Chapter one presents a critical and detailed review of the stochastic frontier methodology from a macro-data perspective.  The advantages over the standard growth accounting approach are emphasised, and the main features of the translog production function, used throughout the thesis, are discussed. Chapter two uses the stochastic frontier approach to estimate different specifications of the production function, technological catch-up (efficiency improvements) and technological change (shifts in the production frontier) for 57 developing countries over the period 1960-1990.  It is well known that alternative specifications of the production function lead to ambiguous empirical evidence for competing theories of economic growth (Durlauf and Quah 1999).  Therefore, tests are performed to find the specification in line with the data under analysis.  Then the important issue of the role of human capital in the process of economic growth is also investigated, since it is not yet unambiguously determined (Islam 1995, p.1154).  Chapter three analyses the results based on Model 4* (Chapter 2) in more detail to provide a consistent decomposition of output growth.  The evolution of the entire distribution of the growth and productivity sources is analysed and a formal test for assessing the importance of growth factors is performed. With respect to regression analysis, this approach is likely to be more informative (Quah, 1996a,b, 1997).  The base of both the test and the visual analysis is the non-parametric kernel density estimator. The findings in the previous chapters motivate Chapter 4 of the thesis, which further explores the relative importance of FDI, imports of capital goods and human capital accumulation in the development process.

This work considers how it is that company structures, based on hierarchy, are able to persist over time. This question, though simple, is basic to industrial society, since although business organizations do in general operate with sufficient cohesion to produce their goods/services for sale, the traditional hierarchical structure has on occasions come under attack. Our aim will be to establish and understand the conditions under which hierarchy is able to persist - or conversely, under what conditions we might expect it to come apart. Our consideration does not however, preclude the possibility that the attack on hierarchy is more apparent than real - that any attack is at the level of limited ideology rather than social praxis. Hence it will be our position that we shall suspend belief in the persistence of the hierarchical structure and in this way be able to consider the conditions both for its persistence, and also for any challenge to be made to it. By pursuing the initial problem in this way we do not preclude the possibility of either 1) the permanence of hierarchy, or 2) the inevitability of its replacement with more/less democratic structures. Our aim is to understand the conditions for the persistence of hierarchical structures, and by implication the conditions under which they may be challenged by more democratic structures. There are two important features to our theoretical perspective: A) the process of knowledge selection to produce and structure expectations, B) a theory of power to structure the situation in which these expectations are made. In respect of the former we shall rely heavily on the work of Schutz, Habermas, and of Laing and Esterson, while for the latter we shall consider Lukes' three dimensional theory of power, developed from the perspective of Habermas, and in particular his Ideal Speech Thesis. This will result in a theory of the Lifeworld, which while substantially consistent with Schutz continues to establish in what respects the Lifeworld creates but conceals the possibility of the exercise of power. The importance of Schutz for us is that he provides a theoretical basis for knowledge creation for the individual social actor, and the structuring of knowledge into categories, which is consistent with our own view. We shall argue, however, that the view presented by Schutz does not take adequate account of the `restricting' or `limiting' aspects of the Lifeworld and the taken-for-grantedness (or uncritical attitude) which it sets up - that as Morgan's `Images' suggests the Lifeworld (as our `subjective stock of knowledge') can be a `Psychic Prison'. This argument in turn leads on to possible exercises of power of which the participants (ie power holder and subject) are not conscious. This will be developed by reference to Habermas's work. The importance of Lukes is his provision of an analytical framework for power, which recognises that power is a concept of greater variation than has been realised. Lukes, however, does not make sufficiently clear the meaning - particularly at the empirical level - of his third ('radical') dimension of power. For this reason we shall introduce the thesis of ideal speech, put forward by Habermas, to clarify and extend Lukes' work in a manner which is theoretically and empirically stronger, and methodologically more practical. We shall use a synthesis of Lukes and Habermas as a basis for our analysis of the social situation in which expectations are a) structured b) developed as a project in a social situation. By bringing together these two elements (ie the Habermasian adaption of Schutz and Lukes) we shall argue that individuals make expectations on their company which they develop from their Lifeworld and its subjective stock of knowledge. This process of knowledge selection and development of expectations, analytically sets a number of issues which shall be important to us in considering whether there is the social asymmetry we suggested exists as a support to existing organizational structures: 1) the knowledge selected may be so structured as to forestall the development of particular expectations, or so constrain behaviour that, in either situation, the structure of the organization goes unchallenged. 2) expectations can only be satisfied in competition with others - hence interaction with other employees will be important and particularly the Lifeworld definition of these employees (for instance competition between Management and Hourly paid may be influenced by the definition which the latter make of the former). 3) expectations shall be arbitrated upon by the company decision-making system (ie by the individual/group who have the authority to make the decision in question). At a relatively superficial level we must consider the values of this individual/group - but we have to go still deeper to understand the conditions under which this authority is regarded as legitimate or conversely regarded as illegitimate. These issues are closely connected since the legitimacy and illegitimacy or the decision-making system are largely determined - in our model - by the selection of knowledge, part of which is constituted by one's experience and/or interaction with other employees, as well as wider social knowledge which is employed by defining and interpreting the behaviour of others to develop expectations. Our perspective on this process is composed of two parts: 1) Employees make expectations of their company. 2) These expectations are generated in a process of experience and learning. We see no causal implications in this, but instead take the view that employees select from the knowledge available to them, in order to structure, guide and justify their behaviour. For instance this may be to A) justify the expectation of having more influence in their company's decision-making, and to indicate what would be appropriate behaviour to this end. Or alternatively B) indicate that this is not a reasonable expectation, and not a reasonable form of behaviour. Similarly the knowledge which is accessible can be employed to define and interpret the behaviour of relevant others in their own group and throughout the work situation -to account for, and explain what is happening, to foretell how to behave/not behave in the future. The process can, in other words, encourage or discourage the taking up of particular projects. Our particular interest is the dominance of hierarchy is maintained, restraining the development of more democratic organizational forms.

