Private Trading Research Articles

Is International Emissions Trading Always Beneficial?

Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of “immiserizing” growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes.

Executive Compensation, Incentives, and Risk

This paper analyzes the link between equity-based compensation and created incentives by (1) deriving a measure of incentives suitable for both linear and non-linear compensation contracts, (2) analyzing the effect of risk on incentives, and (3) clarifying the role of the agent's private trading decisions in incentive creation. With option-based compensation contracts, the average pay-forperformance sensitivity is not an adequate measure of ex-ante incentives. Pay-for-performance covaries negatively with marginal utility and hence overstates the created incentives. Second, more noise in the performance measure implies that the manager is less certain about the effect of effort on performance, which in turn makes her less willing to exert effort. Finally, the private trading decisions by the manager have first-order effects on incentives. By reducing her holdings of the market asset, the manager achieves an effect similar to indexing the stock or option grant, making explicit indexation of the contract redundant.

A Model in which Outside and Inside Money are Essential

I present an environment for which both outside and inside money are essential as means of payment. The key model feature is that there is imperfect monitoring of issuers of inside money. I use a random-matching model of money where some agents have private trading histories and others have trading histories that can be publicly observed only after a lag. I show via an example that for lags that are neither too long nor too short, there exist allocations that use both types of money that cannot be duplicated when only one type is used. Inside money provides liquidity that increases the frequency of trades, but incentive constraints restrict the amount of output that can be traded. Outside money is immune to such constraints and can trade for higher levels of output.

Collaborative integration in e-business through private trading exchanges (PTXs)

Collaborative integration is e-business process integration with supply chain partners such that there is a tightly-coupled collaborative relationship among all partners, deep visibility across all tiers of the supply chain, and near-real-time information exchange and knowledge sharing around supply chain processes. Enterprises seek to implement collaborative integration in order to realize the value-added benefits and cost savings of superior supply chain management, while enabling intelligent action and faster response to environmental variability. Increasingly, supply chain leaders are building private trading exchanges (PTXs) in order to more effectively enable and manage such collaborative integration. This paper examines the value proposition and the spectrum of solutions and services around collaborative integration through PTXs. The paper first identifies the challenges of collaborative integration in near-real-time supply chains. It then describes the building blocks of a PTX solution. It develops a comparative value proposition for collaborative integration. It then provides an illustrative case example from Viacore Inc. The paper ends with an examination of the future of collaborative integration in lean e-business environments.

Pathways to Leadership for Business-to-Business Electronic Marketplaces

More than 1000 B2B e-marketplaces, consisting of third-party exchanges, industrysponsored marketplaces and private trading networks, have been formed in three successive waves. Their value propositions centre around two key dimensions: demand and/or supply aggregation to overcome market fragmentation (through search cost efficiency, price transparency and product-cost savings, market liquidity, network externalities and customer lock-in), and inter-firm collaboration for greater supply chain performance (through streamlined workflows and process-cost savings, customer lock-on, and business process integration). These two value dimensions produce a four-quadrant matrix that conceptually maps out three pathways to market leadership: liquidity early, process integration first, or liquidity and process integration simultaneously. Each of these pathways logically appeals to one of the three e-marketplace models, but is not without serious execution hurdles. The quest for leadership among e-marketplaces along t...

Measuring Private Information Trading in Emerging Markets

We examine the dynamic relation between return and volume of individual stocks in Russia and other emerging markets. In a simple model in which investors trade to share risk or speculate on private information, Llorente, Michaely, Saar, and Wang (2001) show that returns generated by risk-sharing trades tend to reverse themselves while returns generated by private trades tend to continue themselves. We apply this theoretical framework to analyze the relation between daily volume and first-order return autocorrelation for individual stocks traded in Russia and other emerging markets. We find strong evidence of return continuation following high volume days, suggesting the presence of private trading in emerging markets. Using corporate announcement data from Russia, we discover that the private trading is especially strong around major corporate event dates. In addition, we find stocks in countries that enforce insider-trading law and provide better investor protection exhibit less private trading. These results suggest a possible measure of information asymmetry for ranking emerging market stocks.

A framework-based approach to building private trading exchanges

The private trading exchange (PTX) is emerging as the cornerstone of business-to-business e-commerce. At its core, a private trading exchange involves interenterprise integration and collaboration. Our main objective in this paper is to introduce a versatile application platform for building private trading exchanges. This platform supports the management and execution of multienterprise business processes and collaborations in the context of these processes. We review the business requirements of PTX-based systems and the technical challenges in developing such systems. We then examine and categorize the main interaction patterns between the private trading exchange and its participants. These patterns lead to the design of a component framework for process brokering and content aggregation. This framework is the foundation of our application platform for building PTX solutions. We describe the platform and discuss how to use it to implement a PTX solution.

