Blockchain Papers

Nizar Allouch, Monique Florenzano

No abstract is available for this record.

Roman Inderst, Holger M. Müller

Abstract We study optimal financial contracting for centralized and decentralized firms. Under centralized contracting, headquarters raises funds on behalf of multiple projects. Under decentralized contracting, each project raises funds separately on the external capital market. The benefit of centralization is that headquarters can use excess liquidity from high cash‐flow projects to buy continuation rights for low cash‐flow projects. The cost is that headquarters may pool cash flows from several projects and self‐finance follow‐up investments without having to return to the capital market. Absent any capital market discipline, it is more difficult to force headquarters to make repayments, which tightens financing constraints ex ante. Cross‐sectionally, our model implies that conglomerates should have a lower average productivity than stand‐alone firms.

Hyun Park, Apostolis Philippopoulos

No abstract is available for this record.

Torsten Eymann, Stefan Sackmann, Günter Müller, Ingo Pippow

The mobile and increasingly ubiquitous use of information technology leads to more dynamic, constantly self-reconfiguring networks. Their services are available anytime and anywhere; as software agents, they can make local, context-aware decisions. F. A. von Hayek developed a theory for economic coordination based on individual decision making. This paper presents the explanation concepts of economic self-organization as at least one option for the design of decentralized coordination of information systems consisting of autonomous software agents with limited information processing capacity and incomplete information. Experiments using a multi-agent system show that a targeted change of this basic rule set directly influences the behavior of the individual elements and indirectly the behavior of the overall system.

John Bryant

No abstract is available for this record.

Aleksander Berentsen, Guillaume Rocheteau

No abstract is available for this record.

Roman Inderst, Holger M. Müller

This paper compares optimal financial contracts with centralized and decentralized\nfirms. Under centralized contracting headquarters raises funds on behalf of multiple projects and then allocates the funds on the firm’s internal capital market. Under decentralized contracting each project raises funds separately on the external capital market. The benefit of centralization is that headquarters can use excess liquidity from high-cash flow projects to buy continuation rights for low cash-flow projects. This allows headquarters to make greater repayments to investors, which eases financing constraints ex ante. The cost is that headquarters may pool cash flows from several projects, thereby accumulate internal funds, and make follow-up investments without having to return to the capital market. Absent any capital market discipline, however, it is more difficult for investors to force headquarters to pay out funds, which tightens ex-ante financing constraints.

Son Ku Kim, Keunkwan Ryu

This paper studies the issue of designing an optimal organizational form: design for sub-units' task allocation, decision-making structure, and incentive schemes for organizational members. Depending on the way tasks are allocated between the sub-units, and whether decision-making is centralized or not, organizations face a trade-off between coordination and information. Task allocation by production processes calls for coordination more strongly than the allocation by final products. Centralized decision-making serves for better coordination, whereas decentralization serves for better information. The coordinational benefit under centralization gets bigger as the organization's common uncertainty increases, and this benefit is magnified when the sub-units are functionally divided by production processes. The informational benefit under decentralization gets bigger as the organization's local uncertainty increases, and this benefit is magnified when the sub-units are designed autonomous. Thus, complementarily designed organizations tend to have centralized decision-making structures and fixed salary scheme, whereas less complementarily designed organizations tend to have decentralized decision-making and 'pay for performance' incentive contract.

Russell W. Cooper, Hubert Kempf

This article studies the effects of political institutions on inflation. In our view, hyperinflation is the manifestation of a tragedy of commons in a divided society with a weak central monetary authority. Economies with fiat money are inherently inflation-prone: the collection of seigniorage through the inflation tax is less conspicuous than other taxes, and the printing of money is essentially costless. In many countries, the control of the money supply is de facto or de jure decentralized. Sets of agents (in various regions or interest groups) can effectively pressure the central government to finance their expenditures. As these interest groups pursue their self-interest, they neglect the welfare effects of the inflation tax on individuals in other groups. These elements combine to imply that countries which rely on the inflation tax to meet the resource demands of competing interest groups will typically experience inefficiently (due to negative spillovers) high inflation.

