Coordination Failure and Financial Contagion

This paper explores a unique equilibrium model of ''informational'' financial contagion. Extending the global game model of Morris and Shin (1999), I show that the failure of a single firm can trigger a chain of failures merely by affecting the behavior of investors. In contrast to the existing multiple equilibria models of financial and banking panics, there is no indeterminacy in the present model. Thus, it provides a clear framework to assess the consequences of contagion and yields some important and hitherto unnoticed insights. Most importantly, if contagion is compared to an appropriate benchmark, its impact can be both positive or negative, which contrasts sharply with the traditional view of contagion. Moreover, contagion increases the correlation between firms, but the effect on the unconditional probability of failure is exactly zerofinancial contagion; systemic risk; financial crises; global games; unique equilibrium

The Exposure of Swiss Banks to Macroeconomic Shocks - an Empirical Investigation

Assessing financial stability is an issue of rapidly growing importance to central banks and banking authorities. This paper explores an extensive panel data set of Swiss banks to identify macroeconomic influencing factors on bank profitability and to quantify their impact on bank capitalization. We find evidence of a significant effect of various macroeconomic variables as e.g. real growth or interest rate shocks on bank earnings. However, our results suggest that the Swiss banking system is quite robust against macroeconomic shocks. Only a joint occurrence of a recession, rising interest rates and falling stock prices would lead to substantial losses in the Swiss banking industry.banking, macroeconomic shocks, stress tests, credit risk, interestrate risk, Switzerland

Buy High Sell Low: Redefining Bean Counting in the Coffee Industry for a Sustainable Future

Charles Manz returns to the JVBL providing ‒ together with several fellow researchers/writers ‒ a case study of a socially responsible business within the coffee industry. Familiar CSR concepts are examined such as Fair Trade and sustainability which foster parity in dealing with buyers while maintaining product quality and reasonable income. The practices of Dean’s Beans, a progressive coffee organization, are examined as a notable demonstration of how a business can fiscally succeed while maintaining a commitment to the triple-bottom-line considerations of people, planet, and profits

Authentic Corporate Social Responsibility Based on Authentic Empowerment: An Exemplary Business Leadership Case

Authors Dillon, Back, and Manz examine the underpinnings of genuine or authentic Corporate Social Responsibility (CSR), noting the direct nexus between stakeholder empowerment and the socially-responsible actions of authentic leaders. Such an empowering leadership approach– involving structural, psychological, developmental, and financial components – is particularly exemplified by a family-owned (Back) wine and cheese company (Fairview Trust), situate in South Africa

Information and Barometric Prices: An Explanation for Price Stickiness

Price stickiness plays a decisive role in many macroeconomic models, yet why prices are sticky remains a puzzle. We develop a microeconomic model in which two competing firms are free to set prices, but face uncertainty about the state of demand. With some probability, there is a positive demand shock, which is observed but by one firm. In equilibrium, only the informed firm adjusts its price after the shock, while the uninformed firm raises its price only with a delay, after observing the price of its competitor. Hence, prices are sticky in the sense that one firm's price does not adjust immediately. Further, if getting information is costly, the model implies that the larger firm tends to be better informed and to adjust its price first.Price Setting; Sticky Prices; Asymmetric Information; Barometic Price Leadership

The optimal level of deposit insurance coverage

This paper develops a global game model that allows for a rigorous analysis of partial deposit insurance and provides the first comparative statics of the optimal level of deposit coverage. The optimal amount of coverage increases with lower bank liquidity requirements, with a higher precision of depositors' information, and with a lower relevance of large, uninsured creditors, and it should not be increased in anticipation of an economic downturn. Optimal insurance is higher if there is contagion and lower if banks can assume excessive risk, but interestingly, a high level of coverage may not be optimal even in the absence of moral hazard on the part of banks. The model supports the inauguration of coinsurance provisions and is applied to compare various policies addressing financial fragility. While an optimal lending of last resort policy can outperform deposit insurance, anticipated bailouts are inferior in terms of welfare. Capital requirements are not a substitute for insurance, but mitigate excessive risk taking

Designing for and analyzing productive uncertainty in science investigations

https://repository.isls.org/bitstream/1/686/1/35.pdfPublished versio

Succeeding Through Collaborative Conflict: The Paradoxical Lessons of Shared Leadership

Facing serious challenges that may dictate the complete overhaul of business mindset and industry must be directed by sound leadership. But is it possible to lead alone or is collaboration necessary to confront these challenges? These authors tackle the well-known idiom “two heads are better than one” and extract from its meaning the inherent dichotomy in shared leadership, mediating differences of direction, and preserving the integrity of individual perspective in this new age