Transaction Costs and Institutions: Investments in Exchange

This paper proposes a simple model for understanding transaction costs for their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

Transaction Costs and Institutions

This paper proposes a simple framework for understanding endogenous transaction costs - their composition, size and implications. In a model of diversification against risk, we distinguish between investments in institutions that facilitate exchange and the costs of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocation may be decentralized. We highlight a number of differences with models where transaction costs are exogenous, including the implications for taxation and measurement issues.

Catholic Confession of Sins as Third-Party Moral Enforcement

Catholicism has built up a legalistic religion based on two pillars: salvation by works and 'auricular' confession of sins to a priest with judicial functions. Since the Reformation, many consider auricular confession inferior to less institutional and more individual conceptions of faith. This article analyzes how all these historical solutions trade off specialization advantages against exchange costs to produce moral enforcement. After showing the behavioral foundations of confession and the adaptiveness of its historical evolution, it tests hypotheses on its efficacy, exploitation and opportunity cost. Econometric evidence supports the efficacy but not the exploitative character of Catholic confession. It also explains its secular decline as a consequence of two factors. First, the rise in education, which makes moral self-enforcement less costly. Second, the productivity gap suffered by confession, given its necessarily interpersonal nature.

Subclavian vein catheter -related infection and hospital costs associated with exchange via a guidewire

An observational study was conducted in a SICU to determine the frequency of subclavian vein catheter-related infection at 72 hours, to identify the hospital cost of exchange via a guidewire and the estimated hospital cost-savings of a 72 hour vs 144 hour exchange policy.^ An overall catheter-related infection ($\geq$15 col. by Maki's technique (1977)) occurred in 3% (3/100) of the catheter tips cultured. Specific infections rates were: 9.7% (3/31) for triple lumen catheters, 0% (0/30) for Swan-Ganz catheters, 0% (0/30) for Cordes catheters, and 0% (0/9) for single lumen catheters.^ An estimated annual hospital cost-savings of $35,699.00 was identified if exchange of 72 hour policy were changed to every 144 hours.^ It was recommended that a randomized clinical trial be conducted to determine the effect of changing a subclavian vein catheter via a guidewire every 72 hours vs 144 hours. ^

Reconfiguration of distribution networks to minimize loss and disruption costs using genetic algorithms

In this paper a computational implementation of an evolutionary algorithm (EA) is shown in order to tackle the problem of reconfiguring radial distribution systems. The developed module considers power quality indices such as long duration interruptions and customer process disruptions due to voltage sags, by using the Monte Carlo simulation method. Power quality costs are modeled into the mathematical problem formulation, which are added to the cost of network losses. As for the EA codification proposed, a decimal representation is used. The EA operators, namely selection, recombination and mutation, which are considered for the reconfiguration algorithm, are herein analyzed. A number of selection procedures are analyzed, namely tournament, elitism and a mixed technique using both elitism and tournament. The recombination operator was developed by considering a chromosome structure representation that maps the network branches and system radiality, and another structure that takes into account the network topology and feasibility of network operation to exchange genetic material. The topologies regarding the initial population are randomly produced so as radial configurations are produced through the Prim and Kruskal algorithms that rapidly build minimum spanning trees. (C) 2009 Elsevier B.V. All rights reserved.

A study on reducing digital piracy: an analytical network process approach with benefits, opportunities, costs and risks analysis

Dissertação para obtenção do Grau de Mestre em Engenharia e Gestão Industrial

Price Transmission and Effects of Exchange Rates on Domestic Commodity Prices via Offshore and Currency Hedging

The framework presents how trading in the foreign commodity futures market and the forward exchange market can affect the optimal spot positions of domestic commodity producers and traders. It generalizes the models of Kawai and Zilcha (1986) and Kofman and Viaene (1991) to allow both intermediate and final commodities to be traded in the international and futures markets, and the exporters/importers to face production shock, domestic factor costs and a random price. Applying mean-variance expected utility, we find that a rise in the expected exchange rate can raise both supply and demand for commodities and reduce domestic prices if the exchange rate elasticity of supply is greater than that of demand. Whether higher volatilities of exchange rate and foreign futures price can reduce the optimal spot position of domestic traders depends on the correlation between the exchange rate and the foreign futures price. Even though the forward exchange market is unbiased, and there is no correlation between commodity prices and exchange rates, the exchange rate can still affect domestic trading and prices through offshore hedging and international trade if the traders are interested in their profit in domestic currency. It illustrates how the world prices and foreign futures prices of commodities and their volatility can be transmitted to the domestic market as well as the dynamic relationship between intermediate and final goods prices. The equilibrium prices depends on trader behaviour i.e. who trades or does not trade in the foreign commodity futures and domestic forward currency markets. The empirical result applying a two-stage-least-squares approach to Thai rice and rubber prices supports the theoretical result.

