The Effect of Crop Specialization on Farms' Performance: A Bayesian Non-neutral Stochastic Frontier Approach

A Bayesian non-neutral stochastic input distance function model is used to examine whether output specialization has an impact on the economic performance of vegetable producers in Benin. Specialization is assumed to have an effect on the production frontier itself, as well as on the distance of each producer's observed data to this frontier (technical efficiency). A derivative-based measure of economies of scope is obtained by exploiting the duality between the shadow cost and the input distance functions. In this study, we also control for spatial heterogeneity of vegetable production by including a soil fertility variable in the production function at the farm level. The technology is found to exhibit no economies of scope, indicating that vegetable producers have no incentive for specialization or diversification. However, the degree of specialization has a positive effect on technical efficiency. From a policy perspective, the findings imply that policies to encourage specialization may lead to higher performance.

Bail-in and Bailout: Friends or Foes?

This paper analyzes the effects of bail-in and bailout policies on banks’ funding costs, incentives for loan monitoring, and financing capacity. In a model with moral hazard and two investment stages, a full bail-in turns out to be, ex post, the optimal policy to deal with a failing bank. Unlike a bailout, it allows the government to recapitalize the bank without resorting to distortionary taxes. As a consequence, however, investors expect bail-ins rather than bailouts. Ex ante, this raises banks’ cost of debt and depresses bankers’ incentives to monitor. When moral hazard is severe, this time inconsistency leads to a credit market collapse in which productive projects are not financed, unless the government precommits to an alternative resolution policy. The optimal policy is either a combination of bail-in and bailout—in which the government uses a minimal amount of public transfers to lower banks’ cost of debt—or liquidation, depending on the severity of moral hazard and the shadow cost of the partial bailout. This paper was accepted by Gustavo Manso, finance.

Economic expectations and private investment decision for the Peruvian consumer sector 2010Q4-2020Q1: Preliminary analysis under COVID-19 scenario

This work estimates the relationship between the economic expectations given by Tobin's q variables, terms of exchange and 3-month economic expectations with private gross investment for the period from the first quarter of 2010 to the first quarter of 2020, under the stress scenario of the COVID-19 pandemic. Through an econometric model, results were obtained such as that the variation in private gross investment VIBP has an inertial behavior with a coefficient of 0.258791, shadow cost of capital or q of Tobin QTC with a coefficient of -0.03213, as well as terms of TI exchange with a coefficient of 0.805618. This indicates that the private investment decision by the companies analyzed depends on factors such as economic expectations, the inertial effect of investment and the shadow cost of capital expressed in Tobin's q.

Efficient Programs to Support Businesses During and After Lockdowns*

I analyze efficient government interventions to mitigate financial distress during a severe macroeconomic downturn. At the macroeconomic level, the key variable is the gap between the real wage and the shadow cost of labor. This gap is large when unemployment is high. At the micro level, laissez-faire leads to excessive liquidation of businesses but an indiscriminate bailout prevents efficient reallocations and implies a large transfer from taxpayers to existing private creditors. I show that a cost-efficient intervention can be achieved with a continuation premium, whereby the government agrees to reduce its claims by the same haircut as private creditors plus a fixed premium. (JEL D24, G33, G38, H12) Received November 17, 2020; editorial decision November 23, 2020 by Editor Andrew Ellul.

A Methodology for Long-Term Model Predictive Control of Hybrid Geothermal Systems: The Shadow-Cost Formulation

Model Predictive Control (MPC) predictive’s nature makes it attractive for controlling high-capacity structures such as thermally activated building systems (TABS). Using weather predictions in the order of days, the system is able to react in advance to changes in the building heating and cooling needs. However, this prediction horizon window may be sub-optimal when hybrid geothermal systems are used, since the ground dynamics are in the order of months and even years. This paper proposes a methodology that includes a shadow-cost in the objective function to take into account the long-term effects that appear in the borefield. The shadow-cost is computed for a given long-term horizon that is discretized over time using predictions of the building heating and cooling needs. The methodology is applied to a case with only heating and active regeneration of the ground thermal balance. Results show that the formulation with the shadow cost is able to optimally use the active regeneration, reducing the overall operational costs at the expenses of an increased computational time. The effects of the shadow cost long-term horizon and the predictions accuracy are also investigated.

Religious prohibition and sacrifice: evidence from the Amish restriction on high school education

The Amish collective objection to high school education and refusal to comply with compulsory schooling laws can be interpreted with a religious-club-good framework. According to the religious-club interpretation, the Amish use the restriction on secular education as a religious prohibition and sacrifice to improve the welfare of sect members. I exploit the 1972 U.S. Supreme Court's decision in Wisconsin vs. Yoder, which exempts Amish children from compulsory high school education, as a policy shock to test several key predictions of the religious-club explanations. The evidence suggests that the successful restriction on high school education helped the Amish sect exclude individuals with low religious participation, lower members' shadow cost of time, and grow the sect through higher fertility.

Estimating Islamic Banks’ Technical and Allocative Inefficiencies: A Shadow Cost Approach

The main objective of the present paper is to empirically analyze the efficiency of 26 selected Islamic banks from different countries, namely: Bahrain, Jordan, Kuwait, Malaysia, Pakistan, Qatar, Saudi Arabia and UAE. The data used covers the period of 2012‒2016. To measure the banks’ efficiency, we used the frontier-based efficiency methodology, which was especially developed in the presence of panel data. In this respect, the panel data provided us with a fruitful framework for analyzing the efficiency. Therefore, the method employed was the shadow cost frontier based on the estimation of parametric cost inefficiency and its decomposition into both technical and allocative inefficiencies. The findings showed that the Islamic banks are costinefficient. With regard to the allocative inefficiency, it can be explained by excessive use of capital relative to labor, accompanied by an overuse of financial resources in terms of labor. The present study also revealed that the financial factor is overused, relative to the physical capital. Furthermore, technical inefficiency appears to be the second source of cost inefficiency as far as the Islamic banks are concerned. Overall, the findings indicate that the Islamic banks must improve their use of resources by about 43.7 percent for achieving efficiency.