Culture and social resistance to reform: a theory about the endogeneity of public beliefs with an application to the case of Argentina

This paper attempts to understand the factors that explain the degree of support or criticism that a reform process may be subject to. Understanding these determinants is critical, in turn, to assess the feasibility and sustainability of those reforms. In particular, we want to assess what are the elements that create societal consensus for reform and which are the main factors that turn public opinion against it. In the case of Argentina, for example, such dynamics are critical to understand how public opinion imposed constraints on government behavior, affected macroeconomic performance, and ultimately, determined the chance of success of reforms.

A Note on the Equivalence between Contractual and Tort Liability

The aim of this paper is to conciliate some conclusions of the economic theories of breach of contract and tort law. The main result is that the two efficient alternatives that tort law identifies (negligence rule and strict liability with a defense of contributory negligence) are mirrored by two efficient ways of defining contract damages. The first consists of forcing the debtor to pay expectation damages but limiting the level of the creditor’s reliance (rule of damage mitigation). The second consists of obliging the debtor to pay expectation damages only when his breach of contract implies negligence, otherwise using restitution remedies (doctrines of impracticability and force majeure).

Valuation of Debt Indexed to Real Values I. The case of the Argentinean Growth Coupon: a Simple Mode

This paper is the first of a series of works whose aim is trying to provide a framework for the understanding and valuation of debt indexed to real (gener- ally non-tradable) variables. In particular, in the present paper we develop a methodology to analytically value the new GDP-linked Argentinean warrant.

Analysis of Latin America's Corporations as a Rational Response to the Economic Environment Present in the Region - Part I

This is the first of a series of working papers analyzing the basic characteristics of the economic environment in which Latin American Corporations live and the optimal design of incentive programs compatible with such environment. By economic environment we mean the technology that the organizations have access to, the legal framework present in these countries, the macro-economical characteristics, the markets in which they operate (competitors, monopolies, customers, reliability of suppliers, etc.), the nature of their capital markets and in general of the sources of financing for their companies, etc. We could broadly say that any key feature of the economy that has the potential to influence the way business is run in Latin America is part of its economic environment. The underlying unifying idea in this series is that, unless we have clear evidence to the contrary, corporate practices observed in Latin American firms are rational responses to the environment in which they operate. They are a sort of Darwinian adaptation to such environment. Therefore, much like in biological systems, these characteristics of corporations should be considered optimal in a relative sense. That is, in order to survive in the market, the observed corporate practices should be better that the ones from the competition for the given economic environment. This observation suggests that improvements to the observed practices are indeed possible. In fact, the present series of working papers is in part structured to explore possible improvements. These improvements, however, are not likely to be the simple copy of corporate practices that evolved as an optimal response to the environment of the developed world. In this first work we present some important empirical characteristics of the Latin American Corporations and the first key aspect of the economic environment prevailing in this region: the legal framework. We show how many of the empirical characteristics presented can be see as optimal responses to the legal framework.

Quantifying Latin American firms'exposure to external factors

This is the last of a series of three working papers analyzing the basic characteristics of the economic environment in which Latin American firms operate and the optimal design of incentive programs compatible with such environment. Executive pay-for-performance compensation schemes are usually based on stock returns. However, stock returns change in response to forces beyond management control (e.g., market crushes). The economic environment in which Latin American firms operate is highly unstable, which means that this is a very important limitation for Latin American firms. In the present paper, we present a procedure to decompose variability in stock returns in order to identify and measure components that respond to external factors beyond management control. For this, we have created indices that capture statistically the external influences that affect stock returns. We show how such indices can be used to construct a risk profile that allows management to know to what extent observed outcomes depend on external factors, versus their own actions. In addition, these indices can be used as a basis to develop "indexed options": financial instruments designed to factor out the effects of external risks, making it possible for executives to be evaluated only on the basis of the value they generate. We show that these indices can be developed out of purely local information, but that the solutions tend to be moderately unstable, which implies that compensation instruments developed with this methodology should be of relatively short maturity.

