Financing Constraints, Irreversibility, and Investment Dynamics

We develop a model of an industry with many heterogeneous firms that face both financing constraints and irreversibility constraints. The financing constraint implies that firms cannot borrow unless the debt is secured by collateral; the irreversibility constraint that they can only sell their fixed capital by selling their business. We use this model to examine the cyclical behavior of aggregate fixed investment, variable capital investment, and output in the presence of persistent idiosyncratic and aggregate shocks. Our model yields three main results. First, the effect of the irreversibility constraint on fixed capital investment is reinforced by the financing constraint. Second, the effect of the financing constraint on variable capital investment is reinforced by the irreversibility constraint. Finally, the interaction between the two constraints is key for explaining why input inventories and material deliveries of US manufacturing firms are so volatile and procyclical, and also why they are highly asymmetrical over the business cycle.

Credit Constraints, Firms' Precautionary Investment, and the Business Cycle

This paper studies the macroeconomic implications of firms' precautionary investment behavior in response to the anticipation of future financing constraints. Firms increase their demand for liquid and safe investments in order to alleviate future borrowing constraints and decrease the probability of having to forego future profitable investment opportunities. This results in an increase in the share of short-term projects that produces a temporary increase in output, at the expense of lower long-run investment and future output. I show in a calibrated model that this behavior is at the source of a novel and powerful channel of shock transmission of productivity shocks that produces short-run dampening and long-run propagation. Furthermore, it can account for the observed business cycle patterns of the aggregate and firm-level composition of investment.

Bioclimatic constraints to Andean cat distribution: a modelling application for rare species

AimTo identify the bioclimatic niche of the endangered Andean cat (Leopardus jacobita), one of the rarest and least known felids in the world, by developing a species distribution model.LocationSouth America, High Andes and Patagonian steppe. Peru, Bolivia, Chile, Argentina.MethodsWe used 108 Andean cat records to build the models, and 27 to test them, applying the Maxent algorithm to sets of uncorrelated bioclimatic variables from global databases, including elevation. We based our biogeographical interpretations on the examination of the predicted geographic range, the modelled response curves and latitudinal variations in climatic variables associated with the locality data.ResultsSimple bioclimatic models for Andean cats were highly predictive with only 3-4 explanatory variables. The climatic niche of the species was defined by extreme diurnal variations in temperature, cold minimum and moderate maximum temperatures, and aridity, characteristic not only of the Andean highlands but also of the Patagonian steppe. Argentina had the highest representation of suitable climates, and Chile the lowest. The most favourable conditions were centrally located and spanned across international boundaries. Discontinuities in suitable climatic conditions coincided with three biogeographical barriers associated with climatic or topographic transitions.Main conclusionsSimple bioclimatic models can produce useful predictions of suitable climatic conditions for rare species, including major biogeographical constraints. In our study case, these constraints are also known to affect the distribution of other Andean species and the genetic structure of Andean cat populations. We recommend surveys of areas with suitable climates and no Andean cat records, including the corridor connecting two core populations. The inclusion of landscape variables at finer scales, crucially the distribution of Andean cat prey, would contribute to refine our predictions for conservation applications.

Origin of mineralizing fluids of the sediment-hosted Navachab gold mine, Namibia: Constraints from stable (O, H, C, S) isotopes