This thesis contains three essays on the macroeconomics of inequality. The first chapter analyses the effects of minimum wages on inequality. While there has been intense debate in the empirical literature about the effects of minimum wages on inequality in the US, its general equilibrium effects have been given little attention. In order to quantify the full effects of a decreasing minimum wage on inequality, I build a dynamic general equilibrium model, based on a two-sector growth model where the supply of high-skilled workers and the direction of technical change are endogenous. I find that a permanent reduction in the minimum wage leads to an expansion of low-skilled employment, which increases the incentives to acquire skills, thus changing the composition and size of high-skilled employment. These permanent changes in the supply of labour alter the investment ow into R&D, thereby decreasing the skill-bias of technology. The reduction in the minimum wage has spill-over effects on the entire distribution, affecting upper-tail inequality. Through a calibration exercise, I find that a 30 percent reduction in the real value of the minimum wage, as in the early 1980s, accounts for 15 percent of the subsequent rise in the skill premium, 18.5 percent of the increase in overall inequality, 45 percent of the increase in inequality in the bottom half, and 7 percent of the rise in inequality at the top half of the wage distribution. In the second chapter, I construct a model, where the supply of skills and the skill premium can increase jointly, as occurred in the US over the past few decades. I high- light the importance of the joint determination of the direction of technical change and skill formation. There is a positive feedback between these two variables. Technological progress is driven by profit oriented R&D firms, where profits are increasing in the amount of labour that is able to use these technologies. Therefore, when the supply of high-skilled 3labour increases, technology endogenously becomes more skill-biased. A more skill-biased technology leads to a higher skill premium, which increases the incentives to acquire educa- tion, and the supply of high-skilled labour rises. During the transition to the steady state, both quantities increase simultaneously. I map the dependence of the transition path of the economy on the initial skill supply and relative technology between the high- and the low-skilled sector. I find that, contrary to the previous literature, the skill premium and the skill supply can increase jointly even if the bias of technology is weak. In the third chapter, I relate the degree of progressivity of the income tax scheme to the prevailing income inequality in the society. I find that, consistent with the data, more unequal societies implement more progressive income tax systems. I build a model of political coalition formation, where different income groups have to agree on a tax scheme to finance the public good. I show that, the greater income inequality is, i.e. the further away the rich are from the rest of the population, the less able they are to credibly commit to participating in a coalition. Therefore, as income inequality rises, the rich are increasingly excluded from the design of the income tax scheme. Consequently, the rich bear a larger fraction of the public good, and the tax system becomes more progressive.

