The success or failure of a futures contract is determined by its ability to provide benefits to economic agents, over and above the benefits they derive from the spot market. These benefits are price discovery and risk management through hedging. The extent to which different commodity and financial futures markets have served as efficient centres of price discovery and risk management has been the focus of considerable empirical research in the literature. The evidence however, on the BIFFEX market is very limited. This thesis therefore, by investigating these issues provides new evidence in the literature for a futures market with some unique characteristics such as the trading of a service and thin trading. Our empirical results are summarised as follows. First, the BIFFEX market performs its price discovery function efficiently since futures prices in the market contribute to the discovery ofnew information regarding both current and expected BFI prices. Second, futures prices fail to reduce market risk to the extent evidenced in other markets in the literature and, hence, the market does not perform its risk management function satisfactorily; this is thought to be the result of the heterogeneous composition of the underlying index. Sub-period analysis, corresponding to revisions in the composition of the underlying asset, indicates that the effectiveness of the BIFFEX contract as a centre for risk management and price discovery has strengthened over the recent years as a result of the more homogeneous composition of the index. This by itself indicates that the forthcoming elimination from the underlying index of the cargo routes for larger vessels, which will take place in November 1999, may have a beneficial impact on the market.

This thesis examines the methods that have been used by actuaries to describe and model the economic variables required for actuarial calculations. Traditionally actuaries have only used average future values to describe these variables and they have tended to use relatively informal methods for determining these averages. These informal methods are potentially subject to numerous biases. The likelihood of these biases occurring could be reduced by using the more formal methods of financial economics and stochastic modelling. Stochastic models also provide additional information that is essential for some applications. The main UK stochastic asset models that are considered include: Wilkie's (1995b) model, Dyson and Exley's (1995) expectations model, and Smith's (1996) jumpequilibrium model. Wilkie's model was developed primarily from data considerations, whilst the other two models were developed from theoretical considerations. Wilkie's model is shown to be inconsistent with the rational expectations hypothesis, the efficient market hypothesis, and aspects of portfolio theory. Dyson and Exley's model is shown to be inconsistent with portfolio theory. The jump-equilibrium model is consistent with most financial theories, but it is shown to produce returns with moments that are inconsistent with historical data. The importance of these limitations is then examined from a methodological perspective. This review emphasises the importance and difficulty of empirical testing. It also suggests that economic predictive success is always likely to be limited. As a result, it is argued that a model's pragmatic qualities are relatively more important than they would otherwise be, that a theoretical framework is invaluable for motivating economic models and for directing research activities, and that actuaries should aim to develop models with shorter time horizons. The empirical adequacy of financial economic theories is then examined and many persistent problems are reported. Despite these problems it is suggested that financial economics provides a useful theoretical framework. Lastly, the empirical adequacy of Wilkie's model is considered using the criteria of Hendry's (1995) general-to-specific approach. This review identifies some apparent weaknesses. In particular, the out-of-sample residuals from Wilkie's (1986a) model do not seem to be independent.

