ABSTRACT In legal systems with expensive or ineffective contract enforcement, it is difficult to induce lenders to enforce debt contracts. If lenders do not enforce, borrowers will have incentives to misbehave. Lenders have incentives to enforce given bad news when debt is short‐term and subject to runs caused by externalities across lenders. Lenders will not undo these externalities by negotiation. The required number of lenders increases with enforcement costs. A very high enforcement cost can exceed the ex ante incentive benefit of enforcement. Removing lenders' right to immediately enforce their debt with a “bail‐in” can improve the ex ante incentives of borrowers.

this paper, we study the use of these intervals as CIs for the partially identified parameter f(P,#). Our most basic finding is Lemma 2.1: Lemma 2.1 Let CN0 0, CN1 0, # #, and P #P

From 1996 to 1998, listed companies in China were required to achieve a minimum return on equity (ROE) of 10 percent in each of the previous three years before they could apply for permission to issue additional shares. As a result of this rule, there was a heavy concentration of ROEs in the area just above 10 percent. We show that the Chinese regulators appear to have scrutinized firms using excess amounts of nonoperating income to reach the 10 percent hurdle. In addition, their ability to do so seems to have improved over time, which allows them to be better able to identify firms that subsequently performed better. However, many firms were still able to gain rights issue approval through excess nonoperating income. We show that these firms subsequently underperformed other approved firms that did not use the same practice, indicating that the Chinese regulators' objective of guiding capital resources toward the well-performing sectors is partially compromised by earnings management.

This paper reports the results of experiments designed to examine whether investor selection of auditors enhances auditor independence. The experimental design enables us to explore the effect on independence of different institutional rules as to who hires and fires auditors and to directly measure independence violations. The results suggest that transferring the power to hire and fire the auditor from managers to investors significantly decreases the proportion of independence violations. Additional analysis suggests that a reduction in independence violations increases the overall economic surplus generated in the markets examined.

In this paper, we study the effectiveness of monetary policy in a severe recession and de?ation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this quantitative comparison in an empirical macroeconometric model of Japan, the United States and the euro area. Furthermore, we use a stylized micro-founded two-country model to check our qualitative ?ndings. We ?nd that both proposals succeed in generating in?ationary expectations and work almost equally well under full credibility of monetary policy. However, price-level targeting may be less effective under imperfect credibility, because the announced price-level target path is not directly observable. JEL Classification: E31, E52, E58, E61

The types of knowledge, skills, and proficiencies that should be imparted to students in graduate economics programs are a matter of long-standing controversy. A 1953 American Economic Association (AEA) report cataloged major shortcomings in graduate economic education and recommended changes to enhance the quality and effectiveness of economics Ph.D. programs (Howard R. Bowen, 1953). By the 1980’s, the perception grew that economics Ph.D. programs devoted excessive attention to theoretical work at the expense of real-world application (Wassily Leontief, 1982). This development triggered David Colander and Arjo Klamer (1987) to conduct an independent study based on interviews with graduate students at elite Ph.D. programs. Their study reinforced the views of many, including leaders in the AEA, the National Science Foundation, and several private foundations, that something was amiss. In 1988, the AEA established the Commission on Graduate Education in Economics (COGEE) to undertake a thorough study of graduate training. The Commission’s major concern, based on extensive surveys and interviews of graduate students, faculty, and employers, was that graduate education in economics had removed itself from real-world economic problems (Anne O. Krueger et al., 1991). The COGEE study is distinguished by its attempt to determine the emphasis given to cultivating a set of economic proficiencies in graduate school and the importance of an array of skills for success in graduate school and later on the job (Hansen, 1991). The proficiencies included in the COGEE study were: providing rigorous training in economic theory, providing training in econometrics and measurement, applying theory to real-world problems, using economic theory in empirical applications, and conducting independent economic research. For this study, we added three proficiencies to the COGEE list: understanding economic institutions and history and understanding the history of economic ideas, to capture concerns about curriculum changes that eliminated or scaled back training in these two fields, and developing teaching skills, to reflect recent emphasis on improving the quality of instruction (William E. Becker, 2003). The skills included in the COGEE study were: critical judgment (analyzing ideas, reviewing literature, formulating pertinent comments), analytics (understanding and solving problems, making and analyzing logical arguments), application (seeing practical implications of abstract ideas, analyzing real-world policies and processes), mathematics (constructing and analyzing proofs, manipulating mathematical abstractions), computation (effectively and quickly finding and manipulating relevant data, estimating economic relationships using statistical software), communication (speaking and writing effectively, quickly understanding spoken and written ideas of others, explaining ideas clearly), and creativity (conceiving interesting questions, finding new means of analysis). We added instruction (being an effective classroom teacher) to the skills list for the same reason mentioned above.

This study investigates the aggregate stock market impact of sovereign rating changes. Consistent with evidence pertaining to company credit rating changes, we report that rating downgrades have a negative wealth impact on market returns. Moreover, we find that a downgrade impacts negatively on both the domestic stock market and the dollar value of the country’s currency. Interestingly, of the four credit rating agencies examined, only Standard & Poors and Fitch rating downgrades result in significant market falls. Finally, we can find no evidence that emerging markets are particularly sensitive to rating changes or that markets react more severely to multiple rating changes.

As the dominant provider of payments services, the efficiency with which the Federal Reserve provides such services is an important public policy issue. This paper examines the productivity of Federal Reserve check-processing offices during 1980–1999 using non-parametric estimation methods and newly developed methods for non-parametric inference and hypothesis testing. The results support prior studies that found little initial improvement in the Fed's efficiency with the imposition of pricing for Federal Reserve services in 1982. However, we find that median productivity improved substantially during the 1990s, and the dispersion of productivity across Fed offices declined.

This paper provides one of the few successful demonstrations of the efficiency of certain types of restrictions in the context of a joint venture. The joint venture we examine is the National Hockey League (NHL) in the 1980s, which was then composed of 21 separately owned teams. (It now has 30 teams.) The restriction we analyze is the NHL rule on franchise relocation. Before one can fully understand the effect of the restriction, one must understand the theory of how sports leagues operate and whether sports leagues have any market power that can be enhanced by such a restriction. After providing such a theory, we empirically test the effect of the NHL restriction on franchise relocation. Aside from data availability, the advantage of our time period is that television was then an unimportant source of revenue for the NHL. Thus we are able to isolate a particular externality arising from how the NHL finances teams.

ABSTRACT We conduct an empirical analysis of forward prices in the PJM electricity market using a high‐frequency data set of hourly spot and day‐ahead forward prices. We find that there are significant risk premia in electricity forward prices. These premia vary systematically throughout the day and are directly related to economic risk factors, such as the volatility of unexpected changes in demand, spot prices, and total revenues. These results support the hypothesis that electricity forward prices in the Pennsylvania, New Jersey, and Maryland market are determined rationally by risk‐averse economic agents.