Air Transport and EC Competition Law

This Essay is about air transport and EC competition Law. The air transport industry has, in many countries, developed as a mixture of public utility and commercial venture. With the deregulation of the airline market, the EC Commission has also, to an increasing extent, become involved in the competition aspects of the airline industry. Part I deals with the transportation industry. Part II discusses liberalization within the EC. Finally, Part III deals with competition rules

Questions and Answers about the Financial Crisis

All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprimerelated bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) – short?term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the “shadow” or “parallel” banking system) - repo based on securitization - is a genuine banking system, as large as the traditional, regulated and banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.

Neutron capture cross sections from surrogate reaction data and theory: connecting the pieces with a Markov-Chain Monte Carlo approach

The neutron capture cross section for $^{90}Zr(n, \gamma)$ has recently been determined using surrogate $^{92}Zr(p, d\gamma)$ data and nuclear reaction theory. That work employed an approximate fitting method based on Bayesian Monte Carlo sampling to determine parameters needed for calculating the $^{90}Zr(n, \gamma)$ cross section. Here, we improve the approach by introducing a more sophisticated Markov Chain Monte Carlo sampling method. We present preliminary results.Comment: Accepted into the proceedings of the 6th International Workshop on Compound-Nuclear Reactions and Related Topics, Berkeley, California, September 24-28, 2018. 4 pages, 1 figur

Corporate Control, Portfolio Choice, and the Decline of Banking

The authors focus on the persistence of bank unprofitability during the 1980s. A large literature in banking, following Merton (1977), concentrates on the incentives of shareholders to maximize the value of the (fixed rate) deposit insurance subsidy provided by the government by taking on risk inefficiently, so called moral hazard' risk. This paper takes issue with this moral hazard explanation for the performance of the banking industry. The moral hazard view assumes that shareholders make the lending decisions and can take on risk to maximize the value of insurance if they desire. The authors assume bank managers, who may own a fraction of the bank, make the lending decisions. If managers have different objectives than outside shareholders and disciplining in managers is costly, then managerial decisions may be at odds with the decisions outside shareholders would like them to take. When investment opportunities are declining, managers behave differently than in healthy' industries. This is particularly true in banking, where asymmetric information and deposit insurance allow banks resources to invest even if there are few good lending opportunities. The risk-avoiding behavior of managers stressed in the corporate finance literature presumes that conservative behavior is sufficient for job and perquisite preservation. When bad managers predominate, conservative behavior may not allow most managers to keep their jobs and perquisites. These managers may find it optimal to take excessively risky actions. The paper sets out a game between a bank manager and shareholders and solves for a sequential Nash equilibrium. A bank manager chooses either risky or safe loans based on the quality of the loan opportunities available to the manager (the manager s type). The choice of loan portfolios is observed by shareholders, but the manager s type is not. If the manager is fired, shareholders decide whether to invest in new bank assets (hire a new manager) or move their capital out of banking (liquidate capital). In any period that they are employed, managers receive a private benefit. Using data on the equity ownership structure of large bank holding companies, the authors test the predictions of the corporate control model of banking against an alternative model based on moral hazard problems between banks and regulators. With respect to the choice of loans made, the authors findings are consistent with corporate control problems playing an important role, but are inconsistent with moral hazard playing a dominant role in banking. None of the results are what a moral hazard model would predict. However, the analysis is done for adequately-capitalized banks. Thus, if the value of bank equity is low enough, the interests of inside and outside owners are aligned, so there are no corporate control problems of the sort modeled by the authors. It may be accurate to say that, for large U.S. banks, corporate control problems have been the cause of the conditions of which moral hazard may be an accurate characterization. The presence of agency costs suggests that the underlying trends that reduced profitability in the 1980s may persist, despite high bank earnings in the early 1990s. That banking is regulated does not appear to be a sufficient countervailing force. To the extent that chartered banks must transform themselves into nonbanks as they seek nonlending and deposit-taking activities which are profitable, the authors suggest that banking' is in decline. Their conclusions concern the difficulties that outside equityholders face during the transition period.

Noise Traders

Noise traders are agents whose theoretical existence has been hypothesized as a way of solving certain fundamental problems in Financial Economics. We briefly review the literature on noise traders. The is an entry for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan: New York), edited by Steven N. Durlauf and Lawrence E. Blume, forthcoming in 2008.

Class struggle inside the firm: a study of German codetermination

Under the German system of "codetermination," employees are legally allocated some control rights over corporate assets, in the form of board seats. We empirically investigate the implications of equal board representation compared with one-third employee representation and find a 26% stock market discount on firms with equal representation. Employees redistribute the firm's surplus towards themselves but may also prefer a different objective function for the firm, maximizing employee utility rather than shareholder value. We investigate the shareholder response to codetermination via higher leverage that commits more cash to leave the firm. We also examine the relationship between codetermination and the performance sensitivity of compensation for board members.Germany ; Corporations - Finance

Stock Price Manipulation, Market Microstructure and Asymmetric Information

In recent years, there has been a large literature on how stock exchange specialists set prices when there are investors who know more about the stock than they do. An important assumption in this literature is that there are *liquidity traders* who are equally likely to buy or sell for exogenous reasons. It is plausible that some buyers have cash needs and are forced to sell their stock. However, buyers will usually be able to choose the time at which they trade. It will be optimal for them to minimize the probability of trading with informed investors by choosing an appropriate time to trade and clustering at that time. This asymmetry means that when liquidity buyers are not clustering, purchases are more likely to be by an informed trader than sales so the price movement resulting from a purchase is larger than for a sale. As a result, profitable manipulation by uninformed investors may occur. A model where the specialist takes account of the possibility of manipulation in equilibrium is presented.

Bank Panics and the Endogeneity of Central Banking

Central banking is intimately related to liquidity provision to banks during times of crisis, the lender-of-last-resort function. This activity arose endogenously in certain banking systems. Depositors lack full information about the value of bank assets so that during macroeconomic downturns they monitor their banks by withdrawing in a banking panic. The likelihood of panics depends on the industrial organization of the banking system. Banking systems with many small, undiversified banks, are prone to panics and failures, unlike systems with a few big banks that are heavily branched and well diversified. Systems of many small banks are more efficient if the banks form coalitions during times of crisis. We provide conditions under which the industrial organization of banking leads to incentive compatible state contingent bank coalition formation. Such coalitions issue money that is a kind of deposit insurance and examine and supervise banks. Bank coalitions of small banks, however, cannot replicate the efficiency of a system of big banks.

Special Purpose Vehicles and Securitization

Firms can finance themselves on- or off-balance sheet. Off-balance sheet financing involves transferring assets to "special purpose vehicles" (SPVs), following accounting and regulatory rules that circumscribe relations between the sponsoring firm and the SPVs. SPVs are carefully designed to avoid bankruptcy. If the firm's bankruptcy costs are high, off-balance sheet financing can be advantageous, especially for sponsoring firms that are risky. In a repeated SPV game, firms can "commit" to subsidize or "bail out" their SPVs when the SPV would otherwise not honor its debt commitments. Investors in SPVs know that, despite legal and accounting restrictions to the contrary, SPV sponsors can bail out their SPVs if there is the need. We find evidence consistent with these predictions using data on credit card securitizations.