Credit information quality and corporate debt maturity : theory and evidence

This paper provides new theoretical and empirical evidence suggesting that the quality of credit information may be a key element in explaining the maturity structure of corporate debt around the world. In markets with poor credit information and hence a high degree of uncertainty about borrower quality, the authors find suboptimal equilibria in which short-term contracts are preferred either as a hedge against uncertainty to limit losses in bad states (in the symmetric information case) or as a screening device to learn about borrower credit quality in the course of a repeated lending relationship (in the asymmetric information case). The results of the model are supported by the econometric analysis of panel data from both industrial and developing economies. The authors find that countries with better quality of credit information (for example, as a result of improvements in credit reporting systems or accounting standards) are characterized by a higher share of long-term debt as a proportion of total corporate debt ceteris paribus. The findings suggest that promoting institutions and policies to improve the quality of credit information is an important prerequisite for increasing access of firms to long-term finance.Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Insurance&Risk Mitigation,Financial Crisis Management&Restructuring

Devolution and the New Zealand Resource Management Act

Many past and potential New Zealand reforms involve significant devolution, i.e. the transfer of authority to make decisions on behalf of society from a higher to a lower level of government. In particular the Resource Management Act (RMA), the health and education reforms, and decisions about the institutions for addressing Maori issues have led to significant devolution of authority. Employment policy and social welfare are areas where devolution is an important policy option. The role and function of local government also is inherently an issue of the appropriate level of devolution. Many of these reforms have now been in place for a number of years, so it is appropriate to review our experience of devolution, identify the successes, and attempt to address the problems that have arisen. Two papers address issues of when and how we should devolve authority from central to local government. This paper looks at devolution both from a general theoretical standpoint and from the perspective of the New Zealand Resource Management Act 1991 (RMA), with residential land use as an illustration. Although the RMA is discussed throughout both papers, the framework developed applies to any area of policy for which devolution decisions are being considered. The second paper, Treasury Working Paper 98/7a, applies the framework to the optimal pattern of devolution for policies relating to kiwi protection.

Infant industry policy and information revelation

We study domestic entry into an established durable good industry under imperfect information. Prior to making a costly entry decision, entrepreneurs observe their true type profitability only with some (common) noise. We consider policy when the government has finer information than firms about the common noise, allowing for two types of well meaning government with different objectives. We show that one government may signal its type with a second best policy to encourage entry. This result provides a rationale for the observed phenomena of governments choosing suboptimal infant industry interventions despite accepted economic wisdom.

CAPITAL DECISIONS WITH TEMPORAL RESOLUTION OF UNCERTAINTY: A MEAN-VARIANCE APPROACH

Financial Economics,

Core-stable Rings in Second Price Auctions with Common Values

In a common value auction in which the information partitions of the bidders are connected, all rings are core-stable. More precisely, the ex ante expected utilities of rings, at the (noncooperative) sophisticated equilibrium proposed by Einy, Haimanko, Orzach and Sela (Journal of Mathematical Economics, 2002), describe a cooperative game, in characteristic function form, in spite of the underlying strategic externalities. A ring is core-stable if the core of this characteristic function is not empty. Furthermore, every ring can implement its sophisticated equilibrium strategy by means of an incentive compatible mechanism.Auctions, Bayesian Game, Collusion, Core, Partition Form Game, Characteristic Function

A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade

This report develops a conceptual framework for the assessment of costs and benefits associated with non-tariff measures that allows an evidence-based comparative assessment of alternative regulatory approaches. It was prepared by Frank van Tongeren (OECD Secretariat), John Beghin (Iowa State University), and St?phan Marette (INRA).

A Computational Approach to Compare Information Revelation Policies

Revelation policies in an electronic marketplace differ in terms of the level of competitive information disseminated to participating sellers. Since sellers who repeatedly compete against one another learn based on the information revealed and alter their future bidding behavior, revelation policies affect welfare parameters—consumer surplus, producer surplus, and social welfare—of the market. Although different revelation policies are adopted in several traditional and Web-based marketplaces, prior work has not studied the implications of these policies on the performance of a market. In this paper, we study and compare a set of revelation policies using a computational marketplace. Specifically, we study this in the context of a reverse-market where each seller’s decision problem of choosing an optimal bid is modeled as an MDP (Markov decision process). Results and analysis presented in this paper are based on market sessions executed using the computational marketplace. The computational model, which employs a machine-learning technique proposed in this paper, ties the simulation results to the model developed using the game-theoretic models. In addition to this, the computational model allows us to relax assumptions of the game-theoretic models and study the problem under a more realistic scenario. Insights gained from this paper will be useful in guiding the buyer in choosing the appropriate policy

Optimal Income Taxation and Public Goods Provision in a Large Economy with Aggregate Uncertainty

We study a large economy model in which individuals have private information about their productive abilities and their preferences. Moreover, there is aggregate uncertainty so that the social benefits from taxation and public goods provision are a priori unknown. The analysis is based on a mechanism design approach that imposes a requirement of robustness with respect to individual beliefs and a requirement of coalition-proofness. The paper provides a tractable and intuitive characterization of incentive-feasible tax and expenditure policies: Incentive constraints associated with productive abilities reflect only individual behavior, whereas those associated with public goods preferences reflect only collective behavior.optimal taxation, public goods provision, revelation of preferences, robust mechanism design

The Emergence of New Successful Export Activities in Argentina: Self-Discovery, Knowledge Niches, or Barriers to Riches?

This paper examines the emergence of three new successful export activities in Argentina: biotechnology applied to human health, blueberries and chocolate confections. The main interest lies in ascertaining why these sectors/products were targeted, on which previously accumulated capabilities they were built upon, and what type of hurdles they faced and how they were overcome. In the absence of government support for discovery, these new exports emerged because the pioneers could introduce permanent or dynamic barriers to entry to compensate for the knowledge externalities they generated. When they could only introduce temporary barriers to entry, laissez faire investment in experimentation was suboptimally small. These new exports emerged in sectors where there were entrepreneurs with superior planning and networking skills and/or there were larger firms that could self-provide the required public goods and solve coordination failures by themselves.