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Market Imperfections (market + imperfection)
Kinds of Market Imperfections Selected AbstractsThe Effect of Refinancing Costs and Market Imperfections on the Optimal Call Strategy and the Pricing of Debt ContractsREAL ESTATE ECONOMICS, Issue 4 2005Kenneth B. Dunn This article, which was originally written in 1986, develops a methodology for valuing mortgage-backed securities with refinancing costs. We solve simultaneously for the valuation of the mortgage-backed security (loan) and the borrower's refinancing strategy, pricing all coupon levels simultaneously. Because the borrower may refinance his or her loan and incur costs at many times in the future, the optimal refinancing decisions arise from an optimal dynamic strategy that reflects the costs of all potential future refinancings. Though the borrower faces multiple rounds of refinancing costs, the market value of the loan cannot exceed the call price plus a single round of refinancing costs. [source] THE OPTIMAL PUBLIC EXPENDITURE FINANCING POLICY: DOES THE LEVEL OF ECONOMIC DEVELOPMENT MATTER?ECONOMIC INQUIRY, Issue 3 2007NILOY BOSE This paper explores how the optimal mode of public finance depends on the level of economic development. The theoretical analysis suggests that in the presence of capital market imperfection and liquidity shocks, the detrimental effect of inflation on growth is stronger (weaker) at lower (higher) levels of economic development. Consequently, income taxation (seigniorage) is a relatively less distortionary way of financing public expenditure for low-income (high-income) countries. We provide empirical support for our model's predictions using a panel of 21 Organization for Economic Cooperation and Development countries and 40 developing countries observed over the period 1972,1999. (JEL E44, E6, H6, O42) [source] Land tax and economic growth under credit market imperfectionINTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 2 2007Masaya Sakuragawa H20; O40 We study the general equilibrium effects of land taxation on economic growth by extending the model developed by Kiyotaki and Moore (1997) to an endogenous growth model, where land is used not only as an input of production but also as collateral. Land taxation tends to hamper economic growth through the credit-contraction effect, but the overall direction on economic growth depends on the redistribution scheme of the tax revenue. Surprisingly, we show that if the tax revenue is fully refunded to entrepreneurs, the economy grows faster than a no-taxation economy. We calibrate our model and show that if taxation on land is raised by 1 percent, the land price initially falls by approximately 9.09 percent, while the economy grows faster by 0.6%. [source] The Role of Champions in the External Commercialization of Knowledge,THE JOURNAL OF PRODUCT INNOVATION MANAGEMENT, Issue 4 2009Ulrich Lichtenthaler Besides applying knowledge in their own products or services, firms may externally commercialize their knowledge assets (e.g., by means of outlicensing). The literature on champions, however, has focused on internal innovation. This gap in prior research is particularly remarkable as the potential for promoting external knowledge exploitation is high. Some pioneering firms realize great benefits, whereas most others experience major managerial difficulties. This paper tests five hypotheses regarding the emergence and impact of champions of external knowledge exploitation with data from 152 firms across industries. The results of the questionnaire-based study demonstrate the relevance of champions of external knowledge exploitation. Championing constitutes an essential success factor and has strongly contributed to the recent increase in external knowledge commercialization. These findings help to explain the discrepancies between the few successful and the majority of unsuccessful firms. Beyond existing insights, the emergence of champions is affected by external determinants in addition to internal determinants. There is an inverted U-shaped relationship between championing and the internal determinants, that is, organizational climate and active strategy. Moreover, there is a negative relationship between championing and market imperfection and an inverted U-shaped relationship between championing and competitive intensity, which both constitute external determinants of championing. In contrast to the traditional understanding, champions tend to emerge in supportive environments, in which internal and external barriers are relatively low. This surprising finding calls for rethinking the role and motivation of champions. [source] Central Bank and Commercial Banks' Liquidity Management , What is the Relationship?ECONOMIC NOTES, Issue 1 2003Ulrich Bindseil The paper explores the relation between individual banks' liquidity management in the euro area and the ECB's management of the aggregate current accounts held by banks with the Eurosystem. It is argued that, in the case of the euro area with its large, remunerated reserve requirements that have to be fulfilled only on average over a one-month period, the banks' demand for working balances to serve as a buffer against market imperfections is always below reserve requirements. It is therefore normally sufficient for the ECB when steering short-term interest rates to control aggregate liquidity in a way that the aggregate banking system is in a position to fulfil adequately its reserve requirements. In particular, the ECB normally does not need to take care of any factors that affect temporarily the demand for working balances, such as the level and uncertainties of interbank payment flows. However, two exceptions are noteworthy and are discussed in the paper: the banks' balance sheet management activities implying a