WORKING PAPERS 2008

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2008-44

Balanced-Budget Rule, distortionary taxes and Aggregate Instability: A Comment

Aurélien Saïdi

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Abstract
It has been shown that under perfect competition and constant returns-to-scale, a one-sector growth model may exhibit local indeterminacy when income tax rates are endogenously determined by a balanced-budget rule while government expendi- tures are fixed. This paper shows that the associated aggregate instability does not ensue from the local indeterminacy of a specific stationary equilibrium but from the multiplicity of the stationary equilibria and persists under local determinacy of all of them. We provide a global analysis of the Schmitt-Grohe and Uribe model [1997] and study specific cases that were not investigated in the original paper, when aggregate instability is inherited from the coexistence of two saddle-path equilibria on one hand and from the connection of the two steady states on the other hand.
Mot(s) clé(s)
Balanced-budget rule, Increasing returns, Indeterminacy, Saddle-sink connection
2008-43

Rural finance reform in China

Chen Xiang Liu

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Abstract
China's current financial structure does not give sufficient support to rural areas, leaving many farmers and rural businesses without the capital they need to develop. Rural finance is the weakest point in the country's entire financial system. Low profits for rural financial institutions, a lack of rural financial products and services and the difficulty many farmers experience in securing loans are the main problems plaguing the rural financial system. Accelerating rural financial reform and making it easier for rural people to access capital are key parts of the country's effort to reform its overall financial system, to resolve "Three Rural Issues (San Nong)(1)" (Agriculture, Countryside, Farmers), and to create "new socialist countryside". The main objectives of this paper are to (i) examine the current status of rural finance's demand and supply and identify existing issues and constraints; (ii) evaluate ongoing rural financial reform and explore suitable roadmaps to develop a well-functioning and sustainable rural finance system, which would address the diverse needs of "new socialist countryside" construction.
(1) San nong literally means three "nong". The word "nong" in Chinese is combined with other words to form phrases such as nongye (agriculture), nongcun (villages or countryside), and nongmin (farmers or peasants).
Mot(s) clé(s)
banks, microcredit institutions, agricultural insurance, informal finance
2008-42

Horizontal market concentration: Theoretical insights from the spatial models

Andreea Cosnita-Langlais

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Abstract
This paper aims to further advance the study of horizontal mergers by critically reviewing the theory on spatial models that may be used for the analysis of horizontal market concentration. We examine the incentives conveyed by locations for undertaking merger and merger-related strategies, as well as the impact of merger on strategic location choices. Thereby this paper highlights the two-way relationship between market concentration behavior and firm location.
Mot(s) clé(s)
geographic and product space, strategic location, horizontal market concentration, merger control
2008-41

Les spams boursiers : Etude empirique sur le marché des penny stocks

Taoufik Bouraoui

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Abstract
This survey appears in extension of a previous exploratory survey (Bouraoui, 2008) dedicated to the impact of stock spams on volumes. The interest of the present research is to study the impact on stock prices while taking into account the evolution of volatility over time through a GARCH (1,1) modelling. We use the methodology of event studies on a sample of hundred ten firms of penny stocks over the period from February 2006 to June 2008. Our results show that sending stock spams has generated significant variations and positive returns during the first three days after the event.
Mot(s) clé(s)
stock spam, penny stock, event study, GARCH
2008-40

On the Ambiguous Effects of Repression

Eric Langlais

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Abstract
The purpose of this note is to investigate the optimal enforcement of the penal code when criminals invest in a specific class of avoidance activities termed dissembling activities (i.e. self-protection efforts undertaken by criminals to hedge their illegal gains in case of detection and arrestation). We show that the penal law may have two different screening effects: it may separate the population of potential criminals between those who commit the crime and those who do not, and in the former group, between those who undertake dissembling efforts and those who do not. Then, we show that it is never optimal to use less than the maximal fine in contrast to what may occur with avoidance detection (i.e. efforts undertaken in order to reduce the probability of arrestation: MALIK [1990]); and furthermore, that the optimal penal code may imply overdeterrence. Finally, we show that any reform of the penal code has ambiguous effects when criminals undertake dissembling activities which are a by-product of illegal activities, since increasing the maximum possible fine may increase or decrease the number of crimes committed and may increase or decrease the proportion of illegal gains hedged by criminals.
Mot(s) clé(s)
deterrence, dissembling activities, optimal enforcement of law
2008-39

Politique Industrielle et PME : Nouvelle Politique et Nouveaux Outils ?

