SME financing and the choice of lending technology in Italy: Complementarity or substitutability?

This paper investigates SME financing in Italy. The literature distinguishes between two main different lending technologies (LTs) for SMEs: transactional and relationship LTs. We find that banks lend to SMEs by using both LTs together, independently of the size and proximity of borrowers. Moreover, we show that the use of soft information decreases the probability of firms being credit rationed. Finally, we find that more soft information is produced when the bank uses relationship LT as primary technology individually or coupled with transactional LT. Our results support the view that LTs can be complementary, but reject the hypothesis that substitutability among LTs is somehow possible for outsiders by means of hardening of soft information.     

Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry

We provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior, where conduct parameters are modelled as functions of multimarket contact. We find (i) carriers with little multimarket contact do not cooperate in setting fares, whereas carriers serving many markets simultaneously sustain almost perfect coordination; (ii) cross‐price elasticities play a crucial role in determining the impact of multimarket contact on equilibrium fares; (iii) marginal changes in multimarket contact matter only at low or moderate levels of contact; (iv) assuming firms behave as Bertrand‐Nash competitors leads to biased estimates of marginal costs.     

How limiting deceptive practices harms consumers

There are two competing sellers of an experience good, one offers high quality, one low. The low‐quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low‐quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer welfare.     

Debt enforcement,investment, and risk taking across countries

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder–debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences-in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.     

Uncertainty and the Cost of Reversal

For standard irreversibility theory the prospect of acquiring better information in the future should induce more flexible decisions: the “irreversibility effect”. This result relies on the definition of an irreversible position as one that would be technically or economically impossible to reverse. In practice, many positions can be reversed at an affordable cost. In this case an increase in informativeness alone is not enough to bias decisions in favour of more flexibility. We look for restrictions on decision sets, information structures and preferences that make possible to study the effect of information on flexibility. JEL Classification No: D81, D9     

Competition among regulators and credit market integration

We analyze the incentives for independent bank regulators with financially integrated jurisdictions to form a regulatory union. Externalities lead competing regulators to choose suboptimally low standards. Centralized regulation, however, entails a loss of flexibility if equal standards must be applied across jurisdictions. We find that, first, centralized regulation will more likely emerge among relatively homogeneous jurisdictions/countries. Second, centralized regulation will be unanimously preferred to independence only if it entails standards higher than those of the country with the highest individual standards. Third, financial integration among more than two jurisdictions may prevent partial unions, which, in turn, may prevent more comprehensive agreements.     

Pricing Bonds and Bond Options with Default Risk

The pricing of bonds and bond options with default risk is analysed in the general equilibrium model of Cox, Ingersoll, and Ross (1985). This model is extended by means of an additional parameter in order to deal with financial and credit risk simultaneously. The estimation of such a parameter, which can be considered as the market equivalent of an agencies' bond rating, allows to extract from current quotes the market perceptions of firm's credit risk. The general pricing model for defaultable zero-coupon bond is first derived in a simple discrete-time setting and then in continuous-time. The availability of an integrated model allows for the pricing of default-free options written on defaultable bonds and of vulnerable options written either on default-free bonds or defaultable bonds. A comparison between our results and those given by Jarrow and Turnbull (1995) is also presented.     

A search model for Joint Implementation

The aim of this paper is to present a search model in the field of environmental economics, where so-called clean and dirty producers enter the trading market, both looking for a partner with whom to exchange the goods they are endowed with. The model derived in this paper is rather simple. Nevertheless, it is able to produce a series of interesting results and useful insights, and is conveniently used here as a framework to explain the functioning of Joint Implementation programs for polluting emissions＇ reduction.     

The European Monetary Policy Responses During the Pandemic Crisis

This paper uses an event-based analysis to describe how the European Central Bank’s (ECB’s) policy responses to the pandemic crisis have affected the European financial and economic system. The result of our exercise, which is based on the examination of the main measures taken by the ECB during 2020, is that these responses have positively affected the European economic system by improving banks’ lending activity and by indirectly creating room for expansionary fiscal policies in the euro area’s high-debt countries that do not have fiscal capacity.

     

Non-market valuation of forest goods and services: Good practice guidelines

The European COST Action E45 on European Forest Externalities (EUROFOREX) participants developed a set of good practice guidelines for the non-market valuation of forests, elaborating on stated and revealed preference methodologies, as well as benefit transfer and meta-analytical procedures. This article presents a summary of the guidelines.