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on Urban and Real Estate Economics |
| By: | Hilber, Christian A. L. |
| Abstract: | This paper examines the role of local housing market conditions for social capital accumulation and neighborhood club good provision. A model of individual investment decisions predicts that in a setting with high property transaction costs (i) homeowners are more likely to invest in social capital than renters and (ii) the positive link between homeownership and social capital is stronger in more built-up neighborhoods with inelastic supply of new housing. In these neighborhoods homeowners are largely protected from inflows of newcomers that would dilute the net benefit from social capital in the longer run. Empirical evidence from the Social Capital Community Benchmark Survey confirms the model predictions. Instrumental variable estimates suggest that the effects are causal. |
| Keywords: | House price capitalization; social capital; homeownership; land and housing supply; neighborhood club goods. |
| JEL: | R21 R31 D71 |
| Date: | 2007–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5134&r=ure |
| By: | Matthew Chambers; Carlos Garriga; Don Schlagenhauf |
| Abstract: | In this paper, we analyze various mortgage contracts and their implications for housing tenure and investment decisions using a model with heterogeneous consumers and liquidity constraints. We find that different types of mortgage contracts influence these decisions through three dimensions: the downpayment constraint, the payment schedule, and the amortization schedule. Contracts with lower downpayment requirements allow younger and lower income households to enter the housing market earlier. Mortgage contracts with increasing payment schedules increase the participation of first-time buyers, but can generate lower homeownership later in the life cycle. We find that adjusting the amortization schedule of a contract can be important. Mortgage contracts which allow the quick accumulation of home equity increase homeownership across the entire life cycle. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2007-040&r=ure |
| By: | Martin S. Feldstein |
| Abstract: | The housing sector is now (September 2007) at the root of three distinct but related problems: (1) a sharp decline in house prices and the related fall in home building; (2) a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; and (3) a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending. Each of these could by itself be powerful enough to cause an economic downturn. The combination could cause a very serious recession unless there are other offsetting forces. In this paper, I discuss each of these and then comment on the implications for monetary policy. |
| JEL: | E3 E4 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13471&r=ure |
| By: | Robert J. Shiller (Cowles Foundation, Yale University) |
| Abstract: | This paper looks at a broad array of evidence concerning the recent boom in home prices, and considers what this means for future home prices and the economy. It does not appear possible to explain the boom in terms of fundamentals such as rents or construction costs. A psychological theory, that represents the boom as taking place because of a feedback mechanism or social epidemic that encourages a view of housing as an important investment opportunity, fits the evidence better. Three case studies of past booms are considered for comparison: the US housing boom of 1950, the US farmland boom of the 1970s, and the temporary interruption 2004-5 of the UK housing boom. The paper concludes that while it is possible that prices will continue to go up as is commonly expected, there is a high probability of steady and substantial real home price declines extending over years to come. |
| Keywords: | Home prices, Residential investment, Mortgage, Subprime crisis, Business cycle, Recession, Boom, Bubble, Monetary policy |
| JEL: | R21 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1630&r=ure |
| By: | Hilber, Christian A. L.; Liu, Yingchun |
| Abstract: | African Americans in the United States are considerably less likely to own their homes compared to Whites. Differences in household income and other socio-economic and demographic characteristics can only partially explain this gap and previous studies suggest that the ‘unexplained’ gap has increased over time. In this paper we use the Panel Study of Income Dynamics (PSID) intergenerational data, which provides information on household wealth, parental characteristics and macro-location choice. We find that African-American households are 6.5 percent less likely to own if only traditional explanatory variables are controlled for. However, the black-white homeownership gap disappears if differences in own and parental wealth and in the preferred macro-location type are accounted for. |
| Keywords: | Homeownership; housing tenure choice; location choice; wealth effects; intergenerational effects. |
| JEL: | R21 R31 |
| Date: | 2007–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5136&r=ure |
