FRAMING OF INCENTIVES AND EFFORT PROVISION

A prospect theory model combining loss aversion and diminishing sensitivity predicts that the link between incentives framing and effort is ambiguous: small penalties yield higher effort, but isomorphic contracts with large penalties decrease effort. We conduct two experiments (a framed field and a conventional lab experiment) in which economically equivalent contracts are framed as menus of either (i) bonuses, (ii) penalties, or (iii) bonuses and penalties. The experimental results confirm the main intuition of the model as subjects performed best when bonuses and penalties are combined. A follow‐up lottery experiment confirms that both loss aversion and diminishing sensitivity influenced the performance.     

Rice market integration and food security in Nepal: The role of cross-border trade with India

Coarse rice market integration between Nepal and India is analyzed applying a threshold autoregressive model. The price response behaviour of traders is found to be consistent with an asymmetric price adjustment mechanism, indicating coarse rice prices in Nepal respond to shocks originating in India. The results show that adjustments to negative price deviations from long-run stable equilibrium are faster than adjustments to the positive ones given a null threshold. Given that trade flows mainly from India to Nepal, Nepali traders would adjust their prices upward to align with the long-run equilibrium value relatively more quickly in the case of negative price deviations, than if the price deviations were positive. Such a high speed of adjustment to negative price deviations could be detrimental to net food buyers’ food security status in the absence of a price stabilization mechanism. However, a price stabilization policy in Nepal, a food deficit and import dependent country, would hardly have any effect on prices unless further effort is made to build up the level of national food reserves for short-term food security interventions. In the current context of structurally low levels of national food reserves, an alternative short-term policy such as foreign aid, in the form of food or income transfers, targeting the most vulnerable households to price increases is necessary through social safety net programmes. In the long-run, an improvement of transportation infrastructure between market hubs (other than the Biratnagar trade basin) in the Terai (Nepal) and India would contribute to the reduction of transaction costs and create incentives for more competition in formal cross-border trade with India. In times of negative shocks such as the high food price crisis in 2008, restrictive food trade policies in India will continue to undermine household food security in Nepal.     

Contact High: The External Effects of Retail Marijuana Establishments on House Prices

Using publicly available data from the city of Denver and the state of Colorado, this study examines the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, CO. The study period reflects a time before and after retail marijuana sales became legal in Colorado in 2014. Using a difference‐in‐differences approach, we compare houses that were in close proximity to a conversion (within 0.1 miles) to those that are farther away from a conversion. We find that single‐family residences close to a retail conversion increased in value by approximately 8% relative to houses that are located slightly farther away. We perform a battery of robustness checks and falsification tests to provide additional support for this finding. To our knowledge, this is the first study to examine at a microlevel the highly localized effect of retail marijuana establishments on house prices and hope that it can contribute to the debate on retail marijuana laws.     

Ownership structure and risk in publicly held and privately owned banks

Using detailed ownership data for a sample of European commercial banks, we analyze the link between ownership structure and risk in both privately owned and publicly held banks. We consider five categories of shareholders that are specific to our dataset. We find that ownership structure is significant in explaining risk differences but mainly for privately owned banks. A higher equity stake of either individuals/families or banking institutions is associated with a decrease in asset risk and default risk. In addition, institutional investors and non-financial companies impose the riskiest strategies when they hold higher stakes. For publicly held banks, changes in ownership structure do not affect risk taking. Market forces seem to align the risk-taking behavior of publicly held banks, such that ownership structure is no longer a determinant in explaining risk differences. However, higher stakes of banking institutions in publicly held banks are associated with lower credit and default risk.     

A controlled field experiment on corruption

This paper reports on a controlled field experiment on corruption designed to address two important issues: the experimenter's scrutiny and the unobservability of corruption. In the experiment, a grader is offered a bribe along with a demand for a better grade. We find that graders respond more favorably to bigger bribes, while the effect of higher wages is ambiguous: it lowers the bribe's acceptance, but it fosters reciprocation. Monitoring and punishment can deter corruption, but we cannot reject that it may also crowd-out intrinsic motivations for honesty when intensified. Finally, our results suggest several micro-determinants of corruption including age, ability, religiosity, but not gender.     

