The dark side of internal capital markets: divisional rent-seeking and inefficient investment

Article Abstract:

A model of capital allocations made within divisions of a corporation is presented, focusing on the impact of bargaining powers among division managers and a chief executive officer. Topics include how concentration of power affects efficiency, the impact of outside investors, and the relationship between weak and strong divisions.

United States, Legislative Bodies, Finance, Research, Corporations, Corporate finance, Finance departments

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LDC debt: forgiveness, indexation, and investment incentives

Article Abstract:

We compare different indexation schemes in terms of their ability to facilitate forgiveness and reduce the investment disincentives associated with the large LDC debt overhang. Indexing to an endogenous variable (e.g., a country's output) has a negative moral hazard effect on investment. This problem does not arise when payments are linked to an exogenous variable such as commodity prices. Nonetheless, indexing payments to output may be useful when debtors know more about their willingness to invest than lenders. We also reach new conclusions about the desirability of default penalties under asymmetric information. (Reprinted by permission of the publisher.)

Analysis, Economic aspects, Developing countries, National debt, Public debts, External debt relief, Debt relief

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Herd on the street: informational inefficiencies in a market with short-term speculation

Article Abstract:

Standard models of informed speculation suggest that traders try to learn information that others do not have. This result implicity relies on the assumption that speculators have long horizons, i.e. can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same information, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals. (Reprinted by permission of the publisher.)

Models, Stockbrokers, Speculation, Information services

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