| By: | Amelie Constant (Georgetown University, DIW DC and IZA); Rowan Roberts (IZA); Klaus F. Zimmermann (IZA, Bonn University and DIW Berlin) |
| Abstract: | Immigrants are much less likely to own their homes than natives, even after controlling for a broad range of life-cycle and socio-economic characteristics and housing market conditions. This paper extends the analysis of immigrant housing tenure choice by explicitly accounting for ethnic identity as a potential influence on the homeownership decision, using a twodimensional model of ethnic identity that incorporates attachments to both origin and host cultures. The evidence suggests that immigrants with a stronger commitment to the host country are more likely to achieve homeownership for a given set of socioeconomic and demographic characteristics, regardless of their level of attachment to their home country. |
| Keywords: | ethnicity, ethnic identity, immigration, immigrant integration, homeownership |
| JEL: | R21 F22 J15 Z10 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3050&r=ure |
| By: | Julie Berry Cullen; Brian A. Jacob |
| Abstract: | In this paper, we examine whether expanded access to sought-after schools can improve academic achievement. The setting we study is the "open enrollment" system in the Chicago Public Schools (CPS). We use lottery data to avoid the critical issue of non-random selection of students into schools. Our analysis sample includes nearly 450 lotteries for kindergarten and first grade slots at 32 popular schools in 2000 and 2001. We track students for up to five years and examine outcomes such as standardized test scores, grade retention and special education placement. Comparing lottery winners and losers, we find that lottery winners attend higher quality schools as measured by both the average achievement level of peers in the school as well as by value-added indicators of the school's contribution to student learning. Yet, we do not find that winning a lottery systematically confers any evident academic benefits. We explore several possible explanations for our findings, including the possibility that the typical student may be choosing schools for non-academic reasons (e.g., safety, proximity) and/or may experience benefits along dimensions we are unable to measure, but find little evidence in favor of such explanations. Moreover, we separately examine effects for a variety of demographic subgroups, and for students whose application behavior suggests a strong preference for academics, but again find no significant effects. |
| JEL: | H52 I2 I21 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13443&r=ure |
| By: | Matthew Chambers; Carlos Garriga; Don E. Schlagenhauf |
| Abstract: | After three decades of being relatively constant, the homeownership rate increased over the 1994–2005 period to attain record highs. The objective of this paper is to account for the observed boom in ownership by examining the role played by changes in demographic factors and innovations in the mortgage market that lessened down payment requirements. To measure the aggregate and distributional impact of these factors, we construct a quantitative general equilibrium overlapping-generation model with housing. We find that the long-run importance of the introduction of new mortgage products for the aggregate homeownership rate ranges from 56 percent to 70 percent. Demographic factors account for between 16 percent and 31 percent of the change. Transitional analysis suggests that demographic factors play a more important but not dominant role farther from the long-run equilibrium. From a distributional perspective, mortgage market innovations have a larger impact on participation rate changes of younger households, and demographic factors seem to be the key to understanding the participation rate changes of older households. Our analysis suggests that the key to understanding the increase in the homeownership rate is the expansion of the set of mortgage contracts. We test the robustness of this result by considering changes in mortgage financing after World War II. We find that the introduction of the conventional fixed-rate mortgage, which replaced balloon contracts, accounts for at least 50 percent of the observed increase in homeownership during that period.y share constant actually decreases the output response. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2007-21&r=ure |
| By: | Carla Sá (Universidade do Minho - NIPE); Raymond Florax (Purdue University and Vrije Universiteit Amsterdam); Piet Rietveld (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | This paper analyses the nature of university and living-arrangement decisions at the example of Dutch students with a secondary education academic diploma. A random utility maximization nested logit model of living-arrangement and university decisions is estimated, allowing for distance and rent e¤ects to vary according to the decision on whether to stay at parental home. Estimation results show that distance deters both at-homers and out-homers. Dutch youngsters are guided by consumption motives, rather than investment motives. They appear to attend university where their high school mates do. Tight housing markets lower the probability of choosing a given university. Male and low income students stay longer with parents, as do those with non-Dutch parents. |
