Effects of Fiscal Instability on Financial Instability

This paper empirically examines how fiscal instability affects financial instability. According to an IMF forecast (2021a), the fiscal space in Korea will be steadily reduced in the future. The theoretical literature predicts that if fiscal stability is undermined, financial stability will also be in danger given that government guarantees on banks are weakened and/or sovereign bonds held in banks become riskier. This paper empirically finds the existence of this negative impact of fiscal instability on financial instability. I also find that the intensity of this fiscal-financial relationship is greater in a country where (i) its currency is not a reserve currency such as the US dollar or euro, (ii) its banking sector is large relative to government sector, and/or (iii) its private credit to GDP is high. Korea has all of these three characteristics and hence needs to put more effort into maintaining fiscal stability

Anti-competitiveness of Instant Messenger Tying by Microsoft

In this paper, we theoretically analyze Microsoft's tying practice in the instant messenger market. Using a model that highlights distinct features of the instant messenger, which are different from the cases of the web browser and the media player, we show that Microsoft can leverage its monopoly power in the operating system (OS) market to the instant messenger market through tying strategy. Microsoft's messenger tying hurts consumers because it enables Microsoft to monopolize messenger market and so fully exploit consumer's willingness to pay to the OS-messenger bundle. However, since tying saves installing costs, consumer loss is not so serious that total surplus improves under messenger tying. Finally we show that such results are robust to the possibilities of multi-homing in the instant messenger market.Microsoft, instant messenger, tying, foreclosure, multi-homing

A Signaling Theory of Education under the Presence of Career Concerns

A person’s life consists of two important stages: the first stage as a student and the second stage as a worker. In an integrated model of education and career concerns, I analyze the welfare effects of education. In Spence’s job market signaling model, education as a sorting device improves efficiency by mitigating the lemon market problem. In contrast, in the integrated model, education as a sorting device can be detrimental to social welfare, as it eliminates work incentives generated by career concerns

Three essays on contract theory and applications

textThis dissertation consists of three essays. The first essay examines a general theory of information based on informal contracting. The measurement problem—the disparity of true and measured performances—is at the core of many failures in incentive systems. Informal contracting can be a potential solution since, unlike in formal contracting, it can utilize a lot of qualitative and informative signals. However, informal contracting must be self-enforced. Given this trade-off between informativeness and self-enforcement, I show that a new source of statistical information is economically valuable in informal con- tracting if and only if it is sufficiently informative that it refines the existing pass/fail criterion. I also find that a new information is more likely valuable, as the stock of existing information is large. This information theory has implications on the measurement problem, a puzzle of relative performance evaluation and human resources management. I also provide a methodological contribution. For tractable analysis, the first-order approach (FOA) should be employed. Existing FOA-justifying conditions (e.g. the Mirrlees-Rogerson condition) are so strong that the information ranking condition can be applied only to a small set of information structures. Instead, I find a weak FOA- justifying condition, which holds in many prominent examples (with multi- variate normal or some of univariate exponential family distributions). The second essay analyzes the effectiveness of managerial punishments in mitigating moral hazard problem of government bailouts. Government bailouts of systemically important financial or industrial firms are necessary ex-post but cause moral hazard ex-ante. A seemingly perfect solution to this time-inconsistency problem is saving a firm while punishing its manager. I show that this idea does not necessarily work if ownership and management are separated. In this case, the shareholder(s) of the firm has to motivate the manager by using incentive contracts. Managerial punishments (such as Obama’s $500,000 bonus cap) could distort the incentive-contracting program. The shareholder’s ability to motivate the manager could then be reduced and thereby moral hazard could be exacerbated depending on corporate governance structures and punishment measures, which means the likelihood of future bailouts increases. As an alternative, I discuss the effectiveness of shareholder punishments. The third essay analyzes how education affect workers’ career-concerns. A person’s life consists of two important stages: the first stage as a student and the second stage as a worker. In order to address how a person chooses an education-career path, I examine an integrated model of education and career-concerns. In the first part, I analyze the welfare effect of education. In Spence’s job market signaling model, education as a sorting device improves efficiency by mitigating the lemon market problem. In my integrated model, by contrast, education as a sorting device can be detrimental to social welfare, as it eliminates the work incentive generated by career-concerns. In this regard, I suggest scholarship programs aimed at building human capital rather than sorting students. The second part provides a new perspective on education: education is job-risk hedging device (as well as human capital enhancing or sorting device). I show that highly risk-averse people take high education in order to hedge job-risk and pursue safe but medium-return work path. In contrast, lowly risk-averse people take low education, bear job-risk, and pursue high-risk high-return work path. This explains why some people finish college early and begin start-ups, whereas others take master’s or Ph.D. degrees and find safe but stable jobs.Economic

An Unsuccessful Reform on the Local Public Contracts Law in Korea

In Korea, local governments and local agencies had to apply a version of the first price auction augmented by an ex-post screening process when they procure construction contracts. However, this first price auction had been criticized because it was felt that too much price competition could lead to poor ex-post performance in construction. In response, the existing auction method was recently replaced by a version of the average price auction with a similar screening process. This paper empirically examines the effectiveness of this reform and finds that the replacement only increases the fiscal burden of local governmental bodies without making any improvement in the ex-post performance

The sharing economy, welfare effects and policy implications

노트 : PP

Is Bail-in Debt Bail-inable?

The contingent convertible bond (or CoCo) is designed as a bail-in tool, which is written down or converted to equity if the issuing bank is seriously troubled and thus its trigger is activated. The trigger could either be rule-based or discretion-based. I show theoretically that the bail-in is less implementable and that the associated bail-in risk is lower if the trigger is discretion-based, as governments face greater political pressure from the act of letting creditors take losses. The political pressure is greater because governments have the sole authority to activate the trigger and hence can be accused of having 'blood on their hands'. Furthermore, the pressures could be augmented by investors’ self-fulfilling expectations with regard to government bailouts. I support this theoretic prediction with empirical evidence showing that the bailin risk premiums on CoCos with discretion-based triggers are on average 1.13 to 2.91%p lower than CoCos with rule-based triggers

Enhanced carrier mobility and electrical stability of n-channel polymer thin film transistors by use of low-k dielectric buffer layer

© 2011 American Institute of Physics. The electronic version of this article is the complete one and can be found at: http://dx.doi.org/10.1063/1.3655680DOI: 10.1063/1.3655680Insertion of a low-k polymer dielectric layer between the SiO₂ gate dielectric and poly(benzobisimidazobenzophenanthroline) (BBL) semiconductor of n-channel transistors is found to increase the field-effect mobility of electrons from 3.6 × 10⁻⁴ cm²/Vs to as high as 0.028 cm²/Vs. The enhanced carrier mobility was accompanied by improved multicycling stability and durability in ambient air. Studies of a series of eight polymer dielectrics showed that the electron mobility increased exponentially with decreasing dielectric constant, which can be explained to result from the reduced energetic expense of charge-carrier/dipole interaction