Exchange rate economic exposure and hedging:the significance of currency options

This thesis focuses on the theoretical examination of the exchange rate economic (operating) exposure within the context of the theory of the firm, and proposes some hedging solutions using currency options. The examination of economic exposure is based on such parameters as firms' objectives, industry structure and production cost efficiency. In particular, it examines an hypothetical exporting firm with costs in domestic currency, which faces competition from foreign firms in overseas markets and has a market share expansion objective. Within this framework, the hypothesis is established that economic exposure, portrayed in a diagram connecting export prices and real exchange rates, is asymmetric (i.e. the negative effects depreciation are higher than the positive effects of a currency depreciation). In this case, export business can be seen as a real option, given by exporting firms to overseas customer. Different scenarios about the asymmetry hypothesis can be derived for different assumptions about the determinants of economic exposure. Having established the asymmetry hypothesis, the hedging against this exposure is analysed. The hypothesis is established, that a currency call option should be used in hedging against asymmetric economic exposure. Further, some advanced currency options stategies are discussed, and their use in hedging several scenarios of exposure is indicated, establishing the hypothesis that, the optimal options strategy is a function of the determinants of exposure. Some extensions on the theoretical analysis are examined. These include the hedging of multicurrency exposure using options, and the exposure of a purely domestic firm facing import competition. The empirical work addresses two issues: the empirical validity of the asymmetry hypothesis and the examination of the hedging effectiveness of currency options.

Competition, competitive advantage, and clusters:the ideas of Michael Porter

Comprehensive coverage of all aspects of Michael Porter's works Contributions from leading authorities across the disciplines Contains response from Porter Harvard professor, Michael Porter has been one of the most influential figures in strategic management research over the last three decades. He infused a rigorous theoretical framework of industrial organization economics with the then still embryonic field of strategic management and elevated it to its current status as an academic discipline. Porter's outstanding career is also characterized by its cross-disciplinary nature. Following his most important work on strategic management, he then made a leap to the policy side and dealt with a completely different set of analytical units. More recently he has made a foray into inner city development, environmental regulations, and health care services. Throughout these explorations Porter has maintained his integrative approach, seeking a road that links management case studies and the general model building of mainstream economics. With expert contributors from a range of disciplines including strategic management, economic development, economic geography, and planning, this book assesses the contribution Michael Porter has made to these respective disciplines. It clarifies the sources of tension and controversy relating to all the major strands of Porter's work, and provides academics, students, and practitioners with a critical guide for the application of Porter's models. The book highlights that while many of the criticisms of Porter's ideas are valid, they are almost an inevitable outcome for a scholar who has sought to build bridges across wide disciplinary valleys. His work has provided others with a set of frameworks to explore in more depth the nature of competition, competitive advantage, and clusters from a range of vantage points.

Institutional reforms, productivity and profitability:from rents to competition?

This paper explores the divergent effects of institutional reforms on firm's productivity and profits. To assess this empirically, we investigate the impact of various components of economic liberalisation on the performance of firms from Central and Eastern European countries from 1998 to 2006. The impact of reforms on profitability vis-à-vis productivity differs, which we interpret as an indication that profitability is an ambiguous measure of performance: one needs to distinguish between unproductive rents and productivity-based quasi-rents. We find that competition-enhancing liberalisation measures have more impact on state owned firms as compared with domestic and foreign owned firms. © 2012 Association for Comparative Economic Studies.

Policy, economic federalism, and product market entry:the Indian experience

Productivity growth has long been associated with, among other things, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm's ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the 1980s and the 1990s are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the 1990s may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

An analysis of food demand in Peru:implications for food-feed competition

In their policy proposals on how best to stimulate economic growth, economists have been increasingly emphasizing free markets. It is, however, possible that free-market-led economic growth can lead to increased income inequity which can further increase poverty. One of the more interesting but thus far insufficiently explored mechanisms for the latter is food–feed competition. Using Peruvian Living Standard Survey (PLSS) data for 1985–86 and 1990, the paper examines the demand patterns of households and concludes that the empirical evidence is in agreement with the hypotheses underlying the theory of food–feed competition.