Determinants of the development of corporate bond markets in Argentina: survey to firms and investors

Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. In this paper we present the results for Argentina of a survey of firms and of investors on the use of corporate bonds. The result of these surveys supports the idea that for Argentine firms, bonds are a financing vehicle of choice only for firms above a certain (large) size. This is independent of the criteria used for firm size. This result is similar to results in other countries such as the United Sates.debt structure, leverage, short-term debt, corporate bonds, firm size, firm value

Sleeping Beauty on Monty Hall

Inspired by the Monty Hall Problem and a popular simple solution to it, we present a simple solution to the notorious Sleeping Beauty Problem. We replace the awakenings of Sleeping Beauty by contestants on a game show like Monty Hall’s and we increase the number of awakenings/contestants in the same way that the number of doors in the Monty Hall Problem is increased to make it easier to see what the solution to the problem is. We show that the Sleeping Beauty Problem and variations on it can be solved through simple applications of Bayes’s theorem. This means that we will phrase our analysis in terms of credences or degrees of belief. We will also rephrase our analysis, however, in terms of relative frequencies. Overall, our paper is intended to showcase, in a simple yet non-trivial example, the efficacy of a tried-and- true strategy for addressing problems in philosophy of science, i.e., develop a model for the problem and vary its parameters. Given that the Sleeping Beauty Problem, much more so than the Monty Hall Problem, challenges the intuitions about probabilities of many when they first encounter it, the application of this strategy to this conundrum, we believe, is pedagogically useful

Sleeping Beauty on Monty Hall

We present a game show that we claim can serve as a proxy for the notorious Sleeping Beauty Problem. This problem has divided commentators into two camps, 'halfers' and 'thirders'. In our game show, the potential awakenings of Sleeping Beauty, during which she will be asked about the outcome of the coin toss that determined earlier how many times she is awakened and asked, are replaced by potential contestants, deciding whether to choose heads or tails in a bet they will get to place if chosen as contestants on the outcome of the coin toss that determined earlier how many of them are chosen as contestants. This game show bears out the basic intuition of the thirders. Our goal in this paper, however, is not to settle the dispute between halfers and thirders but to draw attention to our game-show proxy itself, which realizes a version of the Sleeping Beauty Problem without the ambiguities plaguing the original. In this spirit, we design similar game-show proxies for variations on the Sleeping Beauty Problem with stochastic experiments other than a coin toss. We do the same for a variation in which Sleeping Beauty must decide upon being awakened whether or not to switch doors in the famous Monty Hall Problem and have the number of awakenings during which she gets to make that decision depend on the door she picked before she was put to sleep

Determinants of the development of corporate bond markets in Argentina: One size does not fit all

Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. We find both in our econometric evidence for firms quoted on Latin American stock exchanges, and in our survey results for Argentina, that size of assets is a robust determinant of the use of bond finance. This result, together with the fact that there are few firms that are large in terms of market value, can help understand why Argentina, as well as Latin America, has small bond markets in terms of the ratio of the stock of bonds to GDP. Since firm value represents the present value of the cash flows against which the firm borrows, the outstanding stock of corporate bonds is as small as the size of Argentine firms.debt structure, leverage, short term debt, corporate bonds, firm size, firm value

Analysis of Latin America's corporations as a rational response to the economic environment present in the region. Part I. Corporate governance: Empirical characteristics and the legal framework

This is the first of a series of working papers analyzing the basic characteristics of the economic environment in which Latin American Corporations live and the optimal design of incentive programs compatible with such environment. By economic environment we mean the technology that the organizations have access to, the legal framework present in these countries, the macro-economical characteristics, the markets in which they operate (competitors, monopolies, customers, reliability of suppliers, etc.), the nature of their capital markets and in general of the sources of financing for their companies, etc. We could broadly say that any key feature of the economy that has the potential to influence the way business is run in Latin America is part of its economic environment. The underlying unifying idea in this series is that, unless we have clear evidence to the contrary, corporate practices observed in Latin American firms are rational responses to the environment in which they operate. They are a sort of Darwinian adaptation to such environment. Therefore, much like in biological systems, these characteristics of corporations should be considered optimal in a relative sense. That is, in order to survive in the market, the observed corporate practices should be better that the ones from the competition for the given economic environment. This observation suggests that improvements to the observed practices are indeed possible. In fact, the present series of working papers is in part structured to explore possible improvements. These improvements, however, are not likely to be the simple copy of corporate practices that evolved as an optimal response to the environment of the developed world. In this first work we present some important empirical characteristics of the Latin American Corporations and the first key aspect of the economic environment prevailing in this region: the legal framework. We show how many of the empirical characteristics presented can be see as optimal responses to the legal framework