IMF concern for reputation and conditional lending failure: Theory and empirics

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF's desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982–2001, we find that a longer relationship does increase IMF disbursements.     

Rawlsian pricing of access to public facilities: A unidimensional illustration

We consider a setting where citizens using a public facility face an idiosyncratic private access cost and must also contribute to the costs of facility. We show that if the population is uniformly spread over the real line, the cost of a facility is independent of location and access costs are linear in distance, the Rawlsian access pricing is the unique cost sharing solution that satisfies the “core property” of secession-proofness. The latter amounts to the voluntary participation principle under which no group of citizens should be charged more than the cost incurred if it had acted on its own.     

Experiencing change and the evolution of adaptive skills: Implications for economic growth

We distinguish learning in a static environment from that in a dynamic environment to show the existence of an important interaction between the development of new technologies and human capital accumulation. Because technological progress creates a more dynamic environment, it complements education in the production of human capital by enhancing adaptive skills. Higher levels of adaptability and human capital in turn determine the profitability of new inventions and the incentive to invest in new R&D. Differences in the history of technological progress produce different levels of adaptability and our results suggest why countries that have comparable levels of education and per capita incomes may differ significantly in their growth performance.     

The factory system in the British industrial revolution: A complementarity thesis

This paper offers an explanation for the rise of the factory system in Britain during the Industrial Revolution (1770-1850) based on the concept of complementarity: Investment in machinery, process supervision, and improved quality control formed a cluster of complementary activities in which adopting any one increased the marginal return to also adopting the others. Further, factory owners introduced process supervision not only to increase work effort, but also to balance worker incentives among production, quality control, and asset maintenance tasks. To test this hypothesis, I have constructed a new data set from firm studies and archival records. Measures of firms’ adoption of the activities are positively correlated in the cross-section of firms, providing evidence in favor of the complementarity hypothesis.     

What a Difference Immigration Policy Makes: A Comparison of PISA Scores in Europe and Traditional Countries of Immigration

Abstract. The purpose of this article is to evaluate the importance of different immigration policies associated with corresponding migration backgrounds, command of national languages and intergenerational mobility, for the PISA school performance of teenagers living in European countries (France, Finland, Germany, United Kingdom and Sweden) and traditional countries of immigration (Australia, Canada, New Zealand and the US). Econometric results show that the influence of the socioeconomic background of parents differs strongly across nations, with the highest impact found for Germany, the UK and US, whereas intergenerational transmission of educational attainment is less likely in Scandinavian countries and in Canada. Moreover, for all countries our estimations imply that for students with a migration background a key for catching up is the language spoken at home. We conclude that educational policy should focus on integration of immigrant children in schools and preschools, with particular emphasis on language skills at the early stage of childhood.     

Returns of Small Growth Stocks: An Empirical Analysis

I investigate the mean reversion tendency of small growth stocks. Using a carefully articulated research design employing established and empirically tested principles, my findings should support or refute the anecdotal evidence that small growth stocks make superior investments. The primary motivation for the study springs from the documented differential preference among investors for value and growth stocks. Despite evidence that value stocks tend to outperform growth stocks, investors retain strong interest in growth stocks. Yet in examining the performance of Business Week’s (BW), smaller capitalization companies (called “Hot Growth Companies”) with respect to the overall financial market, Bauman et al. [2002] found positive excess returns in the pre-publication period but negative excess returns in the post-publication period. A limitation of their study is that their analyses relied on only three criteria: sales, BW rank and return on capital, which do not represent completely a firm’s financial health. I replicate Bauman et al.’s study but use a more robust and representative variable set to test the mean reversal hypothesis — Forbes’ financial criteria — and I focus on six variables. In the current study, I look at 4,200 companies listed in Forbes from 1980 to 2000. The results of the expanded study substantiate Bauman et al.’s [2002] study showing that there are positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. An expanded future study will look at five additional variables to see if they make a significant difference on the effects of the returns of small growth stocks.     

In-house competition, organizational slack, and the business cycle

Multiplant firms pit their facilities against each other for production assignments. The present paper studies the consequences of this practice in a model where production is limited by capacity constraints and asymmetric information allows facilities to accumulate slack. It shows the amount of slack per unit of output to be pro-cyclical. Indeed, as capacity constraints become more acute in economic booms, the power of in-house competition for quota assignments is reduced and slack per unit of output increases, while the opposite is true in downturns. Moreover, in downturns firms may use higher cost facilities even when lower cost plants are not running at capacity since this boosts X-efficiency in low-cost plants.     

Delays and equilibria with large and small information in social learning

The general model of social learning with irreversible investment and endogenous timing is analyzed for any distribution of private informations. Strategic complementarities and multiple equilibria appear which are generated solely by information externalities. Different equilibria generate strikingly different amounts of information. The impacts of various assumptions (bounded beliefs, large number of agents, discrete time and short periods) are examined carefully. The properties are robust to the introduction of observation noise with a continuum of agents.