The value of innovation:the interaction of competition, R&D and IP

This paper analyses market valuations of UK companies using a new data set of their R&D and IP activities (1989–2002). In contrast to previous studies, the analysis is conducted at the sectoral-level, where the sectors are based on the technological classification originating from Pavitt [Pavitt, K., 1984. Sectoral patterns of technical change. Research Policy 13, 343–373]. The first main result is that the valuation of R&D varies substantially across these sectors. Another important result is that, on average, firms that receive only UK patents tend to have no significant market premium. In direct contrast, patenting through the European Patent Office does raise market value, as does the registration of trade marks in the UK for most sectors. To explore these variations the paper links competitive conditions with the market valuation of innovation. Using profit persistence as a measure of competitive pressure, we find that the sectors that are the most competitive have the lowest market valuation of R&D. Furthermore, within the most competitive sector (‘science based’ manufacturing), firms with larger market shares (an inverse indicator of competitive pressure) also have higher R&D valuations, as well as some positive return to UK patents. We conclude that this evidence supports Schumpeter by finding higher returns to innovation in less than fully competitive markets and contradicts Arrow [Arrow, K., 1962. Economic welfare and the allocation of resources for invention. In: Nelson, R. (Ed.), The Rate and Direction of Inventive Activity. Princeton University Press, Princeton], who argued that, with the existence of IP rights, competitive market structure provides higher incentives to innovate.

A techno-economic comparison of power production by biomass fast pyrolysis with gasification and combustion

This paper presents an assessment of the technical and economic performance of thermal processes to generate electricity from a wood chip feedstock by combustion, gasification and fast pyrolysis. The scope of the work begins with the delivery of a wood chip feedstock at a conversion plant and ends with the supply of electricity to the grid, incorporating wood chip preparation, thermal conversion, and electricity generation in dual fuel diesel engines. Net generating capacities of 1–20 MWe are evaluated. The techno-economic assessment is achieved through the development of a suite of models that are combined to give cost and performance data for the integrated system. The models include feed pretreatment, combustion, atmospheric and pressure gasification, fast pyrolysis with pyrolysis liquid storage and transport (an optional step in de-coupled systems) and diesel engine or turbine power generation. The models calculate system efficiencies, capital costs and production costs. An identical methodology is applied in the development of all the models so that all of the results are directly comparable. The electricity production costs have been calculated for 10th plant systems, indicating the costs that are achievable in the medium term after the high initial costs associated with novel technologies have reduced. The costs converge at the larger scale with the mean electricity price paid in the EU by a large consumer, and there is therefore potential for fast pyrolysis and diesel engine systems to sell electricity directly to large consumers or for on-site generation. However, competition will be fierce at all capacities since electricity production costs vary only slightly between the four biomass to electricity systems that are evaluated. Systems de-coupling is one way that the fast pyrolysis and diesel engine system can distinguish itself from the other conversion technologies. Evaluations in this work show that situations requiring several remote generators are much better served by a large fast pyrolysis plant that supplies fuel to de-coupled diesel engines than by constructing an entire close-coupled system at each generating site. Another advantage of de-coupling is that the fast pyrolysis conversion step and the diesel engine generation step can operate independently, with intermediate storage of the fast pyrolysis liquid fuel, increasing overall reliability. Peak load or seasonal power requirements would also benefit from de-coupling since a small fast pyrolysis plant could operate continuously to produce fuel that is stored for use in the engine on demand. Current electricity production costs for a fast pyrolysis and diesel engine system are 0.091/kWh at 1 MWe when learning effects are included. These systems are handicapped by the typical characteristics of a novel technology: high capital cost, high labour, and low reliability. As such the more established combustion and steam cycle produces lower cost electricity under current conditions. The fast pyrolysis and diesel engine system is a low capital cost option but it also suffers from relatively low system efficiency particularly at high capacities. This low efficiency is the result of a low conversion efficiency of feed energy into the pyrolysis liquid, because of the energy in the char by-product. A sensitivity analysis has highlighted the high impact on electricity production costs of the fast pyrolysis liquids yield. The liquids yield should be set realistically during design, and it should be maintained in practice by careful attention to plant operation and feed quality. Another problem is the high power consumption during feedstock grinding. Efficiencies may be enhanced in ablative fast pyrolysis which can tolerate a chipped feedstock. This has yet to be demonstrated at commercial scale. In summary, the fast pyrolysis and diesel engine system has great potential to generate electricity at a profit in the long term, and at a lower cost than any other biomass to electricity system at small scale. This future viability can only be achieved through the construction of early plant that could, in the short term, be more expensive than the combustion alternative. Profitability in the short term can best be achieved by exploiting niches in the market place and specific features of fast pyrolysis. These include: •countries or regions with fiscal incentives for renewable energy such as premium electricity prices or capital grants; •locations with high electricity prices so that electricity can be sold direct to large consumers or generated on-site by companies who wish to reduce their consumption from the grid; •waste disposal opportunities where feedstocks can attract a gate fee rather than incur a cost; •the ability to store fast pyrolysis liquids as a buffer against shutdowns or as a fuel for peak-load generating plant; •de-coupling opportunities where a large, single pyrolysis plant supplies fuel to several small and remote generators; •small-scale combined heat and power opportunities; •sales of the excess char, although a market has yet to be established for this by-product; and •potential co-production of speciality chemicals and fuel for power generation in fast pyrolysis systems.