This exploratory research inquires into the effect that national culture, among other cross-national factors has upon perceptions of management control. It studies differences in control perceptions between mainland Chinese, Czech and British managers workingfor two Western multi-national companies (MNCs). Different perceptions can lead to misunderstanding and thence to weak, or break down in, control. Barriers of national culture and differences in national contexts pose ever greater challengesfor managers who need to provide or receive assurance that their business is under effective control. They also have implications for regulation of internal control of MNCs. Empirical cross-national research to date into management control is to a large extent inconsistent, and offers little supportfor theory. Existing theory appears to be insufficiently grounded in past empirical research to provide a sound foundation for hypotheses and future nomothetic research. Middle range methodology is put forward as a way out of this quandary. Middle range research between objectivist and subjectivist methodologies faces competing criteria for rigour. Criteria are interpreted for middle range methodologies and developedfor grounded theory case studies. The main features of the substantive theory from this grounded theory (Strauss and Corbin, 1998) case study are that there is no standard perception of management control. Control perception is therefore unpredictable from a manager's cultural background Yet, clear patterns in control perceptions emerge between countries of upbringing; these patterns are distinct from differences between the 2 MNCs. Six key areas of differences in perception are analysed (external relations, obligations of responsibility and accountability, internal relations, information, law and procedures, and systems logic). A number of values and preferences, generally shared by managers from the same country, appear to underlie these differences in perception. Differences in control perception are related to national cultures and other contextualfactors, yet all of these are seen as potentially interdependent. This substantive theory does not provide a basisfor prediction. It is a skeletal theory that can be transferred to other situations where researchers and practitioners find it applicable. It may there give awareness of possible differences in control perceptions, assist explanation, and contribute to the building of consistent knowledge and learning. Awareness and understanding of cultural differences in control perceptions are shown to be useful to ethnocentric or polycentric approaches to management control. They may also assist reconciliation of cultural differences for management that adopts a geocentric approach. Perceptions by the managers from the Czech Republic and mainland China are generally inconsistent with accountability theory, although not with a systems approach to management control. The implication is that some management control theories may be parochial to the cultures in which they have been developed. This has policy implicationsfor howfar professional guidance and standards on internal control (COSO, 1994; IIA - UK, 1994; APB, 1995; Turnbull, 1999) can be applied internationally without recognising the impact of national culture and other crossnational contextual factors.

This thesis consists of three papers on completion and conflict in three distinct but related settings. The first paper develops a model of tax compliance and enforcement where homogenous agents receive signals about how tolerant the tax authority is of evasion, and where the latter has imperfect means of detecting evasion. The main results show that increasing the quality of the information that taxpayers have about the tax authority’s tolerance of evasion may increase compliance. This is because if the signals are sufficiently informative, taxpayers are engaged in Bertrand-like competition: if all taxpayers are evading a similar amount, each will have a strong incentive to evade slightly below that amount in order to escape detection. This logic is directly opposed to the culture of secrecy that prevails in many tax administrations. The second paper, jointly written with Madhav Aney, deals with the question of how specialists in violence like the military or the police can commit not to abuse their coercive power. The answer that the paper provides is that competition between specialists in violence creates incentives for them not to expropriate from civilians. The main theoretical results are that these incentives become stronger as competition becomes more intense, both in terms of the number of specialists in violence and in the evenness of their strengths. The hypothesis that greater numbers of specialists in violence leads to less expropriation is tested using crosscountry regressions and found to be strongly consistent with the data, especially for the case of developing countries. The third paper analyses the equilibria of two-player imperfectly discriminating contests of the power-form under incomplete information. This paper develops a method for solving for the Bayesian Nash equilibria of such games by working backwards from the equilibrium distributions of effort, rather than forwards from the distributions of the agents’ types. This method is used to prove that there exist no distributions of type such that effort is an affine function of the type. The method is used to construct an equilibrium where effort is loglogistically distributed, carrying out comparative statics. This equilibrium is shown to be special in that it exhibits a formal equivalence to that in a contest with complete information.

The thesis examines the nature of the organization, both as a whole and as a stage set up for the members to interact. Chapter One considers why and how an organization as a whole, represented by its name, holds reputation, like a natural person, even thought it, unlike the latter, has no fixed self, or “type” as called in economics. The chapter finds that having names hold reputations improves the economic efficiency; it also discovers two mechanisms that drive organizational reputation. Chapter Two considers the optimal allocation of ownership of physical capital. The effect of the allocation on control receives little attention in the literature and is the focus of the chapter. Control means here to affect the project choice of the agent, while incentive means the choice of ex ante human capital investment and ex post effort. The chapter finds that the principal ownership improves control, yet reduces incentive of the agent, compared to the agent ownership; thus the former, called “integration”, happens iff the benefit of coordination outweighs the loss in incentive. Chapter Three provides a new angle of delineating the boundary of the firm, by the allocation of the liability to investors. In a Towsend economy, it examine all modes of financing, each defined by the according allocation of the liability; particularly, Financial intermediation (FI) is defined by the fact the monitor alone takes the liability. The real race is between FI and Conglomeration, where the entrepreneurs and the monitor form a conglomerate to take the liability. FI has “Number Advantage”: when default is declared, the investors audit one bank asset under FI but many entrepreneur projects under conglomerate. Conglomeration has “Collateral Advantage”: its collateral is the pool of the projects contains as a part the bank asset, the collateral of FI. Both FI and Conglomeration implement the benefit of diversification; indeed, under the perfect diversification, Conglomeration is as good as FI. The chapter thus challenges the view that the benefit of diversification drives Financial Intermediation (FI), a view first established by Diamond (1984) and well accepted by the literature.

