Long-Term Capital Management and the sociology of arbitrage

Arbitrage is a key process in the practice of financial markets and in their theoretical depiction: it allows markets to be posited as efficient without all investors being assumed to be rational. This article explores the sociology of arbitrage by means of an examination of the arbitrageurs, Long-Term Capital Management (LTCM). LTCM's 1998 crisis is analysed using both qualitative, interview-based data and quantitative examination of price movements. It is suggested that the roots of the crisis lay in an unstable pattern of imitation that had developed in the markets within which LTCM operated. As the resulting 'superportfolio' began to unravel, arbitrageurs other than LTCM fled the market, even as arbitrage opportunities became more attractive, causing huge price movements against LTCM. Three features of the sociology of arbitrage are discussed: its conduct by people often personally known to each other; the possibility and consequences of imitation; and the limits on the capacity of arbitrage to close price discrepancies. It is suggested that by 1998 imitative arbitrage formed a 'global microstructure' in the sense of Knorr Cetina and Bruegger.     

The effectiveness of regulatory disclosure policies

Regulatory transparency—mandatory disclosure of information by private or public institutions with a regulatory intent—has become an important frontier of government innovation. This paper assesses the effectiveness of such transparency systems by examining the design and impact of financial disclosure, nutritional labeling, workplace hazard communication, and five other diverse systems in the United States. We argue that transparency policies are effective only when the information they produce becomes “embedded” in the everyday decision‐making routines of information users and information disclosers. This double‐sided embeddedness is the most important condition for transparency systems' effectiveness. Based on detailed case analyses, we evaluate the user and discloser embeddedness of the eight major transparency policies. We then draw on a comprehensive inventory of prior studies of regulatory effectiveness to assess whether predictions about effectiveness based on characteristics of embeddedness are consistent with those evaluations. © 2006 by the Association for Public Policy Analysis and Management     

Equality and efficiency: The illusory tradeoff

Abstract. Scholars and policy makers have traditionally assumed that nations face a tradeoff between income equality and economic efficiency. Greater equality is believed to reduce investment and dampen work incentives. A heterodox view suggests that a more egalitarian distribution of income may have beneficial efficiency effects by augmenting consumer demand and/or encouraging workers to cooperate in upgrading competitiveness. This paper offers an empirical assessment of the relationship between equality and efficiency, based on cross-sectional data from 17 advanced industrialized economies over the period 1974–90. The comparative evidence indicates no adverse impact of greater equality on investment or work effort, nor on growth of productivity or output, trade balances, inflation, or unemployment. On the contrary, higher levels of equality are associated with stronger productivity growth and trade performance, and possibly with higher investment and lower inflation.     

The rewards of cooperation: The effects of membership in European regulatory networks

Networks famously epitomize the shift from ‘government’ to ‘governance’ as governing structures for exercising control and coordination besides hierarchies and markets. Their distinctive features are their horizontality, the interdependence among member actors and an interactive decision‐making style. Networks are expected to increase the problem‐solving capacity of political systems in a context of growing social complexity, where political authority is increasingly fragmented across territorial and functional levels. However, very little attention has been given so far to another crucial implication of network governance – that is, the effects of networks on their members. To explore this important question, this article examines the effects of membership in European regulatory networks on two crucial attributes of member agencies, which are in charge of regulating finance, energy, telecommunications and competition: organisational growth and their regulatory powers. Panel analysis applied to data on 118 agencies during a ten‐year period and semi‐structured interviews provide mixed support regarding the expectation of organisational growth while strongly confirming the positive effect of networks on the increase of the regulatory powers attributed to member agencies.     

The Egyptian public sector: The control structure and efficiency considerations

The Egyptian public sector is labouring under a mass of legal controls which are proving an obstacle to its efficient running. A variety of government agencies, as well as the Board of Directors and the General Assembly, are burdening each company with regulations and demands for information. The little latitude thus allowed company managers in deciding upon such essential problems as finance, the size of the labour force and the price of output has had severe effects in decreasing the efficiency of each company and of the sector as a whole. Some dynamic company managers are trying to find a way around the system, but this is having negative efficiency and welfare effects. Examples of the negative effects of the mass of controls on problems such as finance and pricing are given in the article. Attempts at forming joint ventures, in order to escape the oppression of belonging to the state, have been made by some companies, but these have met with union opposition in some cases although the state seems to encourage the reduction in investment outlay which this policy might have. The article develops the analysis of the politico administrative framework of economic activity presented by Ayubi (1982).     