| Keywords: | living arrangements, university choice, random utility maximization, nested logit |
| JEL: | C25 D85 I2 J24 R00 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:14/2007&r=ure |
| By: | Leah Platt Boustan; Robert A. Margo |
| Abstract: | In 1990 and 2000, residential segregation was associated with poor economic outcomes for African-Americans. Earlier in the century, the opposite was true. The economic deterioration of African-American enclaves has been attributed either to the departure of the black middle class or to the decline in centrally-located jobs. Postal employment -- well-paid work that has, for largely exogenous reasons, remained in central cities -- is a useful test case to distinguish between these explanations. Black postal employment is unrelated to segregation before 1960, when middle class role models, including a large contingent of postal employees, were close at hand. From 1960 onward, as other employment opportunities disappeared, blacks in segregated cities were more likely to work for the postal service (relative to whites in their area). This relationship is true only for postal clerks, many of whom work at centralized processing plants, not for mail carriers who work throughout the metropolitan area. We interpret this pattern as broadly consistent with the importance of job availability for the economic health of black neighborhoods. |
| JEL: | J71 N32 N92 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13462&r=ure |
| By: | Aslan Zorlu (University of Amsterdam and IZA); Clara H. Mulder (University of Amsterdam) |
| Abstract: | The initial settlement behaviour and the subsequent mobility of immigrants who arrived in the Netherlands in 1999 are examined using rich administrative individual data. The study considers the settlement patterns of immigrants from various countries of origin who entered the country as labour, family or asylum migrants. The evidence suggests distinct settlement trajectories for asylum and other non-western immigrants. The presence of co-ethnics and members of other ethnic minorities, but also socioeconomic neighbourhood characteristics, appear to play an important role in determining location choice. Differences in the settlement and spatial mobility patterns of immigrants with various degrees of distance from the native Dutch in terms of human and financial capital, proficiency in the relevant language(s), and religion confirm the main predictions of spatial assimilation theory. |
| Keywords: | location choice, immigrants and ethnic residential segregation |
| JEL: | F22 J15 R23 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3036&r=ure |
| By: | Pedro Carneiro (University College London, IFS and IZA); Costas Meghir (University College London, IFS and IZA); Matthias Parey (University College London, IFS and IZA) |
| Abstract: | We study the intergenerational effects of maternal education on children's cognitive achievement, behavioral problems, grade repetition and obesity. We address endogeneity of maternal schooling by instrumenting with variation in schooling costs when the mother grew up. Using matched data from the female participants of the National Longitudinal Survey of Youth 1979 (NLSY79) and their children, we can control for mother's ability and family background factors. Our results show substantial intergenerational returns to education. For children aged 7-8, for example, our IV results indicate that an additional year of mother's schooling increases the child's performance on a standardized math test by almost 0.1 of a standard deviation, and reduces the incidence of behavioral problems. Our data set allows us to study a large array of channels which may transmit the effect of maternal education to the child, including family environment and parental investments at different ages of the child. We find that income effects, delayed childbearing, and assortative mating are likely to be important, and we show that maternal education leads to substantial differences in maternal labor supply. We investigate heterogeneity in returns, and we present results focusing both on very early stages in the child's life as well as adolescent outcomes. We present a falsification exercise to support the validity of our instruments, and our results are found to be robust in a sensitivity analysis. We discuss policy implications and relate our findings to intergenerational mobility. |
| Keywords: | education, child development, intergenerational mobility |
| JEL: | J31 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3072&r=ure |
| By: | Ricardo A. López (Indiana University, Bloomington); Jens Suedekum (University of Konstanz and IZA) |