Falling under the control of a different type of owner:risk-taking implications for banks

European banks have experienced significant changes in the type of entity that owns them (another bank, an individual or a family, a non-financial company, an institutional investor, a government, a foreign entity, a domestic entity…). In this paper, we look at the influence of ownership type changes on risk and profitability. Working with a panel of commercial banks from 17 European countries, we find that although banks that experience a change in ownership type do not exhibit lower or higher risk or profitability than other banks, their risk and profitability is significantly affected after the change takes place. The type of the acquirer plays a significant role in explaining the observed changes. When the acquirer is a non-financial company, the state or an institutional investor, the level of risk increases after the change while the level of profitability remains unchanged. Conversely, when the acquirer is a bank, we find that the level of risk-adjusted profitability decreases. Banks acquired by a different type of owner during the global financial crisis do not perform better or worse than they did before.     

Product Market Competition and Corporate Real Estate Investment under Demand Uncertainty

This article theoretically and empirically analyzes the interactions among corporate real estate investment, product market competition and firm risk. In our model, firms own strategic real estate or lease generic real estate. Our model predicts that strategic real estate ownership is positively correlated with industry concentration and negatively related to demand uncertainty. Also, firm risk is higher for firms with more strategic real estate operating in a more concentrated market. This prediction arises because smaller investments induce greater market competition, which effectively eliminates the right tail of the firm's profit distribution. We provide strong empirical support for our predictions. In particular, firm value is more volatile in less competitive markets for a given level of demand uncertainty.     

Cocoa Production Output Response to Smallholder Price Speculation: Case Study of Cote d’Ivoire and Nigeria

The paper attempts to analyze the variation in cocoa output response to international price fluctuations in two major cocoa producing countries: Cote d’Ivoire and Nigeria. The study employs a Nerlovian price expectation technique as in Ogundari (2015), and a Panel VAR model to empirically estimate changes in cocoa output using time series and an unbalanced panel dataset covering a period from 1967 to 2009. The findings indicate and in accordance with economic theory of demand and supply, that cocoa output is an inverse function of the expected prices of competing agricultural commodities like green coffee. When there is an expected price increase of cocoa, cocoa output rises. Simultaneously, if the anticipated price of coffee rises, through a cocoa–coffee substitution mechanism, smallholder farmers shift their focus to coffee production leading to a fall in cocoa output. A Granger causality test was utilized to investigate causality between cocoa output, and cocoa and coffee prices. In the case of Cote d’Ivoire, while there is only a correlation between cocoa output and price, in the case of Nigeria there was none. In addition, the study shows no unidirectional or bidirectional causality between the intervening variables and cocoa output.     

Single Currency in ECOWAS: Is the Proposed Fiscal Convergence Criterion Pro‐Growth?

To facilitate the introduction of a single currency in Economic Community of West African States (ECOWAS), the fiscal convergence criterion currently proposed by countries limits the public deficit to 3 per cent of GDP. According to the literature, the limitation of the public deficit to a given threshold is the most fundamental norm of the various convergence pacts existing and needed for monetary integration. Through a nonlinear panel data model, this paper tests the validity of the threshold by determining the public deficit threshold not to be exceeded so that fiscal policy has a positive effect on economic growth. Over the decade 2007–2016, this threshold is estimated at 4.74 per cent of GDP. Thus, the paper concludes that the proposed convergence criterion of 3 per cent of GDP is pro‐growth. However, in relation to the estimated threshold, there is a room for manoeuvre that can be used for supporting economic growth. Thus, the proposed threshold could be readjusted upward. The analysis also reveals that only four countries in ECOWAS are on the track to respect in the future, the proposed fiscal criterion and therefore are taking an important step toward the adoption of the future currency. The other countries need to make significant fiscal consolidation operations before hoping to adopt the single currency on the basis of fiscal discipline.