Denis Carré, Nadine Levratto

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Abstract
After having sought to reduce production costs, economic policies dedicated to SMEs tend to promote cooperation and to become more and more systemic. These sorts of policies refer to different underlying models in which firms and technology play different roles. This paper aims at studying the evolution observed in the implementation of SMEs policies. It rests upon a typology built thanks a twofold opposition. One concerns the target of the public action which can be either individual or collective, whereas the second one refers to the impact supposed to be mechanic and structural on one hand or determined by the reaction that takes place within the firm or the group of firms on the other. We examine thirty years of public action referring to this framework what will lead us to insist mainly upon the new systemic policies that promotes spillover, clusters and other poles of competitiveness.
Putting some emphasis on the degree and the nature of the commitment of any individual firm in these networks, we conclude shedding some light on the debated questions surrounding the evaluation of public policies and the best practices to promote.
Mot(s) clé(s)
SME, industrial policy, systemic policy, clusters
2008-38

L'impact des signaux de politique monétaire sur la rentabilité et la volatilité des actions du CAC 40

Aymen Belgacem

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Abstract
In this paper, we investigate the impact of surprises made by scheduled monetary policy announcements on French stock market. Most of empirical studies achieved tends to test this effect on U.S stock market. Taken the French market as a representative European stock markets, we study the effect of both monetary policy signals from the ECB Council and the FOMC on the daily stock returns and volatility by using the standard event study methodology. We show that abnormal returns were observed few days before policy announcements. They coincide with the release of other macroeconomic announcements which produce uncertainty until the monetary policy announcement, that we show trigger a decrease on the volatility and a stabilizing effect.
Mot(s) clé(s)
Monetary policy, Macroeconomic announcements, Event study, GARCH
2008-37

Responsabilité et indépendance du conseil d’administration : Les apports de l’analyse économique

Antoine Rebérioux

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Abstract
Board of directors independence has been a focus for a large series of studies in finance. The overall evidence suggests that independence has no or negative effect on firm performance. Director accountability constitutes a second topic of research, in law and economics. Two distinctive models might be identified. The first one gives primacy to the interests of shareholders, whereas the other advocates enlarged fiduciary duties for directors. We argue that these two issues (independence and accountability) are related. In particular, we show that independence is a strong implication only for the shareholder model of accountability. In turn, the way the poor results of independency are accounted for crucially depends on the way director accountability is analyzed.
Mot(s) clé(s)
corporate governance, board of directors, theory of the firm
2008-36

The governance of intangibles: Rethinking financial reporting and the Board of directors

Yuri Biondi, Antoine Rebérioux

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Abstract
When capital markets are assumed to be (informationally) efficient and the firm a mere collection of marketable resources, corporate governance and accounting are expected to be primarily concerned with making corporate insiders sensitive to external pressure: financial reporting and the board should replicate the market in the context of the firm. In particular, no firm-specific information is required to perform an effective control: independence of board members is the best quality to assure the monitoring of corporate insiders. However, whenever intangibles become significant, firm-specific information becomes as important as market prices to gauge the past and future performance of the business firm. Specific knowledge of the firm is then required to both disclose high-quality information and monitor corporate executives. This argues for the role of improved historical-cost accounting systems coupled with non-independent, proficient board members.
Mot(s) clé(s)
2008-35

Chinese and Indian firms’ entry into Europe: characteristics, impacts and policy implications

Françoise Hay, Christian Milelli

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Abstract
This contribution deals with the rise of direct investment flows from ‘third-world’ to ‘first-world’ countries. To analyze this trend, we chose to focus on China and India due to their high economic growth regime and their rapid pace to embrace the world economy, which place them at the forefront of the surging wave of FDI and multinational companies from emerging economies.
The European Union which is the largest host region worldwide for FDI flows is the target of the paper, and the central point is to better assess the possible effects of the arrival of Chinese and Indian firms on its economy.
The paper is based on firm-level data. After providing understanding on Chinese and Indian FDI on a global scale, we draw from the existing academic literature hypotheses that are tested on findings derived from a proprietary dataset. On the basis of these insights, we identify and discuss the plausible economic impacts of those investments on European economies.
Mot(s) clé(s)
foreign direct investment, European economies, policy implications
2008-34

Social Wealth and Optimal Care

Giuseppe Dari-Mattiacci, Eric Langlais

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Abstract
Many industrial accidents result in losses (material damages or bodily
injury) that cannot be perfectly compensated by a monetary payment, nor
be perfectly insured. Moreover, often injurers control ex ante the magnitude
rather than the probability of accidents. We study the characteristics
of optimal levels of care and distribution of risk under these circumstances.
We then examine whether ordinary liability rules, regulation, insurance,
taxes and subsidies can be used to implement the first-best outcome. Finally,
our results are discuss in the light of fairness considerations (second
best view).
Mot(s) clé(s)
accidents, risk, wealth, care, bodily injury
2008-33

On insurance contract design for low probability events

Eric Langlais

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Abstract
This paper extends the analysis of insurance contracts design to the case of "low probability events", when there is a probability mass on the event "no accident-zero loss". The optimality of the deductible clause is discussed both at the theoretical and empirical levels.
Mot(s) clé(s)
Optimal insurance design, low probability events, insurance coverage for catastrophic risks
2008-32