| Abstract: | We use disaggregated data on Chilean plants, and the Chilean input-output table to examine the impact of agglomeration spillovers on total factor productivity (TFP). In common with previous studies, we find evidence of intra-industry spillovers, but no evidence of crossindustry spillovers in general. This picture changes, however, when we take vertical industry relations into account. We find important productivity spillover effects from plants in upstream industries. Interestingly, a similar effect cannot be found from plants in downstream industries. The number of plants in these sectors has no effect on firm level TFP, just as the number of plants in other industries that are neither important upstream suppliers nor downstream customers also has no effect. Agglomeration effects are stronger for small than for large plants. |
| Keywords: | vertical linkages, agglomeration, productivity, Chile |
| JEL: | R11 R15 O18 O54 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3047&r=ure |
| By: | David Carey |
| Abstract: | Improving education outcomes is vital for achieving convergence with GDP per capita levels in Western European countries and for reducing income inequality. While some education outcomes are favourable, such as the low secondary-school drop-out rate, others have room for improvement: education achievement is below the OECD average and strongly influenced by socio-economic background; Roma children, who are mainly from disadvantaged socio-economic backgrounds, have particularly poor achievement; labour-market outcomes are poor for graduates of secondary vocational programmes not leading to tertiary education; and tertiary attainment is low, albeit rising. Reforms have been made in recent years or are planned to address many of these weaknesses, but much remains to be done. In particular, more progress needs to be made in increasing participation in early childhood education and care, reducing stratification in the education system, helping Roma children to integrate into the education mainstream, and in attracting high quality graduates to teaching, especially in socio-economically disadvantaged schools. In addition, secondary vocational education not leading to tertiary education needs to be made more pertinent to labour-market requirements. Tertiary education also needs to be made more attractive for technical secondary school graduates. <P>Améliorer les résultats de l’éducation dans la République slovaque <BR>L’amélioration des résultats de l’éducation est vitale pour converger vers les niveaux du PIB par habitant des pays de l’Europe occidentale et pour réduire les inégalités de revenus. Alors que ces résultats sont favorables à certains égards – le faible taux de décrochage scolaire dans le secondaire par exemple –-, des améliorations sont possibles dans d’autres domaines : les résultats du système éducatif sont inférieurs à la moyenne de la zone OCDE et varient énormément selon le milieu socioéconomique ; les enfants roms qui sont pour l’essentiel issus de milieux défavorisés affichent des résultats particulièrement médiocres ; les diplômés des filières professionnelles du secondaire ne donnant pas accès à l’enseignement supérieur ont un devenir peu brillant sur le marché du travail ; et le taux de diplômés du supérieur est faible, bien qu’en progression. Des réformes ont été opérées ces dernières années ou sont prévues pour remédier à nombre de ces insuffisances mais de grands progrès sont encore nécessaires. Il faut en particulier augmenter la fréquentation des structures d’accueil et d’éducation de la petite enfance, réduire la stratification du système éducatif, aider les enfants roms à intégrer le circuit scolaire ordinaire et attirer les diplômés de très haut niveau vers l’enseignement, en particulier dans les écoles défavorisées du point de vue socioéconomique. En outre, l’enseignement secondaire professionnel, qui ne donne pas accès aux études supérieures, doit être davantage adapté aux exigences du marché du travail. L’enseignement supérieur doit par ailleurs attirer davantage les diplômés des écoles secondaires techniques. |
| Keywords: | education, éducation, tertiary education, enseignement supérieur, formation professionnelle, PISA, achievement, secondary education, attainment, school system, tracking, streaming, teachers' skills, pre-school education, general education, PISA, réussite scolaire, éducation secondaire, système scolaire, compétences des enseignants, éducation préscolaire, éducation générale |
| JEL: | I2 J24 |
| Date: | 2007–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:578-en&r=ure |
| By: | Severin Borenstein; Nancy L. Rose |
| Abstract: | Following a brief review of the U.S. domestic airline industry under regulation (1938-1978), we study the changes that have occurred in pricing, service, and competition in the 28 years since deregulation. We then examine some of the major public policy issues facing the industry: (a) the sustainability of competition and volatility of airline profits, (b) possible market power of dominant airlines, and (c) congestion and investment shortfall in the airport and air traffic infrastructure. |
| JEL: | L1 L13 L51 L93 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13452&r=ure |
