On the Relationship between Market Power and Bank Risk Taking

We analyse risk-taking behaviour of banks in the context of spatial competition. Banks mobilise unsecured deposits by offering deposit rates, which they invest either in a prudent or a gambling asset. Limited liability along with high return of a successful gamble induce moral hazard at the bank level. We show that when the market power is low, banks invest in the gambling asset. On the other hand, for sufficiently high levels of market power, all banks choose the prudent asset to invest in. We further show that a merger of two neighboring banks increases the likelihood of prudent behaviour. Finally, introduction of a deposit insurance scheme exacerbates banks’ moral hazard problem.

Equilibrium Exchange Rate Determination and Multiple Structural Changes

The large appreciation and depreciation of the US dollar in the 1980s stimulated an important debate on the usefulness of unit root tests in the presence of structural breaks. In this paper, we propose a simple model to describe the evolution of the real exchange rate. We then propose a more general smooth transition (STR) function than has hitherto been employed, which is able to capture structural changes along the (long-run) equilibrium path, and show that this is consistent with our economic model. Our framework allows for a gradual adjustment between regimes and allows for under- and/or over-valued exchange rate adjustments. Using monthly and quarterly data for up to twenty OECD countries, we apply our methodology to investigate the univariate time series properties of CPI-based real exchange rates with both the U.S. dollar and German mark as the numeraire currencies. The empirical results show that, for more than half of the quarterly series, the evidence in favour of the stationarity of the real exchange rate was clearer in the sub-sample period post-1980.

The economics of power and control

John Hardman Moore outlines his joint research with Oliver Hart, looking at the economics of power and control and the foundations of contractual incompleteness

Lock-in, path dependence, and the Internationalization of QWERTY

This paper looks at the emergence of what is described here as the QWERTY family of standards (QWERTY and its international adaptations QZERTY, AZERTY, and QWERTZ). QWERTY has been described as an inferior solution and an accident of history. However, the analysis here finds that each member of the family represented highly efficient adaptations to specific user needs and technical challenges encountered in their own environments. These findings may be seen to have wider implications given QWERTY’s role as paradigm case in the literature on increasing returns and path dependence, and these are pursued in the paper

Factors Affecting the Financial Success of Motion Pictures: What is the Role of Star Power?

In the mid-1940s, American film industry was on its way up to its golden era as studios started mass-producing iconic feature films. The escalating increase in popularity of Hollywood stars was actively suggested for its direct links to box office success by academics. Using data collected in 2007, this paper carries out an empirical investigation on how different factors, including star power, affect the revenue of ‘home-run’ movies in Hollywood. Due to the subjective nature of star power, two different approaches were used: (1) number of nominations and wins of Academy Awards by the key players, and (2) average lifetime gross revenue of films involving the key players preceding the sample year. It is found that number of Academy awards nominations and wins was not statistically significant in generating box office revenue, whereas star power based on the second approach was statistically significant. Other significant factors were critics’ reviews, screen coverage and top distributor, while number of Academy awards, MPAA-rating, seasonality, being a sequel and popular genre were not statistically significant.