Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2025.112167
Yossi Spiegel
I examine the difference between the balance of probabilities and the balance of harms standards in merger control. I show that both standards take into account the entire distribution of post-merger outcomes, but the former focuses on the median outcome whereas the latter focuses on the mean outcome. Consequently, a shift from a balance of probabilities to a balance of harms standard broadens the set of mergers that are blocked if the distribution of post-merger outcomes is skewed to the left and conversely if it is skewed to the right.
{"title":"The balance of probabilities vs. the balance of harms in merger control","authors":"Yossi Spiegel","doi":"10.1016/j.econlet.2025.112167","DOIUrl":"10.1016/j.econlet.2025.112167","url":null,"abstract":"<div><div>I examine the difference between the balance of probabilities and the balance of harms standards in merger control. I show that both standards take into account the entire distribution of post-merger outcomes, but the former focuses on the median outcome whereas the latter focuses on the mean outcome. Consequently, a shift from a balance of probabilities to a balance of harms standard broadens the set of mergers that are blocked if the distribution of post-merger outcomes is skewed to the left and conversely if it is skewed to the right.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112167"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143165986","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2025.112168
Markus Behn, Jan Hannes Lang, Alessio Reghezza
What do 120 years of data say about the relationship between geopolitical risk and bank solvency? We find that a two standard deviation increase in a geopolitical risk index is associated with a decrease in the bank capital-to-asset ratio of around 0.2 percentage points. The effect is non-linear: only very high geopolitical risk leads to a sizeable decline in bank capitalisation, while more moderate increases of the index exert a negligible impact. This suggests that only major geopolitical events are likely to affect bank solvency to a degree that can endanger financial stability.
{"title":"120 years of insight: Geopolitical risk and bank solvency","authors":"Markus Behn, Jan Hannes Lang, Alessio Reghezza","doi":"10.1016/j.econlet.2025.112168","DOIUrl":"10.1016/j.econlet.2025.112168","url":null,"abstract":"<div><div>What do 120 years of data say about the relationship between geopolitical risk and bank solvency? We find that a two standard deviation increase in a geopolitical risk index is associated with a decrease in the bank capital-to-asset ratio of around 0.2 percentage points. The effect is non-linear: only very high geopolitical risk leads to a sizeable decline in bank capitalisation, while more moderate increases of the index exert a negligible impact. This suggests that only major geopolitical events are likely to affect bank solvency to a degree that can endanger financial stability.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112168"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166046","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2025.112186
Peter Katuščák , Tomáš Miklánek
Material incentives to contribute can act as a tool for increasing social efficiency in the voluntary contribution mechanism (VCM) for provision of public goods. Evidence on whether such incentives increase the net fundraised amount is mixed, however. Are the incentives weak relative to their cost or do they crowd out contributions driven by intrinsic motivations? We introduce an experimental method aimed at separating the two hypotheses. The method eliminates the material incentive to contribute for one group member (who is compensated for this) while preserving it for the other members. We identify the crowding-out effect by comparing the contribution of the non-incentivized member with his contribution in the VCM. We apply the method to a mechanism that augments the VCM with a fixed-prize lottery with winning probabilities proportional to individual contributions. We find that even though this mechanism increases contributions relative to the VCM, it also significantly crowds out intrinsically-motivated contributions. In the absence of the crowding-out effect, the lottery prize would more than pay for itself, implying the material incentive is strong enough relative to its cost. But in its presence, the lottery does not pay for itself. The proposed decomposition method can analogously be applied to other similar settings.
{"title":"Do fixed-prize lotteries crowd out intrinsically-motivated public good contributions?","authors":"Peter Katuščák , Tomáš Miklánek","doi":"10.1016/j.econlet.2025.112186","DOIUrl":"10.1016/j.econlet.2025.112186","url":null,"abstract":"<div><div>Material incentives to contribute can act as a tool for increasing social efficiency in the voluntary contribution mechanism (VCM) for provision of public goods. Evidence on whether such incentives increase the net fundraised amount is mixed, however. Are the incentives weak relative to their cost or do they crowd out contributions driven by intrinsic motivations? We introduce an experimental method aimed at separating the two hypotheses. The method eliminates the material incentive to contribute for one group member (who is compensated for this) while preserving it for the other members. We identify the crowding-out effect by comparing the contribution of the non-incentivized member with his contribution in the VCM. We apply the method to a mechanism that augments the VCM with a fixed-prize lottery with winning probabilities proportional to individual contributions. We find that even though this mechanism increases contributions relative to the VCM, it also significantly crowds out intrinsically-motivated contributions. In the absence of the crowding-out effect, the lottery prize would more than pay for itself, implying the material incentive is strong enough relative to its cost. But in its presence, the lottery does not pay for itself. The proposed decomposition method can analogously be applied to other similar settings.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112186"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166078","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112093
Whelsy Boungou, Christian Urom
In this article, we explore the impact of geopolitical risks on bank stock returns in G20 countries over the period from January 3, 2011 to November 24, 2023. Using quantile regression, we observe that bank stock indices are exposed to geopolitical tensions. Our results highlight that geopolitical tensions negatively affect bank performance. Moreover, we find that this impact differs according to the level of stock performance, the period affected by geopolitical tensions (before and during the war in Ukraine and from the war in Israel onwards) and the location of banking systems. Overall, our results can help policymakers, bank managers and investors formulate adaptive policies to guard against the negative effects of geopolitical risk and maintain financial stability.
