High Transaction Costs Research Articles

Portfolio Selection with Regularization

We study the Markowitz mean-variance portfolio selection model under three types of regularizations: single-norm regularizations on individual stocks, mixed-norm regularizations on stock groups, and composite regularizations that combine the single-norm and mixed-norm regularizations. With mixed-norm regularizations incorporated, our model can accomplish group and stock selections simultaneously. Our empirical results using both US and global equity market data show that compared to the classical mean-variance portfolio, almost all regularized portfolios have better out-of-sample risk-adjusted performance measured by Sharpe ratio. In addition, stock selection and group screening accomplished by adding [Formula: see text] and [Formula: see text] regularizations respectively can lead to decreased volatility, turnover rate, and leverage ratio. Yet there are instances in which diversifying across different groups is more favorable, depending on the grouping methods. Moreover, we find a positive correlation between portfolio turnover and leverage. Heavily leveraged portfolios also have high turnover rates and thus high transaction costs.

Does the turnover effect matter in emerging markets? Evidence from China

In this paper, we examine the turnover effect in China's stock market and find that stocks with low turnover generate higher future returns than stocks with high turnover. The turnover effect is robust after various liquidity measures are controlled for, and it cannot be explained by existing asset-pricing models. Further evidence reveals that the turnover effect (1) is stronger when sentiment is high; (2) is stronger for stocks with lower investor sophistication, higher idiosyncratic volatility, higher transaction costs, and lower institutional ownership; and (3) persists in longer horizons. These findings are consistent with the mispricing explanation.

Assessing the impact of tradable discharge permit on pollution reduction and innovation: micro-evidence from Chinese industrial enterprises

The impact of a tradable discharge permit system on pollution reduction, pollution intensity, and innovation depends on market perfection. To verify this assumption, this study matches China’s Industrial Enterprise Database with the Industrial Enterprise Pollution Emissions Database and applies the difference-in-difference-in-difference estimator for empirical analysis. The results show that implementing a tradable discharge permit policy can promote pollution reduction and pollution intensity reduction for pilot regions with a high degree of marketization. However, the implementation of a tradable discharge permit policy did not have a significant impact on innovation. This indicates that the Porter hypothesis was not valid during the sample period from 2000 to 2012 in China. Enterprises tend to achieve pollution abatement through end-of-pipe control or reduced output rather than through technological innovation. Moreover, high institutional transaction costs lead to a weak incentive effect of the tradable discharge permit system on promoting enterprise innovation. Furthermore, greater market power is conducive to corporate innovation in regions with a high degree of marketization. The results of a heterogeneity analysis show that the impact of a tradable discharge permit system differs by enterprise ownership and region. The findings have clear policy implications: the Chinese government should consider applying the hybrid approach by combining a tradable discharge permit system with a given emission standard and foster competition.

Decentralized Stock and Cryptocurrency Exchange

We propose a new blockchain-based framework for a completely decentralized stock market and bitcoin exchange in this paper. By proposing a groundbreaking framework utilizing blockchain to build a decentralized bitcoin and stock exchange network, this paper discusses the shortcomings of conventional centralized stock exchange platforms, High transaction costs, vulnerable centralized governance, and a lack of clarity in consumer behavior and algorithms are just a few of the problems. Blockchain technology consists of a large number of computer nodes that share a shared ledger securely without the need for intermediaries of any sort. The proposed blockchain-based solution addresses the disadvantages of the centralized stock exchange architecture by ensuring the integrity and security of the properties and orders of the owner, by self-enforcing intelligent agreements between parties, and by consensus algorithms, by achieving democratic and effective decisions on the execution and settlement of orders. Intelligent contracts are used in the proposed architecture to enforce the validation of the owner's rights as well as the proper execution and settlement of orders, reducing the need for a central authority to ensure that the stock exchange process is accurate. The proposed system proposes a hybrid platform that incorporates cryptocurrency and stock trading. The solution was tested for a subset of rules for the Stock Exchange by implementing a prototype in Ethereum.

Small Farms, Large Transaction Costs: Haiti’s Missing Sugar

In the eighteenth century, Haiti was the world’s leading sugar producer, but when cane surged in the Caribbean in the early twentieth century, Haiti produced none. Instead, the land sat idle while workers emigrated to work on sugar plantations. I examine the hypothesis that historical property rights institutions created high transaction costs for converting land to cane production. I collect new data on land-use from 1928–1950 and a proxy for transaction costs. The evidence suggests transaction costs impeded the land market from responding to the sugar boom.