The Navachab gold mine in the Damara belt of central Namibia is characterized by a polymetallic Au-Bi-As-Cu-Ag ore assemblage, including pyrrhotite, chalcopyrite, sphalerite, arsenopyrite, bismuth, gold, bismuthinite, and bismuth tellurides. Gold is hosted by quartz sulfide veins and semimassive sulfide lenses that are developed in a near-vertical sequence of shelf-type metasedimentary rocks, including marble, calcsilicate rock, and biotite schist. The sequence has been intruded by abundant syntectonic lamprophyre, aplite, and pegmatite dikes, documenting widespread igneous activity coeval with mineralization. The majority of quartz from the veins has delta(18)O values of 14 to 15 per mil (V-SMOW). The total variations in delta(18)O values of the biotite schist and calcsilicate rock are relatively small (12-14 parts per thousand), whereas the marble records steep gradients in delta(18)O values (17-21 parts per thousand), the lowest values being recorded at the vein margins. Despite this, there is no correlation between delta(18)O and delta(13)C values and the carbonate content of the rocks, indicating that fluid-rock interaction alone cannot explain the isotopic gradients. In addition, the marble records increased delta(13)C values at the contact to the veins, possibly related to a change in the physicochemical conditions during fluid-rock interaction. Gold is interpreted to have precipitated in equilibrium with metamorphic find (delta(18)O 12-14 parts per thousand; delta D = -40 to -60 parts per thousand) at peak metamorphic conditions of ca. 550 degrees C and 2 kbars, consistent with isotopic fractionations between coexisting calcite, garnet, and clinopyroxene in the alteration halos. The most likely source of the mineralizing fluid was a midcrustal fluid in equilibrium with the Damaran metapelites that underwent prograde metamorphism at amphibolite- to granulite-facies grades. Although there is no isotopic evidence for the contribution of magmatic fluids, they may have been important in contributing to the overall hydraulic regime and high apparent geothermal gradients (ca. 80 degrees C/km(-1)) in the mine area.

Equilibrium asset prices and savings of heterogeneous agents in the presence of incomplete markets and portfolio constraints

We study the quantitative properties of a dynamic general equilibrium model in which agents face both idiosyncratic and aggregate income risk, state-dependent borrowing constraints that bind in some but not all periods and markets are incomplete. Optimal individual consumption-savings plans and equilibrium asset prices are computed under various assumptions about income uncertainty. Then we investigate whether our general equilibrium model with incomplete markets replicates two empirical observations: the high correlation between individual consumption and individual income, and the equity premium puzzle. We find that, when the driving processes are calibrated according to the data from wage income in different sectors of the US economy, the results move in the direction of explaining these observations, but the model falls short of explaining the observed correlations quantitatively. If the incomes of agents are assumed independent of each other, the observations can be explained quantitatively.

On the impact of leverage constraints on asset prices and trading volume

Researchers have used stylized facts on asset prices and trading volumein stock markets (in particular, the mean reversion of asset returnsand the correlations between trading volume, price changes and pricelevels) to support theories where agents are not rational expected utilitymaximizers. This paper shows that this empirical evidence is in factconsistent with a standard infite horizon perfect information expectedutility economy where some agents face leverage constraints similar tothose found in todays financial markets. In addition, and in sharpcontrast to the theories above, we explain some qualitative differencesthat are observed in the price-volume relation on stock and on futuresmarkets. We consider a continuous-time economy where agents maximize theintegral of their discounted utility from consumption under both budgetand leverage con-straints. Building on the work by Vila and Zariphopoulou(1997), we find a closed form solution, up to a negative constant, for theequilibrium prices and demands in the region of the state space where theconstraint is non-binding. We show that, at the equilibrium, stock holdingsvolatility as well as its ratio to stock price volatility are increasingfunctions of the stock price and interpret this finding in terms of theprice-volume relation.

Credit constraints in general equilibrium: Experimental results

Our work attempts to investigate the influence of credit tightness orexpansion on activity and relative prices in a multimarket set-up. We report on somedouble- auction, two-market experiments where subjects had to satisfy an inequalityinvolving the use of credit. The experiments display two regimes, characterizedby high and low credit availability. The critical value of credit at the commonboundary of the two regimes has a compelling interpretation as the maximal credituse at the Arrow-Debreu equilibrium of the abstract economy naturally associatedto our experimental environment. Our main results are that changes in theavailability of credit: (a): have minor and unsystematic effects on quantitiesand relative prices in the high-credit regime, (b): have substantial effects, bothon quantities and relative prices, in the low-credit regime.

