Samaritans, Rotten Kids and Policy Conditionality

Donors who try to impose policy conditionality on countries receiving their aid commonly face conflicting incentives between using aid to induce income-increasing reforms and using aid to assist low-income countries: this conflict can lead to a time-consistency problem.This paper offers a contractual analysis of conditionality, showing how conditionality contracts are affected by conflicting donor incentives in the presence of limited commitment power. Conditionality is shown to survive in an environment with weak donor commitment power, and it can eliminate the inefficiency associated with the no-conditionality outcome.However, even when conditionality is successfully imposed by donors, there may be an inverse relationship between aid and reform across different aid recipients. Multi-recipient and hidden-information extensions of the baseline model are also considered.foreign aid; conditionality; altruism.

Samaritans, Rotten Kids and Policy Conditionality

Donors who try to impose policy conditionality on countries receiving their aid commonly face conflicting incentives between using aid to induce income-increasing reforms and using aid to assist low-income countries: this conflict can lead to a time-consistency problem. This paper offers a contractual analysis of conditionality, showing how conditionality contracts are affected by conflicting donor incentives in the presence of limited commitment power. Conditionality is shown to survive in an environment with weak donor commitment power, and it can eliminate the inefficiency associated with the no-conditionality outcome. However, even when conditionality is successfully imposed by donors, there may be an inverse relationship between aid and reform across different aid recipients. Multi-recipient and hidden-information extensions of the baseline model are also considered.foreign aid; conditionality; altruism.

IMF Conditionality

This paper presents a principal-agent model of IMF conditional lending, in the aftermath of a "capital-account" liquidity crisis. We show that traditional ex-post conditonality can be effective in safeguarding the Fund's resources, allowing for the provision of efficient emergency lending and reducing inefficient ex-ante credit rationing if the capital outflow which triggers the crisis is not excessive. We apply the baseline model to analyse the issues of debtor moral hazard and private sector involement (PSI), which have characterised the recent debate on reforming the International Financial Architecture. We show that debtor moral hazard is only a concern if the IMF cannot commit to make the post-crisis participation constraint of the debtor country binding, and that it can only be resolved via ex-ante conditionality (or pre-qualification). Attempts to reduce debtor moral hazard may however compromise the Fund's ability to safeguard its resources ex-post. We also show that PSI in the solution of balance of payments crisis is a central determinant of the effectiveness of both crisis prevention and resolution efforts on the part of the IMF. PSI may be an enabling condition for efficient crisis resolution, and may therefore be imposed even by a "PSI-averse" IMF. Moreover, there are conditions under which it is optimal for the IMF to ex-ante precommit to a tough, and ex-post sup-optimal, PSI policy,in order to mitigate investor moral hazard.IMF; conditionality; balance of payments crisis.

Is Bigger Always Better ? The Effect of Size on Defaults

Exploiting a large database of Italian manufacturing firms we investigate the relationships between default rate and firm size. Default events, defined as conditions of actual or likely insolvency, are a signal of deep business troubles. They are unanticipated, costly and dangerous for the firm as well as for the economy, and should be in principle avoided. Our evidence, based on data provided by a large Italian banking group, reveals that the default probability of firms increases with their size. This finding contrasts with typical results on exit events based on business registries data, and suggests to revise the common wisdom that sees the core of the industry as a safe place and its members as most valuable economic assets.firm default and exit, firm size,bootstrap probit regressions.

Bidding in an electricity pay-as-bid auction

One of the main elements of the current reform of electricty trading in the UK is the change from a uniform price auction in the wholesale market to discriminatory pricing. We analyse this change under two polar market structures (perfectly competitive and monopolistic supply), with demand uncertainty. We find that under perfect competition there is a trade-off between efficiency and average prices between the two auction rules. We also establish that a move from uniform to discriminatory pricing under monopoly conditions has a negative impact on profits and output (weakly), and ambiguous implications for prices and welfare.Multi-Unit Auctions; Price discrimination; Electricity

Divesting power

We study alternative market power mitigation measures in a model where a dominant producer faces a competitive fringe with the same cost structure. We characterise the asset divestment by the dominant firm which achieves the greatest reduction in prices. This divestment entails the sale of marginal assets whose cost range encompasses the post-divestment price. A divestment of this type can be several times more effective in reducing prices than divestments of baseload (or low-cost) assets. We also establish that financial contracts (modeled as Virtual Power Plant schemes) are at best equivalent to baseload divestments in terms of consumer welfare.Divestments; Virtual power plants; contracts; market power; electricity; antitrust remedies;

Productivity, Profitability and Financial Fragility: Evidence from Italian Business Firms

In this work we investigate two crucial dimensions of firms’ structure and dynamics, that is profitability and productivity performance. The empirical distributions and the associated persistence over time are explored through a set of parametric and non parametric exercises performed on an large panel of Italian firms active in both Manufacturing and Services during the period 1998-2003. The main contribution resides in the use of an index of financial risk which allows us to document that not obvious interactions are in place among economic performances, financial conditions and availability of external credit. We also offer an initial understanding about how profitability and productivity relate with a third dimension of performance, that is firm growth. We find that, independently from the particular sector of activity and from financial conditions, there seems to be little market pressure and little behavioral inclination for the more efficient and more profitable firms to grow faster.Firm performance, Profitability, Productivity, Financial constraints

Financial Fragility and Growth Dynamics of Italian Business Firms

This work explores a number of properties investigated in the empirical literature on firm size and growth dynamics: (i) the distribution and the autoregressive structure of firm size; (ii) the existence of size-growth scaling relationships; (iii) the distribution and the autoregressive structure of scaling-free growth rates. The major novelty concerns our exploiting of a credit rating index to condition all the analyses upon firms' financial fragility and access to credit. We find that the distributions of both firm size and firm growth rates are fatter tailed among less solvable firms than in the rest of the sample, both at the bottom and at the top extreme of the distributions. As a result, we conclude that not only small and/or slowly growing firms might suffer from difficulties in raising external financing, but also big and fast growing ones might be exposed to financial constraints.Firm size, Firm growth, Financial constraints

Ontology population for open-source intelligence: A GATE-based solution

Open-Source INTelligence is intelligence based on publicly available sources such as news sites, blogs, forums, etc. The Web is the primary source of information, but once data are crawled, they need to be interpreted and structured. Ontologies may play a crucial role in this process, but because of the vast amount of documents available, automatic mechanisms for their population are needed, starting from the crawled text. This paper presents an approach for the automatic population of predefined ontologies with data extracted from text and discusses the design and realization of a pipeline based on the General Architecture for Text Engineering system, which is interesting for both researchers and practitioners in the field. Some experimental results that are encouraging in terms of extracted correct instances of the ontology are also reported. Furthermore, the paper also describes an alternative approach and provides additional experiments for one of the phases of our pipeline, which requires the use of predefined dictionaries for relevant entities. Through such a variant, the manual workload required in this phase was reduced, still obtaining promising results