regular end of month peak of the EONIA rate; and the liquidity situation in the case of substantive market tensions as in the days following the terrorist attacks of 11 September 2001. The need of the ECB's liquidity management to address the associated deviations from a model of perfect markets is discussed. [source] Monetary Policy, Agency Costs and Output DynamicsGERMAN ECONOMIC REVIEW, Issue 3 2003Ludger Linnemann Interest rate policy; financial accelerator; sticky prices and wages Abstract. This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too. [source] Role of Endogenous Vintage Specific Depreciation in the Optimal Behavior of FirmsINTERNATIONAL JOURNAL OF ECONOMIC THEORY, Issue 3 2008Cagri Saglam D92; O33; E22; C61 This paper studies the firms' capital accumulation process in a vintage capital model with embodied technological change. We take into account that depreciation is endogenous and in particular associated with vintage specific maintenance expenditure. We prove that maintenance is a local substitute for investment as soon as the marginal cost of maintenance is strictly increasing. We show that maintenance and investment in new capital goods appear as complements with respect to the changes in productivity, cost of maintenance, fixed cost of operation, efficiency of maintenance services and appear as substitutes with respect to the price of new machines. Allowing for investment in old vintages, we determine that investment in old machines appears as a substitute of both investments in new machines and maintenance services. We end up by analyzing the effects of technological progress on optimal plans and prove that a negative anticipation effect can occur even without any market imperfections. [source] Monetary policy's effects during the financial crises in Brazil and KoreaINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2003Charles Goodhart This paper looks at the effect of monetary policy changes on asset prices in the foreign exchange and equity markets of Brazil and Korea. We were searching for evidence whether monetary policy tightening may have had (adverse) counterproductive effects on such asset markets. In common with other authors we find only weak or sporadic evidence for this hypothesis. Using a theoretical model of financial market imperfections, we show that the failure to find monetary policy effectiveness during a crisis can come about not only because of the endogeneity caused by a ,leaning against the wind' policy reaction but also, independently, if there are large and correlated risk premia in the financial markets in which interest rates and determined. Copyright © 2003 John Wiley & Sons, Ltd. [source] Bookbuidling, Auctions, and the Future of the IPO ProcessJOURNAL OF APPLIED CORPORATE FINANCE, Issue 1 2005William J. Wilhelm Jr. Auction theorists predict that bookbuilding, long the standard process for selling equity IPOs in the U.S., is about to give way to an Internet-based IPO auction process that is both more efficient and more fair. The promise of auctions is that, by using an electronic platform that gives all investors the opportunity to bid on IPOs, the underpricing of IPOs and commissions to underwriters will be reduced, leading to an increase in net proceeds to issuers. Largely missing from such arguments, however, is an appreciation of why bookbuilding has dominated U.S. practice (and continues to supplant auctions in IPOs in most countries outside the U.S) and the role of undepricing in the IPO process. Rather than canvassing all investors, bookbuilding involves eliciting expressions of interest from institutional investors, and then allocating shares mainly according to the strength of their professed interest. In contrast to auctions, which allocate shares according to a set of explicit rules, bookbuilding involves a set of implicit "rules" that provide considerable room for judgment by the underwriter. This does not mean that the rules are arbitrary or not well understood by participants, particularly after thousands of IPOs conducted over the better part of two centuries. But to manage the exchange of information between issuers and investors, and the potential conflicts of interest in representing both groups, such rules must be administered by an intermediary with a considerable stake in protecting its reputation for fair dealing. Investment banks that deal with both issuers and the investment community on a regular basis are well positioned to perform this function. The underpricing of IPOs is best viewed not as a transfer of wealth from issuers to favored investors but rather as compensation to the large influential investors that play a major role in the price discovery process. By opening the process to all comers, auctions will discourage these large investors from bidding aggressively because less sophisticated investors will be able to "free ride" on their research and due diligence. To the extent this happens, auctions may suc ceed in reducing underpricing (in fact, they may even lead to over pricing), but they will also reduce the net proceeds for issuers. Nevertheless, recent advances in communications technology and auction theory will undoubtedly reshape current securities underwriting practices. In particular, Internet auctions are likely to replace bookbuilding in debt IPOs and less risky equity issues (say, IPOs of LBOs). But the argument that Bookbuilding will be completely cast aside in favor of largely untested alternatives fails to appreciate a successful institutional response to major market imperfections, some of which can never be wholly eliminated. Especially in the case of risky (first-time) equity IPOs, there will continue to be an important role for managing the information exchange between issuers and investors that is critical to the IPO process. [source] Consumer