ECONOMIES OF SCALE IN BANKING,INDETERMINACY, AND MONETARY POLICY

This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Financial intermediation is embedded into a standard flexible‐price monetary model, and provides deposits (inside money) that substitute with currency to purchase consumption. The results indicate that equilibrium indeterminacy does not depend on a large degree of ES in intermediation nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any positive degree of ES, while policies targeting nominal rates eliminate indeterminacy for all degrees of ES. (JEL C62, E44, E52)     

INFORMAL SECTOR AND ECONOMIC DEVELOPMENT: THE CREDIT SUPPLY CHANNEL

The standard view suggests that removing barriers to entry and improving judicial enforcement reduces informality and boosts investment and growth. However, a general equilibrium approach shows that this conclusion may hold to a lesser extent in countries with a constrained supply of funds because of, for example, a more concentrated banking sector or lower financial openness. When the formal sector grows larger in those countries, more entrepreneurs become creditworthy, but the higher pressure on the credit market limits further capital accumulation. We show empirical evidence consistent with these predictions. (JEL O16, O43, E26)     

PRODUCT QUALITY, MARKET SIGNALING AND THE DEVELOPMENT OF EAST WEST TRADE

Countertrade, a contractual form in which there is a two-way flow of goods, occupies a position of significance in East-West trade. In this paper, it is shown that countertrade can solve problems which arise when the quality of Eastern European products is unknown. Using the market signaling literature, a theory is formulated in order to make predictions concerning the use of countertrade. Countertrade will be particularly useful when quality information is important but cannot be obtained directly and when a country has a poor quality reputation. These predictions are supported by empirical tests.     

MONETARY POLICY, BANKING, AND GROWTH

There is ample empirical evidence suggesting that countries with high inflation tend to grow slower than countries with low inflation. Based on the regression evidence, the inflation-rate effect is fairly large; on average, per-capita real GDP grows between 1/4- and 3/4- percentage-points slower in a country in which the average inflation rate is 10% as compared with a country in which inflation is 0%. The purpose of this paper is to determine whether a model economy that is reasonably calibrated can account for such large inflation-rate effects. The answer is yes. ( JEL O41, E58)     

GROUP SIZE AND SOCIAL TIES IN MICROFINANCE INSTITUTIONS

Microfinance programs provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. We experimentally investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects and observe robust high repayment rates. Group lending outperforms individual lending. Self-selected groups show high but less stable contributions. (JEL C90 , H41 , I38 , O16 , Z13 )     

CHILD CARE AND POVERTY IN SOUTH AFRICA

This article draws on ethnographic research with children and their caregivers to explore the interaction between poverty and the nature and quality of child care in a resource-poor urban community in South Africa. The authors attend to issues such as mobility and “family fragmentation,” the role of the extended family and other networks, and children's contributions to their own and others’ care, all matters that provoke particular concern in the context of HIV/AIDS. The research challenges some of the more conventional interpretations on these matters by pointing to the continuities children experience in what can appear a disrupted care setting as well as the positive aspects of children's involvement in care. It also supports the case for a closer look at men's participation in various child-care roles in a climate where they are often dismissed as absent or unemployed and therefore non-contributory. Future research and policy on child care would benefit from the conceptual approach adopted across this work, which employs a relational lens and encompasses the dynamic contexts in which care is experienced and performed.     

BIRTHS, DEATHS, AND MARRIAGES IN THE U.S. COMMERCIAL BANKING INDUSTRY

Regulatory change not seen since the Great Depression swept the U.S. banking industry beginning in the early 1980s and culminated with the Interstate Banking and Branching Efficiency Act of 1994. This article examines whether deregulation affected new charter (birth), failure (death), and merger (marriage) rates of U.S. commercial banks from 1978 to 2004 after controlling for bank performance and state economic activity. We find strong evidence that intrastate and interstate deregulation stimulated marriages, but not births or deaths. Finally, temporal causality tests show that mergers temporally lead to new charters and that failures lead to mergers (a demonstration effect) . ( JEL G21, L51)     

THE DEVELOPMENT AND DECLINE OF MEDIEVAL VOTING INSTITUTIONS: A COMPARISON OF ENGLAND AND FRANCE

This paper argues that in the middle ages voting institutions emerged as mechanisms that allowed rulers to cooperate with subjects on mutually profitable projects. In spite of their utility, many of these voting institutions eventually declined. We test the model on the English parliament and the French estates general. The historical evidence strongly supports our view that these institutions declined in France, but not in England, due to increases in the heterogeneity of voters' interests and the insecurity of French rulers, since these factors made cooperation between French rulers and their subjects more difficult.     

