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This paper presents a novel model of the lending process that takes into account that loan officers must spend time and effort to originate new loans. Besides generating predictions on loan officers’ compensation and its interaction with the loan review process, the model sheds light on why competition could lead to excessively low lending standards. We also show how more intense competition may fasten the adoption of credit scoring. More generally, hard-information lending techniques such as credit scoring allow to give loan officers high-powered incentives without compromising the integrity and quality of the loan approval process.
Dieser Text fasst eine Studie zusammen, die für das Bundesministeriums für Ernährung, Landwirtschaft und Verbraucherschutz verfasst wurde und sich mit dem Kundennutzen von Anlageberatung auseinandersetzt. Das erhebliche Potenzial von interessenskongruenter Anlageberatung wird aufgezeigt und die aktuell geringe Leistungstransparenz im Markt kritisiert. Es wird empfohlen, ein standardisiertes Vokabular für Depotrisiken einzuführen und den Zugang aller Anleger zu leicht verständlichen und vergleichbaren Informationen zu historischem Depotrisiko und historischer Deporendite sicherzustellen. Die Studie fokussiert auf Wertpapierberatung und damit zuvorderst auf jene Teilmenge von Verbrauchern, die über Anlagevermögen verfügen. Die Grundideen zu Leistungstransparenz und standardisiertem Risikovokabular lassen sich jedoch auch z.B. auf den Alterssicherungsmarkt übertragen.
When parties present divergent econometric evidence, the court may view such evidence as contradictory and thus ignore it completely, without conducting closer analysis. We develop a simple method for distinguishing between actual and merely apparent contradiction based on the statistical concept of the “severity” of the furnished evidence. Again using “severity”, we also propose a method for reconciling divergent findings in instances of mere seeming contradiction. Our chosen application is that of damage estimation in follow-on cases.
A theory of the boundaries of banks with implications for financial integration and regulation
(2015)
We offer a theory of the "boundary of the
rm" that is tailored to banking, as it builds on a single ine¢ ciency arising from risk-shifting and as it takes into account both interbank lending as an alternative to integration and the role of possibly insured deposit funding. Amongst others, it explains both why deeper economic integration should cause also greater financial integration through both bank mergers and interbank lending, albeit this typically remains ine¢ ciently incomplete, and why economic disintegration (or "desychronization"), as currently witnessed in the European Union, should cause less interbank exposure. It also suggests that recent policy measures such as the preferential treatment of retail deposits, the extension of deposit insurance, or penalties on "connectedness" could all lead to substantial welfare losses.
Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.
This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining.
Angesichts des kürzlich von der Bundesregierung verabschiedeten Konjunkturpakets, stellen sich die Autoren des Policy Letters die Frage, ob und inwieweit die angekündigte Mehrwertsteuersenkung sowie der Kinderbonus zur substantiellen Ankurbelung des Binnenkonsums führt. Aus den für das Haushaltskrisenbarometer erhobenen Daten zu Einkommensänderungen sowie Einkommens- und Kündigungserwartungen, können die Ökonomen keine zu erwartende Schwächung der Binnennachfrage ableiten. Der überwiegende Teil der deutschen Wohnbevölkerung scheint kurzfristig nicht davon auszugehen, finanzielle Einbußen aufgrund der Pandemie zu erleiden. Die Erwartungen hinsichtlich der künftigen Einkommensentwicklung haben sich gar über die letzten vier Umfragewellen graduell verbessert. Ferner kann dargelegt werden, dass weder die Konsum- noch die Sparneigung durch die Corona-Krise zum gegenwärtigen Zeitpunkt langfristig stark beeinflusst wird. So geben derzeit lediglich 10 Prozent der Befragten an, größere Anschaffungen angesichts der Pandemie vollständig gestrichen zu haben. Anfang April 2020 lag dieser Wert noch bei 16 Prozent. Die Befragten berichteten in 71 Prozent der Fälle ihre Konsumpläne und in 78 Prozent der Fälle ihre Sparverhalten nicht geändert zu haben. Im Lichte dieser Ergebnisse lassen sich Maßnahmen, die auf eine unspezifische Stimulierung der Binnennachfrage abzielen, nicht substantiell begründen und rechtfertigen.
Die notwendige ökologische Transformation aber auch darüberhinausgehend die zunehmenden Erwartungen, die Gesellschaft und Politik an die Wirtschaft stellen, erfordern eine Prüfung des Wettbewerbsrechts und seiner Durchsetzung, insbesondere auch der dabei verwendeten (ökonomischen) Konzepte und Methoden, dahingehend, ob die aktuelle Praxis nicht einer stärkeren Berücksichtigung von Nachhaltigkeitszielen in unbegründeter Weise im Wege steht. Auf europäischer Ebene hat der Diskurs darüber im Jahr 2021 erheblich an Fahrt gewonnen. Wir stellen wesentliche Initiativen dar. Dabei zeigt sich unseres Erachtens allerdings auch, dass für eine konstruktive Weiterentwicklung noch die nötigen konzeptionellen und methodischen Grundlagen fehlen.
This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and- trading system optimally governs both firms` abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.
Agencies around the world are in the process of developing taxonomies and standards for sustainable (or ESG) investment products. A key assumption in our model is that of non-consequentialist private investors (households) who derive a "warm glow" decisional utility when purchasing an investment product that is labelled as sustainable. We ask when such labelling is socially beneficial even when the socialplanner can impose a minimum standard on investment and production. In a model of financial constraints (Holmström and Tirole 1997), which we close to include consumer surplus, we also determine the optimal labelling threshold and show how its stringency is affected by determinants such as the prevalence of warm-glow investor preferences, the presence of social network effects, or the relevance of financial constraints at the industry level.
We consider an imperfectly competitive loan market in which a local relationship lender has an information advantage vis-à-vis distant transaction lenders. Competitive pressure from the transaction lenders prevents the local lender from extracting the full surplus from projects, so that she inefficiently rejects marginally profitable projects. Collateral mitigates the inefficiency by increasing the local lender’s payoff from precisely those marginal projects that she inefficiently rejects. The model predicts that, controlling for observable borrower risk, collateralized loans are more likely to default ex post, which is consistent with the empirical evidence. The model also predicts that borrowers for whom local lenders have a relatively smaller information advantage face higher collateral requirements, and that technological innovations that narrow the information advantage of local lenders, such as small business credit scoring, lead to a greater use of collateral in lending relationships. JEL classification: D82; G21 Keywords: Collateral; Soft infomation; Loan market competition; Relationship lending
This article shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors’ bargaining positions. And yet, entrepreneurs’ incentives may be improved, because projects funded by investors with ‘‘shallow pockets’’ must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our article may help understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add more capital once the initial venture capital fund is raised. (JEL G24, G31)
This paper shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors’ bargaining positions. And yet, entrepreneurs’ incentives may be improved, because projects funded by investors with “shallow pockets” must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our paper may help to understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add more capital once the initial venture capital fund is raised.
This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run. JEL Classifications: G24; G32 Keywords: Venture capital; dynamic investment; product market competition