Institutional Liquidity Needs and the Structure of Monitored Finance

A financial institution that finances and monitors firms learnsprivate information about these firms. When the institutionseeks funds to meet its own liquidity needs, it faces adverseselection ("liquidity") costs that increase with the risk ofits claims on these firms. The institution can reduce its liquiditycosts by holding debt rather than equity. Conversely, exceptin a limited setting resembling venture capital, firms thatdepend on monitored finance prefer to give the monitoring institutiondebt rather than equity. Institutions with less frequent orless severe liquidity needs have greater appetite for equityand for the debt of more risky borrowers. These predictionsare consistent with general patterns of monitored finance.     

How Subprime Borrowers and Mortgage Brokers Shared the Pie

We develop an equilibrium model for origination fees charged by mortgage brokers and show how the equilibrium fee distribution depends on borrowers' valuation for their loans and their information about fees. We use noncrossing quantile regressions and data from a large subprime lender to estimate conditional fee distributions. Given the fee distribution, we identify the distributions of borrower valuations and informedness. The level of informedness is higher for larger loans and in better educated neighborhoods. We quantify the fraction of the surplus from the mortgage that goes to the broker, and how it decreases as the borrower becomes more informed.     

Entrepreneurial finance: Banks versus venture capital

We analyze how entrepreneurial firms choose between two funding institution: banks, which monitor less intensively and face liquidity demands from their own investors, and venture capitalists, who can monitor more intensively but face a higher cost of capital because of the liquidity constraints that they impose on their own investors. Because the firm's manager prefers continuing the firm over liquidating it and aggressive (risky) continuation strategies over conservative (safe) continuation strategies, the institution must monitor the firm and exercise some control over its decisions. Bank finance takes the form of debt, whereas venture capital finance often resembles convertible debt. Venture capital finance is optimal only when the aggressive continuation strategy is not too profitable, ex ante; the uncertainty associated with the risky continuation strategy (strategic uncertainty) is high; and the firm's cash flow distribution is highly risky and positively skewed, with low probability of success, low liquidation value, and high returns if successful. A decrease in venture capitalists’ cost of capital encourages firms to switch from safe strategies and bank finance to riskier strategies and venture capital finance, increasing the average risk of firms in the economy.     

Economic and environmental effects of replacing bottom trawling with fishing with creels

Bottom trawling is associated with negative external effects such as seafloor pressure and high fuel use. Replacing bottom trawls with passive gear, such as creels, is therefore interesting for policymakers. We investigate the response of the Norway lobster fishery in Sweden to an expanded creel area. Using an economic model (FishRent), we analyse fleet structure, net present value and two environmental indicators under five management scenarios. Our results show that expanding the creel area increases the number of creel fishers, while some trawlers leave the fishery. In total, the net present value and the environmental performance of the fishery improve.     

Firm-level effects of offshoring of materials and services on relative labor demand

Based on firm-level data over the period 1997–2002 for the Swedish manufacturing sector the objective of this paper is to analyze relative labor demand effects due to offshoring, separating between materials and services offshoring and also geographical location of trade partner. Overall, our results give no support to the fears that offshoring of materials or services lead to out-location of high-skilled activity in Swedish firms. Rather, this paper finds evidence that the aggregate effects from offshoring lead to increasing relative demand of high-skilled labor, mainly due to services offshoring to middle income countries.     

Service-sector competition,innovation and R&D

The central prediction of the Aghion, Bloom, Blundell and Howitt model is an inverted U-shaped relationship between innovation and competition. The model is built on the assumption of a product market and has not yet been tested on the service sector. Using detailed firm-level data on Swedish service-sector firms, we find evidence of an inverse U-shaped relationship for exporting service-sector firms. A further breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for intramural R&D and training, but not for extramural R&D. Finally, the results indicate that as competition increases, small firms tend to seek strategic alliances with competitors, whereas large firms tend to reduce collaboration with competitors. The behavior of large firms can partly be due to their superior capacity to handle innovation projects internally, which will become more important if increased competition results in higher pay-offs to innovation.     

An Econometric Analysis of Global Waste Paper Recovery and Utilization

The main purpose of this paper is to provide aneconometric analysis of the most importantdeterminants of inter-country differences inwaste paper recovery and utilization rates. Byemploying pooled time series and cross-sectiondata over 49 countries worldwide and sevenyears, the paper concludes that relative wastepaper recovery and use depend largely onlong-standing economic factors such aspopulation intensity and competitiveness in theworld market for paper and board products. Wealso find evidence that supports the conjecturethat rich countries tend to recover relativelymore waste paper than is the case in low-incomecountries, reflecting the higher demand forwaste management and environmental policies inmore developed economies. As recovery andutilization rates are determined by economicand demographic characteristics the degree ofpolicy flexibility in affecting these rates maybe limited. In particular, an ambitiousutilization rate target may be very costly toenforce as it can conflict with existing tradepatterns of paper and board products as well aswith other environmental goals. Additionalpolicy targets may therefore be desirable,especially since paper recycling is motivatedprimarily by environmental concerns and seldomis a benign activity in itself.     

Behavioural responses to employment discrimination: a study of Hong Kong workers

This study examines the behavioural responses of Hong Kong workers to employment discrimination. Based on the exit-voice framework proposed by Hirschman, five possible responses (i.e. neglect, quit, internal voice, external voice and litigation) are identified. The effects of certain personal attributes and work-related factors on these responses are evaluated. Two different data sets, focusing on gender discrimination and family status discrimination, are analysed. The results of logistic regression indicate that workers with higher levels of education and sensitivity to discrimination are more likely to complain and less likely to neglect their work or resign. Additionally, men and women respond differently to sex-based discrimination. Work-related factors such as employment sector, job tenure and employer size are also found to exert significant effects. The theoretical and practical implications of these findings are discussed.     

Strategic behavior across gender: A comparison of female and male expert chess players

This paper aims to measure differences in risk behavior among expert chess players. The study employs a panel data set on international chess with 1.4 million games recorded over a period of 11 years. The structure of the data set allows us to use individual fixed-effect estimations to control for aspects such as innate ability as well as other characteristics of the players. Most notably, the data contains an objective measure of individual playing strength, the so-called Elo rating. In line with previous research, we find that women are more risk-averse than men. A novel finding is that men choose more aggressive strategies when playing against female opponents even though such strategies reduce their winning probability.