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Showing papers in "Research Papers in Economics in 2004"


Journal Article
TL;DR: The second edition of Public Management Reform as mentioned in this paper provides an unparalleled synthesis of developments in Australia, Belgium, Canada, Finland, France, Germany, Italy, the Netherlands, New Zealand, Sweden, the UK, the USA, and the European Commission.
Abstract: Since its publication in 2000, Public Management Reform has established itself as the standard text in the field, presenting a comparative analysis of recent changes in Public Management and Public Administration in a range of countries in Europe, North America, and Australasia. This completely rewritten second edition radically expands, develops, and updates the original. Two countries have been added to the comparison (making twelve countries in all) and a much fuller treatment has been provided of the European Commission (including a commentary on the recent reforms led by Vice-President Kinnock). Empirical data has been brought up to date, so as to cover many key developments of the last few years. The theoretical framework of the book has been further developed, including a challenging new interpretation of the trends in continental Europe, which are seen here as markedly different from the Anglo-American style 'New Public Management'. This second edition provides an unparalleled synthesis of developments in Australia, Belgium, Canada, Finland, France, Germany, Italy, the Netherlands, New Zealand, Sweden, the UK, the USA, and the European Commission. It is organized in an integrated format, within an overall theoretical framework that identifies the main pressures for, and trajectories of, change. It includes a multi-dimensional analysis of the results of reform, and a chapter reflecting on the dynamic relationship between management reform and politics. Extensive appendices provide an invaluable information resource for students.

3,639 citations


Posted Content
TL;DR: In this article, the authors examine the pricing of aggregate volatility risk in the cross-section of stock returns and find that stocks with high sensitivities to innovations in aggregate volatility have low average returns.
Abstract: We examine the pricing of aggregate volatility risk in the cross-section of stock returns. Consistent with theory, we find that stocks with high sensitivities to innovations in aggregate volatility have low average returns. In addition, we find that stocks with high idiosyncratic volatility relative to the Fama and French (1993) model have abysmally low average returns. This phenomenon cannot be explained by exposure to aggregate volatility risk. Size, book-to-market, momentum, and liquidity effects cannot account for either the low average returns earned by stocks with high exposure to systematic volatility risk or for the low average returns of stocks with high idiosyncratic volatility.

3,004 citations


Posted Content
TL;DR: This article examined how investor sentiment affects the cross-section of stock returns and found that when sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks.
Abstract: We examine how investor sentiment affects the cross-section of stock returns. Theory predicts that a broad wave of sentiment will disproportionately affect stocks whose valuations are highly subjective and are difficult to arbitrage. We test this prediction by studying how the cross-section of subsequent stock returns varies with proxies for beginning-of-period investor sentiment. When sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme-growth stocks, and distressed stocks, consistent with an initial underpricing of these stocks. When sentiment is high, on the other hand, these patterns attenuate or fully reverse. The results are consistent with predictions and appear unlikely to reflect an alternative explanation based on compensation for systematic risk.

2,898 citations


Posted Content
TL;DR: Current gene-based evolutionary theories cannot explain important patterns of human altruism, pointing towards the importance of both theories of cultural evolution as well as gene–culture co-evolution.
Abstract: Some of the most fundamental questions concerning our evolutionary origins, our social relations, and the organization of society are centred around issues of altruism and selfishness. Experimental evidence indicates that human altruism is a powerful force and is unique in the animal world. However, there is much individual heterogeneity and the interaction between altruists and selfish individuals is vital to human cooperation. Depending on the environment, a minority of altruists can force a majority of selfish individuals to cooperate or, conversely, a few egoists can induce a large number of altruists to defect. Current gene-based evolutionary theories cannot explain important patterns of human altruism, pointing towards the importance of both theories of cultural evolution as well as gene–culture co-evolution.

2,566 citations


Posted Content
TL;DR: In this article, the authors consider the empirical literature on the nature and sources of urban increasing returns, also known as agglomeration economies, and show that the effects of aggoglomeration extend over at least three different dimensions.
Abstract: This paper considers the empirical literature on the nature and sources of urban increasing returns, also known as agglomeration economies. An important aspect of these externalities that has not been previously emphasized is that the effects of agglomeration extend over at least three different dimensions. These are the industrial, geographic, and temporal scope of economic agglomeration economies. In each case, the literature suggests that agglomeration economies attenuate with distance. Recently, the literature has also begun to provide evidence on the microfoundations of external economies of scale. The best known of these sources are those attributed to Marshall (1920): labor market pooling, input sharing, and knowledge spillovers. Evidence to date supports the presence of all three of these forces. In addition, there is also evidence that natural advantage, home market effects, consumption opportunities, and rent-seeking all contribute to agglomeration.