Credit Risk and PricingJOURNAL OF CONSUMER AFFAIRS, Issue 1 2006DARRYL E. GETTER Previous academic studies viewed borrower rejection as a sign of market imperfections in the consumer credit markets, but this view was based upon the assumption that differences in the levels of borrower creditworthiness could not be accurately identified. Today, it is possible to differentiate between types of borrowers, and riskier borrowers can participate in credit markets if they are willing to pay relatively higher borrowing costs. Hence, a more critical issue concerning the performance of these markets should be whether loan prices correctly reflect the level of borrower credit risk. This paper reexamines consumer participation in credit markets looking specifically at issues related to the pricing of borrowers of different credit risk. [source] A Primer on Financial ContagionJOURNAL OF ECONOMIC SURVEYS, Issue 4 2003Marcello Pericoli Abstract., This paper presents a theoretical framework to highlight possible channels for the international transmission of financial shocks. We first review the different definitions and measures of contagion adopted by the literature. We then use a simple multi-country asset pricing model to classify the main elements of the current debate on contagion and provide a stylized account of how a crisis in one country can spread to the world economy. In particular, the model shows how crises can be transmitted across countries, without assuming ad hoc portfolio management rules or market imperfections. Finally, tracking our classification, we survey the results of the empirical literature on contagion. [source] The Role of Interbank Markets in Monetary Policy: A Model with RationingJOURNAL OF MONEY, CREDIT AND BANKING, Issue 6 2008XAVIER FREIXAS banking; rationing; monetary policy This paper analyzes the impact of asymmetric information in the interbank market and establishes its crucial role in the microfoundations of the monetary policy transmission mechanism. We show that interbank market imperfections induce an equilibrium with rationing in the credit market. This has two major implications: first, it reconciles the irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy (magnitude effect), and second, it shows that banks' liquidity positions condition their reaction to monetary policy (Kashyap and Stein liquidity effect). [source] Local Banks Efficiency and EmploymentLABOUR, Issue 3 2008Patrizia Ordine We argue that if banks are not efficient in monitoring the borrowers in the presence of asymmetric information, credit market imperfections have real effects. We estimate dynamic equations using system generalized method of moments (GMM) for bank loans and employment on panel data for Italian firms. The system GMM estimates indicate that the impact of credit market on employment is higher where the local financial market is less developed, asymmetric information is widespread, bank managers are less efficient in assessing the firms' solvency and do not use appropriate methods to evaluate the borrowers' payback capacity. [source] Firm-sponsored Apprenticeship Training in Germany: Empirical Evidence from Establishment DataLABOUR, Issue 2 2002Michael Beckmann This paper investigates the determinants of firm-sponsored apprenticeship training empirically using German firm-level data. The hypotheses for this study are based mostly on recent theoretical models about the financing of apprenticeship training which take labour market imperfections (e.g. mobility costs, asymmetric information, and wage floors) into account. Applying the usual probit, tobit, and truncated regression models, some empirical evidence is found supporting the relevance of active or passive poaching. Moreover, the results reveal some differences in the training behaviour of West and East German firms. [source] Rural market imperfections and the role of institutions in collective action to improve markets for the poorNATURAL RESOURCES FORUM, Issue 1 2008Bekele Shiferaw Abstract Many countries in sub-Saharan Africa have liberalized markets to improve efficiency and enhance market linkages for smallholder farmers. The expected positive response by the private sector in areas with limited market infrastructure has however been very limited. The functioning of markets is constrained by high transaction costs and coordination problems along the production-to-consumption value chain. New kinds of institutional arrangements are needed to reduce these costs and fill the vacuum left when governments withdrew from markets in the era of structural adjustments. One of these institutional innovations has been the strengthening of producer organizations and formation of collective marketing groups as instruments to remedy pervasive market failures in rural economies. The analysis presented here with a case study from eastern Kenya has shown that marketing groups pay 20,25% higher prices than other buyers to farmers while participation was also positively correlated with adoption of improved dryland legume varieties, crops not targeted by the formal extension system. However the effectiveness of marketing groups is undermined by external shocks and structural constraints that limit the volume of trade and access to capital and information, and require investments in complementary institutions and coordination mechanisms to exploit scale economies. Successful groups have shown high levels of collective action in the form of increased participatory decision making, member contributions and initial start-up capital. Failure to pay on delivery, resulting from lack of capital credit, is a major constraint that stifles competitiveness of marketing groups relative to other buyers. These findings call for interventions that improve governance and participation; mechanisms for improving