Relative price riddles in international business cycle theory: Are transport costs the explanation?

We study relative price behavior in an international business cyclemodel with specialization in production, in which a goods marketfriction is introduced through transport costs. The transporttechnology allows for flexible transport costs. We analyze whetherthis extension can account for the striking differences betweentheory and data as far as the moments of terms of trade and realexchange rates are concerned. We find that transport costs increaseboth the volatility of the terms of trade and the volatility of thereal exchange rate. However, unless the transport technology isspecified by a Leontief technology, transport costs do not resolvethe quantitative discrepancies between theory and data. Asurprising result is that transport costs may actually lower thepersistence of the real exchange rate, a finding that is in contrastto much of the emphasis of the empirical literature.

Cost-effectivness in a DRG system for two-step exchange of infected total joint arthroplasty

The costs related to the treatment of infected total joint arthroplasties represent an ever groving burden to the society. Different patient-adapted therapeutic options like débridement and retention, 1- or 2-step exchange can be used. If a 2-step exchange is used we have to consider short (2-4 weeks) or long (>4-6 weeks) interval treatment. The Swiss DRG (Diagnose related Groups) determines the reimboursement the hopsital receives for the treatment of an infected total arthroplasty. The review assesses the cost-effectiveness of hospitalisation practices linked to surgical treatment in the two-stage exchange of a prosthetic-joint infection. The aim of this retrospectiv study is to compare the economical impact between a short (2 to 4 weeks) versus a long (6 weeks and above) interval during a two-satge procedure to determine the financial impact. Retrospectiv study of the patients with a two-stage procedure for a hip or knee prosthetic joint infection at CHUV hospital Lausanne (Switzerland) between 2012 and 2013. The review analyses the correlation between the interval length and the length of the hospital stay as well as with the costs and revenues per hospital stay. In average there is a loss of 40′000 Euro per hospitalisation for the treatment of prosthetic joint infection. Revenues never cover all the costs, even with a short interval procedure. This economical loss increases with the length of the hospital stay if a long-term intervall is choosen. The review explores potential for improvement in reimbourement practices and hospitalisation practices in the current Swiss healthcare setting. There should be alternative setups to decrease the burden of medical costs by a) increase the reimboursment for the treatment of infected total joints or by b) splitting the hospital stay with partners (rapid transfer after first operation from center hospital to level 2 hospital and retransfer for second operation to center) in order to increase revenues.

The Anchoring Bias of Investors and the 52-Week High Momentum Strategy in the OMX Helsinki Stock Exchange: Psychological Approach to Market Efficiency

The behavioural finance literature expects systematic and significant deviations from efficiency to persist in securities markets due to behavioural and cognitive biases of investors. These behavioural models attempt to explain the coexistence of intermediate-term momentum and long-term reversals in stock returns based on the systematic violations of rational behaviour of investors. The study investigates the anchoring bias of investors and the profitability of the 52-week momentum strategy (GH henceforward). The relatively highly volatile OMX Helsinki stock exchange is a suitable market for examining the momentum effect, since international investors tend to realise their positions first from the furthest security markets by the time of market turbulence. Empirical data is collected from Thomson Reuters Datastream and the OMX Nordic website. The objective of the study is to provide a throughout research by formulating a self-financing GH momentum portfolio. First, the seasonality of the strategy is examined by taking the January effect into account and researching abnormal returns in long-term. The results indicate that the GH strategy is subject to significantly negative revenues in January, but the strategy is not prone to reversals in long-term. Then the predictive proxies of momentum returns are investigated in terms of acquisition prices and 52-week high statistics as anchors. The results show that the acquisition prices do not have explanatory power over the GH strategy’s abnormal returns. Finally, the efficacy of the GH strategy is examined after taking transaction costs into account, finding that the robust abnormal returns remain statistically significant despite the transaction costs. As a conclusion, the relative distance between a stock’s current price and its 52-week high statistic explains the profits of momentum investing to a high degree. The results indicate that intermediateterm momentum and long-term reversals are separate phenomena. This presents a challenge to current behavioural theories, which model these aspects of stock returns as subsequent components of how securities markets respond to relevant information.