Trial and settlement negotiations between asymmetrically skilled parties

Bertrand Chopard, Thomas Cortade, Eric Langlais

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Abstract
Parties engaged in a litigation generally enter the discovery process with different informations
regarding their case and/or an unequal endowment in terms of skill and ability to
produce evidence and predict the outcome of a trial. Hence, they have to bear different legal
costs to assess the (equilibrium) plaintiff’s win rate. The paper analyses pretrial negotiations
and revisits the selection hypothesis in the case where these legal expenditures are private
information. This assumption is consistent with empirical evidence (Osborne, 1999). Two
alternative situations are investigated, depending on whether there exists a unilateral or a
bilateral informational asymmetry. Our general result is that efficient pretrial negotiations select
cases with the smallest legal expenditures as those going to trial, while cases with largest
costs prefer to settle. Under the one-sided asymmetric information assumption, we find that
the American rule yields more trials and higher aggregate legal expenditures than the French
and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides
less clear-cut predictions regarding the influence of fee-shifting.
Mot(s) clé(s)
litigation, unilateral and bilateral asymmetric information, legal expenditures
2008-31

Le "risque judiciaire" et les licenciements en France: le point de vue de l’économie du risque

Eric Langlais

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Abstract
Le droit du licenciement expose-t-il les entreprises françaises à un "risque judiciaire"? L’article
discute les arguments des différentes thèses (Blanchard et Tirole (2003), Cahuc et Kramarz (2004),
Munoz-Perez et Serverin (2005)) en interprétant les informations empiriques disponibles relatives
aux décisions des salariés (acceptation/contestation) et des entreprises (choix du motif de licenciement)
à partir des instruments de l’économie du risque. Nous montrons que l’analyse des données
relatives aux recours devant les Prud’Hommes suggère de la part des salariés une attitude
nettement moins riscophobe (voire clairement riscophile) que celle habituellement révélée sur les
marchés du risque. Par ailleurs, nous montrons que le licenciement pour motif personnel n’apparait
comme systématiquement préférable au motif économique que dans la mesure où les entreprises sont
supposées riscophobes. A l’inverse, la comparaison du coût anticipé d’un licenciement entre le motif
économique et le motif personnel apparait très sensible aux hypothèses concernant l’ancienneté du
salarié, le taux de rejet du salarié devant les Prud’Hommes, ou le coût indirect du licenciement.
Mot(s) clé(s)
licenciements, Prud’Hommes, risque judiciaire
2008-30

Asymmetric information, self-serving bias and the pretrial negotiation impasse

Eric Langlais

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Abstract
There is evidence that asymmetric information does exist between litigants: not in a way supporting Bebchuk (1984)’s assumption that defendants’ degree of fault is private information, but more likely as a result of parties’ predictive capacity about the outcome at trial (Osborne, 1999). In this paper, we investigate the incidence of one component of this asymmetric predictive power, which has been examplified in experimental economics. We assume that litigants assess their priors on the plaintiff’s prevailing rate at trial in a way consistent with the self-serving bias, which is the source of the asymmetric information. We compare the predictions of this model regarding the influence of individual priors with those in the literature. Finally, we analyse the influence of another reason for probability distorsion, i.e. risk aversion in the sense of Yaari (1987).
Mot(s) clé(s)
litigation, pretrial bargaining, self-serving bias, risk aversion
2008-29

Market Price Mechanisms and Stackelberg General Equilibria

Ludovic A. Julien, Fabrice Tricou

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Abstract
This paper considers Stackelberg competition in a general equilibrium framework with production. The working of market power and the confi...gurations of strategic interactions are complexi...ed by the presence of an active leader. Two market price mechanisms are here studied: one is associated with the Stackelberg-Walras equilibrium, the other is linked to the Stackelberg-Cournot equilibrium. In the context of an exchange economy with a production sector, several results are obtained about equilibria mergings and about welfare comparisons.
Mot(s) clé(s)
2008-28

The Spaceship Problem Re-Examined

Pierre-André Jouvet, Pierre Pestieau, Grégory Ponthière

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Abstract
This paper re-examines the spaceship problem, i.e. the design of the optimal population under the environmental constraint of a fixed area available for life, by focusing on the dilemma between adding new beings and extending the life of existing beings. For that purpose, we characterize, under the assumption that individual lifetime welfare depends positively on the length of life but negatively on population density, the preference ordering of a utilitarian planner over lifetime-equal histories, i.e. pairs of initial population size and survival conditions yielding an equal number of life periods. It is shown that a Benthamite planner is not necessarily indifferent between lifetime-equal histories, and that a Millian utilitarian planner prefers lifetime-equal histories yielding the smallest population with the longest life. The solutions under Critical-level and Number-dampened utilitarianisms are also shown to differ significantly.
Mot(s) clé(s)
environmental congestion, fertility, longevity, population ethics, utilitarianism
2008-27

A Reappraisal of the Allocation Puzzle through the Portfolio Approach

Kenza Benhima

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Abstract
The neoclassical growth model predicts that emerging countries with higher TFP growth should receive larger capital inflows. Gourinchas and Jeanne (2007) document that, in fact, countries that exhibited higher productivity catch-up received less capital inflows, even though they invested more in their domestic technology. This is the allocation puzzle. I show that introducing investment risk in the same neoclassical framework qualifies the predictions in terms of capital flows: countries with higher TFP growth invest more in their own production but they have to hold external bonds for precautionary savings motives. Contrary to the riskless approach, the portfolio approach predicts accurately the allocation of capital flows across developing countries.
Mot(s) clé(s)
Growth accounting, Capital flows, Investment risk, Financial globalization, Portfolio choice.
2008-26

