Gross spreads received by underwriters on initial public offerings (IPOs) in the U.S. are much higher than in other countries. Furthermore, in recent years over 90 percent of deals raising between $20-80 million have spreads of exactly 7.0 percent, three times the proportion of a decade earlier. Investment bankers readily admit that the IPO business is very profitable, and that they avoid competing on fees because they "don't want to turn it into a commodity business." We examine several features of the IPO underwriting business that result in a market structure where spreads are high. * Chen is from Fu Jen University, Taiwan, and Ritter is from the University of Florida. We are grateful to William Christie, Stuart Gillan, Jason Karceski, Tim Loughran, Ananth Madhavan, Tim McCormick, Andy Naranjo, Paul Schultz, Shawn Thomas, Steve Wallman, William Wilhelm, Kent Womack, Li-Anne Woo, Hui Yang, Hsiu-Chuan Yeh, two anonymous referees, participants in seminars at Arizona State, Boston Coll...

We wish to thank Stephanie Schmitt-Grohe for research assistance, IGIER for its hospitality

Why has the macroeconomic impact of foreign aid seemingly been so poor? Is there a relationship between the widespread level of corruption and other types of rent-seeking activities and concessional assistance? To answer these questions we provide a simple game-theoretic rent-seeking model. The model has a number of implications. First, under certain circumstances, an increase in government revenue lowers the provision of public goods. Second, the mere expectation of aid may suffice to increase rent dissipation and reduce productive public spending. This result may be reversed, however, if the donor community can enter into a binding policy commitment. We also provide some preliminary empirical evidence in support of the hypothesis that foreign aid and windfalls are on average associated with higher corruption in countries more likely to suffer from competing social groups. We find no evidence that the donors systematically allocate aid to countries

A ll sorts of small enterprises boomed in the countryside, as if a strange armyappeared suddenly from nowhere, ” remarked Deng Xiaoping, re ectingin 1987 on the rst eight years of China’s economic reforms (Zhao, 1996, p. 106). These startup rms drove China’s reform momentum; they were arguably the single main source of China’s growth. But their rapid emergence, Deng said, “was not something I had thought about. Nor had the other comrades. This surprised us. ” The reformers had not foreseen the key to their own reforms. The other ex-communist economies had similar experiences. As in China, new rms were drivers of reform. They strengthened the budding market economy by creat-ing jobs, supplying consumer goods, mobilizing savings and ending the state rms’ monopoly. As in China, also, the reformers usually did not anticipate the force of entry. Of the two routes to a private sector—privatizing the existing rms and creating new ones—the policy debates focused almost exclusively on the former. Little attention was given to what reform policies would foster entry. Dusan Triska, for example, the architect of Czechoslovakia’s privatization program, said priva-tization “is not just one of the many items on the economic program. It is the transformation itself ” (Nellis, 2001, p. 32). It is not surprising that those who had spent their lives under central planning did not foresee the impact of entrepre-neurship, but few analysts from the West predicted it either. The reason for underestimating entrepreneurship, perhaps, was a sense that setting up a business, risky anywhere, is especially risky in an economy undergoing

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Abstract: I implement two major approaches to identifying the equilibrium exchange rate. First, the concept of purchasing power parity is tested and used to define the equilibrium real exchange rate for the Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The calculated PPP rates are then used to evaluate whether these seven East Asian currencies were overvalued. The purchasing power parity calculations are performed on broad price indices, price indices of tradable goods, and price indices of export goods using the Johansen and Horvath-Watson cointegration test procedures. As of May 1997, the baht, ringgit and peso were overvalued according to this criterion. While the overvaluations are not large, they do appear to be persistent. Robustness checks for sensitivity to deflator, sample period, and numeraire currency are undertaken. Second, I calculate the implied equilibrium rates from a monetary model augmented by a proxy variable for productivity trends. The monetary models imply less substantial deviations from equilibrium. Furthermore, the results do not closely correspond to those obtained from the PPP calculations. Interestingly, both methods indicate that the Korean won was undervalued even before its recent discrete drop in value.

Workshop on the Political Economy of Trade Negotiations, and IGIER. Staiger gratefully

During World War II and the Korean War, real GDP grew by about half the amount of the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0, a range generally supported by research based on vector autoregressions that control for other determinants, but higher values are not ruled out. New Keynesian macro models have purchases multipliers in that range as well. On the other hand, neoclassical models have a much lower multiplier, because they predict that consumption falls when purchases rise. The key features of New Keynesian models that deliver a higher multiplier are (1) the decline in the markup ratio of price over cost that occurs in those models when output rises, and (2) the elastic response of employment to an increase in demand. These features alone deliver a fairly high multiplier and they are complementary to another feature associated with Keynes, the linkage of consumption to current income. But without the negative relation between the markup and output, the multiplier is small or negative. The negative relation is consistent with the data under certain assumptions, but is not yet fully supported empirically.

Abstract not found

In this paper we survey several cross-section studies of cartels and a large sample of case studies of cartels in individual industries. We compare the findings of these studies of cartel activity from the 1800s through the 1980s with the characteristics of a sample of international cartels from the 1990s, and present preliminary evidence on whether the stylized facts regarding industry characteristics for historical cartels also hold for contemporary cartels. The hard lesson learned from our survey of the empirical work is that it is difficult to generalize about cartel behavior. Our examination of cartel duration concludes that cartels are neither short-lived nor long-lived; they are both. Similarly, our analysis of the effect of cartels on prices and profitability finds that there is enormous variance in cartel success at raising price to the jointprofit maximizing level. In our examination of cartel breakdowns we find, as suggested by recent theoretical literature, that cheating is a common cause. Occurring even more frequently, however, are entry, external shocks, and bargaining problems, suggesting that these issues should be given deeper consideration in future work. Stigler’s hypothesis that large customers contribute to cartel breakdowns is borne out in a few case studies. But there appear to be more