Cross Listing of a Finnish Company on an Exchange in the United States of America

Finnish companies cross listing in the United States is an exceptional phenomenon. This study examines the cross listing decision, cross listing choice and cross listing process with associated challenges and critical factors. The aim is to create an in-depth understanding of the cross listing process and the required financial information. Based on that, the aim is to establish the process phases with the challenges and the critical factors that ought to be considered be- fore establishing the process plus re-evaluated and further considered at points in time during the process. The empirical part of this study is conducted as a qualitative study. The research data was collected through the adoption of two approaches, which are the interview approach and the textual data approach. The interviews were conducted with Finnish practitioners in the field of accounting and finance. The textual data was from publicly available publications of this phenomenon by the two BIG5 accounting companies worldwide. The results of this study demonstrate the benefits of cross listing in the U.S. are the better growth opportunities, the reduction of cost of capital and the production of higher quality financial information. In the decision making process companies should assess whether the benefits exceed the increased costs, the pressure for performance, the uncertainty of market recognition and the requirements of management. The exchange listing is seen as the most favourable cross listing choice for Finnish companies. The establishment of the processes for producing reliable, transparent and timely financial information was seen as both highly critical and very challenging. The critical success factors relating to the cross listing phases are the assessment and planning as well as the right mix of experiences and expertise. The timing plays important role in the process. The results mainly corroborate the literature concerning cross listing decision and choice. This study contributes to the literature on the cross listing process offering a useful model for the phases of the cross listing process.

A performance analysis of conventional and fundamental exchange traded funds: ETFs and their risk-return characteristics in relation to building institutional investor’s passive portfolio

An exchange traded fund (ETF) is a financial instrument that tracks some predetermined index. Since their initial establishment in 1993, ETFs have grown in importance in the field of passive investing. The main reason for the growth of the ETF industry is that ETFs combine benefits of stock investing and mutual fund investing. Although ETFs resemble mutual funds in many ways, also many differences occur. In addition, ETFs not only differ from mutual funds but also differ among each other. ETFs can be divided into two categories, i.e. market capitalisation ETFs and fundamental (or strategic) ETFs, and further into subcategories depending on their fundament basis. ETFs are a useful tool for diversification especially for a long-term investor. Although the economic importance of ETFs has risen drastically during the past 25 years, the differences and risk-return characteristics of fundamental ETFs have yet been rather unstudied area. In effect, no previous research on market capitalisation and fundamental ETFs was found during the research process. For its part, this thesis seeks to fill this research gap. The studied data consist of 50 market capitalisation ETFs and 50 fundamental ETFs. The fundaments, on which the indices that the fundamental ETFs track, were not limited nor segregated into subsections. The two types of ETFs were studied at an aggregate level as two different research groups. The dataset ranges from June 2006 to December 2014 with 103 monthly observations. The data was gathered using Bloomberg Terminal. The analysis was conducted as an econometric performance analysis. In addition to other econometric measures, the methods that were used in the performance analysis included modified Value-at-Risk, modified Sharpe ratio and Treynor ratio. The results supported the hypothesis that passive market capitalisation ETFs outperform active fundamental ETFs in terms of risk-adjusted returns, though the difference is rather small. Nevertheless, when taking into account the higher overall trading costs of the fundamental ETFs, the underperformance gap widens. According to the research results, market capitalisation ETFs are a recommendable diversification instrument for a long-term investor. In addition to better risk-adjusted returns, passive ETFs are more transparent and the bases of their underlying indices are simpler than those of fundamental ETFs. ETFs are still a young financial innovation and hence data is scarcely available. On future research, it would be valuable to research the differences in risk-adjusted returns also between the subsections of fundamental ETFs.

A graphic explanation on how a tax on exports neutralizes the Dutch disease without costs to exporters

The adequate way of neutralizing the Dutch disease is the imposition of a variable tax on the export of the commodity that originates the disease. If such tax is equivalent to the "size" of the Dutch disease, it will shifts to the right its supply curve of the commodity in relation to the exchange rate, giving the existing domestic supply and the international demand, the exchange rate will depreciate at the value of the tax, and the equilibrium exchange rate will move from the "current" to the "industrial" equilibrium.

Institutions, credibility and crisis: the inconsistencies of Argentine exchange rate policy (1991-2006)

The purpose of this article is twofold. The first is to explain the time inconsistencies of the convertibility regime that led to the 2001 crisis. The argument suggests that the credibility requirements for convertibility induced a dynamic of legal, fiscal, financial and external commitments that increased exit costs and time inconsistencies. The second objective is to explain the tensions of the floating regime that replaced convertibility in 2002. We describe the effects of a floating exchange rate on macroeconomic imbalance and the growing tension between competitiveness and inflation.