Lost in Transaction: Individual-Level Welfare Loss in Quickly-Circulating Durable Goods Markets with Planned Temporary Ownership

A new style of durable goods consumption through a large scale online redistribution marketplace (e.g. eBay and Yahoo! Auction), characterized by a relatively small degree of usage and a short-term ownership, is becoming increasingly popular these days. Yet, the welfare structures of such emerging markets have not been investigated. By using a unique dataset of quickly-circulating multi-use train ticket resale markets, and by investigating perfectly-substitutable goods, this short article models, estimates, and analyzes individual-level welfare loss in such rapidly-growing market sectors. Our analysis shows that individual-level welfare losses caused by search and resale costs are non-negligibly large, ranging from 3% to 15% of the new good price. We also find that such individual-level welfare losses, which could be considered as hidden charges, are largely heterogeneous across buyers with differing degrees of intended use. These losses are described as disadvantageous to users who demand light degrees of usage

The impact of liquidity on senior credit index spreads during the subprime crisis

This paper examines the effects of liquidity during the 2007–09 crisis, focussing on the Senior Tranche of the CDX.NA.IG Index and on Moody's AAA Corporate Bond Index. It aims to understand whether the sharp increase in the credit spreads of these AAA-rated credit indices can be explained by worse credit fundamentals alone or whether it also reflects a lack of depth in the relevant markets, the scarcity of risk-capital, and the liquidity preference exhibited by investors. Using cointegration analysis and error correction models, the paper shows that during the crisis lower market and funding liquidity are important drivers of the increase in the credit spread of the AAA-rated structured product, whilst they are less significant in explaining credit spread changes for a portfolio of unstructured credit instruments. Looking at the experience of the subprime crisis, the study shows that when the conditions under which securitisation can work properly (liquidity, transparency and tradability) suddenly disappear, investors are left highly exposed to systemic risk

International Propagation of Financial Shocks in a Search and Matching Environment

This paper develops a two-country multi-frictional model where the freeze on liquidity access to commercial banks in one country raises unemployment rates via credit rationing in both countries. The expenditure-switching channel, whereby asymmetric monetary shocks traditionally lead to negative comovements of home and foreign outputs, is considerably weakened via opposite forces driving the exchange rate. Meanwhile, it is proved that financial market integration forms a transmission channel per se, without resorting to international cross-holdings of risky assets. The search and matching modeling serves two purposes. First, it accounts for the time needed to restore a normal level of confidence following financial market disruptions. Second, it allows dissociating pure liquidity contractions from non-walrasian financial shocks, arriving despite global excess savings and due to heterogeneity in the quality of the banking system. The former induce negative comovements of home and foreign outputs, in accordance with the literature, whereas the new type of financial shocks does generate financial contagion.matching theory, financial markets, credit rationing, financial multiplier, international transmission, financial crises, open economy macroeconomics

Deep Learning Algorithms for Hedging with Frictions

This work studies the optimal hedging problems in frictional markets with general convex transaction costs on the trading rates. We show that, under the smallness assumption on the magnitude of the transaction costs, the leading order approximation of the optimal trading speed can be identified through the solution to a nonlinear SDE. Unfortunately, models with arbitrary state dynamics generally lead to a nonlinear forward-backward SDE (FBSDE) system, where wellposedness results are unavailable. However, we can numerically find the optimal trading strategy with the modern development of deep learning algorithms. Among various deep learning structures, the most popular choices are the FBSDE solver introduced in the spirit by Han, Jentzen, and E (2018) and the deep hedging algorithm pioneered by Buehler, Gonon, Teichmann, and Wood (2019). We implement these deep learning algorithms with calibrated parameters from Gonon, Muhle-Karbe, and Shi (2021) with respect to market time-series data and compare the numerical results with the leading order approximations. This work documents the performance of different learning-based algorithms and the leading order approximations, provides better understandings and justifies the usage of each method

Search and resale frictions in a two-sided online platform: A case of multi-use assets

How large are two-sided transaction costs in online platform trades, and who are the major beneficiaries of friction cost reductions? Using a dataset of a multi-use train ticket resale market, we analyze the welfare structure with buyer-seller matching frictions on an online platform. Our model shows that competitive online resale market prices work as a conductor of transaction cost externalities, clarifying what types of buyers bear what friction costs. The estimation results show that individual-level welfare losses, which could be considered an online resale market dead-weight loss, are non-negligibly large and heterogeneous across buyers, ranging from 3% to 21% of the new good price. Welfare losses are particularly disadvantageous to users who demand small degrees of usage, as they are more likely to be excluded from trading opportunities. Our model also suggests that, when competitive resale markets experience friction cost reductions, welfare gains are larger among small degree users of resalable goods, providing an explanation for the recent expansion of high-turnover online trades

ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?