Financial Development, Technological Change in Emerging Countries and Global Imbalances

Kenza Benhima

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Abstract
The paper shows that in a general equilibrium model with two countries, characterized
by different levels of financial development, and two technologies, one more productive and
more financially demanding than the other, the following stylized facts can be replicated:
1) the persistent US current account deficits since the beginning of the 90’s; 2) growth of
output per worker in developing countries in relative terms with the US during the same
period; 3) relative capital accumulation and 4) TFP growth in these countries, also relative
to the US. The more productive technology takes more time to implement and is subject to
liquidity shocks, while the less productive one, along with external bond assets, can be used
as a hoard to finance those liquidity shocks. As a result, after financial globalization, if the
emerging economy is capital scarce and if its financial market is sufficiently incomplete, it
experiences an increase in net foreign assets that coincides with a fall in the less productive
investment and a rise in the more productive one. Convergence towards the steady state
implies then both a better allocation of capital that generates endogenous aggregate TFP
gains and a rise in aggregate investment that translates into higher growth.
Mot(s) clé(s)
Growth, Capital flows, Credit constraints, financial globalization, technological change.
2008-25

Bankable Pollution Permits under Uncertainty and Optimal Risk Management Rules: Theory and Empirical Evidence

Julien Chevallier, Johanna Etner, Pierre-André Jouvet

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Abstract
The well known economic advantage of tradable permits over command
and control obviously vanishes if firms do not trade because of regulatory
uncertainty. In fact, uncertainty about political decision changes in the permits
program could make firms reluctant to participate in tradable permits
markets. Based on a two-period partial equilibrium framework, our results
suggest that the banking provisions may be used as a tool of policy risk control
and that it is possible to define optimal risk sharing rules in order to
respond to political decision changes. Finally, our empirical discussion attempts
to put the theoretical results concerning firms' banking and pooling
behaviors in the context of the recent development of the European Union
Emisions Trading scheme (EU ETS).
Mot(s) clé(s)
Firm behavior; Tradable permits; Policy risk; EU ETS
2008-24

The Dynamics of Intensive Cultivation

Christian Bidard

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Abstract
An increase in the demand for agricultural goods leads to the use of more intensive cultivation methods. Though Ricardo sees no difficulties in the intensification process, their existence is revealed by the possible occurrence of multiple equilibria. A general theory of intensive rent is based on a formal parallel with single-product systems without land.
Mot(s) clé(s)
intensive cultivation, land, rent, Ricardo
2008-23

Northern Rock: The anatomy of a crisis – the prudential lessons

Sonia Ondo-Ndong, Laurence Scialom

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Abstract
This paper attempts to analyse the main characteristics of the Northern Rock crisis and the responses of the Bank of England as lender of last resort. On the basis of the diagnosis about the causes and the handling of this banking crisis we detect the shortcomings prevailing in the UK prudential device. We therefore try to draw the prudential lessons of this experience. As we cannot claim to present an exhaustive picture of the crisis's implications from a prudential point of view, we chose to focus instead on the points with practical significance far beyond the UK's case.
Mot(s) clé(s)
bank bankruptcy, deposit insurance, liquidity regulation
2008-22

Désintermédiation financière ou diversification internationale ? Le cas des pays développés.