Biagio Bossone

No abstract is available for this record.

Jiahua Che

This paper analyzes financial dual track in China. We show that the co-existence of a soft-budget track (under centralized financing) and a hard-budget track (under decentralized financing) can be strictly more efficient than the two pure cases. Our argument is as follows. First, a hard budget constraint alone is not sufficient to induce sound firm performances, positive incentives in terms of firms' profitability are needed as well. Second, for an economy such as China where many firms are hopeless money losers, there is pecuniary externality in financing. That is, the total number of firms financed into operation in the economy can affect the profitability of all firms. This paper offers a number of examples of such externality. In such an economy, centralized financing helps internalize the externality, improving firms' profitability, and yet it leads to a soft budget constraint. Under decentralized financing, budget constraint is hard, but firms suffer from low profitability. A financial dual track does better: the existence of the soft-budget sector improves profitability, enhancing the disciplinary effect in the hard-budget sector. Based on this analysis, the paper sheds light on the complementary relation between soft budget constraint syndrome in the state sector and the remarkable growth of the non-state sector in China

Cary Deck

Trade developed through barter, an institution requiring the double coincidence of wants. Fiat money subsequently arose to provide traders with a mechanism for exchange in decentralized markets while avoiding the problems associated with commodity monies. Currently, every major modern economy uses fiat money and numerous Internet economies are developing private fiat monies, yet traditional economic theories, such as general equilibrium or Walrasian models, provide little insight. This work develops the concept of a coordination equilibrium model, which maintains fiat money's role as a medium of exchange. The potential instability of fiat money is apparent from observed hyperinflationary episodes. Civil unrest and real purchases financed by printing money are also associated with hyperinflations. These factors lead to an experimental design addressing the stability of intrinsically valueless money. Via controlled laboratory experiments, subjects trade fictitious commodities for fiat money in a circular flow economy. The experimental results indicate that under a long trading horizon with no money creation, fiat money provides a stable medium of exchange and the economy realizes almost maximum efficiency, a result consistent with the coordination equilibrium model but not with standard economic models. Shortening the trade horizon causes a decrease in efficiency. However, the ability to create money leads to hyperinflationary trade patterns independent of the horizon. Further, the experimental results demonstrate that the collapse is not caused by an increasing money supply but rather the result of interference in the real price discovery process. As the party issuing money is often an active participant, this economic instability creates a problem in the design of decentralized economic systems. Forcing the monetary authority to balance fiscal spending with the level of tax collection is a potential solution. Experimental evidence demonstrates that a balanced budget results in a pattern of market activity similar to that observed in fiat money economies when the government is inactive. This level of trade is achieved by private agents "crowding out" the government. Further, this effect is not due to the introduction of inside money, money that derives value within the system as tender for tax payment.

Jiahua Che

I put forward a new theoretical framework to analyze the relationship between soft budget constraint syndrome and the economic performances of firms. It differs from the existing theoretical framework, à la Dewatripont and Maskin (1995), in the soft budget constraint literature. In this paper, soft budget constraint syndrome arises when firms that are expected to lose money are financed. The paper highlights a trade-off between hard and soft budget constraints. While soft budget constraints may compromise firms' incentives to improve performances, an all-out effort to harden budget constraints may put macro stability at risk, especially for economies suffering from allocative inefficiency. Based on this trade-off, the paper shows that a transition from centralized financing to decentralized financing in fact compromises firms' incentives to improve their performances, whereas a transition from centralized financing to a dual track system enhances efficiency. In the dual track system, budget constraints are soft in the centralized track but the macro stability of the economy is assured as a result. The macro stability enhances the disciplinary effect of hard budget constraints in the decentralized track, which in turn promotes firms' incentives to improve performances. The paper sheds light on a complementary relation between soft budget constraint syndrome in the state sector (i.e., the centralized track) and the remarkable growth of the non-state sector (i.e., the decentralized track) in China.

