The Market for Indexed Financial Instruments

The lack of indexed financial instruments has long puzzled economists because their benefits seem obvious. Using a two-period model with random inflation, the author shows that borrowers and lenders prefer indexed instruments when their incomes are adjusted for inflation. Without adjustment, however, borrowers prefer nominal instruments. When adjustment is uncertain, real interest rates on indexed instruments resemble expected real interest rates on nominal instruments and neither instrument dominates. Given the cost of financial innovation, it is not surprising that indexed instruments have not arisen.

International Soccer Success and National Institutions

A growing literature has examined what characteristics lead countries to succeed or fail in international soccer. We build on this literature by building a model of national success, where success is measured by the number of “FIFA points” a national team earned. We use the model to generate testable hypotheses regarding the impact of a nation’s political heritage and institutions on its soccer performance. Using OLS and Poisson regressions, we corroborate previous studies and find that success increases with income, population, and having hosted a World Cup competition. We also find that a country’s political institutions and colonial heritage affect its soccer performance. In particular, being a wealthy democracy adds greatly to soccer performance. We also find that the success of a country’s club teams is a good predictor of the national team’s success. We conclude that club success reflects a nation’s willingness and ability to finance soccer success.soccer