The behavior of the Brazilian federal domestic debt

This paper analyses the sustainability of the Brazilian federal fiscal policy by examining the responses of the government budget surplus to variations of the debt-GDP ratio. The approach to assess sustainability, originally proposed by Bohn (1998), circumvents the problems present in traditional sustainability tests based on statistical properties of the debt, such as unit roots and cointegration. In particular, the regressions proposed do not require restrictive assumptions about real interest rates, the structure of the government debt or the agents’ behavior towards risk. Using annual data from 1966 to 2000, the results have indicated that the government surplus has not systematically responded to changes in the debt-income level previously observed, indicating that the fiscal policy cannot be considered sustainable during the period analyzed. Moreover, it is shown that the debt-GDP ratio does not exhibit a mean-reverting tendency even when one controls for cyclical variations in income and government expenditures, further indicating a non-sustainable path for the fiscal policy.federal domestic debt; fiscal consolidation; Brazil

Ownership Concentration, Monitoring and Optimal Board Structure

The paper analyzes the optimal structure of the board of directors in a firm with a large shareholder sitting on the board. In a one-tier structure the sole board performs all tasks, while in a two-tier structure the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not on the management board. We show that such a two-tier structure can limit the interference of the large shareholder and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large shareholder’s incentive to monitor the manager. This results in higher expected profits. The difference in profits can be sufficiently high to make the large shareholder prefer a two-tier board even if this implies that the manager selects his own preferred project. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms (like the so-called Vietti reform in Italy) that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms.board of directors, dual board, corporate governance, monitoring, project choice

Scholarships or Student Loans? Subsidizing Higher Education in the Presence of Moral Hazard

Student loans, even income-contingent ones, are not optimal. Potential university students with the appropriate characteristics should be offered a scholarship, dependent on both need and merit. The award of the scholarship should be conditional on the choice of university degree, but students with a natural aptitude for studies that do not hold the prospect of a well paid job should not be pushed towards potentially more lucrative ones. The scheme should be financed by a graduate tax that re-distributes from the better paid to the academically more successful.scholarships, student loans, graduate tax, principal-agent, moral hazard

Optimal Delegation when the Large Shareholder has Multiple Tasks

We analyze the optimal ownership, delegation and compensation structures when a manager is hired to run a firm and to gather information on investment projects. The initial owner has two tasks: monitoring the manager and supervising project choice. Optimality would require a large ownership stake for monitoring but a small stake for not interfering with managerial incentives. Delegating project choice to the manager can alleviate this conflict if managerial private benefits are not too small. The large shareholder retains full ownership of the firm but monitoring, and the resulting firing policy, are distorted. Severance pay plays a key role in the optimal compensation scheme. Delegation is interpreted as a dual-board structure.large shareholder, delegation, monitoring, board of directors, corporate governance

Optimal Delegation when the Large Shareholder has Multiple Tasks

The paper analyzes the optimal delegation and ownership structure in a setting where the owner of a firm hires a manager to run the firm and to gather information on investment projects. The initial owner has two tasks: monitoring the manager and supervising project choice. Profits depend on both tasks and optimality would require different ownership stakes. A large stake is necessary for monitoring while a small stake is necessary for not interfering with incentives for project choice. Allocating control rights over project choice to the manager can alleviate this conflict. Delegation is optimal despite dissonant preferences, if managerial private benefits are not too small. By delegating authority over project choice and by using an optimal compensation scheme, the large shareholder is able to retain full ownership of the firm and, at the same time, to provide strong incentives to the manager. However, full ownership comes at the price of distorting monitoring and the resulting firing policy. Severance pay plays a key role in the optimal compensation scheme. We interpret delegation as the choice of a dual-board structure where the supervisory board is in charge of monitoring and management board is in charge of project selection.Large Shareholder, Concentrated Ownership, Delegation, Monitoring, Board of directors, Corporate Governance.

Optimal Family Policy in the Presence of Moral Hazard, When the Quantity and Quality of Children Are Stochastic

We examine the second-best family policy under the assumption that both the number and the future earning capacities of the children born to a couple are random variables with probability distributions conditional on unobservable parental actions. Potential parents take their decisions without taking into account the effects of these actions on the government's future tax revenue. The second-best policy provides parents with credit and insurance, and allows them to appropriate the external benefits of their actions.stochastic quantity and quality of children, moral hazard, population externalities, family allowances, scholarships, pensions

Optimal Policy Towards Families with Different Amounts of Social Capital, in the Presence of Asymmetric Information and Stochastic Fertility

We examine the effects of differences in social capital on first and second best transfers to families with children, in an asymmetric information context where the number of births, and the future earning capacity of each child that is born, are random variables. The probability that a couple has children is conditional on the level of reproductive activity undertaken. The probability that a child will have high earning ability is positively conditioned not only by the level of educational investment undertaken by the child’s parents, but also by the social capital of the latter. The optimal policy includes two transfers, one conditional on number of births, the other on the children’s earning ability.education, stochastic fertility, child benefits, pensions, scholarships, social capital, asymmetric information, multi-agency

Ownership Concentration, Monitoring and Optimal Board Structure

The paper analyzes the optimal structure of board of directors in a firm with ownership concentrated in the hands of a large shareholder who sits on the board. We focus our attention on the choice between one-tier board who performs all tasks and two-tier board where the management board is in charge of project selection and the supervisory board is in charge of monitoring. We consider the case in which the large shareholder sits on (and controls) the supervisory board but not the management board. We show that a two-tier structure can limit the interference of large shareholders and can restore manager’s incentive to exert effort to become informed on new investment projects without reducing the large, shareholder’s incentive to monitor the manager. This results in higher expected profits in a two-tier board than in one-tier board and the difference in profits can be sufficiently high to induce large shareholders to prefer a two-tier board despite the fact that in this case the manager selects his preferred projects rather than the project preferred by large shareholders. The paper has interesting policy implications since it suggests that two-tier boards can be a valuable option in Continental Europe where ownership structure is concentrated. It also offers support to some recent corporate governance reforms, like the so-called Vietti reform in Italy, that have introduced the possibility to choose between one-tier and two-tier structure of boards for listed firms.Board of directors, Dual board, Corporate governance, Monitoring, Project Choice

Competition between State Universities

We analyse how state university competition to collect resources may affect both research and the quality of teaching. By considering a set-up where two state universities behave strategically, we model their interaction with potential students as a sequential noncooperative game. We show that different types of equilibrium may arise, depending on the mix of research and teaching supplied by each university, and the mix of low- and high-ability students attending each university. The most efficient equilibrium results in the creation of an élite institution attended only by high-ability students who enjoy a higher teaching quality but pay higher tuition fees.university competition, research, tuition fees