Contracting Sequentially with Multiple Lenders: The Role of Menus

We study a credit market in which multiple lenders sequentially offer financing to a single borrower under moral hazard. We show that restricting lenders to post single offers involves a loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games.     

Pay now or pay later? The economics within the private equity partnership

The economics of partnerships have been of enduring interest to economists, yet it is not clear what profit sharing within a private partnership should look like. We examine over 700 private equity partnerships and show that the allocation of fund economics to individual partners varies drastically, even among the most senior partners, and appears divorced from past success as an investor, being instead related to status as a founder. A smaller share of carried interest and ownership—and inequality in fund economics more generally—is associated with departures of senior partners which, in turn is negatively related to the funds’ ability to raise additional capital.     

3D printing,international trade,and FDI

We analyze the relationship between 3D printing technology, the volume of trade, and the structure of foreign direct investment (FDI). We present a standard trade model with firm-specific heterogeneity into which we include 3D printing as a technology choice for foreign direct investment. The model generates three predictions. First, 3D printers are introduced in areas with high economic activity that face high transport costs. Second, technological progress in 3D printing leads to FDI dependent on traditional techniques gradually being replaced by FDI based on 3D printing. Third, with wider adoption, further technological progress in 3D printing leads to a gradual replacement of international trade. Empirical evidence focusing on the sectors with the highest rates of adoption supports the first hypothesis, while evidence from a case study supports the second and third. Our results suggest that the traditional strategy of poor countries for export-led industrialization is threatened by the widespread adoption of 3D printing that replaces international trade.     

Distribution shocks in a Kaleckian model with hysteresis and monetary policy

This study presents a dynamic Kaleckian model with different demand and distribution regimes, a monetary policy rule and hysteresis in the natural output level. We analyse the local stability of the steady state and the transitional dynamics in different combinations of demand and distribution regimes. Our model indicates that the initial condition in an economy matters for the steady state selection from multiple ones. Using impulse response function analysis, we show that a temporary shock to the income distribution can cause permanent effects on the dynamics of endogenous variables. Moreover, the degree of hysteresis influences the magnitude of impact on output levels. Monetary policy cannot stabilise output levels in the face of temporary shocks. Finally, we find that in a wage-led demand regime, a rise in inequality of functional income may lead to secular stagnation.     

On the long-run wealth distribution in a simple Ramsey model with heterogeneous households

This paper analyzes the long-run wealth distribution in a Ramsey model where individuals have a common rate of time preference but different intertemporal elasticities of substitution. As a result, it is shown that heterogeneity among households in intertemporal substitution is sufficient for the existence of a non-degenerate long-run wealth distribution. We also investigate the properties of the long-run wealth distribution and the transition of capital and consumption using the phase diagram.     

Housing market cycles in large urban areas

This paper examines the behaviour of house prices in large metropolitan areas. Using a sample of metropolises it is shown that real estate prices are largely nonlinear. It is found that dynamic asymmetries in the housing market cycle can well be modelled using a logistic smooth transition model (LSTAR). Further, it is found that the LSTAR specification has better forecasting properties with respect to other linear and nonlinear models.     

Bankruptcy regime and the banking system

Banks’ behavior as creditors relies heavily on the content of legal rights granted by the national bankruptcy laws. Using a sample of 87 countries over the period 2005–2016, this paper investigates whether the degree of such legal rights influences the following banking indicators: (1) private credit, (2) bank lending-deposit spread, and (3) foreign banks’ presence. Robust dynamic panel estimates indicate a significant and positive impact only on foreign banks’ presence in countries with a high level of creditors’ protection and bankruptcy systems that encourage the survival of financially distressed firms.     

Licensing agreements as signals of innovation: When do they impact market value?

This paper explains the performance outcomes of markets for technology. It examines whether, and in what context, licensing agreements function as signals of innovativeness that influence investors' evaluation of public companies and if they are consistent ex post the announcement. Joining the literature on markets for technology and signalling theory, it distinguishes the outcomes related to the expectation and the confirmation of the signal, while investigating the context in terms of a company's analyst coverage. This distinction is addressed based on an empirical strategy that draws on a sample of 99 companies (2006–2012) and relates the investing community's reaction to both abnormal stock market returns in the day of the announcement and to Tobin's q one year after. The results show neither immediate nor ex post effects for outward agreements, and negative immediate and ex post effects for inward agreements, which are muted for companies with extensive analyst coverage. They thus suggest that inward licenses are relevant negative signals and that the value of signals is maintained across time horizons. Our theory development introduces analyst coverage as a contingency under which licensing agreements represent a weaker signal. Our research thus warns managers against publicly announcing their licensing strategies.     

TAXATION OF ECONOMIC RENTS

Economic rents have long been identified as an efficient tax base. In addition, the recent literature documents that rent income is highly concentrated and that rents are quickly increasing. Rent taxation thus seems attractive for reasons of both efficiency and equity. Nevertheless, rent taxation remains a marginal topic in research and policy making. In a systematic review of the neoclassical literature on different rent types, we find that some types of rents reflect inefficiencies and should thus be minimized, while others reward investments and should be supported in line with social welfare. What remains for taxation are land rents, one of the few true scarcity rents. Land rents have significant potential to improve the efficiency of the tax system. We then begin to develop a comprehensive theory of land rent taxation by identifying relevant efficiency and equity effects. The interaction of many of these effects remains unexplored, which might explain policymakers' hesitation in using land taxes to date.     

Privatization,coordination and agency costs: The case for participation in Eastern Europe

In the paper, the interdependency between privatization and the growth of a new private sector is examined. While the dismantling of the omnipotent economic role of the state is a sine qua non for massive private investment, a vigorous private sector is needed to reduce unemployment and thus make further privatization possible. Since privatization is a lengthy process associated with a medium-term goal, while getting private investment started is important at the very beginning of the transition, this linkage constitutes a serious dilemma for the transformation. Multiple expectational equilibria arise and appropriate beliefs are crucial for the success of the reforms. Voucher schemes are shown to reduce agency costs of private investment and in this way may help to ensure coordination on the optimistic equilibrium.