Microeconomic regulation

Sebastian Galiani, Camila Navajas Ahumada, Marcela Meléndez, 10 August 2015

Informality is widespread in most developing countries. A challenge for governments is to lure informal firms into the formal economy. This column presents evidence from an experiment designed to induce formalisation in Colombia. Assistance through the bureaucratic process and the removal of the fixed costs of formalising increased the likelihood of formalisation. However, this effect did not persist over time, with many firms returning to the informal sector when minimal fixed costs came back into effect.

Ginger Zhe Jin, Michael Luca, Daniel Martin, 22 July 2015

Theories of voluntary disclosure suggest that even when disclosure is voluntary, market forces can drive firms to completely reveal information about their quality. This column investigates these predictions in an experimental setting. Laboratory results suggest widespread failures of the theoretical predictions – senders do not fully disclose, and receivers are not fully sceptical about non-disclosure. This suggests a role for policymakers to help customers understand the sound of silence.

Daniel C Hardy, Philipp Hochreiter, 26 February 2015

A minor adverse shock to financial markets can be propagated by liquidity strains, leading to a major crisis. This column suggests a novel measure to address systemic liquidity risk – a Macroprudential Liquidity Buffer, which would require financial institutions to hold systemically liquid assets in proportion to their liabilities less regulatory capital. This proportion varies positively with growth in system-wide funding needs, so the liquidity buffer increases when non-equity funding is growing.

Oriana Bandiera, Andrea Prat, Raffaella Sadun, 12 February 2015

The hypothesis that family firms are good for growth has come under scrutiny in recent years. This paper presents novel evidence on fundamental differences in behaviour between family and professional CEOs. Family managers tend to work at least 9% less than non-family ones, which is driven by their preferences for leisure and work. Family CEOs are typically wealthier and thus increase their consumption of leisure, which is a normal good. However, this behaviour may have adverse effects on family owned firms since hours worked by CEOs are strongly related with productivity. Given the ubiquity of family-run firms, this can impact the entire economy.

Kyle Woodward, 07 January 2015

The pay-as-bid and the uniform-price auction formats are used to allocate trillions of dollars of goods annually. However, which of these formats yields better outcomes is an open question. This column discusses recent advances in the understanding of these auctions in the context of an ongoing debate regarding the optimal auction format.

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