Preface

As business-to-business interactions via the Internet become more dynamic, new developments in Web services and e-commerce support an increasing number of business transactions.Webservices, using standardized software mechanisms and protocols, are self-contained, modular applications dynamically accessible over a network that often provide the capability of facilitating a business transaction. Private trading exchanges and marketplaces promote e-commerce with the use of auctions and other trading methods to conduct transactions over the Internet.

Understanding High-Powered Incentives

This paper analyzes the effect of restricted stock options and restricted stock grants on managerial effort incentives. The combination of low managerial valuations of options and inefficient incentive creation makes options inferior means of inducing managerial effort incentives. The negative covariance of the option delta or pay-for-performance with marginal utility reduces ex-ante effort incentives substantially, and the more so the higher the volatility of stock returns. Pay-for-performance is shown to be a biased measure of managerial incentives. It systematically understates the incentives generated by equity holdings relative to the incentives generated by option grants. The bias is again increasing in the volatility of stock returns, offering a potential explanation for the empirical finding that pay-for-performance does not decrease with volatility as predicted by the optimal contracting framework. The private trading behavior of managers is shown to be crucial for the optimal design of compensation contracts. Assuming that managers invests only into the riskless asset makes option compensation look considerably more effective than it is: The cost of compensating the executive is underestimated, and incentive effects are overestimated. The benefit of indexing compensation schemes to market or industry returns is reduced or even eliminated when the manager is able to freely trade the index through her private account.

Dow commits to Internet purchasing

Dow Chemical, pushing ahead with one of the chemical industry's largest electronic commerce efforts, is interacting with its suppliers in significant new ways. In its latest move, the chemical producer says it will use ChemConnect, an Internet-based chemical exchange, as its preferred third-party portal for purchases of chemical and plastics raw materials. Dow says this approach is in line with its comprehensive e-commerce strategy of integrating e-commerce applications where they can add value. Dow also is making an undisclosed equity investment in ChemConnect, which has 2,500 exchange members, representing 80% of the top 25 chemical companies. However, this doesn't mean that Dow won't continue traditional contractual relationships with major suppliers—at least in the short term. We intend to use ChemConnect for spot purchases of raw materials, says Gary Veurink, Dow vice president for global purchasing. As we gain experience, we intend also to utilize ChemConnect's private trading rooms for supplie...

Using the Internet for Market Research: A Study of Private Trading on the Internet

At first sight the Internet seems to offer the perfect vehicle for the conduct of market research. However, there are challenging methodological difficulties in using this medium and there is much yet to be learned. This paper reviews the potentials and pitfalls involved. It then presents the results of a study of private trading over the Internet and analyses approaches to the risks involved. Even a topic such as one involving a population of e-mail users, which should be ideal for research using the Internet, presents difficulties of sampling and self-selection that are difficult to overcome.

Effects of Market Reform on the Trading Costs and Depths of Nasdaq Stocks

The relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate. On January 20, 1997, the Securities and Exchange Commission began implementing reforms that would permit the public to compete directly with Nasdaq dealers by submitting binding limit orders. Additionally, superior quotes placed by Nasdaq dealers in private trading venues began to be displayed in the Nasdaq market. We measure the impact of these new rules on various measures of performance, including trading costs and depths. Our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality.

Trading responses to food market liberalization in Tanzania

Trading has been the only marketing function in Tanzania to shift rapidly and efficiently from parastatal institutions to private institutions. Private traders have made a major contribution to the movement of maize from producing areas (including, to some extent, remote surplus areas) to urban consumer centres and to consumer price stabilization. Traders, however, do not keep interseasonal stocks and do not own means of transport. There are very few or no barriers to entering the maize market, but there is evidence of barriers to expansion above certain business levels. Larger traders may benefit from economies of scale in the form of lower transport costs and lower purchasing prices. This article identifies the following as primary factors in accelerating the development of private trading: the development of marketplaces and storage structures, access to credit facilities for both traders and transporters, and long-term infrastructural policies to reduce transport costs.

