Risk Governance and Banks Affiliated to Business Groups. the Case of Mexico

Abstract : The aim of the present work is to study the effect of risk governance on the profitability of a sample of listed banks in Mexico during the period 2007-2015. To conduct this analysis, a dynamic panel data model is used, and also a random effects model. The evidence presented here shows that functions of risk governance have an impact of only slight significance on the profitability of banks, which suggests that the dispositions and recommendations for risk governance are only fulfilled in a limited way. One possible explanation for this finding is related to patterns of ownership structure, due to the presence of banks linked to business groups, that give risk management a secondary role while other objectives are given greater emphasis. These banks co-exist with foreign banks from developed economies, which creates contrasting patterns of corporate governance.

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Efficiency and the Hold-up Problem in Regulated Industries: Empirical Evidence on the Natural Gas Transport Industry

Abstract : In 2002, Argentinean companies of natural gas transportation had to endure a breach of contract. After a serious devaluation of the domestic currency, the government decided to freeze transmission rates. Despite high inflation rates, this disruptive policy lasted more than a decade. That rate-freezing mechanism could be interpreted as a contractual problem known as hold-up, which in turn affects many economic aspects such as investment decisions and operating performance (i.e. efficiency). In particular, this paper studies the relationship between the hold-up problem and operating efficiency in the regulated natural gas transport industry. We conducted a study that involved a two-step analysis based on financial data from 2005 until 2016. First, a Cost Stochastic Frontier model was applied to a panel of 8 companies operating worldwide, two of which had been held up in 2001. Then, the technical efficiency estimates were regressed in a panel data model to establish the possible correlation between contract breach and operating restraints. The results suggest that the companies whose real rates were decreased due to held-up contracts could have been motivated to reduce their inefficiency. Although rate levels might not affect efficiency straightforwardly, a rise in price of held-up firms could ease operating restrictions. Therefore, inefficiency in held-up companies might increase under rate revisions.

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The Political Economy of Regional Policy Formation: the Case of Russian Agricultural Subsidies

Abstract : This manuscript contributes towards the discussion about the central and local governments’ strategies to retain office in a federal setting using the tools of redistribution. Rural constituencies represent an important group of potential voters, especially in transition autocratic regimes like Russia. We examine whether different governmental tiers in Russia target core or swing voters by redistributing agricultural subsidies from the federal and regional budgets. Using a unique panel dataset of agricultural subsidies in Russia (2008-2015), we find that both federal and regional governments target swing voters. In doing so they explicitly consider the relationship between the federal and regional governments, the level of local business integration in regional parliaments and regional revenue generating capacity. Large agricultural business plays a major role in mobilizing rural constituents and is explicitly targeted by different tiers of the government in subsidies distribution. This distribution scheme ensures federal government’s central role in the politics of a competitive autocracy.

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Why For-profit Companies Compete with Non-profit Organizations to Access Development Aid Contracts?

Abstract : In this paper, we ask what, if anything, is distinctive about the bidding and contracting behaviors of for-profit firms and non-profit organizations in markets for social goods. We explore the empirically rich setting of open, scoring auctions used by U.K.’s Department for International Development to procure aid services. We identify patterns of differentiation --for-profits tend to act as transactions-centric, agenda-takers, non-profits as solution-centric, agenda-setters; contracts with for-profits typically involve much higher cost overruns, contracts with non-profits are cheaper but jeopardize public interests. We also identify areas of convergence, where non-profits and for-profits compete, and deviate from prototypical non-profit and for-profit behaviors. Our findings shed novel light on the intricate interdependencies between public and private actors/interests, ex ante legitimacy of for-profit firms in markets for social goods, and hybrid organizing.

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Evaluation of Alternative Water Governance Arrangements in British Columbia

Abstract : In response to a need for enhanced water governance, water institutional reforms are taking place around the world. Common among these reforms is a shift from monocentric to polycentric water governance arrangements, bridging multiple scales of stakeholders through a mix of institutional arrangements. Benefits of a polycentric approach are commonly associated with higher performance in diverse contexts through better adaptation to changing conditions, customized rules that meet local needs and a sense of trust amongst stakeholders. In British Columbia, these findings are recognized in the Province’s new Water Sustainability Act, which offers the opportunity for alternative governance arrangements that could better respond to the unique challenges and needs of British Columbia’s diverse physical and biological landscapes. Building on new institutional economics and Williamson’s transaction cost economics work that suggests institutions that minimize transaction costs within and across situations optimize decision-making, I conducted a province wide survey to evaluate the perceptions of transaction costs amongst two alternative water governance arrangements throughout British Columbia. This poster presentation explores the ex-ante transaction costs of these alternative arrangements and how this information can be used to assist with the implementation of the Province’s new Water Sustainability Act.