THE DISTRIBUTION SECTOR AND THE DEVELOPMENT PROCESS: ARE THERE PATTERNS? YES

Using an increasing returns specification for distribution, an inverted U pattern between the share of distribution in gross domestic product and the level of development is shown to arise. A cross-section time-series data set is constructed and merged with one used to analyze the service sector. In contrast to the rising pattern found for services, an average time-series relation that exhibits an inverted U pattern is established. The empirical results are robust, for example, to choice of functional form and country and time period coverage. A similar pattern is found in the average cross-section (country) relation between distribution and development.     

INSTITUTIONS, TRANSACTION COSTS AND ECONOMIC GROWTH

This essay develops a theoretical framework which explores the historical obstacles to economic growth. These obstacles are examined in the context of the political/economic institutional framework of economies in history and consequent transaction costs that determine economic performance and growth. The essay concludes with specific suggestions for the study of economic growth.     

INFORMATION ASYMMETRY AND COMPETITIVE BIDDING IN AUDITING

This article finds that clients with greater risk of fraud are less likely to engage prospective auditors in competitive bidding, consistent with the theory that these companies seek to limit access to information that might reveal their high-risk status. In contrast, we find no support for the expectation that companies with higher agency costs will seek competitive auditor bids, due to the need for better monitoring. Our results also show that bidding competition is more likely when the bidding firm is not an industry specialist, when clients have more active corporate governance, and when there are difficulties with the predecessor auditor.(JEL D44 , D82 , M42 )     

INSTITUTIONS,HOUSEHOLD CREDIT COMPOSITION,AND THE BUSINESS CYCLE

We show that the negative effect of household credit growth on subsequent economic growth documented in the recent literature is not the same across countries. The effect is stronger in countries with weak institutions where the fraction of consumer credit in total household credit is greater. That is an important nuance as consumer credit is a sizable part of household credit in many emerging markets and its rapid buildup should be observed with the same caution as a rapid buildup in housing credit. (JEL G21, E32, E44)     

INFORMATION, CAPITALISM AND UNCERTAINTY

This article argues that the changes characterized by many commentators as announcing the 'information age' are better seen, not as heralding a new type of society, but as the continuation, consolidation and extension of capitalism - something which is accompanied by constant upheaval and innovation. The shift from conceiving the 'information society' as a result of technological breakthroughs to one which lays emphasis on the primacy of 'information' itself is observed. The importance especially of informational labour's 'flexibility' is regarded, not as indicative of a new age but of the requirements of globalized capitalism which engenders change the better to consolidate its practices. The instability of life today is ascribed, not to the upheavals resulting from the 'information revolution', but rather to the insatiable dynamic that has long been a distinguishing feature of capitalist enterprise. These processes are examined in terms of the shift from public to private provision of information and in the heightened uncertainty of existence today.     

CHARISMA,CANNABIS, AND THE CROSSING OF AFRICA

This essay, based on a chapter from a forthcoming study of the exploration of Central Africa, tells the story of the encounter between the German travelers Paul Pogge and Hermann Wissmann and a charismatic extatic cult or movement, the 'Children of Hemp.' With the aid of the movement Wissmann accomplished the first documented crossing of the continent (from West to East). Eventually he was also material in drawing the leaders of what was essentially a modernization movement into the organization of what became the Congo Free State. A tale of trust and friendship betrayed and chances missed, of exploration turning into occupation, and of grave consequences for the Congo up to the present.     