Michel Boutillier, Jean-Charles Bricongne

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Abstract
La mesure d'un taux d'intermédiation est un bon moyen de caractériser de manière synthétique l'importance du rôle des
intermédiaires financiers dans l'économie et leur positionnement face à l'essor de la finance de marché. Ce travail a pour
objet d'en présenter et d'en discuter les résultats pour la France, en les replaçant dans une perspective chronologique et en y
ajoutant des éléments de comparaison internationale, autorisant notamment une appréciation de la convergence des
systèmes financiers en Europe et dans le monde. Ces résultats témoignent d'un recul assez sensible du taux d'intermédiation
financière en France sur la période étudiée, marquée par un fort développement des marchés de capitaux et un recours
croissant des agents non financiers résidents aux financements désintermédiés.
Pour significative qu'elle puisse paraître, cette évolution mérite néanmoins d'être relativisée pour plusieurs raisons. D'abord,
parce qu'elle découle en fait largement du mouvement d'internationalisation des opérations de financement et de placement
des institutions financières résidentes comme des financements de marché reçus par les agents non financiers. Ainsi, une
part de plus en plus élevée de l'actif des institutions financières résidentes est détenue sur des non-résidents et une part
croissante des financements reçus par les résidents provient du << Reste du monde >>, et notamment des institutions
financières non résidentes. Ensuite, parce que l'analyse de la formation des revenus des intermédiaires financiers confirme la
transformation de leurs modes de tarification et le redéploiement de leurs activités. Ces évolutions structurelles témoignent
plus de profonds changements du rôle de ces acteurs dans l'économie nationale que de son affaiblissement. Enfin, parce que
le choix qui se présente aux agents non financiers ne se résume pas en une simple alternative entre passer par un
intermédiaire ou s'adresser directement au marché, si l'on en juge notamment par le rôle clé que les institutions financières
continuent de remplir dans le lancement et le placement des émissions de titres de leur clientèle d'entreprises sur les marchés
de capitaux.
Le présent article s'attachera, dans un premier temps, à analyser l'évolution du taux d'intermédiation financière en France,
globalement et par type de bénéficiaire. Des comparaisons internationales fourniront des indications sur le caractère
potentiellement durable des évolutions observées ces dernières années. L'observation sur longue période des taux
d'intermédiation financière au sens strict et au sens large met en évidence le rôle croissant du Reste du monde, avec comme
contrepartie la baisse de la part des financements apportés par les IF résidentes à l'économie nationale. Réciproquement, les
IF résidentes ont développé leurs opérations avec le Reste du monde, diversifiant ainsi leur clientèle. Une analyse
complémentaire des revenus d'intermédiation permet de mesurer l'évolution des rémunérations perçues par les intermédiaires
financiers résidents et d'appréhender les adaptations qui leur ont permis de maintenir leurs revenus. Des éléments de
comparaison avec les revenus versés au Reste du monde sont également proposés, permettant d'apprécier les écarts de coût
entre les services rendus aux agents non financiers résidents par les apporteurs de capitaux non-résidents et par les IF
résidentes. L'article revient enfin sur l'intérêt d'un élargissement du concept d'intermédiation afin de dépasser le premier
constat d'un déclin apparent de l'intermédiation financière.
Mot(s) clé(s)
Taux d’intermédiation financière, agrégats d’intermédiation, marchés de capitaux, crédits immobiliers, intermédiaires financiers, intégration financière internationale, diversification géographique des placements, tarification bancaire
2008-21

Permanence and innovation in central banking policy for financial stability

Michel Aglietta, Laurence Scialom

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Abstract
In the first part of this paperer, we emphasize the adaptability and continuity of the lender-of-last-resort doctrine beyond the diversity of financial structures from the 19th century to the present day.. The second part deals with the global credit crisis and the analysis of the central banks' innovative practices during the 2007-2008 financial crisis. We highlight that the lender of last resort's role is not confined to providing emergency liquidity. It aims to provide orderly deleveraging in the financial system in order to preserve the financial intermediation process. Our conclusion underlines that the crisis management has become global and strategic. It opens the way to a major regulatory and supervisory reform.
Mot(s) clé(s)
lender of last resort, central banking, liquidity crisis
2008-20

The regulation of hedge funds under the prism of the financial crisis

Michel Aglietta, Sandra Rigot

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Abstract
This paper deals with two issues. On the one hand, it shows that structural changes in financial markets and in the hedge funds industry make the "light-touch" arguments for regulating hedge funds no longer relevant. On the other hand, pleas for stronger regulation of hedge funds are getting more attention. In the first part of the paper the huge expansion of the industry is outlined and the state of current regulation is highlighted. In the second part an in-depth analysis of risks associated with hedge funds is carried out. It is shown that systemic risk can arise from leverage and from concentration of exposures amongst hedge funds. The part played by hedge funds in the spread of the crisis of structured credit is portrayed. In the third section, the recommendations of professional organisations, regulatory authorities and international institutions are summed up within the framework of risk mapping. This oversight shows the ways of reform: the need of direct regulation, the enhancement of indirect regulation and the overhaul of securitization. The prospective pattern of regulation encompasses macro and micro issues, and impinges upon factors of demand and supply. It emphasizes the enhanced role of public regulators and displays the conditions of an effective market discipline performed by long run institutional investors.
Mot(s) clé(s)
financial leverage, prime brokers, securitization, extreme risks, systemic risk, opacity, long run institutional investors, due diligence, monitoring, disclosure, market discipline, public regulator
2008-19

Une décomposition de l'effet de la liberté économique sur la croissance dans les pays en développement

Rami Abdelkafi, Hatem Derbel

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Abstract
The lack of efficiency that characterized the economic policies of developing countries has prompted several economists to recommend a massive disengagement of the state of economic activity. Economic freedom is advanced as an alternative to development strategies more effective. Our work shows that the index of economic freedom hides the importance of its components and mask the importance of state intervention in developing countries. Through the method of Hansen, 2000, we show that for sizes of the State relating to scores above 5,956 (depending on the construction of the index of economic freedom), public investment should have a positive effect on growth.
Mot(s) clé(s)
Etat, pays en développement, liberté économique et croissance
2008-18

Tax Competition and Foreign Direct Investment: assessing the role of market potential and trade costs in a "Footloose Capital" framework

Vincent Delbecque

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Abstract
This paper investigates the impact of the corporate income tax on the geographical distribution of French firms Foreign Direct Investment port- folio across 26 European countries. The empirical assessment is based on Baldwin (1999) new economic geography model in which we focus on the location of firms with respect to level of taxation. In this model, the magnitude of the impact of taxation on location decision partly depends on the market size and the level of trade costs. Indeed, firms may not only seek lower production costs but better market access and market opportunity when investing abroad. Through panel data regressions, we find a negative impact of the corporate income tax rate on Foreign Direct Investment. We also find that trade costs between source and host coun- try increases Foreign Direct Investment. In advanced specifications we show that increasing trade costs reduce the impact of tax level on capital location.
Mot(s) clé(s)
Corporate taxation, Firm-level data, Foreign Direct Investment, Trade Costs
2008-17