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Was De Montesquieu (only Half) Right? Evidence for a Stronger Work Ethic in Cold Climates

Abstract : Although we know that geographical climate is associated with economic development, there have only been a few studies yet that try to explain the exact mechanisms through which climate and development are related. In this paper, we assess a cultural channel, most famously suggested by de Montesquieu, linking cooler climates to economic development through a stronger work ethic. On the basis of a novel approach exploiting individual-level happiness data in 98 countries to estimate the value attached to work, we show that people who live in a cold climate value working significantly more than people who live in a warm climate do. However, subsequent analysis at the national level suggests that the national average work ethic that we estimate from individual level data translates only marginally into a better economic performance at national level. Our results support de Montesquieu’s hypothesis that a cold climate creates informal norms encouraging people to value work more, but, in contrast to his suggestion, the impact of this channel on economic development appears very limited. We conclude that de Montesquieu was only half right when he stated that differences in economic development can be traced back to differences in climate-induced work attitudes.

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Trust Me; I Am Corrupt: the Role of Beliefs and Institutions in Determining Political Trust

Abstract : What drives individuals to place their trust on different political institutions? Is it a process solely driven by personal characteristics and economic outcomes or do individuals respond and alter their behaviour based on the performance and quality of the underlying institutions? These are the questions that this research attempts to explore by analyzing data from the European Social Survey (2002 - 2014). At first using a principal-agent model, we try to identify how information asymmetries might provide an answer on how an individual takes a decision to trust an institution based on prior beliefs, current political agents and institutional quality. Subsequently, we attempt to explore propositions of the model empirically by analyzing three institutional variables trust in politicians, trust in the legal system and trust in national parliament. Using an hierarchical model, we attempt to combine information from the micro level (individuals) and macro level (countries) in order to explore if and how individuals respond to aggregate institutional data conditionally to their personal characteristics. Results show that there is significance difference in the role of institutions in high quality and low quality institutional frameworks. Keywords: Trust, political trust, institutions, hierarchical analysis, principalagent, asymmetries

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Economics of Mandatory Disclosure in the Equity Crowdfunding

Abstract : Crowdfunding represents a new form of financial intermediation that entails raising funds from a large number of dispersed investors via web-based platforms. The main regulatory challenge in this industry concerns the question whether mandatory disclosure, the most widely used tool in conventional financial markets, is an appropriate solution to information asymmetry. Drawing on insights from the economics of voluntary disclosure, this paper theoretically examines whether market forces alone are expected to generate sufficient information. After discussing incentives for fundraising firms to unravel information, the paper addresses the issue whether crowdfunding platforms as two-sided markets are expected to design optimal disclosure rules. The desirability of mandatory (regulatory) disclosure is finally discussed in the light of conditions that might lead to the failure of voluntary disclosure.

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Institutions and Commercial Frauds in Water Industry: a View of the Metropolitan Region of São Paulo

Abstract : In water industry, frauds committed by customers to access water without paying affect firm´s revenue, contribute to increase physical losses and interfere in the economic order causing harm to society. Ex post transaction costs involve inspection in loco if fraud is suspected and legal enforcement in case a fraud is confirmed. However, individuals may react differently to the costs and benefits of complying with contractual and legal standards. We analyzed the 115,695 frauds registered in management system of the concessionaire between january 2010 and june/2016 in the Metropolitan Region of São Paulo. The results indicated that the inspections did not have an important influence on frauds quantity. Beyond that, frauds were much more numerous in residential category of use in poorest areas with low level of formal education. It is concluded that typical fraudster in this category is at the border of crime. Therefore, he needs an ‘incentive’ to choose not commit fraud. In this case we propose two interrelated paths: to impose a more educational than punitive character on the inspections and to institute a type of multilateral exchange (Coase, 1960). On the other hand, in commercial category of use frauds were much more numerous in areas with high and very high socioeconomic level. This result is supported by Becker (1968; 1974), whose argument incorporates the ilegal rational behavior and brings to the scene Hirschmann´s argument (1977), that it is up to society and firms to make effective repressive political structures in adherence to civilized self-interest (Hirschmann (1977). Due to differences in governance within the firm and in legal and social environment, the validity of the results is limited to the MRSP.

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