Tackling Issues of Global Concern by Revisiting the Justifications for State Approaches to Governance

Issues of global concern typically arise where there is a limited commitment to accountable governance. This paper argues that there has been an evolution in the state function. This evolution has made it possible to envisage a progression to accountable governance across all states. If attained, this would establish accountable governance as the threshold for state participation in international relations. Failure to meet the threshold would justify intrusion in the governance affairs of states by the international community of states to ensure accountability. Thus, the paper argues that the key to addressing issues of global concern lies in getting states to embrace accountable governance. This would be the first step towards empowering the international community of states to hold accountable those states that adopt governance decisions that perpetuate issues of global concern.

Impulse-Based Computation of Policy Counterfactuals

We propose an efficient procedure to solve for policy counterfactuals in linear models with occasionally binding constraints. The procedure does not require knowledge of the structural or reduced-form equations of the model, its state variables, or its shock processes. Forecasts of the variables entering the policy problem, and impulse response functions of these variables to anticipated policy shocks under an arbitrary policy, constitute sufficient information to construct valid counterfactuals. We show how to compute solutions for instrument rules and optimal discretionary and commitment policies with multiple policy instruments, and discuss various extensions, including imperfect information, asymmetric objectives, and limited commitment. Our procedure facilitates the comparison of the effects of policy regimes across models. As an application, we compute counterfactual paths of the U.S. economy around 2015 for several monetary policy regimes.

Bilateral trade with a benevolent intermediary

We study intermediaries who seek to maximize gains from trade in bilateral negotiations. Intermediaries are players: they cannot commit to act against their objective function and deny, in some cases, trade they believe to be beneficial. This impairs their ability to assist the parties relative to conventional mechanisms. We analyze this limited commitment environment as a standard mechanism design problem with an additional “credibility” constraint, requiring that every outcome be interim‐optimal conditional on available information. We investigate how such intermediaries communicate with the parties, analyze the tradeoffs they face, and study the bounds on what they can achieve.

Financing Corporate Growth

Considerable research tackles the aggregate impact of debt financing. We show that equity is more important for firm growth than generally understood. A dollar of equity issuance is associated with an extra $0.93 of real assets, whereas a dollar of debt issuance is associated with an extra $0.14. Firms issue equity first, then increase real assets, and, finally, issue debt while repurchasing equity. We explain this sequence using a model in which debt is tax preferred relative to equity but is subject to limited commitment. We use the estimated model to evaluate how several government policies affect corporate growth.