Response to comment on "Using ecological thresholds to evaluate the costs and benefits of set-asides in a biodiversity hotspot"

Finney claims that we did not include transaction costs while assessing the economic costs of a set-aside program in Brazil and that accounting for them could potentially render large payments for environmental services (PES) projects unfeasible. We agree with the need for a better understanding of transaction costs but provide evidence that they do not alter the feasibility of the set-aside scheme we proposed.

Arbitrage-Free Conditions and Hedging Strategies for Markets with Penalty Costs on Short Positions

We consider a discrete-time financial model in a general sample space with penalty costs on short positions. We consider a friction market closely related to the standard one except that withdrawals from the portfolio value proportional to short positions are made. We provide necessary and sufficient conditions for the nonexistence of arbitrages in this situation and for a self-financing strategy to replicate a contingent claim. For the finite-sample space case, this result leads to an explicit and constructive procedure for obtaining perfect hedging strategies.

O fomento florestal como alternativa de suprimento de matéria-prima na indústria brasileira de celulose

Neste estudo foram analisados os programas de fomento florestal das empresas do segmento de celulose. O objetivo é identificar a participação do fomento florestal no suprimento de madeira e as dimensões definidas nos contratos desses programas. Para o estudo utilizou-se o referencial teórico da nova economia institucional, particularmente a teoria dos contratos incompletos de longo prazo e dos custos de transação. Utilizou-se a abordagem qualitativa da pesquisa exploratória e descritiva. Para isso, após estudo documental sobre o ambiente regulatório e institucional do setor florestal, realizou-se a coleta de dados primários por meio de questionário semiestruturado, encaminhado por meio eletrônico a dirigentes e técnicos de onze empresas produtoras de celulose escolhidas intencionalmente. Os resultados mostram que o fomento florestal ocupa a segunda posição na matriz de suprimento de madeira para processamento da indústria de celulose como mecanismo de substituição da integração vertical, pela coordenação vertical por meio de contratos de longo prazo. Indicam, também, que a participação dos programas de fomento florestal e do mercado no suprimento de madeira para processamento está crescendo. O fomento visa a facilitar o acesso a recursos, associados ao cultivo florestal, reduzindo os custos associados à imobilização em terras, fomentando o aumento da oferta de madeira para processamento. As empresas estruturam modalidades diferentes dos programas de fomento para adequar os incentivos aos produtores de acordo com o porte de suas propriedades. Excetuando-se o fomento de extensão, os demais programas de fomento usam a opção de compra da produção.

British Monetary Sovereignty: A Cultural Analysis

In this thesis, I will document and analyze historical aspects of the British debate over adopting a common currency with the European Community primarily during the last half of the twentieth century until the present. More specifically, while on the surface such a decision would seem to turn on economic or political considerations, I will show that this historic British decision not to surrender their pound sterling in exchange for the euro was rooted in the nation's cultural identity. During this decades long British debate over the euro, two opposing, but strongly held, positions developed; one side believed that Britain had a compelling interest in bonding with the rest of Europe economically as well as politically, the other side believed that Britain's independent heritage was deeply rooted in many of its traditions including maintaining control of its own monetary matters, which included keeping its pound sterling. As part of this thesis, I have conducted interviews with business leaders, economists, and social scientists as well as researched public records in order to assess many of the arguments favoring and opposing Britain's adoption of the euro. Many Britons strongly believed that it was time to join other Europeans, who were willing to sacrifice their sovereign currency to a bold common currency experiment, while other Britons viewed the pound sterling as too integral a part of British heritage to abandon. Ultimately, British leaders and citizens had to determine whether such a currency tradeoff would be worth it to them as a nation. It was a gamble that twelve other nations (at the time of the euro's 2002 launch) were ready to take, optimistically calculating that easier credit and reduced exchange transaction costs would lead to greater economic prosperity. Many asserted that only with ! ! such a united European monetary coalition would Europe's nations be able to compete trade-wise with powerful economic nations like the United States and China. My conclusion is that Britain's refusal to join the euro was a decision that had less to do with economic opportunity or political motivations and much more to do with how the British people viewed themselves culturally and their identity as an independent nation.