Gázolaj-jövedékiadó verseny az Európai Unióban (Fiscal competition on the market for diesel fuel in the European Union)

A tanulmány azt a kérdést vizsgálja, hogy versenyeznek-e az európai kormányok gázolajra vonatkozó jövedékiadó-kulcsaikkal a nagyobb adóbevételekért, és ha igen, befolyásolja-e az országok mérete kormányaik adóztatási stratégiáját. Az üzemanyagturizmussal szembesülő kormányok adókivetési magatartását egy kétországos adóverseny modellel jelezzük előre, amelyben a standard modellektől eltérően a fogyasztók kereslete árrugalmas. Megmutatjuk, hogy ha a kereslet nem teljesen rugalmatlan, mint Nielsen [2001], illetve Kanbur-Keen [1993] modelljeiben, akkor a nagy ország kormányának egyensúlyi viselkedése nemcsak abban különbözik a kicsiétől, hogy nagyobb adót állapít meg, hanem abban is, hogy válaszfüggvénye meredekebb. Az aszimmetrikus adóverseny általunk használt modelljét a dízelüzemanyagoknak 16 európai ország 1978 és 2005 közötti jövedékiadó-adatain vizsgáljuk. Az 1995 és 2005 közötti időszakra vonatkozó becslési eredményeink megerősítik, hogy az európai országok szomszédaik adókulcs-változtatásának hatására változtattak saját adókulcsaikon, és hogy a területileg/gazdaságilag kisebb országok kisebb intenzitással reagáltak szomszédaik adóváltoztatásra, mint a nagyobbak. Tanulmányunk ezzel magyarázatot nyújt arra is, hogy miért erősödött fel a tagállamok jövedéki adókulcsainak méret szerinti differenciálódása az elmúlt bő tíz évben, valamint hogy miért nem sikerült az Európai Uniónak a minimumadószintre vonatkozó előírásával előbbre lépnie az egységes adóztatás megvalósításában. / === / The paper assesses spatial competition in diesel taxation among European governments. By adding an extension to the standard model, it is shown that asymmetric competition – small countries undercutting large – implies that small countries respond less strongly to tax changes by their neighbours than large countries do. An estimate is then made of the fiscal reaction functions for national governments, employing a first-difference regression model with a weighting scheme constructed from road-traffic density data at national borders. Data from 16 countries (EU-15 minus Greece plus Norway and Switzerland) between 1978 and 2005 provides evidence that European governments set their diesel tax interdependently, and moreover, that small European countries tend to react less strongly to changes in their competitors' tax rate than large countries do.