Portfolio delegation under short-selling constraints

In this paper we study delegated portfolio management when themanager's ability to short-sell is restricted. Contrary to previousresults, we show that under moral hazard, linear performance-adjustedcontracts do provide portfolio managers with incentives to gatherinformation. The risk-averse manager's optimal effort is an increasingfunction of her share in the portfolio's return. This result affectsthe risk-averse investor's optimal contract decision. The first best,purely risk-sharing contract is proved to be suboptimal. Usingnumerical methods we show that the manager's share in the portfolioreturn is higher than the rst best share. Additionally, this deviationis shown to be: (i) increasing in the manager's risk aversion and (ii)larger for tighter short-selling restrictions. When the constraint isrelaxed the optimal contract converges towards the first best risksharing contract.

Institutional constraints on organizations: The case of Spanish car dealerships

We study the effect of organizational choice and institutions on the performance ofSpanish car dealerships. Using outlet-level data from 1994, we find that verticallyintegrateddealerships showed substantially lower labor productivity, higher labor costs andlower profitability than franchised ones. Despite these gaps in performance, no verticallyintegratedoutlet was separated until 1994, yet the few outlets that were eventuallyseparated systematically improved their performance. We argue that the conversion ofintegrated outlets into franchised ones involved significant transaction costs, due to aninstitutional environment favoring permanent, highly-unionized employment relations. Inline with this argument, we find that the observed separations occurred in distributionnetworks that underwent marked reductions in worker unionization rates, following thelegalization of temporary labor contracts.

Financing constraints, irreversibility and investment dynamics

We develop a model of an industry with many heterogeneous firms that face both financingconstraints and irreversibility constraints. The financing constraint implies that firmscannot borrow unless the debt is secured by collateral; the irreversibility constraint thatthey can only sell their fixed capital by selling their business. We use this model to examinethe cyclical behavior of aggregate fixed investment, variable capital investment, and outputin the presence of persistent idiosyncratic and aggregate shocks. Our model yields threemain results. First, the effect of the irreversibility constraint on fixed capital investmentis reinforced by the financing constraint. Second, the effect of the financing constraint onvariable capital investment is reinforced by the irreversibility constraint. Finally, the interactionbetween the two constraints is key for explaining why input inventories and materialdeliveries of US manufacturing firms are so volatile and procyclical, and also why they arehighly asymmetrical over the business cycle.

Comment on "Geochemistry, petrogenesis and tectonic setting of the Samothraki mafic suite, NE Greece: Trace-element, isotopic and zircon age constraints'' by N. Koglin, D. Kostopoulos & T. Reischmann [Tectonophysics 473, 53-68 (doi:10.1016/j.tecto.2008.10.028)]

The work by Koglin et al. (Koglin, N., Kostopoulos, D., Reichmann, T., 2009. Geochemistry, petrogenesis and tectonic setting of the Samothraki mafic Suite, NE Greece: Trace-element, isotopic and zircon age constraints. Tectonophysics 473, 53-68. doi: 10.1016/j.tecto.2008.10.028), where the authors have proposed to nullify the scenario presented by Bonev and Stampfli (Bonev, N., Stampfli, G., 2008. Petrology, geochemistry and geodynamic implications of Jurassic island arc magmatism as revealed by mafic volcanic rocks in the Mesozoic low-grade sequence, eastern Rhodope, Bulgaria. Lithos 100, 210-233) is here Put under discussion. The arguments for this proposal are reviewed in the light of available stratigraphic and radiometric age constraints, geochemical signature and tectonics of highly relevant Jurassic ophiolitic suites occurring immediately north of the Samothraki mafic suite. Our conclusion is that the weak arguments and the lack of knowledge on the relevant constraints from the regional geologic information make inconsistent the Proposal and the model of these authors. (C) 2009 Elsevier B.V. All rights reserved.

Testing financing constraints on firm investment using variable capital

We consider a dynamic multifactor model of investment with financing imperfections,adjustment costs and fixed and variable capital. We use the model to derive a test offinancing constraints based on a reduced form variable capital equation. Simulation resultsshow that this test correctly identifies financially constrained firms even when the estimationof firms investment opportunities is very noisy. In addition, the test is well specified inthe presence of both concave and convex adjustment costs of fixed capital. We confirmempirically the validity of this test on a sample of small Italian manufacturing companies.