Leveraged Buy Out and Tax saving advantage: a double-sided moral hazard model

Ouidad Yousfi

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Abstract
We consider a double moral hazard model with three agents: the entrepreneur, the LBO fund and the bank. The entrepreneur and the LBO fund have to exert efforts in order to improve the productivity of their project; efforts are not observable. We show that the bank's payments decrease with the outcome of the project. When the project is not very risky, the entrepreneur and the LBO fund exert first best efforts and they get equal shares of the project's outcome. When it is highly risky, debt gives high powered incentives to the two agents to provide efforts but it still not sufficient to induce them to provide the first best efforts. However, these efforts are more efficient than those that could be provided if the entrepreneur asks the LBO fund for advice and money. Moreover, when the entrepreneur asks for advice from a consultant and for money from a bank, they get equal shares whether the project is very risky or not. When the project is lowly risky, the identity of the advisor (consultant/ LBO fund) is irrelevant. When it is highly risky, the optimal efforts depend on their impact on the performance of the project.
Mot(s) clé(s)
LBO, double moral hazard, debt, financial capital structure
2008-16

Comment ne pas suivre les autres dans le monde de la gestion d’actifs ?

Sylvain Marsat, Yamina Tadjeddine

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Abstract
The mimetism observed on financial market is often explained by an individual choice. These explanations do not consider social influences of norms, organization and institutions. We propose to analyze the social roots of financial imitation by considering decision done by mutual funds’ managers. Our analysis is based on interviews and mobilized Institutional Theory.
Mot(s) clé(s)
Mimétisme, institutions, contraintes, indice de référence
2008-15

De l'économie d'endettement à l'économie de marchés financiers

Françoise Renversez

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Abstract
Mot(s) clé(s)
2008-14

Does entry improve welfare? A general equilibrium approach to competition policy

Bertrand Crettez, Marie-Cécile Fagart

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Abstract
We consider a simple general equilibrium model with imperfect competition. Firms are price taker in the input market and compete à la Cournot in some or all of the product markets (their technology displays constant returns to scale). We show that an increase in the number of firms does not always improve welfare. We also provide a characterization in terms of mark-up rates of the sectors for which entry is welfare enhancing. Thus, this paper challenges the common idea that mergers with no cost synergy are not desirable for consumers.
Mot(s) clé(s)
Cournot competition, competition policy, general equilibrium and imperfect competition, effciency
2008-13

On the Role of Inequalities in Legal Systems: A Tocquevilian View

Bertrand Crettez, Bruno Deffains

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Abstract
The present paper proposes to interpret the differences in legal systems between common-law and civil-
law nations as arising from the importance given to adjudication in comparison with statute laws. It
focuses on the relative costs of legal change by adjudication (case law development) when compared with
legislation (statutory law development). The main argument is that the public concern with equality is a
major determinant of the relative cost of adjudication in a legal system. We develop a model of the legal
process that illustrates Tocqueville's fundamental intuition with regard to the uniformity of legal rules,
and as a consequence, the relative importance of adjudication and legislation.
Mot(s) clé(s)
Inequality, Law and Economics, Adjudication, Legislation
2008-12

The EU Emissions Trading Scheme : Disentangling the Effects of Industrial Production and CO2 Emissions on Carbon Prices

Emilie Alberola, Julien Chevallier, Benoît Chèze

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Abstract
This article critically examines the impact of industrial production for sectors covered by the EU Emissions Trading Scheme (EU ETS) on emissions allowance spot prices during Phase I (2005-2007). Using sector production indices and CO2 emissions compliance positions defined by a ratio of allowance allocation relative to baseline emissions, we show that the effect of industrial activity on EU carbon price changes shall be analysed in conjunction with production peaks and compliance net short/long positions at the sector level. The results extend previous literature by showing that carbon price changes react not only to energy prices forecast errors and extreme temperatures events, but also to industrial production in three sectors covered by the EU ETS: combustion, paper and iron.
Mot(s) clé(s)
EU ETS, Emissions Trading, Carbon Pricing, CO2 Emissions, Industrial Production
2008-11

L'impact des spams boursiers sur les volumes :Application de la méthodologie des études d’événement

Taoufik Bouraoui

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Abstract
This paper is dedicated to study the impact of the stock spams through the analysis of
the variations of volumes. We use the methodology of the event studies on a sample of
hundred ten firms of penny stock (firms with small size in the American market). Data cover
the period of May 2002 to December 2007.
The results show a meaningful and positive variations of the volumes essentially
observed the first day of the event and to one least degree the following days. The stock
spams resuscitated the activity on the market of penny stock.
Mot(s) clé(s)
stock spam, event studies, penny stock
2008-10

