Social and Behavioral Sciences Commons^™

Fiscal Consolidation And Expenditure Arrears: Evidence From Local Governments Investments, Paolo Chiades, Luciano Greco, Vanni Mengotto, Luigi Moretti, Paola Valbonesi

Paola Valbonesi

In this paper, we investigate how tightening fiscal constraints (e.g., through intergovernmental transfer cuts) can lead local governments to postpone investment payments. We first provide a simple model showing how local governments can use arrears to relax their short-run financial constraints. We then empirically assess our theoretical prediction using information from accounting and financial reports from all Italian municipalities for the period 2003-2010. Exploiting the long-lasting effect of the 1979 structural reform of Italian local public finance, we employ an instrumental variable approach to face endogeneity concerns. We find robust empirical evidence that the tighter the local government's fiscal and …

What Role Can An International Financial Centre’S Law Play In The Development Of A Sunrise Industry? The Case Of Hong Kong And Solar Powered Investments, Bryane Michael

Bryane Michael (bryane.michael@stcatz.ox.ac.uk)

How can international financial centres like Hong Kong increase assets under management – and thus their size and ranking? Most policymakers and their advisors wrongly answer this question by focusing on financial institutions, and the law that governs them. Instead, policymakers need to start by looking at actual markets. What new tastes and technologies need funding? How can such funding fit into already existing geographies of production, distribution and finance? In this paper, we show how a focus on funding sunrise industries can help increase assets under management for the financial institutions operating in an international financial centre like Hong …

The Cost Of Antitrust Law To Malaysia’S Financial Services Sector, Bryane Michael, Mark Williams, Susila Munisamy

Bryane Michael (bryane.michael@stcatz.ox.ac.uk)

Judging by only economic incentives, Malaysian financial institutions (particularly banks) should completely ignore the Competition Act. The data show that Malaysian banks probably benefit from anticompetitive behaviour. Political and family connections likely facilitate such behaviour. Given that the Malaysian Competition Commission will likely lack the resources to investigate and sanction anti-competitive behaviour in Malaysia’s banking industry – the banks’ best response to the Act probably consists of ignoring it. Maximum fines of 10 million ringgit and revenue-tied penalties of only 10% of worldwide revenue mean that banks still have strong incentives to engage in anticompetitive behaviour and to pay any …

Competition And Investment - A Unified Approach, Armin Schmutzler

Armin Schmutzler

Using a simple but general two-stage framework, this paper identifies the circumstances under which increasing competition leads to more cost-reducing investments. The framework can, for instance, capture increasing substitutability for different types of oligopoly models or changes from Cournot to Bertrand competition. The paper identifies four transmission mechanisms by which competition affects investment. For a firm with lower initial marginal costs (higher efficiency), a positive effect of competition on investment is more likely. Positive spillovers support a negative effect of competition on investment. The relation between competition and Investment is not affected in an unambiguous way by the level of …

Does Financial Market Development Explain (Or At Least Predict) The Demand For Wealth Management And Private Banking Services In Developing Markets?, Bryane Michael, Christopher Hartwell, Gary Ho

Bryane Michael (bryane.michael@stcatz.ox.ac.uk)

How should wealth managers and private bankers find and serve the wealthy – particularly in developing countries? Several banks and consulting firms provide market sizing estimates for the number of high net worth and ultra-high net worth individuals. However, it is still an open question whether financial management services actually create wealth (or increase the number of wealthy persons). How can financial advisors know if, on a macro-level, their service offerings grow their collective assets under management and increase their prospect numbers? In this paper, we find evidence that advanced wealth management and private banking services might help grow a …

The Option To Wait In Collective Decisions, Matthias Messner, Mattias K. Polborn

Mattias K Polborn

We analyze a model in which voters learn over time their preferences regarding an irreversible social decision. Voters can either implement the project in the first period, or they can postpone the decision to the second period. We analyze the effects of different majority rules. We show that individual first period voting behavior may become ``less conservative'' under supermajority rules, and that it is even possible that a project is implemented in the first period under a supermajority rule that would not be implemented under simple majority rule. We characterize the optimal majority rule, which is a supermajority rule. We …