{"title":"Geopolitical tensions and banks’ stock market performance","authors":"Whelsy Boungou, Christian Urom","doi":"10.1016/j.econlet.2024.112093","DOIUrl":"10.1016/j.econlet.2024.112093","url":null,"abstract":"<div><div>In this article, we explore the impact of geopolitical risks on bank stock returns in G20 countries over the period from January 3, 2011 to November 24, 2023. Using quantile regression, we observe that bank stock indices are exposed to geopolitical tensions. Our results highlight that geopolitical tensions negatively affect bank performance. Moreover, we find that this impact differs according to the level of stock performance, the period affected by geopolitical tensions (before and during the war in Ukraine and from the war in Israel onwards) and the location of banking systems. Overall, our results can help policymakers, bank managers and investors formulate adaptive policies to guard against the negative effects of geopolitical risk and maintain financial stability.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112093"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166141","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112143
Yuta Saito
This paper explores the impact of exit expectations on the optimal design of a currency union. The union is composed of core member countries, which face the time-inconsistency problem, and peripheral countries, which do not. Peripheral members play a crucial role as a commitment mechanism, enhancing the policy credibility of core countries. We demonstrate that an increase in exit expectations leads to a higher optimal number of peripheral members from the perspective of the core countries. This suggests that heterogeneous membership may be advantageous, particularly in times of political uncertainty when the public anticipates potential exits from the currency union.
{"title":"Exit expectations and the optimal design of a currency union","authors":"Yuta Saito","doi":"10.1016/j.econlet.2024.112143","DOIUrl":"10.1016/j.econlet.2024.112143","url":null,"abstract":"<div><div>This paper explores the impact of exit expectations on the optimal design of a currency union. The union is composed of core member countries, which face the time-inconsistency problem, and peripheral countries, which do not. Peripheral members play a crucial role as a commitment mechanism, enhancing the policy credibility of core countries. We demonstrate that an increase in exit expectations leads to a higher optimal number of peripheral members from the perspective of the core countries. This suggests that heterogeneous membership may be advantageous, particularly in times of political uncertainty when the public anticipates potential exits from the currency union.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112143"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166159","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112151
Vassilios G. Papavassiliou , Fan Dora Xia
We study the liquidity of the euro area sovereign bond market during the March 2020 dash for cash. We provide evidence that liquidity was significantly impaired across the three core euro area countries. We note that the liquidity deterioration was not as severe as that during the euro area sovereign debt crisis. Spikes in illiquidity are reversed in the period immediately following the dash for cash episode. We also document strong commonalities in liquidity that are reduced after the dash for cash. This finding indicates that variation in liquidity exhibits a strong common component highlighting the systemic risk that comes as a result.
{"title":"Liquidity in the euro area sovereign bond market during the “dash for cash” driven by the COVID-19 crisis","authors":"Vassilios G. Papavassiliou , Fan Dora Xia","doi":"10.1016/j.econlet.2024.112151","DOIUrl":"10.1016/j.econlet.2024.112151","url":null,"abstract":"<div><div>We study the liquidity of the euro area sovereign bond market during the March 2020 dash for cash. We provide evidence that liquidity was significantly impaired across the three core euro area countries. We note that the liquidity deterioration was not as severe as that during the euro area sovereign debt crisis. Spikes in illiquidity are reversed in the period immediately following the dash for cash episode. We also document strong commonalities in liquidity that are reduced after the dash for cash. This finding indicates that variation in liquidity exhibits a strong common component highlighting the systemic risk that comes as a result.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112151"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166167","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112132
Mattia Chiappari, Francesco Scotti, Andrea Flori
We build an equity index based on EU ETS-regulated listed firms. The weights of our index reflect the cross-sectional heterogeneity in the firms’ environmental performances measured in terms of verified rather than estimated or self-reported emissions. By using a DCC-GARCH model, we estimate optimal weights and assess the hedge effectiveness of the EU ETS index across multiple asset classes. The index provides robust hedging benefits, particularly during Phases III and IV of the EU ETS, aligning with stricter environmental policies. Portfolio optimization techniques show that incorporating the EU ETS index enhances risk-adjusted performance. Our findings offer actionable insights for investors seeking to minimize financial risks.