How do financial reforms affect the allocation of production within an economy and its long-run macroeconomic performance? How does the impact of financial reforms interact with the effects of other policy reforms or the influence of an economy’s structural characteristics? These are the central themes of this thesis. Chapter 2 examines how financial and trade reforms interact in determining the allocation of production within a general equilibrium heterogeneous firm trade model. While the two reforms have complementary effects on average productivity, the marginal benefits of trade liberalization for wages and household utility are reduced if much reallocative work has been done through a well-functioning financial sector. Financial reforms can spill over internationally via trade channels and greater usage of exports as collateral can enhance the benefits of trade reforms. Chapter 3 analyzes how domestic and international financial reforms shift production across firms and sectors. Using a modified macro credit multiplier model, changes in credit constraints prompt reallocations in production as firms respond to adjustments in sectoral relative prices and interest rates. Financial reforms generally lead to higher relative investment by more productive firms and to increased aggregate productivity. Intra-sectoral reallocations smooth out the steady state comparative static effects of financial reforms. Structural features of an economy condition the impact of financial reforms. Similarly, the impact of capital account liberalization depends upon the state of domestic financial reforms. Recent work has highlighted the potential for “threshold” levels of domestic 3institutional development above which the potential growth benefits of financial openness offset the associated risks. Chapter 4 provides a wide-ranging empirical analysis of potential threshold conditions using parametric and semi-parametric methods. It finds that there are clearly identifiable thresholds in variables such as financial depth and institutional quality and that the thresholds are lower for foreign direct investment and portfolio equity liabilities compared to those for debt liabilities.

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This thesis contributes to the theoretical literature that analyses the link between international asset trade and international risk sharing. Despite the massive increase in cross-border asset trade since the 1990's, consumption risk sharing across countries remains limited. In standard international business cycle models, efficient risk sharing requires that consumption should be higher in the country where it is cheaper to consume, implying a high positive correlation between relative consumption and real exchange rate, which is strongly rejected in the data. Recent contributions show that it is possible to account for this so-called 'consumption-real exchange rate anomaly' in models with goods and financial market frictions where international asset trade is restricted to a single non-contingent bond. Chapter 1 analyses whether this class of models can account for the anomaly under a richer asset market structure where agents can trade in domestic and foreign currency bonds. Even such a small departure from the single bond economy implies too much risk sharing compared to the data although the number of assets that can be traded is less than the number of shocks affecting each economy. Introducing demand shocks alongside sector-specific productivity shocks can improve the performance of the model only under specific parameter and monetary policy settings. Chapter 2 extends this analysis to study the implications of international trade in equities, portfolio transaction costs and recursive utility. Chapter 3 studies the interaction between monetary policy and foreign currency positions in more detail. Different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal ex- change rate. These external positions, in turn, affect the cross-border transmission of monetary policy shocks via a valuation channel. The way export prices are set has important implications for optimal foreign currency positions and the valuation channel when prices are sticky and financial markets are incomplete. Chapter 4 compares the international transmission of uncertainty shocks under alternative asset markets with an emphasis on the behaviour of net foreign assets, exchange rate and currency risk premium and shows that a model with restricted asset trade performs better than a model with complete financial integration in matching certain aspects of the data regarding the dynamics of these variables in response to increased macroeconomic uncertainty.

This thesis consists of three essays, all of which use the tools of economic theory to analyze specific situations in which multiple strategic agents interact with each other. The first chapter studies the strategic transmission of information between an informed expert and a decision maker when the latter has access to imperfect private information relevant to the decision. The main insight of the paper is that the access to private information of the decision maker hampers the incentives of the expert to communicate. Surprisingly, in a wide range of environments, the decision maker's information cannot make up for the loss of communication and the welfare of both agents diminishes. The second chapter presents a model of electoral competition between an in- cumbent and a challenger in which the voters receive more information about the quality of the incumbent. If the incumbent can manipulate the information received by the voters through costly effort, the model predicts an incumbency advantage, even though the two candidates are drawn from identical symmetric distributions, and the voters have rational expectations. It is also shown that a supermajority re-election rule improves welfare, mainly through discouraging low-quality politicians from manipulating the information. Finally the third chapter uses a mechanism design approach to characterize the class of social choice functions which cannot be profitably manipulated, when the individuals have symmetric single-peaked preferences. Our result allows for the design of social choice functions to deal with feasibility constraints.

