and MFN countries to end the outstanding WTO disputes on bananas and/or the conclusion of the WTO Doha round may bring an erosion of the preferential margins currently enjoyed by ACP countries of such an order of magnitude as to cancel out most of these benefits.     

Accomplice Witnesses and Organized Crime: Theory and Evidence from Italy

We develop an agency model of organized crime accounting for the main trade‐offs involved in the introduction of an accomplice‐witness program. We characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest. Our predictions are tested by using data for Italy before and after the introduction of the 1991 accomplice‐witness program. As predicted by the model and the earlier antitrust literature, the program appears to have strengthened deterrence and enhanced prosecution. Moreover, consistent with a novel prediction of our theory, the evidence suggests that the program efficacy is affected by the judicial system efficiency.     

How risk influences the choice of governance mode in biopharmaceutical inter-firm relationships

This paper proposes a new theoretical framework for assessing the influence of risk in shaping the governance form in biopharmaceutical inter-firm relationships. In particular, we propose a multidimensional operationalization of relational and performance risk and, by following Transaction Cost Economics (TCE) and Real Options (RO) theory constructs, we hypothesize a relation between the aforementioned risk components and the choice of governance form. Specifically, following TCE reasoning, we hypothesize that a high level of relational risk leads towards more hierarchical governance forms, while, following RO theory, we hypothesize that a high level of performance risk leads toward market-oriented governance forms; finally, we hypothesize a moderating effect of each risk component on the other. We empirically test our framework through the analysis of 353 inter-firm relationships signed worldwide between pharmaceutical and biotech companies from 2007 to 2010. The results show substantive support for our theoretical framework. Furthermore, we find a significant moderating effect of the performance risk on the TCE relation between relational risk and governance forms.     

An integrated multi-model credit rating system for private firms

This paper presents a integrated credit risk modelling approach for private firms which fulfil 2001 Basel Accord requirements in the case of the adoption of the foundation approach. Our model comprises: (a) a bottom-up technique to initially assess the through-the-cycle one-year Probability of Default (PD) and (b) a top-down approach to refine and calibrate this historical PD in a forward-looking credit risk assessment based on next year’s economic outlook. We present findings from applying this model to a large sample of client firms of the Bank of Rome.