{"title":"Portfolio hedging through a novel equity index based on the verified emissions of EU ETS-regulated firms","authors":"Mattia Chiappari, Francesco Scotti, Andrea Flori","doi":"10.1016/j.econlet.2024.112132","DOIUrl":"10.1016/j.econlet.2024.112132","url":null,"abstract":"<div><div>We build an equity index based on EU ETS-regulated listed firms. The weights of our index reflect the cross-sectional heterogeneity in the firms’ environmental performances measured in terms of verified rather than estimated or self-reported emissions. By using a DCC-GARCH model, we estimate optimal weights and assess the hedge effectiveness of the EU ETS index across multiple asset classes. The index provides robust hedging benefits, particularly during Phases III and IV of the EU ETS, aligning with stricter environmental policies. Portfolio optimization techniques show that incorporating the EU ETS index enhances risk-adjusted performance. Our findings offer actionable insights for investors seeking to minimize financial risks.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112132"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166174","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112136
Emanuele Millemaci , Fabio Monteforte , Jonathan R.W. Temple
This paper examines the relationship between output volatility and democracy, decade by decade after 1960. Using a range of approaches to identification, we find that democratic countries are less volatile.
{"title":"Electing for stability: Democracy and output volatility, 1960-2019","authors":"Emanuele Millemaci , Fabio Monteforte , Jonathan R.W. Temple","doi":"10.1016/j.econlet.2024.112136","DOIUrl":"10.1016/j.econlet.2024.112136","url":null,"abstract":"<div><div>This paper examines the relationship between output volatility and democracy, decade by decade after 1960. Using a range of approaches to identification, we find that democratic countries are less volatile.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112136"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143166736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2025.112178
Xuewen Qian, Chen Qu
We revisit two pathologies of iterated elimination of strictly dominated strategies (IESDS) in infinite games: spurious Nash equilibria and order dependence. By introducing bounded dominance relations (Hsieh et al., 2023), we demonstrate that a bounded version of IESDS mitigates the former issue and is neutral to the latter. The second point is illustrated through a series of examples using ordinals. We also provide a sufficient and necessary condition for the non-existence of spurious Nash equilibria.
{"title":"Pathologies of iterated strict dominance revisited","authors":"Xuewen Qian, Chen Qu","doi":"10.1016/j.econlet.2025.112178","DOIUrl":"10.1016/j.econlet.2025.112178","url":null,"abstract":"<div><div>We revisit two pathologies of iterated elimination of strictly dominated strategies (IESDS) in infinite games: spurious Nash equilibria and order dependence. By introducing bounded dominance relations (Hsieh et al., 2023), we demonstrate that a bounded version of IESDS mitigates the former issue and is neutral to the latter. The second point is illustrated through a series of examples using ordinals. We also provide a sufficient and necessary condition for the non-existence of spurious Nash equilibria.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112178"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143130177","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-01DOI: 10.1016/j.econlet.2024.112133
Yuk-fai Fong , Tsz-him Lau , Xiaoxuan Meng , Lin Zhao
This paper studies repeated interactions between experts and consumers to explore how referral networks, where experts refer consumers to those with the appropriate areas of expertise within the network, promote trust and honesty. When consumers’ searches for second opinions are directed by referrals, they visit fewer experts before their problems are fixed. This results in experts meeting fewer consumers each period, limiting their opportunities to exploit consumers, thereby promoting truth-telling.
{"title":"Referral network and consumer trust","authors":"Yuk-fai Fong , Tsz-him Lau , Xiaoxuan Meng , Lin Zhao","doi":"10.1016/j.econlet.2024.112133","DOIUrl":"10.1016/j.econlet.2024.112133","url":null,"abstract":"<div><div>This paper studies repeated interactions between experts and consumers to explore how referral networks, where experts refer consumers to those with the appropriate areas of expertise within the network, promote trust and honesty. When consumers’ searches for second opinions are directed by referrals, they visit fewer experts before their problems are fixed. This results in experts meeting fewer consumers each period, limiting their opportunities to exploit consumers, thereby promoting truth-telling.</div></div>","PeriodicalId":11468,"journal":{"name":"Economics Letters","volume":"247 ","pages":"Article 112133"},"PeriodicalIF":2.1,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143128792","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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