政府规模与行政效率比较审视

在过去的一个世纪中 ,东西方政府的规模都扩大了 ,而政府规模与行政效率之间存在着紧密的关系 ,政府规模过大就会影响行政效率。转型中的中国政府就面临着政府规模比较大的问题 ,中国政府应该制定战略缩减政府规模以提高行政效率 ,促进我国的经济增长。     

The consequences of midnight regulations and other surges in regulatory activity

Is the midnight regulations phenomenon real and what are its consequences? This paper finds that when an administration??s time is almost up, submissions of economically significant regulations nearly double. Such surges in regulatory activity decrease the duration of regulatory review at the Office of Information and Regulatory Affairs (OIRA), likely because of political pressure to quickly approve new rules. Specifically, one additional economically significant regulation submitted to OIRA decreases the mean review time for all regulations by about two thirds of a day. If OIRA review improves regulation quality, then regulatory surges that decrease review time could hinder such improvement.     

Functional regulatory spaces

This article develops the concept of “Functional Regulatory Space” (FRS) in order to analyze the new forms of State action addressing (super) wicked problems. A FRS simultaneously spans several policy sectors, institutional territories and levels of government. It suggests integrating previous policy theories that focused on “boundary-spanning regime,” “territorial institutionalism” or multi-level governance. The FRS concept is envisaged as a Weberian “ideal-type” of State action and is applied to the empirical study of two European cases of potential FRS: the integrated management of water basins and the regulation of the European sky through functional airspace blocks. It will be concluded that the current airspace regulation does match the ideal-type of FRS any better than the water resource regulation does. The next research step consists in analyzing the genesis and institutionalization of potential FRS addressing other (super) wicked problems such as climate change and economic, security, health and immigration issues in different institutional contexts as well as at various levels of governance.     

The role of analysis in the formation of cable television regulatory policy

A summary of a panel discussion by seven participants in the Federal Communications Commission's cable television rulemaking. Analysis of the potential impact of cable on over-the-air broadcasting was a prominent part of the rulemaking; but did it make any difference in the outcome? The panelists discussed how analysis was used and what effect it had on the rules finally adopted. It was agreed that analysis was used, not as a tool in the hands of decisionmakers, but rather as a weapon in the hands of the contending parties. Nevertheless, analysis had an important effect by strengthening the FCC's perceptions of cable's possible benefits and damping fears of its offsetting harms, resulting in a compromise outcome that is more encouraging to cable growth than it otherwise would have been.     

The national impact of European Union regulatory policy: Three Europeanization mechanisms

Abstract. While much has been written about the impact of European Union (EU) regulatory policy, most of the scholarly work is concerned with developments at the European level. Only recently have attempts been made to fill this gap. Although there is a growing number of studies explicitly concerned with the Europeanization of domestic institutions, we still lack consistent and systematic concepts to account for the varying patterns of institutional adjustment across countries and policy sectors. The aim of this article is to provide a more comprehensive framework for explaining the domestic impact of European policy making. We make an analytical distinction between three mechanisms of Europeanization – institutional compliance, changing domestic opportunity structures, and framing domestic beliefs and expectations – each of which requires a distinctive approach in order to explain its domestic impact. We argue that it is the particular type of Europeanization mechanism involved rather than the policy area itself that is the most important factor to be considered when investigating the domestic impact of varying European policies.     

On concepts of efficiency

This is a brief expository article designed to indicate how, by adding extra, natural considerations, a concept which originally appears to be crystal clear can quickly pose some deep problems in definition and in policymaking.     

The efficiency and distribution of mortgage revenue bond subsidies: The effects of behavioral responses

Mortgage revenue bond (MRB) programs are frequently justified on the basis that they enable low- or moderate-income families to purchase houses that they otherwise could not afford. This article argues that evaluations of MRB programs must include estimates of the responses of buyers and sellers to the subsidies. The empirical evidence indicates that the behavioral responses reduce the efficiency of MRB programs (the amount of the subsidies provided to targeted households) and cause the subsidies to be distributed more inequitably than previous research has shown. The capitalization of 10% to 14% of the value of MRB subsidies diverts some of the program benefits to sellers. Horizontal inequities are created because one group of moderate-income households use the subsidies to purchase more housing services than unsubsidized households with the same incomes.     

The diffusion of regulatory impact analysis – Best practice or lesson-drawing?

Abstract.  This article presents the main results of a research project on regulatory impact analysis (RIA) in comparative perspective. Its main theoretical thrust is to explore the limitations of the conventional analysis of RIA in terms of de-contextualised best practice and provide an alternative framework based on the lesson-drawing literature. After having discussed how demand and supply of best practice emerge in the OECD and the European Union, some analytic (as opposed to normative) lessons are presented. The main lessons revolve around the politics of problem definition, the nesting of RIA into wider reform programmes, the political malleability of RIA, the trade-off between precision and administrative assimilation, the roles of networks and watchdogs, and institutional learning. The conclusions discuss the implications of the findings for future research.