A Refinancing Model of Decentralization with Empirical Evidence from China

Decentralization can complement market liberalization by strengthening incentives of agents to exploit local information in response to market signals. In China, however, banks centralized lending authority following financial reforms in the mid-1990s. We offer a new theory of financial decentralization in which centralization provides a credible commitment not to refinance bad projects by reducing available information. Using data from Chinese rural financial institutions, we empirically assess the determinants of decentralization and the likelihood of collateral seizure, strongly confirming the predictions of the refinancing model. We conclude that the inability of financial systems to exploit local information in weak institutional environments may limit the efficiency of financial intermediation despite financial market liberalization.http://deepblue.lib.umich.edu/bitstream/2027.42/39845/3/wp461.pd

Barriers to Entry and Profitability

Barriers to entry are regarded as major impediments to the working of markets. Entry must not necessarily actually take place - the perceived threat of entry may encourage incumbent firms to behave as if they are in a competitive market, even if they are not. We present empirical evidence on effects of perceived threat of entry on profitability. Using information from managers about how they assess the existence of entry barriers a strong impact of these assessments on profitability is confirmed. The number and the relative size of competitors also exert considerable effects. We find no statistically significant relation between the perceived threat of entry and the actual number of firms if the size of the relevant market is taken into account. --Barriers to Entry,Profitability,Discrete Regression Models

Joint Liability Lending and the Rise and Fall of China's Township and Village Enterprises

Using data from a recent survey of bank and enterprise managers and government officials in southern China, we present a new explanation for the rise and fall of collectively-owned township and village enterprises (TVEs) based on the willingness of banks to finance collective enterprise development. Until recently bank loans to TVEs exhibited the key features of joint liability lending, supported by the unique sanctioning ability of local leaders. Beginning in the mid 1990s, liquidation costs fell, firm performance deteriorated, real interest rates rose, and financial competition increased. These changes led to a dramatic change in the lending preferences of banks in favor of private firms. Empirical estimates of the determinants of bank lending preferences, the involvement of township leaders in lending, and the ability of firms to obtain loans support our explanation.http://deepblue.lib.umich.edu/bitstream/2027.42/39846/3/wp462.pd

Competition and the Provision of Rail Passenger Services: A simulation exercise

This paper presents the results of simulating the effects of introducing competition on a long distance international rail passenger route where there is also a strong domestic market served by high speed trains. We are aware of a number of proposals to introduce new services in such circumstances. It has allowed for the fact that on such a service seat reservations are likely to be compulsory and yield management practiced, so that whatever is initially assumed about fares there will be further endogenous changes in average fares to maintain high load factors. It is found that on-track competition has benefits to consumers, in terms of fares and services, but that it would reduce the profitability of the incumbent and that it would be difficult for the new entrant to attain profitability unless its costs were significantly lower than those of the incumbent. A large part of the revenue of the entrant on this route would come from the domestic market, and if open access competition were permitted then the entrant might seek to run a frequent service offering head on competition on this part of the route. However, again it would appear that both operators would make heavy losses in this situation. One way of restoring profitability might be to reduce track access charges, but that would require additional government subsidy to the infrastructure manager, as the additional train kilometres run would not compensate for the lower charges. An alternative way of seeking to achieve the same result as on track competition in terms of reduced costs and innovation whilst preserving economies of density would be to award a monopoly franchise by means of competitive tendering. Franchising has generally succeeded in raising rail demand and reducing costs, although in the one example where inter-city services were franchised – Britain – costs have actually risen. Thus unless this is due to peculiarities of the British situation which would not exist elsewhere, on track competition may still have a role in reducing costs

The impact of regulatory reforms on cost structure, ownership and competition in Indian banking

This paper evaluates the impact of financial sector reforms on the cost structure characteristics and on the ownership–cost efficiency relationship in Indian banking. It also examines the impact of reforms on the dynamics of competition in the lending market. We find evidence that deregulation improves banks performance and fosters competition in the lending market. Results suggest technological progress, once Indian commercial banks have adjusted to the new regulatory environment. This, however, does not translate in efficiency gains. There is also evidence of an ownership effect on the level and pattern of efficiency change. Finally, competition keeps building pace even in the re-regulation period and technological improvements are not hampered by the tightening of prudential norms

Scheduling a future air transport system

The scheduling of future timetables is an important driver for aircraft sales and design considerations in future aircraft. Airline companies seek to maximise their profits through capturing passenger demand through the quality of service they offer, within which timetabling plays an important role. In this study a hub and spoke system for medium haul travel is analysed, with particular reference to the time at which departing waves are set from the hub airport. Initially, an optimal wave time based only on the geography of the hub is considered. Subsequently, a model is developed which includes the constraints of market share and limited fleet size, and an example timetable produced. A final note is made about game theoretical aspects that might be considered in moving the work forward

Barriers to innovation and subsidy effectiveness

We explore the effects of subsidies by means of a model of firms' decisions about performing R&D when some government support can be expected. We estimate it with data on about 2,000 performinga nd nonperformingS panishm anufacturingfi rms. Wec omputet he subsidies required to induce R&D spending, we detect the firms that would cease to perform R&D without subsidies, and assess the change in the privately financed effort. Results suggest that subsidies stimulate R&D and some firms would stop performing in their absence, but most actual subsidies go to firms that would have performed R&D otherwise. We find no crowding out of private funds.Publicad

A Decision Model for E-commerce-enabled Partial Market Exit

Struggling retail chains often try to recover profitability by closing some of their stores. The challenge in this strategy lies in determining how many stores to close, as store exit has implications for both the customers and the supply chain. After a store closes, its customers are lost forever to the competition, unless there is a surviving open store nearby or an electronic alternative such as an e-store. From the supply chain perspective, after a store closes, its supporting regional distribution center is left with less business, and thus reduced viability. This paper develops a decision support model to study the profitability of alternative retail network structures by varying the proportion of stores that are closed, the average price sensitivity of demand, the price difference between the online store and the traditional retailers, and customer retention rates