Kontraszelekció és erkölcsi kockázat a politikában. Vázlat az információs aszimmetria közgazdaságtani fogalmainak politikatudományi alkalmazhatóságáról (Negative selection and moral risk in politics. An outline of the usefulness to political science of the economic concept of information asymmetry)

Az írás a kontraszelekció és az erkölcsi kockázat információ-gazdaságtani fogalmának politikatudományi alkalmazhatósága mellett érvel. Azt kívánja bemutatni, hogy a politikai piac szereplői közti információs aszimmetria mechanizmusainak éppúgy lehetnek súlyos negatív hatásai a demokratikus politikai rendszer működésére nézve, mint ahogy a gazdasági szereplők közti információs aszimmetria - Nobel-díjas közgazdászok érvei szerint - alááshatja a piaci verseny hatékonyságát. Az írás új megvilágításba helyezi a - már Platón óta ismert - politikai kontraszelekció jelenségét, továbbá részletesen foglalkozik az erkölcsi kockázat és a megbízó-megbízott relációk megjelenésével a politikában. Érinti tovább azoknak a mechanizmusoknak - a jelzésnek és a szűrésnek - a megjelenését a politikában, melyeket a közgazdászok az információs aszimmetria csökkentésére ajánlanak. / === / The paper argues in favour of employing in political science the economic concept of information asymmetry, seeking to show that the mechanisms of information asymmetry among the players on the political market may have negative effects on the operation of a democratic political system as information asymmetry among economic actors – according to arguments of Nobel prize-winning economists – has on the efficiency of market competition. The paper sheds new light on the phenomenon of negative political selection (known since Plato's time), and goes on to deal in detail with the appearance of moral risk and client/agent relations in politics. The author touches also on the appearance in politics of mechanisms – signals and filters – that economists suggest for reducing information asymmetry.

The economic approach of advertising and the problem of allocating advertising budgets during a recession

The importance of advertising has changed in many aspects in the last decade, and mainly during the last years of the economic crisis. Economics traditionally did not find advertising a valuable factor until empirical studies demonstrated that advertisement affects consumer perception by means of indicating the quality of the underlying product. Consequently, products that are advertised more frequently, are more likely to be associated with a higher quality. Nevertheless, advertising is a strong tool in competition, which statement is confirmed by the recognition that increasing consumer knowledge contributes to the diffusion of innovation and to the reduction of research and development (R&D) costs. This contribution can be achieved nowadays by consumer interactivity, where companies deliberately rely on the involvement of their consumers. Recently, when companies were confronted to the global economic crisis, brand managers realized that allocating advertising budgets in a recession (considering the actual state of the economic conditions) is a highly important decision factor beside competition, consumer behaviour, trends or industrial conditions. Companies have to realize that their communication budgets are planned substantially in a different way in times of crisis than during an upsurge. Moreover, should a company make the best of maintaining their advertising budgets in recession times, it will indicate more trust towards their consumers and show a more favorable image towards their investors. This study assembles different approaches from the economics of advertising to draw conclusions for the subsequent analyses of advertising in times of a crisis. The main objective with the literature review is to show, that pro-cyclical actions (reducing advertising budgets in times of crisis and overspending during upsurge) of companies can lead to problems of profitability, consumer trust and competitiveness in the long run.

