Between the gift and the market: the economy of regard

'The great transformation' from customary exchange to impersonal markets is incomplete. Reciprocal exchange pervades modern societies. It takes the form of 'gifts', reciprocated without certainty. Reciprocity is driven by the pursuit of 'regard'. Money is avoided in regard exchanges, because it is impersonal. Instead, regard signals are embodied in goods, in services, or in time (attention). The personalization of gifts authenticates the signal. Reciprocal exchange persists in family formation, in intergenerational transfers, in labour markets, in agriculture, the professions, in marketing, entrepreneurship, and also in corruption and crime. Reciprocal exchange is constrained by time and psychic energy, but is likely to persist as a preferred source of regard.     

The market turn: from social democracy to market liberalism

Social democracy and market liberalism provide different solutions to the same problem: how to provide for life‐cycle dependency. Social democracy makes lateral transfers from producers to dependents by means of progressive taxation. Market liberalism uses financial markets to transfer financial entitlement over time. Social democracy came up against the upper limits of public expenditure in the 1970s. The ‘market turn’ from social democracy to market liberalism was enabled by liberalized credit in the 1980s. Much of this was absorbed into homeownership, which attracted majorities of households (and voters) in the developed world. Early movers did well, but eventually easy credit drove house prices beyond the reach of younger cohorts. Debt service diminished effective demand, which instigated financial instability. Both social democracy and market liberalism are currently in crisis.     

Cross-Hedging: Basis Risk and Choice of the Optimal Hedging Vehicle

The basis between a futures contract and its underlying instrument is an important measure of the cost of using the futures contract to hedge. In a cross-hedge, the relative size of the basis of alternative hedging vehicles often plays a decisive role in the selection of the optimal hedging vehicle. After adjusting hedge ratios for basis risk, a genuine risk-cost trade-off is seen in hedging 90-day certificates of deposit with either the Treasury bill contract or the Eurodollar contract. The Eurodollar contract was not uniformly superior as generally believed.     

A Backward Induction Experiment

This paper reports experiments with one-stage and two-stage alternating-offers bargaining games. Payoff-interdependent preferences have been suggested as an explanation for experimental results that are commonly inconsistent with players' maximizing their monetary payoffs and performing backward induction calculations. We examine whether, given payoff-interdependent preferences, players respect backward induction. To do this, we break backward induction into its components, subgame consistency and truncation consistency. We examine each by comparing the outcomes of two-stage bargaining games with one-stage games with varying rejection payoffs. We find and characterize systematic violations of both subgame and truncation consistency. Journal of Economic Literature Classification Numbers: C70, C78.     

Stockholder-bondholder conflict and dividend constraints

This paper examines a large, randomly chosen, sample of bond indentures focusing on the constraints they set on dividend payments that have the potential to transfer wealth from the bondholders (i.e., payments which are financed by a new debt issue or reduced investment). The nature of these restrictions support the hypothesis that bond convenants are structured to control the conflict of interest between stockholders and bondholders. Further, the empirical evidence suggests that these constraints are not binding — i.e., stockholders do not pay themselves as much dividends as they are allowed to. Explanations of this puzzling empirical regularity are suggested.     

Higher energy cost and the demand for restaurant services — a time-series analysis

Energy cost impact on demand for the restaurant services is examined using a broad base multi-variable regression model with special attention given to the lag structure and timing of the effects. The results reveal no negative impact of higher energy costs on demand. On the contrary, a slight positive delayed impact is evident over the short-run suggesting that, on margin, eating out may have been used as a compensatory recreational activity as a temporary substitute to other, more energy intensive, recreational activities.     

Wealth redistributions or changes in firm value: An analysis of returns to bondholders and stockholders around dividend announcements

Past studies indicate that stock prices are affected by announcements of unexpected dividend changes, i.e., unexpectedly large dividends are associated with positive stock price response. Two explanations of this empirical regularity, ‘the information content hypothesis’ and the ‘wealth redistribution hypothesis’, imply different bond price behavior around dividend announcements. The information content hypothesis predicts a positive bond price response to unexpectedly large dividends, while the wealth redistribution hypothesis predicts the opposite. This paper distinguishes between the relative importance of the two hypotheses by empirically investigating bond price behavior around dividend announcements. The evidence presented is consistent with the information content hypothesis. However, the gains associated with positive information are captured by the stockholders, while the losses are shared with the bondholders.