Settlement in Merger Cases: Remedies and Litigation

Bertrand Chopard, Thomas Cortade, Andreea Cosnita-Langlais

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Abstract
This paper performs a pre-trial settlement analysis for the negotiation of asset
divestitures in merger control cases. Taking into account the asymmetric information
between the competition agency and the merging firms concerning the true competition
impact of the merger, we examine the impact on the likelihood of settlement
divestiture and the divestiture amount in equilibrium of various factors, such as the
transfer rate of the merger's cost savings, the severity of the appeal court, as well as
the bargaining power of the merging partners in the sale of the divested assets.
Mot(s) clé(s)
out-of-court settlement, merger control, divestitures, asymmetric information
2008-9

Monopolistic Competition and the Dependent Economy Model

Romain Restout

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Abstract
This paper explores the consequences of introducing a monopolistic competition
in an intertemporal two-sector small open economy model which
produces traded and non traded goods. It is assumed that the non traded
sector is the locus of the imperfectly competition. Our analysis shows that
markup depends on the composition of aggregate non traded demand and
is therefore endogenously determined in the model. Calibrating the model
with OECD parameters, the effects of fiscal and technological shocks are
simulated. Our findings are as follows. First, the model is consistent with
the observed saving-investment correlations found in the data. Second,
unlike the perfectly framework and in accordance with empirical studies,
fiscal shocks cause real appreciation of the relative price of non traded
goods, which in turn enlarges the responses of current account and investment.
Third, the model is consistent with the empirical report that
technological shocks result in current account deficits and investment rises.
Fourth, the strength of the relative price appreciation following sector productivity
differentials, i.e. the Balassa-Samuelson effect, is affected by the
monopolistic competition hypothesis. Assume perfect competition when
it is not, biases upward estimates of the Balassa-Samuelson effect.
Mot(s) clé(s)
Monopolistic Competition, Fiscal Policy, Productivity.
2008-8

Les dynamiques de transmission des taux directeurs sur les taux bancaires en Europe

Raphaël Jeudy

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Abstract
Analyses of the transmission of money market rates to retail interest rates are a way to appreciate some effects of the monetary policy. The main question since Euro is the convergence of this transmission in the Euro zone. The aim of this study is to find likeness in evolutions and dynamics of transmission to confirm or to reject the convergence hypothesis. In this way, estimates of the pass-through have been conducted with rolling regressions between 1990 and 2004 on 11 countries (Belgium, Germany, France, Spain, Italy, Ireland, Portugal, Austria, Netherlands, Finland and Greece) and on several retail interest rates (N2, N3, N4, N5 and N8). This pass-through approach is a way to study transmission's dynamics between interest rates. Finally, we made the same approach with threshold models to underline asymmetric dynamics.
Mot(s) clé(s)
2008-7

Petites et grandes entreprises face à la faillite au XIXème siècle en France : du droit à la pratique

Pierre-Cyrille Hautcoeur, Nadine Levratto

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Abstract
Economic literature studies bankruptcy as a homogenous phenomenon. Insolvency concerns all kind of firms and judgements are made without any reference to the firm's size. We consider this assumption does not hold and we try to consider the alternative one, i.e. judges take into account the judicial form and the size. We test it over the 19th century whereas the bankruptcy law evolves towards its modern design. This period also present another great advantage: the limited liabilities companies are created in the second part of the 19th century and, at the same time legislator authorizes the free creation of public societies. It is thus appropriate to see whether judges applied the law indifferently or if they considered differently individual merchants and companies. The first part of the paper describes bankruptcy law and its changes over the period; the second section shows the global changes in the courts activity using national data. The data specially collected in the archives of commercial court of Paris allow us to introduce the legal status and the firms' size as discriminating factors.
Mot(s) clé(s)
bankruptcy law, commercial courts, law and economics, firms default
2008-6

Les cycles de souscription de l’assurance non vie en France

Catherine Bruneau, Nadia Sghaier

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Abstract
This paper provides an empirical analysis of the presence and determinants of
the underwriting cycle in non-life insurance for France for the industry and for two
individual lines which one long and one short for the period 1963-2004 and 1982-2004.
First, the estimation of the AR(2) process of the rate of growth of premiums shows the
presence of a cyclical behavior since 80 for the aggregate sector and for the automobile
line. Second, we aim to determine their causes. For that, we consider the amount of
claims and expenses, equities and returns on financial assets. We adopt a multivariate
approach and we estimate an error correction vector model that allows the distinction
between the e&curren;ects of short and long term. We provide evidence of causality between
different variables and we end with an impulse analysis. The empirical results that
we get are interpreted with reference to principal hypothesis made in the literature to
explain the cycle and financial model of insurance pricing. These results show that
the causes vary across lines and periods.
Mot(s) clé(s)
Presence and determinants of the underwriting cycles, non life in-surance, error correction vectoriel model, causality, impulse analysis.
2008-5

Sweden’s Monetary Internationalization under the Silver and Gold Standards, 1834–1913