2,004 citations


Posted Content
TL;DR: In this paper, reference-dependent gain-loss utility is combined with standard economic consumption utility, and a consumer's willingness to pay for a good is endogenously determined by the market distribution of prices and how she expects to respond to these prices.
Abstract: We develop a model that fleshes out, extends, and modifies existing models of reference dependent preferences and loss aversion while accomodating most of the evidence motivating these models. Our approach makes reference-dependent theory more broadly applicable by avoiding some of the ways that prevailing models—if applied literally and without ancillary assumptions—make variously weak and incorrect predictions. Our model combines the reference-dependent gain-loss utility with standard economic “consumption utility†and clarifies the relationship between the two. Most importantly, we posit that a person’s reference point is her recent expectations about outcomes (rather than the status quo), and assume that behavior accords to a personal equilibrium: The person maximizes utility given her rational expectations about outcomes, where these expectations depend on her own anticipated behavior. We apply our theory to consumer behavior, and emphasize that a consumer’s willingness to pay for a good is endogenously determined by the market distribution of prices and how she expects to respond to these prices. Because a buyer’s willingness to buy depends on whether she anticipates buying the good, for a range of market prices there are multiple personal equilibria. This multiplicity disappears when the consumer is sufficiently uncertain about the price she will face. Because paying more than she anticipated induces a sense of loss in the buyer, the lower the prices at which she expects to buy the lower will be her willingness to pay. In some situations, a known stochastic decrease in prices can even lower the quantity demanded.

1,968 citations


Posted Content
TL;DR: The Online Recruitment System for Economic Experiments (ORSEE) is introduced, which is a free, convenient and very powerful tool to organize their experiments and sessions in a standardized way.
Abstract: In this paper we introduce the Online Recruitment System for Economic Experiments (ORSEE). With this software experimenters have a free, convenient and very powerful tool to organize their experiments and sessions in a standardized way. Additionally, ORSEE provides subject pool statistics, a laboratory calendar, and tools for scientific exchange. A test system has been installed in order to visually support the reader while reading the paper.

1,846 citations


Posted Content
TL;DR: The authors found that most indicators of institutional quality used to establish the proposition that institutions cause economic growth are conceptually unsuitable for that purpose and also found that some of the instrumental variable techniques used in the literature are flawed.
Abstract: We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose We also find that some of the instrumental variable techniques used in the literature are flawed Basic OLS results, as well as a variety of additional evidence, suggest that a) human capital is a more basic source of growth than are the institutions, b) poor countries get out of poverty through good policies, often pursued by dictators, and c) subsequently improve their political institutions

1,592 citations


Posted Content
TL;DR: In this paper, a folded-noncentral-t family of conditionally conjugate priors for hierarchical standard deviation pa- rameters is proposed, and weakly informative priors in this family are considered.
Abstract: Various noninformative prior distributions have been suggested for scale parameters in hierarchical models. We construct a new folded-noncentral-t family of conditionally conjugate priors for hierarchical standard deviation pa- rameters, and then consider noninformative and weakly informative priors in this family. We use an example to illustrate serious problems with the inverse-gamma family of "noninformative" prior distributions. We suggest instead to use a uni- form prior on the hierarchical standard deviation, using the half-t family when the number of groups is small and in other settings where a weakly informative prior is desired. We also illustrate the use of the half-t family for hierarchical modeling of multiple variance parameters such as arise in the analysis of variance.

1,535 citations


Posted Content
TL;DR: In this paper, the authors argue that managerial overconfidence can account for corporate investment distortions and find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms.
Abstract: We argue that managerial overconfidence can account for corporate investment distortions. Overconfident managers overestimate the returns to their investment projects and view external funds as unduly costly. Thus, they overinvest when they have abundant internal funds, but curtail investment when they require external financing. We test the overconfidence hypothesis, using panel data on personal portfolio and corporate investment decisions of Forbes 500 CEOs. We classify CEOs as overconfident if they persistently fail to reduce their personal exposure to company-specific risk. We find that investment of overconfident CEOs is significantly more responsive to cash flow, particularly in equity-dependent firms.