Google’s Antitrust Cases Competition Analysis in New Economy Markets

Today, global economic performance largely depends on digital ecosystems. E-commerce, cloud, social media, sharing economy are the main products of the modern innovative economic systems which are constantly raising new regulatory questions. Meanwhile the United States has an unimpeachable dominance in innovation and new technologies, as well as a large and open domestic market, the EU is only recently discovering the importance of empowering the European digital economy and aims to break down its highly fragmented cross-border online economic environment. As global economy is rapidly becoming digital, Europe’s effort to create and invest in common digital market is understandable. The comprehensive investigations launched by the European Commission into the role of social network, search engine, or sharing economy internet platforms, which are new generation technologies dominated by American firms; or the recent decision of the Court of Justice of the European Union declaring that the Commission’s US Safe Harbor Decision is invalid1 might be considered as part of an anti-American protectionist policy. However, these measures could rather be seen as part of a broader trend to foster European enterprises in technology developments.

Soviet and Western bloc competition in the less developed world and the collapse of Détente

The purpose of my dissertation was to examine the competition between the U.S.-led Western bloc and the Soviet bloc in the less developed world during Détente. I assessed whether or not the Soviet bloc pushed for strategic gains in the less developed world in the middle-to-late 1970's and whether this contributed to the U.S. decision to abandon Détente in 1979. I made the attempt to test the international relations theory of balance of threat realism (Walt, 1992). I accomplished the test in two ways. First, I measured the foreign aid allocations (military and economic) made by each respective bloc towards the Third World by using a quantitative approach. Second, I examined U.S. archives using the process-tracing/historical method. The U.S. archives gave me the ability to evaluate how U.S. decision-makers and U.S. intelligence agencies interpreted the actions of the Soviet bloc. They also gave me the chance to examine the U.S. response as we evaluated the policies that were pushed by key U.S. decision-makers and intelligence agencies. On the question of whether or not the Soviet bloc was aggressive, the quantitative evidence suggested that it was not. Instead, the evidence found the Western-bloc to have been more aggressive in the less developed world. The U.S. archives also showed Soviet actions to have been defensive. Key U.S. decision-makers and intelligence agencies attested to this. Finally, the archives show that U.S. officials pushed for aggressive actions against the Third World during the final years of Détente. Thus, balance of threat realism produced an incorrect assessment that U.S. aggression in the late 1970's was a response to Soviet aggression during Détente. The evidence suggests structural Marxism and domestic politics can better explain U.S./Western actions. The aggressive foreign aid allocations of the West, coupled with evidence of U.S. decision-makers/agencies vehemently concerned about the long-term prospects of the West, strengthened structural Marxism. Domestic politics can also claim to explain the actions of U.S. decision-makers. I found extensive archival evidence of bureaucratic inter-agency conflict between the State Department and other intelligence agencies in areas of strategic concern to the U.S.

Essays on openness, economic integration, and *growth

This dissertation examines the relationship between the degree of openness to international trade and the level of growth experienced by a country. More precisely, it explores how trade liberalization and economic integration can lead to specialization in production, affect national levels of welfare, productivity, and competition and at the same time reinforce deflationary efforts. A large part of this investigation is carried out using industry-level data from Spain. ^

Essays in Firm Responses to Demand and Competition Shocks

The aim of this dissertation is to examine, model and estimate firm responses to

demand shocks by focusing on specific industries where demand shocks are well

identified. Combining reduced-form evidence and structural analysis, this dissertation

extends the economic literature by focusing on within-firm responses of firms

to two important demand shocks that are identifiable in empirical settings. First,

I focus on how firms respond to a decrease in effective demand due to competition

shocks coming from globalization. By considering China's accession to the World

Trade Organization in 2001 and its impact on the apparel industry, the aim of these

chapters is to answer how firms react to the increase in Chinese import competition,

what is the mechanism behind these responses, and how important they are in explaining

the survival of the Peruvian apparel industry. Second, I study how suppliers'

survival probability relates to the sudden disruption of their main customer-supplier

relationships with downstream manufacturers, conditional on suppliers' own idiosyncratic

characteristics such as physical productivity.