Asia's Sovereign Wealth Funds and Reform of the Global Reserve System

This paper explores the potential contribution of Asia’s sovereign wealth funds (SWFs) to the reform of the global foreign exchange reserve system. By diversifying the investment of Asia’s huge reserves into non-dollar denominated assets, Asian SWFs can help to dilute the dominant role of the US dollar as the global reserve currency. At the same time, by exposing reserve managers to a more diverse mix of currencies and asset classes, SWFs will better prepare them for the less dollar-centric global reserve system of the future. In addition to SWFs, other innovative policy options for more active reserve management include transferring some surplus reserves into national pension funds or into exchange traded funds which are distributed among local investors. Regardless of the exact form of more profit-oriented reserve management, it will require that countries build up a critical mass of skills and expertise in wealth preservation and management.Foreign exchange reserves, global reserve system, global financial architecture, pension fund, exchange traded fund

The British American Rules: An experimental examination of pre-trial bargaining within the shadow of the law

A commonly held view is that the frequency and value of pre-trial settlements in civil disputes are greatly influenced by the cost allocation regime that is in place if the case goes to trial. There is a large and growing theoretical literature on this subject but almost no empirical evidence. This is due simply to the scarcity of relevant data owing to the confidentiality generally associated with such matters. However, the area is an ideal one to analyse experimentally. In this paper we consider the effect of the British and American rules for cost allocation using such an experimental methodology. We find that the two rules produce no difference in the frequency of pre-trial settlements but that the British rule produces higher settlements (pro-pursuer) if the probability of the pursuer winning is large.

The Market for Liars: Reputation and Auditor Honesty

In the model there are two types of financial auditors with identical technology, one of which is endowed with a prior reputation for honesty. We characterize conditions under which there exists a "two-tier equilibrium" in which "reputable" auditors refuse bribes offered by clients for fear of losing reputation, while "disreputable" auditors accept bribes because even persistent refusal does not create a good reputation. The main findings are: (a) honest auditors charge higher fees, and have economic profits accruing to reputation; (b) as the fraction of auditors who are honest increases, the premium charged by reputable auditors eventually decreases, which diminishes the incentive to refuse bribes; (c) if the fraction of honest auditors exceeds an upper bound, there does not exist a two-tier equilibrium; (d) thus the reputation mechanism may be undermined by entry into the honest segment of the industry, if it is possible; (e) increasing auditor independence increases the upper bound.

Pre-trial settlement: Who's for two-way offers?

This paper reviews the use of cost shifting devices intended to encourage pre-trial settlement. Both the well-known instrument of judicial offers (tenders) and the more recently introduced pursuers' offers are discussed. Numerical examples are provided and experimental evidence is reviewed. Both sources create some doubts regarding the efficacy of such devices in encouraging settlement. There is a strategic aspect of negotiating that is encouraged by these rules. In essence, these arrangements impart a certain amount of power to one side or other. This influences the level of settlement (if any), but may also reduce the probability of reaching a settlement. Abandoning such arrangements, while somewhat contrary to conventional views may well be a positive step in encouraging pre-trial settlement.