1,416 citations


BookDOI
Jan Fagerberg1
TL;DR: Innovation is not a new phenomenon as discussed by the authors, it is as old as mankind itself and it is argued that no single discipline deals with all aspects of innovation, and that in order to get a comprehensive overview of the role played by innovation in social and economic change, a cross-disciplinary perspective is a must.
Abstract: Innovation is not a new phenomenon. Arguably, it is as old as mankind itself. However, in spite of its obvious importance, innovation has not always got the scholarly attention it deserves. This is now rapidly changing, however. As shown in the paper, research on the role of innovation economic and social change has proliferated in recent years, particularly within the social sciences, and often with a bent towards cross-disciplinarity. It is argued that this reflects the fact that no single discipline deals with all aspects of innovation, and that in order to get a comprehensive overview of the role played by innovation in social and economic change, a cross-disciplinary perspective is a must. The purpose of the paper is to provide the reader with a guide to this rapidly expanding literature. In doing so it draws on larger collective effort financed by the European Commission (the TEARI project, see http://tikpc51.uio.no/teari/teari.htm ), one of the outputs of which will emerge as Oxford Handbook of Innovation, edited by Jan Fagerberg, David Mowery and Richard R. Nelson. 2

MonographDOI
TL;DR: In this article, the authors measure social norms and preferences using experimental games and find substantial variation among social groups in Bargaining and Public Goods Behavior in an Egalitarian Society of Hunter-Gatherers.
Abstract: 1. Introduction and Guide to the Volume 2. Overview and Synthesis 3. Measuring Social Norms and Preferences Using Experimental Games: A Guide for Social Sciences 4. Coalitional Effects on Reciprocal Fairness in the Ultimatum Game: A Case from the Ecuadorian Amazon 5. Comparative Experimental Evidence from Machiguenga, Mapuche, Huinca, and American Populations Shows Substantial Variation Among Social Groups in Bargaining and Public Goods Behavior 6. Dictators and Ultimatums in an Egalitarian Society of Hunter-Gatherers - the Hadza of Tanzania 7. Does Market Exposure Affect Economic Game Behavior? The Ultimatum Game and the Public Goods Game Among the Tsimane of Bolivia 8. Market Integration, Reciprocity, and Fairness in Rural Papua New Guinea: Results from a Two-Village Ultimatum Game Experiment 9. Ultimatum Game with an Ethnicity Manipulation: Results from Khovdiin Bulgan Sum, Mongolia 10. Kinship, Familiarity, and Trust: An Experimental Investigation 11. Community Structure, Mobility, and the Strength of Norms in an Africa Society: the Sangu of Tanzania 12. Market Integration and Fairness: Evidence from Ultimatum, Dictator, and Public Goods Experiments in East Africa 13. Economic Experiments to Examine Fairness and Cooperation among the Ache Indians of Paraguay 14. The Ultimatum Game, Fairness, and Cooperation among Big Game Hunters

Posted Content
TL;DR: For example, this article found that acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 16 cents per dollar spent.
Abstract: Acquiring-firm shareholders lost 12 cents at the announcement of acquisitions for every dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 16 cents per dollar spent Though the announcement losses to acquiring-firm shareholders in the 1980s are more than offset by gains to acquired-firm shareholders, the losses of bidders exceed the gains of targets from 1998 through 2001 by $134 billion The 1998-2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisition announcements by firms with extremely high valuations Without these announcements, the wealth of acquiring-firm shareholders would have increased The large losses are consistent with the existence of negative synergies from the acquisitions, but the size of the losses in relation to the consideration paid for the acquisitions is large enough that part of the losses most likely results from investors reassessing the standalone value of the bidders Firms that announce acquisitions with large dollar losses perform poorly afterwards

Posted Content
TL;DR: In this paper, the authors examined the United Nations projections on urbanisation and found that the UN projections may overestimate the urban population for the year 2030 by almost one billion, or 19% in relative term.
Abstract: This paper proposes to critically examine the United Nations projections on urbanisation. Both the estimates of current trends based on national data and the method of projection are evaluated. The theory of urban transition is used as an alternative hypothesis for projections. Alternative projections are proposed using a polynomial model and compared to the UN projections, which are based on a linear model. The conclusions are that UN projections may overestimate the urban population for the year 2030 by almost one billion, or 19% in relative term. The overestimation would be particularly more pronounced for developing countries and may exceed 30% in Africa, India and Oceania.

