The Origins of Czech Credit Guarantees Programs and the Value of Guarantee Fund Portfolio on Czech Stock Exchanges

This paper provides an overview of the credit provision in the Czech Republic at the beginning of the transition period. We show the economic forces leading to the creation of specialized government credit guarantee institution. While we provide a brief overview of different credit support institutions, we concentrate on credit guarantees in Czech agriculture, food industry and forestry. Besides the description of credit support activities, we also pay attention to financial sources of credit guarantee institution. Important financial source was its stock endowment which originated in the Czech privatization scheme. We provide an estimation of the value of this initial endowment according to two stock markets operating in the Czech Republic.Subsidies; Guarantees; Rural Development; Stock Market; Portfolio

Vertical integration in the Czech agriculture – focus on dairy and meat sectors

In this paper we provide an overview of the two most important sectors in the Czech agriculture: the dairy farming and the meat production. Since the focus of our paper in on the vertical integration, we provide this overview along the whole production vertical line. We start with the suppliers for the farmers and continue through the farm production, distribution and milk and meat processing and storage facilities. The final links in the production vertical structure are wholesale and retail consumers. In both of the considered vertical lines we concentrate on the key analytical parameters which are price transmission elasticities and we provide an overview of their values obtained in the Czech agricultural economic research. Since the question of competition and strategic relations inside the vertical supply-demand structure is an important topic in industrial organization theory and policy, we also pay attention to major cases of alleged fair competition violations in the Czech meat and diary industry.Vertical integration; meat; dairy; Czech Republic

Bankruptcy Procedures with Ex Post Moral Hazard

The optimal design of credit contracts and bankruptcy procedures is an important policy question both in developed market economies and in countries with emerging markets. In this paper I deal with several theoretical considerations related to these important policy problems. My main concern is with the impact of relaxation of bankruptcy procedures providing for a possibility of a renegotiation of the debt instead of strictly imposing bankruptcy whenever the debtor falls into a default on his debt. I deal with this problem in a context of collateralized debt contracts in the conditions of imperfect information about the prospects of the entrepreneur and about the results of his project.bankruptcy; moral hazard; adverse selection; soft budget constraint

Signaling the Strength of a Market Entrant

This article belongs to the game theoretic and information economics literature dealing with the problem of signaling in the context of game theoretical models of entry into the industry. As opposed to the majority of literature we consider the situation of asymmetric information where the private information belongs to the entrant. We model the capacity decision of the entrant as a signal of his strength. We show that in the Stackelberg model of market entry for some values of underlying parameters the entrant fully utilizes his capacity while for other parameter values he builds excess capacity. The model may be empirically relevant for industrial organization analysis of the entry of a new supplier to the existing supply chain.Signaling; Entry; Capacity

Optimal Deterministic Debt Contracts

This paper extends the costly enforcement model of optimal financing to the case of investment projects financed by several lenders. We consider the asymmetric situation when only one lender is a big strategic investor. All other lender are small passive investors. We first provide the sufficient and necessary condition for renegotiation proofness. Then we show that the optima verification is deterministic. We also discuss the conditions under which the optimal contract is a debt contract.Costly State Verification; Multiple Lenders; Debt

The Quantitative and Qualitative Analysis of the Budget Cost of the Czech Supporting and Guarantee Agricultural and Forestry Fund

The paper analyzes the government budget cost of credit guarantees and subsidies. The analysis is done both in a general qualitative manner and quantitatively for the case of Czech Supporting and Guarantee Agricultural and Forestry Fund (SGAFF). In the quantitative part of the paper we show that the portfolio of the SGAFF has a sufficient value to cover expected costs of credit guarantees and subsidies provided by the SGAFF. The qualitative theoretical model is dealing with government interventions designed to decrease the credit rationing of good farmers. The theoretical model shows that with uniform non-targeted supports the budget cost minimizing government unambiguously prefers lump-sum guarantees to interest rate subsidies. With supports targeted fully to disadvantaged farmers the government is indifferent between lump-sum guarantees, proportional guarantees and interest rates subsidies as far as the government budget costs are concerned.Transition; Credit; Subsidies; Guarantees

An Analysis of the Cost of the Supporting and Guarantee Agricultural and Forestry Fund (SGAFF) in the Czech Republic

The paper analyzes the cost to the Czech state budget of the Supporting and Guarantee Agricultural and Forestry Fund (SGAFF). In the empirical part of the paper, the author shows that the SGAFF portfolio has sufficient value to cover the expected costs of the credit guarantees and subsidies offered by the fund. The theoretical model looks at government interventions designed to decrease the credit rationing of farmers with high probability of success. The theoretical model shows that, with uniform non-targeted supports, the Czech government unambiguously prefers lump-sum guarantees to interest-rate subsidies. With support targeted wholly to disadvantaged farmers, the cost of lump-sum guarantees, proportional guarantees, and interest-rates subsidies are all equal.credit; guarantees; subsidies; transition

The Roles of Commercial Credit and Direct Subsidies in Czech Agriculture During Early Transition

This paper provides an econometric estimation of the influence of individual social-economic, natural, and technological determinants of the credit provision for the agriculture in the case of the Czech Republic. The regression model is based on the microeconomic model of the maximization of the bank’s profit. The results of this paper show that the support of agricultural credit provided by Guarantee Fund goes primarily to the areas with a good conditions for the development of agricultural production. On the other hand, the direct government subsidies are targeted primarily to the areas with non-favourable natural conditions.Subsidies; Guarantees; Rural Development

Which Government Interventions Are Good in Alleviating Credit Market Failures?

Credit contracting between a lender with a market power and a small start-up entrepreneur may lead to a rejection of projects whose expected benefits are higher than their total costs when an adverse selection is present. This inefficiency may be eliminated by a government support in the form of credit guarantees or subsidies. The principal-agent model of this paper compares different forms of government support and concludes that a guarantee defined as a proportion of a gross interest rate is not a sufficiently robust policy instrument. Lump-sum guarantees and interest rate subsidies are evaluated as better instruments because they have a nonambiguous positive effect on a social efficiency since they enable funding of socially efficient projects which would not be financed otherwise.information asymmetry, credit, guarantees, subsidies

The Comparative Statics of the Effects of Credit Guarantees and Subsidies in the Competitive Lending Market

We compare the effects of government credit subsidies and guarantees on decreasing inefficiencies caused by principal-agent problems in the credit market in transition and posttransition economies. We show that the guarantees and subsidies targeted to low risk borrowers decrease efficiency while those targeted to high risk borrowers increase efficiency both in transition and post-transition economies. The uniform non-targeted guarantees decrease the credit rationing or dead-weight loss caused by the collateral transfer. The uniform subsidies may be used to improve welfare in the economy subjected to credit rationing, but they do not have any effect on the size of collateral required in post-transition economy.Transition, Credit; Subsidies; Guarantees