Portfolio-optimization models for small investors

Since 2010, the client base of online-trading service providers has grown significantly. Such companies enable small investors to access the stock market at advantageous rates. Because small investors buy and sell stocks in moderate amounts, they should consider fixed transaction costs, integral transaction units, and dividends when selecting their portfolio. In this paper, we consider the small investor’s problem of investing capital in stocks in a way that maximizes the expected portfolio return and guarantees that the portfolio risk does not exceed a prescribed risk level. Portfolio-optimization models known from the literature are in general designed for institutional investors and do not consider the specific constraints of small investors. We therefore extend four well-known portfolio-optimization models to make them applicable for small investors. We consider one nonlinear model that uses variance as a risk measure and three linear models that use the mean absolute deviation from the portfolio return, the maximum loss, and the conditional value-at-risk as risk measures. We extend all models to consider piecewise-constant transaction costs, integral transaction units, and dividends. In an out-of-sample experiment based on Swiss stock-market data and the cost structure of the online-trading service provider Swissquote, we apply both the basic models and the extended models; the former represent the perspective of an institutional investor, and the latter the perspective of a small investor. The basic models compute portfolios that yield on average a slightly higher return than the portfolios computed with the extended models. However, all generated portfolios yield on average a higher return than the Swiss performance index. There are considerable differences between the four risk measures with respect to the mean realized portfolio return and the standard deviation of the realized portfolio return.

Carbon sequestration in community forests: trade-offs, multiple outcomes and institutional diversity in the Bolivian Amazon

Carbon sequestration in community forests presents a major challenge for the Reducing Emissions from Deforestation and Forest Degradation (REDD+) programme. This article uses a comparative analysis of the agricultural and forestry practices of indigenous peoples and settlers in the Bolivian Amazon to show how community-level institutions regulate the trade-offs between community livelihoods, forest species diversity, and carbon sequestration. The authors argue that REDD+ implementation in such areas runs the risk of: 1) reinforcing economic inequalities based on previous and potential land use impacts on ecosystems (baseline), depending on the socio-cultural groups targeted; 2) increasing pressure on land used for food production, possibly reducing food security and redirecting labour towards scarce off-farm income opportunities; 3) increasing dependence on external funding and carbon market fluctuations instead of local production strategies; and 4) further incentivising the privatization and commodification of land to avoid transaction costs associated with collective property rights. The article also advises against taking a strictly economic, market-based approach to carbon sequestration, arguing that such an approach could endanger fragile socio-ecological systems. REDD+ schemes should directly support existing efforts towards forest sustainability rather than simply compensating local land users for avoiding deforestation and forest degradation

The Impact of Human Asset Specificity on the Sourcing of Application Services

The question concerning the circumstances under which it is advantageous for a company to outsource certain information systems functions has been a controversial issue for the last decade. While opponents emphasize the risks of outsourcing based on the loss of strategic potentials and increased transaction costs, proponents emphasize the strategic benefits of outsourcing and high potentials of cost-savings. This paper brings together both views by examining the conditions under which both the strategic potentials as well as savings in production and transaction costs of developing and maintaining software applications can better be achieved in-house as opposed to by an external vendor. We develop a theoretical framework from three complementary theories and test it empirically based on a mail survey of 139 German companies. The results show that insourcing is more cost efficient and advantageous in creating strategic benefits through IS if the provision of application services requires a high amount of firm specific human assets. These relationships, however, are partially moderated by differences in the trustworthiness and intrinsic motivation of internal versus external IS professionals. Moreover, capital shares with an external vendor can lower the risk of high transaction costs as well the risk of loosing the strategic opportunities of an IS.

The Entrepreneurial Theory of the Firm and the Theory of the Entrepreneurial Firm

The entrepreneurial theory of the firm argues that entrepreneurship, properly understood, is a crucial but neglected element in explaining the nature and boundaries of the firm. By contrast, the theory of the entrepreneurial firm presumably seeks not to understand the nature and boundaries of "the firm" in general but rather to understand a particular type of firm: one that is entrepreneurial. This paper is an attempt to reconcile the two. After briefly delving for the concept of entrepreneurship in the work of Schumpeter, Kirzner, and (especially) Knight, the paper makes the case for the entrepreneurial theory of the firm. In such a theory, the firm exists as the solution to a coordination problem in a world of change and uncertainty, including Knightian or structural uncertainty. Taking a historical or developmental perspective, the paper then examines the changing nature of the entrepreneurial coordination problem over the life-cycle. In this formulation, "the entrepreneurial firm" is a nascent firm or proto-firm facing a problem of coordinating systemic change in economic capabilities. Lacking (by definition) adequate guidance from existing systems of rules of conduct embedded in markets or organizations, the entrepreneurial firm typically relies on a form of organization Max Weber called charismatic authority. In the end, although there is no such thing as a non-entrepreneurial firm, firms that must solve coordination problems in a world of novelty and systemic change ("entrepreneurial firms") are perhaps the purest case of the entrepreneurial theory of the firm.

A New Economic Analysis of the American Revolution

We offer an analysis of the American Revolution in which actors are modeled as choosing the sovereign organization that maximizes their net expected benefits. Benefits of secession derive from satisfaction of greed and settlement of grievance. Costs derive from the cost of civil war and lost benefit of Empire membership. When expected net benefits are positive for both secessionists and the Empire civil war ensues, otherwise it is settled or never begins in the first place. The novelty of our discussion is to show how diverse economic and non-economic factors (such as pamphleteering by Thomas Paine and the morale of the Revolutionary forces) can be integrated into a single economic model.