Posted Content
TL;DR: In this article, the authors find that shocks to trend growth rather than transitory fluctuations around a stable trend are the primary source of fluctuations in emerging markets, and the key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.
Abstract: Emerging market business cycles exhibit strongly countercyclical current accounts, consumption volatility that exceeds income volatility, and “sudden stops†in capital inflows. These features contrast with developed small open economies. Nevertheless, we show that a standard model characterizes both types of markets. Motivated by the frequent policy regime switches observed in emerging markets, our premise is that these economies are subject to substantial volatility in trend growth. Our methodology exploits the information in consumption and net exports to identify the persistence of productivity. We find that shocks to trend growth—rather than transitory fluctuations around a stable trend—are the primary source of fluctuations in emerging markets. The key features of emerging market business cycles are then shown to be consistent with this underlying income process in an otherwise standard equilibrium model.

OtherDOI
TL;DR: Themes and issues in multi-level governance are discussed in this article, where the authors compare different visions of multi-Level Governance and Meta-Governance. But they do not discuss the relationship between the two levels of governance.
Abstract: Contents Acknowledgements Abbreviations and Acronyms Foreword 1. Themes and Issues in Multi-Level Governance PART 1: THEORY 2. Contrasting Visions of Multi-Level Governance 3. Strong Demand, Huge Supply 4. Multi-Level Governance and Multi-Level Meta-Governance 5. Multi-Level Governance and Democracy PART 2: LEVELS 6. Multi-Level Governance and British Politics 7. Multi-Level Governance and the European Union 8. Multi-Level Governance and International Relations PART 3: SECTORS 9. Multi-Level Governance and Environmental Policy 10. Multi-Level Governance and Regional Policy 11. Multi-Level Governance and Economic Policy 12. Multi-Level Governance: Conclusions and Implications Bibliography Index

BookDOI
TL;DR: The scope and breadth of regulatory reforms since the mid-1980s and particularly during the 1990s are so striking that they necessitate a reappraisal of current approaches to the study of the politics of regulation as mentioned in this paper.
Abstract: This book suggests that the scope and breadth of regulatory reforms since the mid-1980s and particularly during the 1990s, are so striking that they necessitate a reappraisal of current approaches to the study of the politics of regulation. The authors call for the adoption of different and fresh perspectives to examine this area.

Posted Content
TL;DR: In this article, the authors examined the process of development from an epoch of Malthusian stagnation to a state of sustained economic growth, focusing on recently advanced unified growth theories that capture the intricate evolution of income per capita, technology and population over the course of human history.
Abstract: This Paper examines the process of development from an epoch of Malthusian stagnation to a state of sustained economic growth. The analysis focuses on recently advanced unified growth theories that capture the intricate evolution of income per capita, technology, and population over the course of human history. Deciphering the underlying forces that triggered the transition from stagnation to growth and the associated phenomenon of the great divergence in income per capita across countries has been widely viewed as one of the most significant challenges facing researchers in the field of growth and development. The inconsistency of non-unified growth models with the main characteristics of the process of development across most of human history induced growth theorists to advance an alternative theory that captures in a single unified framework the epoch of Malthusian stagnation, the modern era of sustained economic growth, and the recent transition between these distinct regimes. Unified growth theory reveals the underlying micro foundations that are consistent with the growth process over the entire history of the human species, enhancing the confidence in the viability of the theory, its predictions and policy implications for the growth process of less developed economies.

Posted Content
TL;DR: In this article, the authors employ a novel conceptual framework in their research on industrial clusters in Europe, Latin America and Asia and provide new perspectives and insights for researchers and policymakers alike.
Abstract: This book opens a fresh chapter in the debate on local enterprise clusters and their strategies for upgrading in the global economy. The authors employ a novel conceptual framework in their research on industrial clusters in Europe, Latin America and Asia and provide new perspectives and insights for researchers and policymakers alike.