This thesis examines the prospective value of social capital for developmental purposes. It contends that the role that social relationships play in poor actors’ efforts to cope with and move out of poverty needs to be assessed under a dual understanding of social structure, as both the medium and outcome of social action. The study adopts Bourdieu’s ‘theory of practice’ as its main theoretical approach. Actors’ investments in and uses of relationships were analysed in relation to their objective conditions—stocks of capital—and associated practices and strategies. Social capital was operationalised as both networks of relations (local, external, and vertical) and social resources (mediated access to assets of local economic relevance). This approach was empirically examined via a two-year longitudinal study that followed the experiences of residents of two poor rural villages located in the Department of Lambayeque, in Northern Peru, with regard to their quotidian practices and involvement in a participatory development intervention that conducted basic infrastructure, productive, and informational investments. The study used a mixed-method approach comprising in-depth and unstructured interviews with residents and project staff; household surveys (three waves); and participatory observation. The evidence obtained showed that residents make extensive use of their relationships for economic purposes. Most valuable social resources and connections, however, were unequally accessed by residents according to their levels of poverty. This unequal (re)production of social capital was found to be related to actors’ material conditions and quotidian practices. This social dynamic tended to be reproduced within the participatory intervention examined, leading to an unequal expansion of social capital and related benefits among its beneficiaries. The study concludes that the structural conditionality of the processes of using and building social capital makes it intimately associated with socioeconomic inequalities. The theoretical and practical implications of this work are discussed in the concluding chapter.

This thesis examines the determinants inequality and its effects on macroeconomic outcomes, and in particular the economic effects of bankruptcy law. The first two chapters are joint work with Jochen Mankart. In the first chapter, we examine the effects of Chapter 7 of the US bankruptcy law on entrepreneurs. Entrepreneurs are subject to production risk. They can borrow and if they fail they can default on their debt. We examine the optimal wealth exemption level and the optimal credit market exclusion duration in this environment. In the second chapter, we introduce secured credit, in addition to unsecured credit in a model that is similar to the one in the first chapter. Secured credit lowers the cost of a generous bankruptcy regime because agents who are rationed out of the unsecured credit market can still obtain secured credit. Therefore, the optimal exemption level is very high. In the third chapter, I estimate stochastic process for earnings of Italian individuals. I find that individual’s earnings present statistically significant heterogeneity both in levels and in growth rates that is determined before the beginning of economic activity. In the fourth chapter, I analyze the quantitative effects of introducing immediate debt discharge (fresh start) in the procedures of personal bankruptcy law on the saving and default decisions of Italian household. I find that introducing fresh start in the Italian bankruptcy law would worsen credit conditions, without almost any benefit in terms of better insurance. The fifth chapter is joint work with Emanuele Tarantino and Nicolas Serrano-Velarde. In this chapter we exploit the recent reform of bankruptcy law in Italy to analyze the effects of bankruptcy regulation on the cost of credit. We find that strengthening firms’ rights to renegotiate outstanding deals with creditors increased the costs of funding, while simplifying the procedure of liquidation decreased the costs of funding. In the sixth chapter, I show that credit market imperfections are not necessary to generate an individual poverty trap.