Food market liberalization: History and prospects

Abstract Government intervention has been a feature of food markets in both industrialized and agrarian economies. However, the last 10 years have seen reforms aimed at reducing intervention; these have been a characteristic of ‘structural adjustment’. The process of reform has involved the replacement of administered by market‐determined prices and the abolition of trading parastatals or the removal of their monopoly. Despite an almost complete consensus that reforms are necessary and the absence of coherent local opposition, the pace and extent of reforms have varied. Moreover, views about liberalization tend to be polarized. Proponents argue that continued intervention is inefficient, unaffordable and distorting; antagonists suggest that unmodified markets lead to unacceptable inequalities, and expose producers and consumers to unacceptable risks. Moreover, weak fragmented markets do not constitute a sufficient base for sustained growth. This paper reviews the experience. It concludes that simple solutions of substituting public with private trading are not necessarily possible nor desirable, and argues that the nature of the debate may be misleading. The way forward may not lie in a choice between private market supremacy and conventional government intervention.

State Enterprise in Bourbon Mexico: Profits, Policies, and Politics of the Tobacco Monopoly, 1765–1821

In 1765, as part of a series of economic and political reforms implemented by the Spanish Bourbons in their American colonies, the tobacco trade of colonial Mexico was monopolized and its management placed in the hands of royal bureaucrats. By the 1790s, Mexico's tobacco monopoly was one of the largest organized industries in colonial Mexico (along with silver mining and textiles) and employed almost 20,000 individuals. In fiscal terms, tobacco revenues were second only to the silver tithe as the most valuable source of government income and accounted for almost one-fifth of total state revenues at the peak of its production. Its organization approximated a vertically integrated industry: Production and supply of tobacco leaf was regulated through a series of contracts that determined who produced tobacco, how much they produced, the prices paid for it, and where it was to be grown. The reorganization of the tobacco trade under Bourbon management resulted in the restriction of tobacco production to one small specific geographical area in southeastern Mexico: the two small villas of Orizaba and Córdoba in the modern-day state of Veracruz. The tobacco produced, in turn, was manufactured into cigarettes and cigars in six state-managed tobacco manufactories, the largest located in Mexico City, the political and commercial capital. Monopoly goods were marketed through government licensed stores throughout Mexico. Private trading and manufacture in tobacco goods became an illegal offense. Compliance with such regulations was enforced by a military corps employed by the monopoly administration, although contraband trade of tobacco was never eliminated.

Commercial Reform and State Control: Structural Changes in Chinese Trade, 1981-1983

CLEARLY A CRUCIAL COMPONENT of the current economic reforms in the People's Republic of China is the one concerning commerce. Since late 1978, the majority of the top leadership has agreed that rigidities in China's socialist commercial bureaucracy have worked over time to subvert certain central socialist goals. That is, too much state control has denied the population the higher living standards that the revolution promised, while impoverished marketing channels may even have limited the state-led productivity that was also at the heart of the post-1949 leaders' plans. Accordingly, the political elite in recent years has largely shared a perception that freer, more flexible forms of trading ought to be allowed and even promoted, as an important means of stimulating economic growth and providing marketplaces that are better supplied with goods. And, indeed, the green light given to open markets and private trading has immeasurably enlivened commercial exchange in China, and has permitted a new prosperity unprecedented in the People's Republic.

Two Statutory Strict Liabilities

Where injury or damage is caused by a public authority in the exercise of its functions it would be broadly true to say that the tendency of the modern law is to equate the authority with a private person or trading company causing the same loss. Qualifications exist, of course, the most important being those relating to the Crown, to statutory authority for works which would otherwise be a nuisance and the principle that the courts should not interfere with intra vires “policy” decisions, but there are now comparatively few substantive or adjectival rules putting a public authority in a protected position. Indeed, there is now some demand that we should place public authorities in an inferior position by exposing them to a regime of strict liability for the risks they create in pursuit of a supposed benefit for us all. In view of this attitude it is perhaps not surprising that we tend to consider the public authority only as defendant, but a recent Court of Appeal decision reminds us that there are still instances of legislative solicitude for the authority as plaintiff. The background involves a long and still unsettled wrangle over statutory interpretation beginning with the famous case of River Wear Commissioners v. Adamson.

STATE TRADING IN TANGANYIKA1

The purpose of this paper is to point out some of the effects of, as well as some of the political reasons for, government intervention into trade in Tanganyika. In so doing, we shall point out: (1) the nature of private trading operations in this country, (2) the political and economic role of co‐operatives, and (3) some of the effects of government intervention on the rate of economic growth.