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.

How do improvements in labour productivity in the Scottish economy affect the UK position on the Environmental Kuznets Curve?

The research reported here is an output of Karen Turner’s ESRC Climate Change Leadership Fellow project (Grant reference RES-066-27-0029). However, this research builds on previous work funded by the ESRC on modelling the economic and environmental impacts of technological improvement (Grant reference: RES-061-25-0010) and by the EPSRC through the SuperGen Marine Energy Research Consortium on accounting for and modeling environmental indicators (Grant reference: EP/E040136/1).

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

Trade Costs, International Competition and Selection: The Effects of Unionisation on Market Size

Within a two-country model of international trade in which heterogeneous firms face firm-specific unions, we study the effects of different forms of trade liberalisation on market structure and competitive selection in the presence of inter-country asymmetries in size and labour market institutions. For given levels of trade openness, an increase in a country’s relative unions’ strength reduces the average productivity of its domestic producers but increases that of its exporters. Whilst an unfavourable union power differential, by increasing wages, weakens a country’s firms’ competitive position, the higher wages reinforce standard market access mechanisms to give rise to aggregate income effects. When the initial levels of trade openness are sufficiently low, this ‘expansionary’ aggregate effect can attract industry in the country with stronger unions and also result in an increase in the extensive margin of exports. For sufficiently large inter-country differences in the bargaining power of unions, trade liberalization can then result in a pro-variety effect, with an increase in the total availability of varieties to consumers in both countries, regardless of there being inter-country differences in size.

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.