This paper traces the advancements of the optimum currency area theory through its successive phases: the "pioneering phase," the "cost-benefit phase," the "reassessment phase," and the "empirical phase" in which we focus mostly on Europe because there is now a wealth of data, research and other information on European integration. The thrust of the pioneering contributions is still relevant and that the analysis of the benefits and costs from monetary integration has greatly evolved. There are more benefits and some of the perceived costs are smaller than previously thought. We also need to distinguish between an "OCA question" and an "EMU question."

How tax incentives affect decisions to invest in developing countries

The authors contend that in evaluating and designing investment incentives in developing economies, analysts should consider their effect on: the marginal effective tax rate (METR). Even simple tax incentives can perversely affect the METR. Many schemes have relatively generous write-offs to begin with, so generous that a negative marginal effective tax rate is not uncommon. In these circumstances, tax rate reductions (including tax holidays) can discourage investment. Investment tax credits are more likely to be effective. Loss firms. Incentives that do not have generous loss-offsetting or refundability provisions willbe of limited use to firms likely to suffer losses (including small growing firms and firms in risky environments). Cash flows. Incentives that improve firms'cash flows may be more effective than those that do not. Refundability may be important here. Simply adopting cash-flow costing principles with refundability may be more effective than reducing tax rates. Foreign-owned firms. If the value of a tax incentive is fully offset by reduced credits for foreign taxes, the incentive effect will probably be minimal. Capital allocation among assets. Some measures favor short- over long-lived capital, machinery over inventory, some industries over others. Incentives that encourage investment selectively may cause distortions in the way capital is allocated. Other factors to be considered in designing tax incentives: inflation, which is typically high in developing economies. Incentives should offset the effects of inflation; tax evasion, a common problem in developing countries; technology transfer; the fulfillment of social, environmental, and regional non-economic objectives; the effects on firms'organization (do the incentives encourage mergers, takeovers, or bankruptcy?)Economic Theory&Research,Environmental Economics&Policies,International Terrorism&Counterterrorism,Public Sector Economics&Finance,Banks&Banking Reform

Combined Operational Planning of Natural Gas and Electric Power Systems: State of the Art

The growing installation and utilization of natural gas fired power plants (NGFPPs) over the last two decades has lead to increasing interactions between electricity and natural gas (NG) sectors. From 1990 to 2005, the worldwide share of NGFPPs in the power generation mix has almost doubled, from around 10% to nearly 19%; reaching in 2007, for instance, the 54% in Argentina, the 42% in Italy, the 40% in USA, and the 32% in UK (IEA, 2007; IEA, 2009a). The installation of NGFPPs has been driven by technical, economic and environmental reasons. The high thermal efficiency of combined-cycle gas turbine (CCGT) power plants and combined heat and power (CHP) units, their relatively low investment costs, short construction lead time and the prevailing low natural gas prices until 2004 have made NGFPPs more attractive than traditional coal, oil and nuclear power plants, particularly in liberalized electricity markets. Additionally, burning NG has a smaller environmental footprint and a lower carbon emission than any other fossil fuel. Under the light of all conditions previously described, there is a strong and rising interdependency between NG and electricity sectors. In this context, it is essential to include NG system models in electric power systems operation and planning. On the other hand, NG system operation and planning require, as input data, the NG demands of each NGFPPs, which accurately values can only be obtained from the electric power systems dispatch. Therefore, several approaches that address the integrated modeling of electric power and NG systems have been presented. These new approaches contrast with the current models in which both systems are considered in a decoupled manner.Fil: Rubio Barros, Ricardo German. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan; Argentina. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaFil: Ojeda Esteybar, Diego Mauricio. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan; Argentina. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaFil: Año, Osvaldo. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaFil: Vargas, Alberto. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentin

Higher education and unemployment in Europe : an analysis of the academic subject and national effects

This paper examines the impact of an academic degree and field of study on short and long-term unemployment across Europe (EU15). Labour Force Survey (LFS) data on over half a million individuals are utilised for that purpose. The harmonized LFS classification of level of education and field of study overcomes past problems of comparability across Europe. The study analyses (i) the effect of an academic degree at a European level, (ii) the specific effect of 14 academic subjects and (iii) country specific effects. The results indicate that an academic degree is more effective on reducing the likelihood of short-term than long-term unemployment. This general pattern even though it is observed for most of the academic subjects its levels show significant variation across disciplines and countries