Factors affecting transaction costs in megaprojects: a qualitative comparative analysis

PurposeThe purpose of this study is to examine the factors influencing the transaction costs (TCs) in megaprojects to provide a basis for controlling project costs.Design/methodology/approachThis study selects six factors influencing the TCs in megaprojects from the perspective of TC theory and relational contract theory (RCT) through literature review. On the basis of crisp-set qualitative comparative analysis (QCA), this study tests combined factors influencing the TCs and the interaction between them.FindingsResults show that in megaprojects, TCs are affected by combination factors. The combination of asset specificity, uncertainty, transaction frequency and trust and the combination of asset specificity, reputation and trust will control TCs in certain situations. In the configuration leading to high project TCs, the combination of environmental and behavioral uncertainties is a necessary condition.Originality/valueThis paper fills up the research gap in the field of megaproject TCs, and researchers can focus on this field in the future.

The Role of Savings Group on the Nutritional and Economic Wellbeing of Rural Households: The Case of World Vision’s Savings for Transformation (S4T) in Zambia

Smallholders and the poor populations, especially in rural areas, tend to have little or no access to formal credit, which limits their capacity to invest in the technologies and inputs they need to increase their yields and incomes and reduce hunger and poverty. This mainly arises because financial institutions interested in serving this market face a myriad of risks and challenges associated with agricultural production and lending, including seasonality and the associated irregular cash flows, high transaction costs, and systemic risks, such as floods, droughts, and plant diseases. As a solution to the challenge of financial exclusion among the rural poor, several international development organizations have been using Village Savings and Lending Associations (VSLAs) as an alternative option to increasing financial inclusion among the rural communities in most developing countries. Using both quantitative and qualitative methods, this study aimed to assess whether membership to these VSLAs results in significant improvements in household economic status as well as household food security. The results show that compared to non-members, members of these savings groups are more likely to have increased access to alternative and more sustainable financial tools. Membership to these savings groups is also associated with improved nutrition, education, living standards while the likelihood of being poor is also reduced.

Evaluation of market risk associated with hedging a credit derivative portfolio

Hedging a credit portfolio using single-name credit default swap (CDS) is affected by low liquidity and high spread volatility, which induces continuous changes in a portfolio mark-to-market. As an alternative, we consider hedging a derivative portfolio by taking a contrary position in a credit index, evaluating the empirical market risk that remains after such hedge. We perform three different hedging exercises: for single-names, for sectorial portfolios and for regional portfolios. We implement least squares hedging as a benchmark, and compare its efficiency with a hedge ratio estimated under the RiskMetrics exponentially moving average (EWMA) specification for time varying second order moments, as well as with the hedge ratio obtained from a bivariate GARCH model for the portfolio and the credit index used as a hedge. Over the 2007–2012 period, we find a high hedging efficiency for regional portfolios (Europe, North America and Japan), as well as for a global portfolio, which is back at pre-crisis levels. The EWMA hedge is slightly more efficient than the least-squares hedge, while the GARCH hedge does not improve hedging efficiency. Hedging efficiency is not as high for sectorial credit portfolios from Europe and North America, due to their more important idiosyncratic component. Taking into account the quality of the credit counterpart improves the effectiveness of the hedge, although it requires using less liquid credit indices, with higher transaction costs. This hedging strategy becomes much more complex if firms in the portfolio have a large idiosyncratic component. The efficiency of the hedge is higher when liquidity risk and systematic risk are high, or when the term structure is flat. We also provide evidence suggesting that credit indices can also offer a moderately efficient hedge for corporate bond portfolios, which we have examined with a reduced sample of firms over 2006–2018.

Understanding Marketing Challenges along Grapes Value Chain in Central Areas of Tanzania

Grapes are the fruits with diversified benefits and livelihood impacts. Actors of its value chain are faced with various constraints, despite the potentiality of the crop. However, there is limited knowledge about market challenges subjecting grapes farmers and other marketing actors along the value chain. This study attempts to explore the foremost marketing challenges faced by grapes farmers in central areas of Tanzania hence they fail to carter the local market posed by winery companies available in the region. A multi-stage sampling method was used to randomly select a total of 132 grapes farmers and other market intermediaries. These farmers reported to have limited knowledge hence facing the challenges related to potential market environments and how they can exploit available market opportunities. Actors have poor entrepreneurial skills, subjected with high transaction costs with unsatisfactory market linkages. The study recommends grape growers collective actions through groups and the government, and other actors to put in place the necessary investment environment conditions for mutual benefits of grapes value chain stakeholders’ e.i Growing the right grape as per the market requirement with right volume and investment on sophisticated storage technology to reduce post-harvest loses.