BookDOI
TL;DR: The Integrated Questionnaire for the Measurement of Social Capital (SC-IQ) as discussed by the authors is a set of empirical tools for measuring social capital with a focus on applications in developing countries.
Abstract: The idea of social capital has enjoyed a remarkable rise to prominence in both the theoretical and applied social science literature over the last decade. While lively debate has accompanied that journey, thereby helping to advance our thinking and to clarify areas of agreement and disagreement, much still remains to be done. One approach that we hope can help bring further advances for both scholars and practitioners is the provision of a set of empirical tools for measuring social capital. The purpose of this paper is to introduce such a tool-the Integrated Questionnaire for the Measurement of Social Capital (SC-IQ)-with a focus on applications in developing countries. The tool aims to generate quantitative data on various dimensions of social capital as part of a larger household survey (such as the Living Standards Measurement Survey or a household income/expenditure survey). Specifically, six dimensions are considered: groups and networks; trust and solidarity; collective action and cooperation; information and communication; social cohesion and inclusion; empowerment and political action. The paper addresses sampling and data collection issues for implementing the SC-IQ and provides guidance for the use and analysis of data. The tool has been pilot-tested in Albania and Nigeria and a review of lessons learned is presented.

BookDOI
TL;DR: Castells as discussed by the authors analyzes the technological, cultural and institutional transformation of societies around the world in terms of the critical role of electronic communication networks in business, everyday life, public services, social interaction and politics.
Abstract: Manuel Castells – one of the world’s pre-eminent social scientists – has drawn together a stellar group of contributors to explore the patterns and dynamics of the network society in its cultural and institutional diversity. The book analyzes the technological, cultural and institutional transformation of societies around the world in terms of the critical role of electronic communication networks in business, everyday life, public services, social interaction and politics. The contributors demonstrate that the network society is the new form of social organization in the Information age, replacing the Industrial society.

Posted Content
TL;DR: This article reviewed the recent evidence on U.S. immigration, focusing on two key questions: (1) Does immigration reduce the labor market opportunities of less-skilled natives? (2) Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated? Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts.
Abstract: This paper reviews the recent evidence on U.S. immigration, focusing on two key questions: (1) Does immigration reduce the labor market opportunities of less-skilled natives? (2) Have immigrants who arrived after the 1965 Immigration Reform Act successfully assimilated? Looking across major cities, differential immigrant inflows are strongly correlated with the relative supply of high school dropouts. Nevertheless, data from the 2000 Census shows that relative wages of native dropouts are uncorrelated with the relative supply of less-educated workers, as they were in earlier years. At the aggregate level, the wage gap between dropouts and high school graduates has remained nearly constant since 1980, despite supply pressure from immigration and the rise of other education-related wage gaps. Overall, evidence that immigrants have harmed the opportunities of less educated natives is scant. On the question of assimilation, the success of the U.S.-born children of immigrants is a key yardstick. By this metric, post-1965 immigrants are doing reasonably well: second generation sons and daughters have higher education and wages than the children of natives. Even children of the least- educated immigrant origin groups have closed most of the education gap with the children of natives.

Posted Content
TL;DR: In this article, the authors studied the relation between industry concentration and the performance of actively managed US mutual funds from 1984 to 1999 and found that on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures.
Abstract: Mutual fund managers may decide to deviate from a well-diversified portfolio and concentrate their holdings in industries where they have informational advantages In this paper, we study the relation between the industry concentration and the performance of actively managed US mutual funds from 1984 to 1999 Our results indicate that, on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures This finding suggests that investment ability is more evident among managers who hold portfolios concentrated in a few industries

Posted Content
TL;DR: With the integrated software ORSEE, experimenters have a free, convenient, and very powerful tool to organize their experiments and sessions in a standardized way and several new features have been added.
Abstract: We discuss several issues regarding the organization of economic laboratory experiments such as subject pool, recruitment, scheduling, and show how we solved them with the help of the Online Recruitment System for Economic Experiments (ORSEE) version 2.0. With this integrated software experimenters have a free, convenient, and very powerful tool to organize their experiments and sessions in a standardized way. Key features are: PHP/MySQL application, multiple language/ laboratory/ subject pool/ experimenters/ experiment types/ experiment classes support, attribute query selection, random recruitment, experiment calendar, automated reputation system, automated invitation and rule based reminder mailing, subjects manage their own account, overview about registration state, user rights management, pdf output and mailing, complete logging and statistics, and customizable layout. In version 2.0 the software has been completely reprogrammed in PHP. Several new features have been added. A test system has been installed in order to visually support the reader while reading the manual (www.orsee.org).