Econometric modelling and statistical inference are considerably complicated by the possibility of correlation across data data recorded at different locations in space. A major branch of the spatial econometrics literature has focused on testing the null hypothesis of spatial independence in Spatial Autoregressions (SAR) and the asymptotic properties of standard test statistics have been widely considered. However, finite sample properties of such tests have received relatively little consideration. Indeed, spatial datasets are likely to be small or moderately-sized and thus the derivation of finite sample corrections appears to be a crucially important task in order to obtain reliable tests. In this project we consider finite sample corrections based on formal Edgeworth expansions for the cumulative distribution function of some relevant test statistics. In Chapter 1 we provide the background for the results derived in this thesis. Specifically, we describe SAR models together with some established results in first order asymptotic theory for tests for independence in such models and give a brief account on Edgeworth expansions. In Chapters 2 and 3 we present refined procedures for testing nullity of the spatial parameter in pure SAR based on ordinary least squares and Gaussian maximum likelihood, respectively. In both cases, the Edgeworth-corrected tests are compared with those obtained by a bootstrap procedure, which is supposed to have similar properties. The practical performance of new tests is assessed with Monte Carlo simulations and two empirical examples. In Chapter 4 we propose finite sample corrections for Lagrange Multiplier statistics, which are computationally particularly convenient as the estimation of the spatial parameter is not required. Monte Carlo simulations and the numerical implementation of Imhof's procedure confirm that the corrected tests outperform standard ones. In Chapter 5 the slightly more general model known as \mixed" SAR is considered. We derive suitable finite sample corrections for standard tests when the parameters are estimated by ordinary least squares and instrumental variables. A Monte Carlo study again confirms that the new tests outperform ones based on the central limit theorem approximation in small and moderately-sized samples.

The thesis focuses on valuation and hedging problems when the market is incomplete. The Örst essay considers the quadratic hedging strategy. We propose a generalized quadratic hedging strategy which can balance a short-term risk (additional cost) with a long-term risk (hedging errors). The traditional quadratic hedging strategies, i.e. self-Önancing strategy and risk-minimization strategy, can be seen as special cases of the generalized quadratic hedging strategy. This is applied to the insurance derivatives market. The second essay compares parametric and nonparametric measure-changing techniques. The essay discusses three pricing approaches: pricing via Esscher measure, via calibration and via nonparametric risk-neutral density; and empirically compares the performance of the three approaches in the metal futures markets. The last essay establishes the concept of stochastic volatility of volatility and proposes several estimation methods.

In the first chapter of my Thesis I propose a model of front-running in noisy market environment. I demonstrate that even if the front-runner/predator has no initial knowledge about the position of a distressed trader he will be still able to front-run his orders in a linear Bayesian-Nash equilibrium. This is possible because initial orders of the distressed trader tend to reveal his initial position. The contribution of this chapter is also in the analysis of long-term dynamics of predatory trading under Gaussian uncertainty. Second chapter treats about the dark-pools of liquidity which are highly popular systems that allow participants to enter unpriced orders to buy or sell securities. These orders are crossed at a specified time at a price derived from another market. I present an equilibrium model of coexistence of dark-pools of liquidity and the dealer market. Dealer market provides the immediate execution, whereas the dark-pool of liquidity provides lower cost of trading. Risk-averse agents in equilibrium optimally choose between safe dealer market and cheaper dark-pool of liquidity. In the third chapter I solve for a partial-equilibrium optimal consumption and investment problem, when one of the investment assets is traded infrequently. Opportunity to trade the "illiquid asset" arises upon the occurrence of a Poisson event. Only when such event occurs a trader is able to change (increase or decrease) her position in the illiquid asset. The investor can consume continuously from the bank account. After deriving HJB equation, I analyze in details the implications of illiquidity on the optimal level of consumption, allocation and welfare. The optimal policy is solved using algorithm from aeronautics.