Anders Ögren

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Abstract
The central bank's possibility to sustain the specie standard was largely affected by both the financial development and its internationalization. The increased foreign debt denominated in foreign currencies forced the central bank to engage in more disciplinary monetary policy. The developed banking system worked in two ways: 1) increased public wealth in the banking system allowed a more relaxed discipline but 2) the commercial banks' supply of liquidity through note issuance allowed the central bank to strengthen monetary discipline. The international economy developed as a credit economy and this international credit economy led to more flexible monetary policy. This affected the working of the adjustment mechanism where domestic prices simultaneously followed changes in the domestic money supply and in international prices. Thus the international integration made both prices and money supply grow in harmony over the borders.
Mot(s) clé(s)
Balance of Payments; Central Bank Reserves; Foreign Debt; Gold Standard; Monetary Base; Monetary Discipline; Monetary Policy; Money Supply; Silver Standard
2008-4

The Rational of Private Bank Note IssuanceThe Enskilda Banks in the Economic and Financial Development of Nineteenth Century Sweden

Anders Ögren

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Abstract
First established during the 1830's, the Enskilda banks were characterized by unlimited liability and the right to issue bank notes. In Swedish banking history, these banks have been considered to be primitive relics. This paper utilizes new data to revise this picture. Issuing notes based on an anchor provided by the National bank, the Enskilda banks made an important contribution to the development of liquid capital markets and for economic growth. The note issuance was also of importance to overcome shortages of liquidity due to both seasonal and regional variations in demand. In view of the crucial role of the Enskilda banks, the Banking Act of 1864, which permitted freer establishment and automatic prolongation of the charters for such banks, must be judged to have been an important institutional change.
Mot(s) clé(s)
2008-3

The effects of economic freedom components on economic growth:an analysis with a threshold model

Rami Abdelkafi, Hatem Derbel

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Abstract
Several studies show a positive and significant link between economic freedom and economic growth. Based on this result many economists recommend an abrupt and total disengagement of the State from the economic activity. Our objective in this paper is double. Initially, we show that the use of an aggregate index of economic freedom can mask the specificity of the link between the latter and the growth. In a second time, we use the Hansen (2000) method to demonstrate the presence of threshold variables rejecting the linearity of the relation between variables on the entire sample. The GDP per capita and the initial enrollment rate in secondary school divide the sample in two groups of countries characterized by different relations. One of our principal results is that the reduction of the size of the government is not effective in countries having an initial GDP per capita and an enrollment rate in 1990 higher than the thresholds values. This enables us to put into perspective the need for a reduction of the size of the government and to insist on the effectiveness of economic policies in developing countries.
Mot(s) clé(s)
Size of the government, economic freedom, economic growth, threshold model
2008-2

The dynamics of ex-ante risk premia in the foreign exchange market:Evidence from the yen/usd exchange rate Using survey data

Georges Prat, Remzi Uctum

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Abstract
Using financial experts' Yen/USD exchange rate expectations provided by
Consensus Forecasts surveys (London), this paper aims to model the 3 and 12-month ahead
ex-ante risk premia measured as the difference between the expected and forward exchange
rates. According to a two-country portfolio asset pricing model, the risk premium is modeled
as the product of three factors: a constant risk aversion coefficient, the expected variance of
the rate of change in the real exchange rate, and the spread between domestic agent's market
position in foreign assets and foreign agent's market position in domestic assets (net market
position). When the returns are partially predictable, the expected variance is horizondependent
and this is a sufficient condition for agents not to require at any time a unique risk
premium for all maturities but a set of premia scaled by the time horizon of the investment.
For each horizon the expected variance is assumed to depend on the historical values of the
variance and on the unobservable maturity-dependent net market positions which have been
estimated through a state space model using the Kalman filter methodology. We find that the
model explains satisfactorily both the common and the non-random specific time-patterns of
the 3- and 12-month ex-ante premia.
Mot(s) clé(s)
risk premium – foreign exchange market – international asset pricing model
2008-1

Labour force participation of women with children:disparities and developments in Europe since the 1990s

Olivier Thévenon

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Abstract
The aim of this paper is to identify how specific the increase of female labour market participation observed over the last fifteen years were to particular family statuses: mothers versus childless women, households with young children versus households with older children, mothers who had children early versus those who had children later. The analysis is based on European Union Labour Force Surveys (EU LFS) for the period from 1992 to 2005 and draws on the data available for some countries on household composition, and observes different cohorts of women across the different years of the survey. The labour market situations of women are modelled in order to identify trends in behaviour for given individual and family characteristics. The results are used to discuss the variety of changes in female labour market behaviour in group of countries that were considered as relatively similar at the beginning of the 90s. We find that changes were mainly favourable to mothers in Belgium, Spain, Portugal, Poland, the Netherlands and the UK. Some similarities and differences between countries identified in previous comparative research are reaffirmed, confirming the relative heterogeneity of the models of female employment in relation to standard welfare state typologies. Major differences and trends specific to certain countries were nevertheless identified. Some of these differences concern the relative importance of the number of children and of the age of the youngest on female labour market behaviour. But differences also relate to the variable impact of the age at which women have their first child. It suggests that varieties in macro-institutional contexts shape different opportunity for women to manage labour market commitment with family formation over their life-cycle.
Mot(s) clé(s)
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