Posted Content
TL;DR: In this paper, the authors estimate a model that summarizes the yield curve using latent factors (specifically, level, slope, and curvature) and also include observable macroeconomic variables (i.e., real activity, inflation, and monetary policy instrument).
Abstract: We estimate a model that summarizes the yield curve using latent factors (specifically, level, slope, and curvature) and also includes observable macroeconomic variables (specifically, real activity, inflation, and the monetary policy instrument) Our goal is to provide a characterization of the dynamic interactions between the macroeconomy and the yield curve We find strong evidence of the effects of macro variables on future movements in the yield curve and evidence for a reverse influence as well We also relate our results to the expectations hypothesis

Journal Article
TL;DR: A broad cross-country assessment of the ties between financial structure and economic growth is presented in this paper, where the authors focus on developing countries and compare bank-based and market-based systems and conclude that strong legal rights for outside investors and the overall efficiency of contract enforcement are effective tools for developing financial sector and the economy.
Abstract: This is the first broad cross-country assessment of the ties between financial structure -- the mix of financial instruments, institutions, and markets in a given economy -- and economic growth since Raymond Goldsmith's 1969 landmark study Most studies focus on developed countries and compare bank-based and market-based systems Debates over the relative merits of the two systems have relied on case studies of Germany, Japan, the United Kingdom, and the United States, countries with similar long-run growth rates The absence of data on developing countries limits the usefulness of such studies for policy makersThe book contains recently acquired cross-country data from almost 150 countries It includes information on the size, efficiency, and activity of banks, insurance companies, pension and mutual funds, finance companies, and stock and bond markets It also incorporates information on each country's political, economic, and social environment The chapters contain a mix of case studies, cross-country studies, macro- and micro-oriented approaches, and analytical and empirical work The conclusions point not to markets versus banks, but to markets and banks It is how well a financial system functions that is critical for long-run economic growth The research suggests that strong legal rights for outside investors and the overall efficiency of contract enforcement are effective tools for developing the financial sector and the economy The book includes a CD containing World Bank data

Posted Content
TL;DR: In this article, the authors build a theory of prosocial behaviour that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect, and analyse the equilibrium contracts offered by sponsors.
Abstract: We build a theory of prosocial behaviour that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. The presence of rewards or punishments creates doubt as to the true motive for which good deeds are performed, and this ‘overjustification effect’ can result in a net crowding out of prosocial behaviour by extrinsic incentives. The model also allows us to identify settings that are conducive to multiple social norms of behaviour, and those where disclosing one’s generosity may backfire. Finally, we analyse the equilibrium contracts offered by sponsors, including the level and confidentiality or publicity of incentives. Sponsor competition may cause rewards to bid down rather than up, and can even reduce social welfare by requiring agents to engage in inefficient sacrifices.

Posted Content
TL;DR: In this paper, the authors argue that it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash, and that suppliers may lend more liberally than banks.
Abstract: It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms.

Posted Content
TL;DR: In this paper, the authors present a set of specific measures to quantify the state and evolution of financial integration in the euro area, namely the money, corporate bond, government bond, credit and equity markets.
Abstract: In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

Posted Content
TL;DR: In this article, the authors model investors, endowed with a small home information advantage, who choose what information to learn before they invest, and find that even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know.
Abstract: Many argue that home bias arises because home investors can predict home asset payoffs more accurately than foreigners can. But why does global information access not eliminate this asymmetry? We model investors, endowed with a small home information advantage, who choose what information to learn before they invest. Surprisingly, even when home investors can learn what foreigners know, they choose not to: Investors profit more from knowing information others do not know. Learning amplifies information asymmetry. The model matches patterns of local and industry bias, foreign investments, portfolio outperformance, and asset prices. Finally, we propose new avenues for empirical research. (This abstract was borrowed from another version of this item.)