隆雄 飯田, タカオ イイダ, Takao Iida

No abstract is available for this record.

Robin Boadway, Isao Horiba, Raghbendra Jha

No abstract is available for this record.

Robert P. Gilles, Kyungdong Hahn

This paper discusses a general equilibrium model of an economy with multiple separately provided public projects. We assume an additively separable cost structure and consider valuation equilibria with separated finance systems, one for each collective good. Under non‐Euclidean representation we show the decentralization of Pareto efficient allocations by valuation equilibria and the equivalence of the core and the set of nonnegative valuation equilibria. In the case of Euclidean representation, every Pareto efficient allocation is shown to be supported as an affine valuation equilibrium that is characterized by a personalized price per unit of each public good and a personalized lump sum tax or subsidy. These results complement and clarify already established insights into Lindahl pricing and its generalizations developed in the literature.

Beatriz Armendáriz de Aghion

No abstract is available for this record.

Milton Harris, Artur Raviv

No abstract is available for this record.

Eduard Braun

The current economic problems in Southeast Asia can be attributed not to too much reliance on financial markets, but to too little . Like the U.S. economy a century ago, the emerging Asian economies do not have welldeveloped capital markets and so remain heavily dependent on their banking systems to finance growth. For all its benefits, banking is “not only basically 19th‐century technology, but disaster‐prone technology.” The extreme maturity (and, in some cases, currency) mismatch on banks' balance sheets plus the first‐come, first‐served nature of the deposit obligations mean that banks are inherently vulnerable to massive runs by depositors—and that their economies are subjected to periodic credit crunches. And, as the author says, “in the summer of 1997 a banking‐driven disaster struck in East Asia, just as it had struck so many times before in U.S. history.” In this century, In this century, the U.S. economy has steadily reduced its dependence on banks by developing “dispersed and decentralized” financial markets. In so doing, it has increased the efficiency of the U.S. capital allocation process and reduced its susceptibility to the credit crunches that have occurred throughout U.S. history. By contrast, Japan has not reduced its economy's dependence on banks, and its efforts to deal with its banking problems have served only to destabilize itself as well as its neighbors. Developing countries in Southeast Asia and elsewhere are urged not to follow the Japanese example, but to take measures aimed at developing financial markets and institutions that will either substitute for or complement bank products and services.

Haizhou Huang, Chenggang Xu

Through analyzing the softness and hardness of budgeting constraints in research and development (R&D) investment under different institutions, we develop a theory of optimal R&D financing. Our theory not only provides a clear comparison of investment efficiency between centralized economies and market economies but also extends the analysis of soft budget constraints to firms in market economy. Based on this theory, we characterize optimal choices of R&D project financing in centralized and decentralized economies. Our results explain why some projects are financed internally by a large firm but others are cofinanced externally by several firms. We also explain what makes a centralized economy inefficient in R&D.

Erik Berglöf, Gérard Roland

No abstract is available for this record.

Xiaoming Li, Yue Ma

No abstract is available for this record.

M. Dewatripont, Eric Maskin

We study a credit model where, because of adverse selection, unprofitable projects may nevertheless be financed. Indeed they may continue to be financed even when shown to be low-quality if sunk costs have already been incurred. We show that credit decentralization offers a way for creditors to commit not to refinance such projects, thereby discouraging entrepreneurs from undertaking them initially. Thus, decentralization provides financial discipline. Nevertheless, we argue that it puts too high a premium on short-term returns. The model seems pertinent to two issues: “soft budget constraint” problems in centralized economies, and differences between “Anglo-Saxon” and “German-Japanese” financing practices.

Binh Tran‐Nam, Công Nghê Truong, Pierre N. V. Tu

No abstract is available for this record.