Impact of Index Insurance on Moral Hazard in the Agricultural Credit Market: Theory and Evidence from Ghana

AbstractRecent research suggests that coupling microfinance loans with an index insurance policy may be a cost-effective way to expand credit market access to smallholder farmers in developing countries. Index insurance can increase demand for credit and encourage increased supply of credit by protecting borrowers and lenders from covariate production shocks that discourage credit market expansion. In this paper, we propose that index insurance, when bundled with credit, may also reduce a different barrier to credit market access: high transaction costs caused by moral hazard in the credit market. We develop a theoretical model of a competitive credit market with moral hazard. In this market, lenders use either dynamic incentives or collateral to mitigate the moral hazard problem. The model shows that index insurance bundled with loan contracts can reduce moral hazard and increase borrower welfare. We then test the model and find some empirical support using a subset of data from a randomised control trial in northern Ghana.

E‐commerce's fast‐tracking diffusion and adaptation in developing countries

AbstractE‐commerce is rapidly diffusing in developing regions of the world. Its share is still small even in modern retail, except in the frontrunner China, but it is developing quickly in Asia and Latin America and emerging in Africa. Patterns of diffusion over regions mirror the supermarket revolution but are lagged by several decades. E‐commerce firms employ strategies to “fast‐track” their spread, responding to challenges of high transaction costs, heterogeneous consumers, and persisting importance of retail small and medium enterprises. Over the past 10–15 years, e‐commerce firms in developing regions have fast‐tracked their adaptation to these challenges by bundling services as well as partnering with retail SMEs and delivery intermediaries.

Partnerships in Health Development

The COVID-19 pandemic has thrown into bold relief the need for an all-of-society response supported by regional and global partnerships to control the epidemic. Addressing the social determinants of health, Universal Health Coverage, the non-communicable disease (NCD) burden, the other communicable diseases and the achievement of the Sustainable Development Goals (SDGs) all would require a close collaboration among different sectors and stakeholders, including the private sector. Partnerships connote three fundamental themes—a relative equality between the partners, mutual commitment to agreed objectives and mutual benefit for the stakeholders involved. The decisions are made jointly, and roles are not only respected but are also backed by legal and moral rights. The World Health Organization (WHO) has been and continues to be the foremost promoter as well as the host for many of the global and regional partnerships in health. A typological classification would include technical assistance partnerships supporting service access and provision of services including drugs, partnerships focusing on research and development, advocacy and resource mobilisation and financing partnerships mainly to provide funds for definite disease programmes. Partnerships in health have brought and continue to bring multiple benefits to the countries. But they also engender several challenges, including the duplication of effort and waste, high transaction costs (usually to government), issues of accountability and consequent lack of alignment with country priorities. As partnerships become increasingly significant in the twenty-first century, better coordination, particularly in terms of donor harmonisation with national priorities, would be needed. It is not ambitious to attempt the elusive ideal where all parties will benefit from one other with a give and take between all stakeholders. Partnerships in health could well herald a new dawn for health development in the South-East Asia Region.

Increasing cooperation and reducing competition to reduce transaction costs

Neoclassical economics outlines the way in which production, pricing and consumption are driven by supply and demand. However, it is more complicated than that. Professor Tatsuo Koda, who has vast experience with corporations, and is based at Bunkyo University, Japan, is interested in how individual behaviour can shed new light on organisational and corporate activities. He is exploring the intersection between cooperation and competitiveness with a view to demonstrating the importance of cooperation and positive corporate behaviour. Specifically, he is exploring the factors that affect transaction costs, which on a basic level means how much it costs to purchase something, and believes that companies could benefit from increasing cooperation and reducing competition as this is a way to reduce transaction costs, benefiting each party involved in a transaction. Koda has developed a theoretical framework that posits that building a trusting relationship is the prime measure for reducing transaction costs and, comparatively, contract-based exchanges lead to higher transaction costs. Ultimately, Koda is setting out to analyse the discordant relationships found within and between organisations from the viewpoint of cooperation in order to put forward solutions. He has already found that asset specificity heightens transaction costs for both contract-based exchanges and cooperative exchanges and, next, he will be interviewing organisations and individuals within corporations in order to identify other conditions that have the effect of increasing transaction costs. In the long term, this research could contribute to a priority shift in Japanese companies and accentuate cooperation within Japan and across borders.