Property Law

This chapter examines the economics of property rights and property law. Property law is a fundamental part of social organization and is also fundamental to the operation of the economy because it defines and protects the bundle of rights that constitute property. Property law thereby creates incentives to protect and invest in assets and establishes a legal framework within which market exchange of assets can take place. The purpose of this chapter is to show how the economics of property rights can be used to understand fundamental features of property law and related extra-legal institutions. The chapter will both examine the rationale for legal doctrine and the effects of legal doctrine regarding the exercise, enforcement, and transfer of rights. It will also examine various property rights regimes including open access, private ownership, common property and state property. The guiding questions are: How are property rights established? What explains the variation in the types of property rights? What governs the use and transfer of rights? And, how are property rights enforced?

The trade credit in the Spanish agrofood industry

Selling on credit is rather frequent in Mediterranean countries. Its generalized use can lead to excessive enlargements of the payment periods and consequently can deteriorate the profitability of firms. In spite of the relevance of this problem there are few empirical researches. This work intends to fill this gap and to shed light on the factors related to the extension of trade credit. In the theoretical and empirical literature, different motives have been proposed to explain this issue: a mechanism to reduce transaction costs, a financial alternative to the bank system and an additional tool to improve commercial activities. To contrast these ideas a panel of 388 firms of the Spanish agrofood industry has been taken, and static and dynamic regression models have been estimated by using robust methods to heteroskedasticity, autocorrelation and endogeneity of the explanatory variables. The results confirm that trade credit receivable is associated with more active firms and with cheaper bank financing. Other factors with positive relationships are short-term bank debts and accounts payable. These findings are consistent with commercial motives, rather than a pure financial view, in the sense that financial distressed producers extend trade credit as a way of promoting their products and in turn increasing their sales.

The determinants of the vertical boundaries of the construction firm

In the last few years, transaction cost economics has become a popular theory within the construction research community. This approach has been singularly applied as a means to explain and predict phenomena concerning the construction firm, including its vertical boundaries. However, this is at a time when the chief proponents of transaction costs are urging researchers to take a pluralistic stance in relation to the theory of the firm. The aim of this paper is to develop a pluralistic approach to the vertical boundaries of the construction firm. In order to achieve this, an integrative framework is described, based on the development of the efficient boundaries problem and the capabilities approach to vertical integration. Specifically, this framework draws on the complementary strengths of transaction cost economics and the resource-based view. It is concluded that the potential relative merits of theoretical pluralism, in terms of the vertical boundaries of the construction firm, are sufficient grounds to motivate empirical testing of the predictions associated with the integrative framework of vertical integration presented

Forecasting stock returns using model-selection criteria

This paper examines the economic significance of return predictability in Australian equities. In light of considerable model uncertainty, formal model-selection criteria are used to choose a specification for the predictive model. A portfolio-switching strategy is implemented according to model predictions. Relative to a buy-and-hold market investment, the returns to the portfolio-switching strategy are impressive under several model-selection criteria, even after accounting for transaction costs. However, as these findings are not robust across other model-selection criteria examined, it is difficult to conclude that the degree of return predictability is economically significant.

Water rights for variable supplies

The relative merits of different systems of property rights to allocate water among different extractive uses are evaluated for the case where variability of supply is important. Three systems of property rights are considered. In the first, variable supply is dealt with through the use of water entitlements defined as shares of the total quantity available. In the second, there are two types of water entitlements, one for water with a high security of supply and the other a lower security right for the residual supply. The third is a system of entitlements specified as state-contingent claims. With zero transaction costs, all systems are efficient. In the realistic situation where transaction costs matter, the system based on state-contingent claims is globally optimal, and the system with high-security and lower security entitlements is preferable to the system with share entitlements.

Internal versus external R&D:a study of R&D choice with sample selection

This paper extends previous analyses of the choice between internal and external R&D to consider the costs of internal R&D. The Heckman two-stage estimator is used to estimate the determinants of internal R&D unit cost (i.e. cost per product innovation) allowing for sample selection effects. Theory indicates that R&D unit cost will be influenced by scale issues and by the technological opportunities faced by the firm. Transaction costs encountered in research activities are allowed for and, in addition, consideration is given to issues of market structure which influence the choice of R&D mode without affecting the unit cost of internal or external R&D. The model is tested on data from a sample of over 500 UK manufacturing plants which have engaged in product innovation. The key determinants of R&D mode are the scale of plant and R&D input, and market structure conditions. In terms of the R&D cost equation, scale factors are again important and have a non-linear relationship with R&D unit cost. Specificities in physical and human capital also affect unit cost, but have no clear impact on the choice of R&D mode. There is no evidence of technological opportunity affecting either R&D cost or the internal/external decision.