| By: | Todd Sorensen (University of California, Riverside and IZA); Price Fishback (University of Arizona); Samuel Allen (Virginia Military Institute); Shawn Kantor (University of California, Merced) |
| Abstract: | During the 1930s the federal government embarked upon an ambitious series of grant programs designed to counteract the Great Depression. Public works and relief programs combated unemployment by hiring workers and building social overhead capital while the Agricultural Adjustment Administration (AAA) sought to raise farm incomes by paying farmers not to produce. The amounts distributed varied widely across the country and potentially contributed to population shifts. We examine the extent to which New Deal spending affected domestic migration patterns in the second half of the 1930s. We estimate an aggregate discrete choice model, in which household heads choose among 466 economic subregions. The structural model allows us to decompose the effects of program spending on migration into three categories: the effect of spending on keeping households in their origin (retention), the effect of pulling non-migrants out of their origin (creation), and the effect of causing migrants to substitute away from an alternative destination (diversion). An additional dollar of public works and relief spending increased net migration into an area primarily by retaining the existing population and creating new migration into the county. Only a small share of the increase in net migration rate was caused by diversion of people who had already chosen to migrate. AAA spending contributed to net out migration, primarily by creating new out migrants and repelling potential in migrants. A counterfactual analysis that examines what would have happened had there been no New Deal spending during the 1930s suggests that the uneven distribution of New Deal public works and relief spending explains about twelve percent of the internal migration flows in the United States between 1935 and 1940. The uneven distribution of AAA spending accounted for about one percent. |
| Keywords: | migration, New Deal, discrete choice |
| JEL: | J10 N32 O15 R23 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3060&r=ure |
| By: | Carole Roan Gresenz; Jeannette Rogowski; José J. Escarce |
| Abstract: | This research explores social networks and their relationship to access to health care among adult Mexican-Americans. We use data from the Medical Expenditure Panel Survey (MEPS) linked to data from the 2000 U.S. Census and other data sources. We analyze multiple measures of access to health care. Measures of social networks are constructed at the ZCTA level and include percent of the population that is Hispanic, percent of the population that speaks Spanish, and percent of the population that is foreign-born and Spanish-speaking. Regressions are stratified by insurance status and social network measures are interacted with individual-level measures of acculturation. For insured Mexican-American immigrants, living in an area populated by relatively more Hispanics, more immigrants, or more Spanish-speakers increases access to care. The social network effects are generally stronger for more recent immigrants compared to those who are better established. We find no effects of these characteristics of the local population on access to care for U.S. born Mexican-Americans, suggesting that similarities in race and language may contribute more to the formation of social ties among individuals who are less acculturated to the U.S. Among the uninsured, we find evidence suggesting that social networks defined by ethnicity improve access to care among recent immigrants. A finding particular to the uninsured is the negative influence of percent of the population that is Hispanic and the percent that is Spanish-speaking on access to care among U.S. born Mexican-Americans. The results provide evidence that social networks play an important role in access to health care among Mexican-Americans. The results also suggest the need for further study using additional measures of social networks, analyzing other racial and ethnic groups, and exploring social networks defined by characteristics other than race, language and ethnicity. |
| JEL: | I11 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13460&r=ure |
| By: | Laura Choi |
| Abstract: | There is a lack of information exchange between community development lenders and capital investors that limits the growth of a secondary market for community development assets. This obstacle limits the ability of community development lenders to tap into the virtually endless capital resources of the secondary market, thereby limiting the valuable services these organizations provide to underserved communities. |
| Keywords: | Community development ; Loans |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfcw:2007-01&r=ure |
| By: | Isacsson, Gunnar (VTI); Swärdh, Jan-Erik (VTI) |
