Three things to do with knowledge ascriptions

Any good theory of knowledge ascriptions should explain and predict our judgments about their felicity. I argue that any such explanation must take into account a distinction between three ways of using knowledge ascriptions: to suggest acceptance of the embedded proposition, to explain or predict a subject's behavior or attitudes, or to understand the relation of knowledge as such. The contextual effects on our judgments about felicity systematically differ between these three types of uses. Using such a distinction is, in principle, open to both contextualist and pragmatic invariantist accounts of knowledge ascriptions. However, there are some implications pertaining to the use of the “method of cases” in the debate about knowledge ascriptions

Monitoring and Market Power in Credit Markets

No abstract.

Labour market reform and the sustainability of exchange rate pegs

It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments. We formalise this notion by incorporating labour market rigidities into an 'escape clause' model of currency crises. We show that the absence of structural reform makes a currency peg more fragile and undermines the credibility of the monetary authority in a dynamic setting. The fragility is captured by a devaluation premium in expectations that increases the average inflation rate when the currency peg is more vulnerable to 'busts' than 'booms'. This interaction between macroeconomic and microeconomic rigidities suggests that a policy reform can only be consistent if it renders either exchange rates or labour markets flexible.exchange rate policy; labour market flexibility; structural reform

Labour market reform and the sustainability of exchange rate pegs

It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments. We formalise this notion by incorporating labour market rigidities into an “escape clause” model of currency crises. We show that the absence of structural reform makes a currency peg more fragile and undermines the credibility of the monetary authority in a dynamic setting. The fragility is captured by a devaluation premium in expectations that increases the average inflation rate when the currency peg is more vulnerable to “busts” than “booms”. This interaction between macroeconomic and microeconomic rigidities suggests that a policy reform can only be consistent if it renders either exchange rates or labour markets flexible. JEL Classification: E42, F33, D84Exchange rate policy, labour market flexibility, structural reform

Adverse selection and financing of innovation: is there a need for R&D subsidies?

We study the interaction between private and public funding of innovative projects in the presence of adverse-selection based financing constraints. Government programmes allocating direct subsidies are based on ex-ante screening of the subsidy applications. This selection scheme may yield valuable information to market-based financiers. We find that under certain conditions, public R&D subsidies can reduce the financing constraints of technology-based entrepreneurial firms. Firstly, the subsidy itself reduces the capital costs related to innovation projects by reducing the amount of market-based capital required. Secondly, the observation that an entrepreneur has received a subsidy for an innovation project provides an informative signal to market-based financiers. We also find that public screening works more efficiently if it is accompanied by subsidy allocation.adverse selection; innovation finance; financial constraints; R&D subsidies; certification

Nordic Dual Income Taxation of Entrepreneurs

The paper shows how entrepreneurial taxes interact with the career choice of individuals, the quality of entrepreneurs, and their effort and investments. It is particularly relevant to differentiate the early effects on start-up enterprises with substantial uncertainty from the tax effects on mature firms where the uncertainty is resolved. That is why the neutrality results of dividend taxation from mature company theory do not carry over to start-up enterprises. The Nordic dual model encourages (discourages) the establishment of new enterprises by entrepreneurs who anticipate high (low) profitability.dual income taxation, enterprise taxes

The demand for money market mutual funds

This paper presents a model on the demand for money market funds (MMFs). These funds are a very close substitute for M1 deposits, except that MMFs do not satisfy immediate transaction requirements. The demand for MMFs strengthens when the intended volume of transactions is low. A high interest rate level makes it expensive to hold M1 deposits. High interest rate volatility, paradoxically, increases the risk of holding M1 deposits stronger than the risk of holding MMFs. The results are largely corroborated by Finnish data.money market mutual funds; money demand

Investor protection and business creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs’ possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor protection on the creation of start-ups thus hinges on the relative importance of various search and contract frictions. Only when investor protection has a sufficiently large impact on the ex post moral hazard problem relative to the interim moral hazard does strengthening investor protection enhance start-up creation. We also find that search frictions dilute the beneficial effect of investor protection and that contract frictions modify the standard Hosios condition for efficiency.investor protection; start-up financing; private equity market; entrepreneurship; corporate finance

Investor protection and business creation

We study the effects of investor protection on the availability of external finance, entrepreneurship, and creation of new firms in an equilibrium search model of private capital markets. In addition to search frictions, we examine contract frictions, specifically interim and ex post moral hazard problems stemming from entrepreneurs’ possibilities to expropriate financiers. In our model, the government chooses the level of investor protection that determines the transferability of match surplus between entrepreneurs and financiers. The results indicate that anything that increases (decreases) entrepreneurship also increases (decreases) the creation of start-ups. The effect of investor protection on the creation of start-ups thus hinges on the relative importance of various search and contract frictions. Only when investor protection has a sufficiently large impact on the ex post moral hazard problem relative to the interim moral hazard does strengthening investor protection enhance start-up creation. We also find that search frictions dilute the beneficial effect of investor protection and that contract frictions modify the standard Hosios condition for efficiency.investor protection, start-up financing, private equity market, entrepreneurship, corporate finance