Economic Issues Volume 3

ECONOMIC ISSUES

Volume 3 (1998)

Part 1, March

Please select from the titles below:

S G M Fifield, A A Lonie and D M Power, A Review of Research into Emerging Stock Markets
S Pallett, The Trafalgar House Taveover Bid for Northern Electric: a Case Study in the Impact of Regulatory Intervention
G Cook, Choice of Organisational Form in Petrol Retailing: An Economic Analysis
S Power and N Rowe, Independent Central Banks: Coordination Problems and Budget Deficits

Part 2, September

Please select from the titles below:

Part 1, March

A Review of Research into Emerging Stock Markets (p.1)

by S G M Fifield, A A Lonie and D M Power

Abstract: Emerging stock markets have been the subject of extensive scrutiny since their emergence as a separate investment category some twenty years ago. This review article explores the major debates which have taken place in the emerging stock market literature, including (1) the definition of what constitutes an emerging stock market, (2) the diversification benefits of incorporating equities from emerging markets into an investment portfolio, (3) the predictability of returns in emerging stock markets and (4) the character and volatility of emerging market equity returns. This review analyses the existing research into emerging markets and also indicates areas where future research might prove useful.

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The Trafalgar House Taveover Bid for Northern Electric: a Case Study in the Impact of Regulatory Intervention (p.37)

by S Pallett

Abstract: Trafalgar House's takeover bid for Northern Electric, the first for a privatised utility, was notable in retrospect for the regulatory intervention which it evoked, although it had not been xpected that regulatory intervention would play a major role in its outcome. This paper presents a case study of this takeover bid. Its principal focus is on the impact of regulatory intervention by the MMC and the Office of Electricity Regulation and it uses event study methodology to assess the impact of this on shareholders' returns.

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Choice of Organisational Form in Petrol Retailing: An Economic Analysis (p.51)

by G Cook

Abstract: This paper is concerned with the reasons for vertical integration. It specifically addresses the questions of why vertical integration and close contractual equivalents have arisen in the petrol sector of the UK and what influences the particular pattern of integration and contracts found. The paper reports the results of a case study based on 17 semi-structured interviews. The main conclusions of the paper are as follows. The recent history of vertical integration is better accounted for by efficiency rationales. The explanation of the nature of contracts used emerges as being a mixture of agency factors and those emphasised by transaction cost economics. It is argued that the mix of contracts used is principally explained vy agency theory.

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Independent Central Banks: Coordination Problems and Budget Deficits (p.69)

by S Power and N Rowe

Abstract: This paper develops a simple game-theoretic model to show how the independence of central banks can result in coordination problems with the fiscal authority and excessive budget deficits. In a Stackelberg equilibrium with the fiscal authority as leader, the budget deficit is optimal. In contrast, with the central bank as leader, the budget deficit is too high. While in a Nash equilibrium, the budget deficit is higher still.

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Part 2, September

Volatile Financial Markets and the Speculator (p.1)

by P Davidson

Abstract: In recent years it has become fashionable to argue for a tax on financial transactions in order to reduce the volatility of financial markets. In the USA, however, the volatility of the New York and American Stock Exchanges has declined, relative to that of the over-the-counter market, since the reduction in commissions. We argue here that what one expects from putting 'sand in the wheels' of financial activity depends upon how one explains the existence of speculative activity and that this depends upon whether or not one accepts the ergodic principle. We also argue that it is bandwagon effects and not white noise variance that causes problems in financial markets and that the solution for this must involve the creation of a market maker prepared to 'lean into the wind' when markets show signs of departing from fundamentals.

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Making a Crisis out of a Drama: Should We Continue Public Financial Support for the British Theatre? (p. 19)

by A Collins and C Hand

Abstract: Following a brief review of some economic theory relevant to the analysis of not-for-profit theatre arts enterprises, the arguments relating to the merits of continuing subsidies to the British theatre arts are considered with respect to both production and consumption benefit perspectives. These are framed around the populist assertions typically levelled against and by advocates of continued subsidy. It is concluded that there is no compelling economic case for maintaining such subsidies.

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Privatization and Performance: A Study of the British Steel Industry under Public and Private Ownership (p. 31)

by D Parker and H S Wu

Abstract: Privatisation is intended to lead to a marked improvement in economic performance. Here the performance of British Steel is assessed both before and after privatisation in December 1988. Performance is measured in terms of trends in labour and total factor productivity and profitability and by comparing the technical efficiency of the UK steel industry with technical efficiency in six other major steel producing countries using data envelopment analysis (DEA). The results confirm the existence of efficiency gains before privatisation but since then performance has been more lacklustre.

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Estimation of the Demand for Cigarettes: A Review of The Literature (p.51)

by S Cameron

Abstract: This paper reviews work on the demand for cigarettes showing considerable agreement on a statistically significant inelastic price response which is much greater in the long- run. It also appears that, on balance, there are significant negative effects of health scares. The evidence on the effects of advertising is inconclusive. Restrictions on smoking in public places appear to decrease demand. At present, the rational addiction model looks set to dominate the field. Unfortunately it has, in common with the earlier work, received an uncritical response. The results gained are highly questionable; the time-series studies were carried out without reference to the literature on cointegration. Further, the rational addiction models have encountered acute problems with implausible discount rates and insignificant price terms.

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Meaning and Measurement of National Economic Success: UK Relative Economic Performance in the 1980s (p.73)

by A Hutton, A Dow and T Deeney

Abstract: Overall assessments of national economic performance involve a set of well rehearsed 'technical' problems. They are also always mediated by the ideological stance and the committed analytical or policy position of the observer. In this paper we introduce a framework for such overall assessments which both takes account of the major problems and, by making these subjective dimensions explicit, demonstrates their significance. Drawing on the approach of the UN Human Development Index, a composite index of national economic performance is developed. Using a set of conventional macroeconomic indicators we calculate composite indices of UK economic performance, relative to the G7 as a whole, in the 1980s compared to the 1970s from four different analytical or ideological standpoints. The results illustrate, inter alia, the extent to which assessments of relative economic performance can vary with the position of the observer.

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