access to operating capital; and effective strategies for risk management and enhancing the business skills of farmer marketing groups. [source] Regional unemployment and its persistence in transition countries1THE ECONOMICS OF TRANSITION, Issue 2 2006Fabian Bornhorst transition; regional unemployment; mobility Abstract We look at the differences in regional unemployment rates in six major transition countries and their persistence over time. We analyse the role various adjustment mechanisms play. While movement out of the labour force seems to be one consequence in many regions with high relative unemployment, there are also signs of emerging wage flexibility. Employment creation, by contrast, has not picked up in regions of high unemployment. Labour mobility also remains very limited in size although it appears to respond to basic economic incentives. Policies addressing housing market imperfections and information asymmetries are necessary to increase worker mobility and to integrate better national labour markets. [source] Product Market Competition, Insider Trading, and Stock Market EfficiencyTHE JOURNAL OF FINANCE, Issue 1 2010JOEL PERESS ABSTRACT How does competition in firms' product markets influence their behavior in equity markets? Do product market imperfections spread to equity markets? We examine these questions in a noisy rational expectations model in which firms operate under monopolistic competition while their shares trade in perfectly competitive markets. Firms use their monopoly power to pass on shocks to customers, thereby insulating their profits. This encourages stock trading, expedites the capitalization of private information into stock prices and improves the allocation of capital. Several implications are derived and tested. [source] Firm Value and Hedging: Evidence from U.S. Oil and Gas ProducersTHE JOURNAL OF FINANCE, Issue 2 2006YANBO JIN ABSTRACT This paper studies the hedging activities of 119 U.S. oil and gas producers from 1998 to 2001 and evaluates their effect on firm value. Theories of hedging based on market imperfections imply that hedging should increase the firm's market value (MV). To test this hypothesis, we collect detailed information on the extent of hedging and on the valuation of oil and gas reserves. We verify that hedging reduces the firm's stock price sensitivity to oil and gas prices. Contrary to previous studies, however, we find that hedging does not seem to affect MVs for this industry. [source] Foreign Bond Investment and the Yield Curve,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 1 2009Sangwon Suh Abstract Market participants have argued that the yield curve in the Korean bond market has been increasingly flattened since 2007 caused partly by foreign investors' rapidly growing investment in Korean bond market, motivated to take advantage of market imperfections seeking riskless profit making opportunities. To analyze how much foreign bond investments have affected the bond yields in Korea, in this paper I utilize a stylized affine term structure model that has an observable factor related with foreign bond investments as well as latent factors. I find supportive evidence for the argument by market participants that investment by foreigners has been an important factor behind the flattening of the yield curve since 2007. Taking out the effects of foreign bond investment on the yields, I observe much a weakened yield flattening phenomenon. [source] Credit market imperfections and exchange rate variabilityCANADIAN JOURNAL OF ECONOMICS, Issue 2 2000Wai-Ming Ho In this paper a two-country overlapping generations model is presented in which the roles of financial factors in the international monetary transmission mechanism are studied and whether and how the two types of credit market imperfections, limited participation, and costly state verification may contribute to the high variability of exchange rates are examined. Liquidity effects generated by monetary disturbances are shown to have qualitatively similar effects on the world economy in the perfect information case and in the costly information case. However, quantitative differences provide dfferent predictions about the variability of economic variables in the world economy. JEL Classification: F31, F41 Ce mémoire présente un modèle de deux pays où les générations se chevauchent pour étudier le rôle des facteurs financiers dans le mécanisme de transmission monétaire international, et pour examiner si les deux types d'imperfection (participation limitée et contrôle étatique coûteux) peuvent contribuer à une grande variabilité des taux de change et de quelle manière. On montre que les effets de liquidité engendrés par les perturbations monétaires ont les mêmes effets qualitatifs sur l'économie mondiale que l'information soit parfaite ou coûteuse. Cependant, il y a des différences quantitatives. Ces différences suggèrent des écarts dans les prévisions quant à la variabilité des variables économiques dans l'économie mondiale. [source] Credit Markets With Differences in Abilities: Education, Distribution, and GrowthINTERNATIONAL ECONOMIC REVIEW, Issue 3 2000José De Gregorio This article presents an endogenous growth model in which credit markets affect time allocation of individuals with different educational abilities. Credit markets allow the more able to specialize in studying and the less able to specialize in working. This specialization can increase growth and welfare. This article also shows that in economies with high (low) levels of education abilities, the opening of credit markets induces a more disperse (equal) income distribution. The role of intergenerational transfers in overcoming the absence of credit markets is also discussed, as well as other forms of credit markets imperfections. [source] | |||||||||||||||||||||||||