Solar Prosumers in the German Energy Transition: A Multi-Level Perspective Analysis of the German ‘Mieterstrom’ Model

The expansion of photovoltaics in German cities has so far fallen short of expectations. The concept of ‘tenant electricity’ (‘Mieterstrom’ in German), in which tenants of a building are supplied with solar power produced on site, offers great potential here. A study on behalf of the German Federal Ministry for Economic Affairs and Energy estimated the number of tenant households with good conditions for solar tenant electricity at 3.8 million. At the same time, the federal tenant electricity promotion scheme has been in place since 2017, but only about 1% of the annual budget has been claimed. The aim of this study is to identify the barriers for and drivers of diffusion of the tenant electricity model. To this end, a qualitative document analysis and a range of semi-structured expert interviews have been conducted. The theoretical framework used to guide the analysis is the multi-level perspective. The main barrier found for tenant electricity diffusion is the legal framework on the regime level, which also leads to high transaction costs of implementing tenant electricity. A social barrier is the inertia of some residents to actively concern themselves with their electricity supply and switch to a tenant electricity contract. Among its drivers are long-term trends such as the increasing electricity demand in urban areas, technical developments like blockchain technology and the increasing deployment of smart meters, and the EU Renewable Energy Directive. As long as the restrictive legal framework prevails, the further diffusion of tenant electricity will remain limited.

The state of agricultural landscapes in the Mediterranean: smallholder agriculture and land abandonment in terraced landscapes of the Ricote Valley, southeast Spain

The fast and broad adoption of mechanization and chemical inputs in Mediterranean terraced agriculture, combined with warming climate trends, has led to the progressive degradation of environmental and social conditions. These factors have concurred with the increasing abandonment of smallholder agriculture. We aimed to detect and quantify the progression of cultivated and abandoned terraced fields in the Ricote Valley between 2016 and 2019 while also exploring reasons for land abandonment over the past decades. To quantify cultivated and abandoned agricultural terraces, we conducted (1) a terrace detection based on Lidar and cadaster data, (2) a land use classification based on Sentinel imagery, and (3) an investigation of the reasons for land abandonment based on participant observation and an expert survey. Our results show high rates of abandonment compared to the total available agricultural terraced area in the Ricote Valley. In 2016, 56% of the detected terraced area was classified as not cultivated. In 2019, the percentage decreased to 40%. Small parcels are cultivated to a higher percentage than large or medium-sized parcels. We identified five main reasons underlying land abandonment: (1) low income of farmers; (2) land fragmentation resulting in higher transaction costs; (3) lack of interest in agricultural activities among young generations; (4) lack of modernization; and (5) emotional bonds preventing the sale of abandoned parcels. We stressed the importance of a place-based mixed method approach to gain a comprehensive understanding of the specificities of a given research area.

Spatial determinants of land redevelopment in the urban renewal processes in Shenzhen, China

Urban renewal has become an essential part of the ongoing urban development in China. This study provides a citywide analysis on the spatial determinants of land redevelopment activities in the urban renewal processes in Shenzhen, China. Based on the concept of rent gap and a perspective of transaction costs, a conceptual framework is developed to understand land redevelopment behaviors and analyze how location factors, land property rights, land use status and urban planning collectively affect land redevelopment outcomes. Empirical analysis is conducted based on logistic regression models with unique parcel-level data of all urban renewal projects in the entire city of Shenzhen and in special economic zone (SEZ) and non-SEZ areas. This study shows that urban sites with high land rent gap levels and low transaction costs are more likely to be redeveloped earlier. Aside from location factors, land property rights, land use status and urban planning all have a significant influence on the spatial variation of land redevelopment activities. These factors have varied effects on land redevelopment in the SEZ and non-SEZ areas due to the institutional differences and development conditions in these two areas. The research findings suggest the need for further policy considerations to better guide land redevelopment toward sustainable development. Redevelopment policies and regulations should also consider the dissimilar redevelopment conditions of different regions.