INSTITUTIONS, INVESTMENT, AND GROWTH: NEW CROSS-COUNTRY AND PANEL DATA EVIDENCE

This paper outlines the alternative channels through which institutions affect growth, and studies the empirical relationship between institutions, investment, and growth. The empirical results indicate that (i) free-market institutions have a positive effect on growth; (ii) economic freedom affects growth through both a direct effect on total factor productivity and an indirect effect on investment; (iii) political and civil liberties may stimulate investment; (iv) an important interaction exists between freedom and human capital investment; (v) Milton Friedman's conjectures on the relation between political and economic freedom are correct; (vi) promoting economic freedom is an effective policy toward facilitating growth and other types of freedom. ( JEL O17, O40, P51)     

CAPACITY CONSTRAINTS AND INFORMATION REVELATION IN PROCUREMENT AUCTIONS

We utilize laboratory experiments to study behavior in sequential procurement auctions where winning an auction round increases a bidder's future costs. The game admits competitive as well as bid‐rotation style collusive equilibria. We find that (a) bidders show some propensity to account for the opportunity cost of winning an auction, but underestimate its magnitude; (b) revealing all bids (instead of only the winning bid) after each round leads to dramatically higher procurement costs. The rise in procurement costs is accompanied by an increase in very high (extreme) bids, a fraction of which appear to be collusive in nature. (JEL C91, D44, L44)     

BANK PANICS, SUSPENSIONS, AND GEOGRAPHY: SOME NOTES ON THE "CONTAGION OF FEAR" IN BANKING

Recent attempts to understand bank panics tend to emphasize informational asymmetries or the possibilities of multiple equilibria. Such approaches stand in contrast to historical research that emphasizes legal factors influencing the organization of the banking system. This paper constructs a model of a banking system operating under regulations similar to those in effect under the National Banking System and in which information is complete. In all other respects the model resembles that of Diamond and Dybvig [1983]. The results indicate that, given the regulatory environment, it would have been surprising if suspensions of convertibility had not recurred periodically.     

INFORMATION TRANSMISSION AND OWNERSHIP CONSOLIDATION IN AID PROGRAMS

We investigate the degree of leeway donors of foreign aid should grant to recipient governments when their preferences over how to implement the aid are different, and both the donor and recipient possess some private information about the most effective policies. Intuitively, our model shows that donors should stay in control of how their aid is spent when their own private information is more important than the private information of the recipient. Less obviously, an increase in the difference of preferences between donors and recipients can increase rather than decrease the leeway that donors should grant the recipients, as the recipients' information gains in importance relative to those of the donors, and recipients become less likely to communicate truthfully. We test the model using dyadic data for 28 bilateral aid donors and 112 recipients, over the 1995–2010 period. Our proxy for “centralized” aid is project aid, while budget aid leaves more leeway to the recipient and thus proxies for “decentralized” aid. In line with the model, misaligned interests and informational asymmetries indeed influence the shares of aid given as budget and project aid. (JEL C23, D82, F33,O1)     

HEALTH, EDUCATION, AND LIFE CYCLE SAVINGS IN THE DEVELOPMENT PROCESS

This paper studies investment in health and human capital in a life cycle model. Health investment enhances survival to old age by improving health from its endowed level. The model predicts two distinctive phases of development. When income is low enough, the economy has no health investment and little savings, leading to slow growth. When income grows, health investment will become positive and the saving rate will rise, leading to higher life expectancy and faster growth. A health subsidy can move the economy from the first phase to the next. Subsidies on health and human capital investments can improve welfare. ( JEL I00, J10, H50, O10)     

2006 PRESIDENTIAL ADDRESS WATER MARKETS IN THE WEST: PRICES, TRADING, AND CONTRACTUAL FORMS

Rising urban and environmental demand for water has created growing pressure to reallocate water from traditional agricultural uses. The evolution of water markets has been more complicated than those for other resources. In this paper, we first explain these differences by examining water rights and regulatory issues. Second, we place our research in the context of the economics literature on water marketing. Third, we present new, comprehensive data on prices and the extent, nature, and timing of water transfers across 12 western states from 1987 to 2005. We find that prices are higher for agriculture-to-urban trades versus within-agriculture trades, in part, reflecting the differences in marginal values between the two uses. Prices for urban use are also growing relative to agricultural use. Markets are responding in that the number of agriculture-to-urban transactions is rising, whereas the number of agriculture-to-agriculture transfers is not. Further, there is a shift from using short-term leases to using multiyear leases of water and permanent sales of water rights. This pattern underscores the need to consider the amounts of water obligated over time rather than examining only annual flows in assessing the quantities of water traded as is the common practice in the literature. Considering water obligated over time, termed committed water, we find significantly more is transferred and the direction of trading is different than if the focus is on annual flows. Finally, the data reveal considerable variation in water trading across the states. ( JEL Q2, N5, L5, K3)