The dissertation examines several policy-related implications of relaxing the assumption that economic agents are guided by rational expectations. A first, introductory chapter presents the main technical issues related to adaptive learning. The second chapter studies the implications for monetary policy of positing that both the private sector and the central bank form their expectations through adaptive learning and that the central bank has private information on shocks to the economy but cannot credibly commit. The main finding of this chapter is that when agents learn adaptively a bias against activist policy arises. The following chapter focuses on large, non-linear models, where no unambiguous linear approximation eligible as perceived law of motion exists. Accordingly, there are heterogeneous expectations and the system converges to a misspecification equilibrium, affected by the communication strategies of the central bank. The main results are: (1) the heterogeneity of expectations persists even when a large number of observations are available; (2) the monetary policymaker has no incentive to be an inflation hawk; (3) partial transparency enhances welfare somewhat but full transparency does not. The final chapter adopts a model in which agents are fully informed and use Bayesian techniques to estimate the hidden states of the economy. The monetary policy stance is unobservable and state-independent, generating uncertainty among agents, who try to gauge it from inflation: a change in consumer prices that confirms beliefs reduces stock risk premia, while a change that contradicts beliefs drives the risk premia upward. This may generate a negative correlation between returns and inflation that explains the Fisher puzzle. The model is tested on US data. The econometric evidence suggests: (1) that a mimickingportfolio proxying for monetary policy uncertainty is a risk factor priced by financial markets; and (2) that conditioning on monetary uncertainty and fundamentals eliminates the Fisher puzzle.

This dissertation contains three essays on self-enforcing implicit contracts in economic transactions and politics. Chapter 2 studies a repeated agency model with two tasks where the agent has private information on the first task and there is no verifiable performance signal for the second task. The equilibrium level of the first task is determined so as to guarantee the credibility of the relational contracts to provide incentives for the second task. It implies interesting economic results including non-monotonic relation between the discount factor and the total surplus, social desirability of unverifiability, and implications for organization design. Chapter 3 studies a model of political contribution of dynamic common agency where state-contingent agreements must be self-enforced. First, we investigate the punishment strategy for supporting the self-enforcing mechanism. The most severe punishment strategy on the principals takes the form of a two-phase scheme in general. Second, we characterize the payoff set of the equilibria on which the same decision is chosen by the agent through implicit agreements and examine whether it can achieve the same payoff as in the standard static menu auction model. It implies that there could be an equilibrium outcome in a static menu auction that cannot be supported in our model for any discount factor. Chapter 4 studies repeated political competition with policy-motivated citizen candidates. The dynamic relationship could cause strategic candidacy in two-candidate competition, such as in circumstances where two candidates stand for election and one of them has no chance to win. The candidate can choose her implementing policy depending on the set of the rival candidates in the election and the rival candidate actually has an incentive to stand even with no chance to win since it can induce policy compromises from the winning candidate.

In this thesis we examine the relationship between corporate bond spreads and economic activity in eight European countries using data on 500 corporate bonds between July 1994 and May 2011 for the United Kingdom and between October 2001 and May 2011 for Austria, Belgium, France, Germany, Italy, Netherlands and Spain. We construct a unique dataset of corporate bond spreads from bond-level data employing a similar methodology to Gilchrist and Zakrajsek (2012a) in the United States. Thus, we ensure that our credit spread measure is not distorted by illiquidity, embedded options, or mismatched maturities and coupon schedules between the two bond instruments being compared. We evaluate the importance of the country-level corporate bond spread index in .predicting the future growth in real activity at the individual country level for various measures of economic activity (such as industrial production, unemployment available at monthly frequency; and employment and real GOP available at quarterly frequency). We find that the credit spread index is a consistent predictor of real activity even when we include measures of monetary policy tightness (such as the term spread and the real interest rate), other leading indicator variables (economic sentiment and consumer confidence) and factors extracted from a large macro dataset. Our results are consistent at different forecasting horizons and are robust to different measures of the credit spread index. We then decompose the credit spread by purging it of expected default, tax and liquidity premia in an attempt to determine what component accounts for its information Content. We find that the excess bond premium, an indicator of financial market tightness, is the major driving source of the spread's predictive content. When)He compare the predictive ability of the credit spread and the excess bond premium across individual countries within the Euro area and Outside the Euro area, we find that mainly the core European countries have similar predictive ability, while the other countries in the Euro area and the UK are more heterogeneous.