A price on warming with a supply chain directed market

Existing emissions trading system (ETS) designs inhibit emissions but do not constrain warming to any fixed level, preventing certainty of the global path of warming. Instead, they have the indirect objective of reducing emissions. They provide poor future price information. And they have high transaction costs for implementation, requiring treaties and laws. To address these shortcomings, this paper proposes a novel double-sided auction mechanism of emissions permits and sequestration contracts tied to temperature. This mechanism constrains warming for many (e.g., 150) years into the future and every auction would provide price information for this time range. In addition, this paper proposes a set of market rules and a bottom-up implementation path. A coalition of businesses begin implementation with jurisdictions joining as they are ready. The combination of the selected market rules and the proposed implementation path appear to incentivize participation. This design appears to be closer to “first best” with a lower cost of mitigation than any in the literature, while increasing the certainty of avoiding catastrophic warming. This design should also have a faster pathway to implementation. A numerical simulation shows surprising results, e.g., that static prices are wrong, prices should evolve over time in a way that contradicts other recent proposals, and “global warming potential” as used in existing ETSs is generally erroneous.

When the going gets tough, the goal-committed get going: overcoming the transaction costs of inter-agency collaborative governance

ABSTRACT Collaborative governance, despite being a fraught endeavour, is sometimes the only option for addressing cross-agency problems. From 2012 to 2017, the New Zealand government’s flagship programme was an inter-agency collaborative governance regime focussed on achieving outcome targets. An earlier study attributed the programme’s success to sociotechnical features that reduced ‘transaction costs’. A subsequent study found this inconsistent with an emic (insider) perspective from public managers. Goal commitment was presented as an alternative, underexplored explanation for success despite high transaction costs. The two explanations are reconciled by Identifying common design features that contribute to successful inter-agency collaborative governance.

Financial Inclusion in Zimbabwe: Determinants, Challenges, and Opportunities

Financial inclusion is a highly topical issue for policymakers since inclusive finance is viewed as a channel of social and economic development. Therefore, this paper seeks to ascertain and examine the determinants, challenges, and opportunities for financial inclusion in Zimbabwe. The research is done by examining existing literature and estimating Logit and Probit models. This paper finds that, the major determinants of financial inclusion in Zimbabwe are; gender, age, education, income levels, employment status, the cost of financial services, account opening requirements, and level of trust in the financial system. Challenges to financial inclusion in Zimbabwe include; financial illiteracy, lack of formal identification documents, lack of trust in the financial system, fragile economy, rural poor and gender inequality, and high transaction costs of financial services. However, mobile money services such as Eco-cash, Tel-cash, and One-money have proved an opportunity for inclusive finance in Zimbabwe. Furthermore, the establishment of the women’s Bank of Zimbabwe is one of the strategies to enhance inclusive finance for women in Zimbabwe. The simplified KYC requirements for low-income groups and the financial inclusion strategy commissioned by the Reserve Bank of Zimbabwe are hoped to promote financial inclusion. This paper recommended that to make finance inclusive, the government should develop policies that target marginalized groups such as the elderly, rural population, low-income earners, females, and the unemployed. The government should also develop a strong consumer protection regulatory framework, promote financial literacy, reduce the transaction cost of financial services and encourage the use of accounts with simplified KYC requirements to ease documentation needs.

Evaluating the Feasibility of Water Sharing as a Drought Risk Management Tool for Irrigated Agriculture

Droughts can exert significant pressure on regional water resources resulting in abstraction constraints for irrigated agriculture with consequences for productivity and revenue. While water trading can support more efficient water allocation, high transactional costs and delays in approvals often restrict its wider uptake among users. Collaborative water sharing is an alternative approach to formal water trading that has received much less regulatory and industry attention. This study assessed how the potential benefits of water sharing to reduce water resources risks in agriculture are affected by both drought severity and the spatial scale of water-sharing agreements. The research focused on an intensively farmed lowland catchment in Eastern England, a known hot-spot for irrigation intensity and recurrent abstraction pressures. The benefits of water sharing were modelled at four spatial scales: (i) individual licence (with no water sharing), (ii) tributary water sharing among small farmer groups (iii) sub-catchment and (iv) catchment scale. The benefits of water sharing were evaluated based on the modelled reductions in the probability of an irrigation deficit occurring (reducing drought risks) and reduced licensed ‘headroom’ (spare capacity redeployed for more equitable allocation). The potential benefits of water sharing were found to increase with scale, but its impact was limited at high levels of drought severity due to regulatory drought management controls. The broader implications for water sharing to mitigate drought impacts, the barriers to wider uptake and the environmental consequences are discussed.