The Middle Eastern Wealth Management Industry: Boon Or Bust?, Bryane Michael

Bryane Michael (bryane.michael@stcatz.ox.ac.uk)

The wealth management industry in the Middle East and North Africa (MENA) represents a roughly $800 billion opportunity. Yet, tapping this opportunity will require new strategies by the wirehouses looking to penetrate into this market. In this paper, we argue that Middle-Eastern policymakers and bankers will need to develop an indigenous wealth management industry which keeps the super-wealthy’s investments at home. Developing a local national wealth management industry requires letting in foreign competition, changing banking and securities laws, and growing local companies whose share are worth buying. We show why Turkey has succeeded in growing a nationally and internationally competitive …

The Economics Of Horizontal Government Cooperation (Working Paper), Matthew R. Dalsanto Ph.D.

Matthew R. DalSanto, Ph.D.

This paper analyzes the ability of intrastate and interstate cooperative agreements to either minimize or capitalize on interjurisdictional externalities. These agreements are commonly referred to as compacts or joint powers agreements (intrastate compacts). The compact mechanism allows regional governments to enter into contractual agreements with one another to coordinate policy choices and to engage in cooperative endeavors. Given the inter-jurisdictional nature of the issues that affect horizontally situated governments, this mechanism is a powerful tool to achieve welfare-enhancing outcomes for citizens.

A review of the legal case law surrounding compacts is conducted to analyze the legal properties from an economic …

Is There A U-Shaped Relation Between Competition And Investment?, Armin Schmutzler, Dario Sacco

Armin Schmutzler

We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. With competition inversely parameterized by the extent of product differentiation, investment in the subgame-perfect equilibrium is typically minimal for intermediate levels of competition. Laboratory experiments partly confirm the U-shape in a reduced one-stage version of the game. In the two-stage version, there is no evidence for positive effects of moving from intermediate to intense competition.

The Government Shareholder: Regulating Public Ownership Of Private Enterprise, Benjamin A. Templin

Benjamin A. Templin

During the subprime financial crisis of 2007-2009, the U.S. transformed its policies from a focus on privatization and deregulation to one where the government plays an active role as a market participant. By the end of the 2009 fiscal year, the U.S. government became one of the largest shareholders in the world owning a portfolio of investments valued at $959 billion. Some pundits condemned the investments as socialism. The sudden increase in the government portfolio is better understood as a Keynesian response to market failure rather than a change in the political economy. However, the dramatic increase in the government …

Is Competition Good For Innovation? A Simple Approach To An Unresolved Question, Armin Schmutzler

Armin Schmutzler

The relation between the intensity of competition and R&D investmenthas received a lot of attention, both in the theoretical and in the empirical literature. Nevertheless, no consensus on the sign of the effect of competition on innovation has emerged. This survey of the literature identifies sources of confusion in the theoretical debate. My discussion is mainly based on a unified model that simplifies the comparison of different results. This model is also applied to show which factors work in favor of a positive relation between competition and innovation.

Effects Of Investment On Macroeconomic Variables In The Sudanese Economy, Professor Issam A.W. Mohamed

Professor Issam A.W. Mohamed

Most developing and underdeveloped countries beside Sudan suffer from the low levels of income in addition to the low savings that are result from the lack of sophisticated savings channels. Hence, the investment depends on the individual's abilities on self savings, where the investment is considered as major motivating vehicle for economic activity due to its direct correlation with the capital accumulation process that increases the productivity capacity for the national economy and creating job opportunities and achieving economic development. Subsequently, the importance of the investment comes from effective role that can be practiced on the national product. The present …

Foreign Under-Investment In Us Securities And The Role Of Relational Capital, Bryane Michael

Bryane Michael (bryane.michael@stcatz.ox.ac.uk)