| Abstract: | The purpose of this paper is to estimate the average value of commuting time (VoCT) in an empirical on-the-job search model. A large Swedish sample of employee-establishment linked data obtained from administrative registers is used to this end. The sample contains detailed information on the individuals' place of residence and place of work and it is combined with information on travel times and travel distances in the road network. We use two empirical models of the individuals' utility function: a basic model and an augmented model. The latter introduces a set of variables intended to capture the effect of interpersonal comparisons of earnings and commuting times in the individual's utility function and on the estimated VoCT. The basic model suggests the average VoCT to be as high as 232 Swedish kronor (SEK) per hour, which is about two and half times higher than the net hourly wage rate in the sample. If we discard the effect of interpersonal comparisons of earnings and commuting time on job switching, the augmented model instead suggests a value of time of 94 SEK, which is more or less equal to the net hourly wage rate in the sample. |
| Keywords: | Value of commuting time; Revealed preferences; Relative earnings |
| JEL: | C41 C81 J60 R41 |
| Date: | 2007–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2007_012&r=ure |
| By: | Francesca Mazzolari (University of California, Irvine and IZA); Giuseppe Ragusa (University of California, Irvine) |
| Abstract: | Census data show that since 1980 low-skill workers in the United States have been increasingly employed in the provision of non-tradeable time-intensive services - such as food preparation and cleaning - that can be broadly thought as substitutes of home production activities. Meanwhile the wage gap between this sector and the rest of the economy has shrunk. If skilled workers, with their high opportunity cost of time, demand more of these time-intensive services, then wage gains at the top of the wage distribution (such as those observed in the last three decades) are expected to raise the consumption of these services, consistent with these stylized facts. Using both consumption expenditure data and city-level data on employment and wages of workers of different skills, we provide several pieces of evidence in favor of these demand shifts, and we argue that they provide a viable explanation for the growth in wages at the bottom quantiles observed in the last fifteen years. |
| Keywords: | service jobs, market substitutes for home production, low-skill employment and wages, wage growth polarization |
| JEL: | J21 J22 J23 J31 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3048&r=ure |
| By: | Thomas Grandner (Department of Economics, Vienna University of Economics & B.A.) |
| Abstract: | Economides (1986) has shown that within a linear city an equilibrium exists in a two-stage location-price game when the curvature of the transportation cost function is sufficiently high. One important point is that not all of these equilibria are at maximal differentiation. In this paper we include an additional stage with decentralized wage bargaining. This intensifies price competition resulting in locations that are nearer to the extremes of the city. The magnitude of this effect depends on the bargaining power of the unions. |
| JEL: | L13 J51 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp109&r=ure |
| By: | Claudio A. Agostini; Philip Brown; |
| Abstract: | Despite rapid economic growth and poverty reduction, inequality in Chile has remained high and remarkably constant over the last 20 years, prompting academic and public interest in the subject. Due to data limitations, however, research on inequality in Chile has concentrated on the national and regional levels. The impact of cash subsidies to poor households on local inequality is thus not well understood. Using povertymapping methods to asses this impact, we find heterogeneity in the effectiveness of regional and municipal governments in reducing inequality via poverty-reduction transfers, suggesting that alternative targeting regimes may complement current practice in aiding the poor. |
| Keywords: | Inequality; Poverty Mapping; Subsidies; Targeting; Chile |
| JEL: | H53 I38 O54 |
| Date: | 2007–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2007-872&r=ure |
| By: | Broner, Fernando A; Martin, Alberto; Ventura, Jaume |
| Abstract: | There is a large and growing literature that studies the effects of weak enforcement institutions on economic performance. This literature has focused almost exclusively on primary markets, in which assets are issued and traded to improve the allocation of investment and consumption. The general conclusion is that weak enforcement institutions impair the workings of these markets, giving rise to various inefficiencies. But weak enforcement institutions also create incentives to develop secondary markets, in which the assets issued in primary markets are retraded. This paper shows that trading in secondary markets counteracts the effects of weak enforcement institutions and, in the absence of further frictions, restores efficiency. |
| Keywords: | default; enforcement; secondary markets; sovereign risk; weak law enforcement |
| JEL: | F34 F36 G15 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6498&r=ure |