Knowledge that Transforms

The use of official funds in debt reduction packages has been widely argued to amount to a creditor bailout. We analyze this question using a case study of Mexico's 1989 Brady deal. Using an option-based pricing model, we obtain pre- and postmarket values for Mexico's commercial debt and find that the market value inclusive of official funds went up only marginally. Consequently, Mexico obtained a large share of the benefits of the official funds and struck a favorable deal. The Brady debt reduction formula thus seems to offer an efficient framework for debt workouts. Recent events in Mexico confirm that view.

Journal Article The Role of Promotion in Inducing Specific Human Capital Acquisition Get access Canice Prendergast Canice Prendergast Graduate School of Business, University of Chicago Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 108, Issue 2, May 1993, Pages 523–534, https://doi.org/10.2307/2118343 Published: 01 May 1993

The basic premise of this paper is that understanding aggregate dynamics requires considering that agents are heterogeneous and that they do not adjust continuously to the shocks they perceive. We provide a general characterization of lumpy behavior at the microeconomic level in terms of an adjustment-hazard function, which relates the probability that a unit adjusts to the deviation of its state variable from its moving target. We characterize rich, cross-sectionally dependent aggregate dynamics generated by nonconstant hazards. We present an example based on U. S. manufacturing employment and job flows, and find that increasinghazard models outperform constant-hazard-partial-adjustment models in describing aggregate employment dynamics.

This paper considers a manufacturer distributing a product through retailers who compete in price and service, which reduces the time it takes to purchase a good. The mix of these instruments that maximizes collective profit is determined by the tastes of consumers on the "product margin, " whereas decentralized retailers consider as well the tastes of consumers on the interretailer margins. Given search or travel costs, consumers with low time costs are overrepresented on the interretailer margins. In considering customers on the wrong margin, retailers are therefore biased toward price competition. This distortion that can be corrected with vertical restraints. I.

In this paper we study the connections between product .market conditions. negotiated wage settlements. and union employment in the presence of foreign competition shocks. We exploit the fact that in a small open economy such as Canada the price of imports and exports should represent pure demand shocks. We specify wage and employment determination equations for a sample of collective bargaining agreements from 1965 to 1983. Our estimation strategy consists of specifying the wage as a function of firm-specific value added per worker instrumented with the price of imports and the price of exports in the industry. The OLS specification is rejected in favor of the instrumental variables specification using standard specification tests. The instrumental variables estimates imply that a 1% change in value-added per worker increases the negotiated wage settlements by 0.25%. Similarly, we specify union employment as a function of firm-specific sales instrumented by the price of imports and exports in the industry. The instrumental variables estimates are imprecise and the specification test fails to reject the OLS specification. The OLS estimates imply that a 1% change in firm-specific sales increases employment by 0.19%. We use our estimates to trace the effects of foreign competition on the industry and firm-level sales and value-added measures.

This paper considers the revealed preference implications of a fairly general optimization hypothesis under any finite number of constraints. It extends Afriat's seminal nonparametric analysis. The usefulness of the results are illustrated in two examples.

The nonrivalry of technology, as modeled in the endogenous growth Uterature, implies that high population spurs technological change. This paper constructs and empirically tests a model of long-run world population growth combining this implication with the Malthusian assumption that technology limits population. The model predicts that over most of history, the growth rate of population will be proportional to its level. Empirical tests support this prediction and show that historically, among societies with no possibility for technological contact, those with larger initial populations have had faster technological change and population growth.

This paper presents two propositions about corruption. First, the structure of government institutions and of the political process are very important determinants of the level of corruption. In particular, weak governments that do not control their agencies experience very high corruption levels. Second, the illegality of corruption and the need for secrecy make it much more distortionary and costly than its sister activity, taxation. These results may explain why, in some less developed countries, corruption is so high and so costly to development.

Two of the most discussed anomalies in the financial literature are the predictability of excess returns and the excess volatility of stock prices. Learning effects on stock price dynamics are an intuitive candidate to explain these empirical findings: estimation uncertainty may increase volatility of stock prices and an estimate of the dividend growth rate that is, say, lower than the “true” value tends to increase the dividend yield and capital gain. Simulations of learning effects in a present value model confirm that learning may help to explain excess volatility and predictability of stock returns.

This paper offers an explanation of behavior that puzzled entomologists and economists. Ants, faced with two identical food sources, were observed to concen-trate more on one of these, but after a period they would turn their attention to the other. The same phenomenon has been observed in humans choosing between restaurants. After discussing the nature of foraging and recruitment behavior in ants, a simple model of stochastic recruitment is suggested. This explains the "herding " and "epidemics " described in the literature on financial markets as corresponding to the equilibrium distribution of a stochastic process rather than to switching between multiple equilibria. In a series of experiments entomologists [Deneubourg et al., 1987a; Pasteels et al., 1987a] observed that ants in an apparently symmetric situation behaved, collectively, in an asymmetric way. When faced with two identical food sources, the ants exploited one more intensively than the other. Furthermore, from time to time they switched their attention to the source that they had previ-