Over 70 academic papers attempt to explain why foreigners invest in US securities. All ignore the vital role of the US broker-dealer. Macroeconomic factors like a trade balance or corporate governance may guide foreign investors toward certain markets. But US broker-dealers provide information to foreign investors and execute the actual trades. We hypothesize that particular foreign investors under-invest in US securities because of a lack of relational capital with US broker-dealers. We find that broker-dealer marketing intensity in foreign markets partly explains foreigners’ decisions to invest in US securities. We also estimate “pent-up” demand for US securities in developing countries …

Assessing The Viability Of Investment In Sudan (1979-2008), Professor Issam A.W. Mohamed

Professor Issam A.W. Mohamed

Most developing and underdeveloped countries beside Sudan suffer from low levels of income in addition to the low savings that are result from the lack of public savings channels. Hence, investments depend on the individuals' abilities on savings where they are major motivating vehicle for economic activity due to its direct correlation with capital accumulation process that increases the productive capacity for the national economy and help to create job opportunities and achieving economic development. Subsequently, the importance of the investment comes from the effective role that can be practiced on the national product. Currently, Sudan endures severe economic crisis …

Assessment Of Capital Returns And Economics Of Investment In Khartoum Stock Exchange Market, Professor Issam A.W. Mohamed

Professor Issam A.W. Mohamed

Financial markets in a country are parts of modern economic systems and have definite impacts of its economic performance. However, in an underdeveloped economic structure there can be other targets o hidden activities for them. Such assumptions are provoked under totalitarian economic systems that impose cartel monopolies in a autocratic compradorism that own most of the companies and their stocks. The institutional structure of the prevailing economic system avails negative cost/benefits dealings to continue unaffected as the main profits have to come from other resources, e.g., money laundry. The private sector has to be monopolized in order to sustain the …

Assessment Of Capital Returns And Economics Of Investment In Khartoum Stock Exchange Market, Professor Issam A.W. Mohamed

Professor Issam A.W. Mohamed

Financial markets in a country are parts of modern economic systems and have definite impacts of its economic performance. However, in an underdeveloped economic structure there can be other targets o hidden activities for them. Such assumptions are provoked under totalitarian economic systems that impose cartel monopolies in a autocratic compradorism that own most of the companies and their stocks. The institutional structure of the prevailing economic system avails negative cost/benefits dealings to continue unaffected as the main profits have to come from other resources, e.g., money laundry. The private sector has to be monopolized in order to sustain the …

Exchanging Development For Market Access? Deep Integration And Industrial Policy Under Multilateral And Regional-Bilateral Trade Agreements, Kenneth C. Shadlen

Ken Shadlen

This paper analyzes the developmental trade-offs involved in multilateral versus regional-bilateral strategies of integration into the international economy. I contrast the regulations that guide policy in the areas of trade, investment, and intellectual property in the World Trade Organization (WTO) and in regional-bilateral agreements between the US and developing countries. Both strategies of integration feature similar trade-offs, in that developing countries gain increased market access and opportunities for specialization in exchange for diminished space for use of industrial policy instruments to create new productive capacities. However, the trade-offs are intensified in the case of regional-bilateral agreements: countries receive more market …

Investment And Market Dominance, Susan Athey, Armin Schmutzler

Armin Schmutzler

This paper analyzes a model of oligopolistic competition with ongoing investment. Special cases include incremental investment, patent races, learning-by-doing, and network externalities. We investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments. To this end, we derive a new comparative statics result for general games with strategic substitutes, which yields the desired conditions for our investment game. Finally, we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards, or in dynamic games when firms are sufficiently patient.

Risk-Aversion And The Investment-Uncertainty Relationship: A Comment, Enrico Saltari, Davide Ticchi

Davide Ticchi

This paper shows that the solution of Nakamura’s [Journal of Economic Behavior and Organization 38 (1999) 357] model is incorrect. We propose an alternative framework that allows us to obtain closed form results on the investment-uncertainty relationship.