New Releases by Simon Johnson

In this paper we look at two areas in the interest rate options market where arbitrage could be hiding. In the first section we derive a no-arbitrage condition for swaption prices with complementary expiry dates and tenors within the swaption cube. In the second section we propose an alternative European option approximation for the widely used SABR dynamics that reduces the possibility of arbitrage for long maturities and low strikes.

This paper sheds light on two problems in the Penn World Table (PWT) GDP estimates. First, we show that these estimates vary substantially across different versions of the PWT despite being derived from very similar underlying data and using almost identical methodologies; that this variability is systematic; and that it is intrinsic to the methodology deployed by the PWT to estimate growth rates. Moreover, this variability matters for the cross-country growth literature. While growth studies that use low frequency data remain robust to data revisions, studies that use annual data are less robust. Second, the PWT methodology leads to GDP estimates that are not valued at purchasing power parity (PPP) prices. This is surprising because the raison d''etre of the PWT is to adjust national estimates of GDP by valuing output at common international (purchasing power parity [PPP]) prices so that the resulting PPP-adjusted estimates of GDP are comparable across countries. We propose an approach to address these two problems of variability and valuation.

Families run a large fraction of business groups around the world. In this paper, we analyze how the structure of the families behind these business groups affects the groups'' organization, governance and performance. To address this question, we constructed a unique data set of family trees and business groups for nearly 100 of the largest business families in Thailand. We find a strong positive association between family size and family involvement in the ownership and control of the family business. The sons of the founders play a central role in both ownership and board membership, especially when the founder of the group is gone. The availability of more sons is also associated with lower firm-level performance, especially when the founder is no longer present. We identify a possible governance channel for this performance effect. Excess control by sons, but not other family members, is associated with lower firm performance. In addition, excess control by sons increases with the number of sons and with the death of the founder. One hypothesis that emerges from our analysis is that part of the decay of family-run groups over time may be due to a dilution of ownership and control across a set of equally powerful descendants of the founder, which creates a race to the bottom in tunneling resources out of the group firms.

Johnson, Kaufmann, and Shleifer (1997) find that the share of the unofficial economy in GDP is determined by the extent of control rights held by politicians and bureaucrats in post-communist economies. Exploring in more detail the role of bribes and using a broader data set from the OECD, Latin America, and transition economies, we find that the unofficial economy accounts for a larger share of GDP when there is more corruption and when the rule of law is weaker. While these findings are consistent with the earlier results for transition economies, in the larger country sample we find it is not necessarily the case that more regulation or higher taxes directly increases the size of the unofficial economy. The problem appears to be not regulation or taxation per se, but whether the state administrative system can operate without corruption. A high level of regulatory discretion helps create the potential for corruption and drive firms into the unofficial economy.

A dozen countries had weak institutions in 1960 and yet sustained high rates of growth subsequently. We use data on their characteristics early in the growth process to create benchmarks with which to evaluate potential constraints on sustained growth for sub-Saharan Africa. This analysis suggests that what are usually regarded as first-order problems-broad institutions, macroeconomic stability, trade openness, education, and inequality-may not now be binding constraints in Africa, although the extent of ill-health, internal conflict, and societal fractionalization do stand out as problems in contemporary Africa. A key question is to what extent Africa can rely on manufactured exports as a mode of "escape from underdevelopment," a strategy successfully deployed by almost all the benchmark countries. The benchmarking comparison specifically raises two key concerns as far as a development strategy based on expanding exports of manufactures is concerned: micro-level institutions that affect the costs of exporting, and the level of the real exchange rate-especially the need to avoid overvaluation.

"What is the effect of increasing life expectancy on economic growth? To answer this question, we exploit the international epidemiological transition, the wave of international health innovations and improvements that began in the 1940s. We obtain estimates of mortality by disease before the 1940s from the League of Nations and national public health sources. Using these data, we construct an instrument for changes in life expectancy, referred to as predicted mortality, which is based on the pre-intervention distribution of mortality from various diseases around the world and dates of global interventions. We document that predicted mortality has a large and robust effect on changes in life expectancy starting in 1940, but no effect on changes in life expectancy before the interventions. The instrumented changes in life expectancy have a large effect on population; a 1% increase in life expectancy leads to an increase in population of about 1.5%. Life expectancy has a much smaller effect on total GDP both initially and over a 40-year horizon, however. Consequently, there is no evidence that the large exogenous increase in life expectancy led to a significant increase in per capita economic growth. These results confirm that global efforts to combat poor health conditions in less developed countries can be highly effective, but also shed doubt on claims that unfavorable health conditions are the root cause of the poverty of some nations"--National Bureau of Economic Research web site.

What is the effect of increasing life expectancy on economic growth? To answer this question, we exploit the international epidemiological transition, the wave of international health innovations and improvements that began in the 1940s. We obtain estimates of mortality by disease before the 1940s from the League of Nations and national public health sources. Using these data, we construct an instrument for changes in life expectancy, referred to as predicted mortality, which is based on the pre-intervention distribution of mortality from various diseases around the world and dates of global interventions. We document that predicted mortality has a large and robust effect on changes in life expectancy starting in 1940, but no effect on changes in life expectancy before the interventions. The instrumented changes in life expectancy have a large effect on population; a 1% increase in life expectancy leads to an increase in population of about 1.5%. Life expectancy has a much smaller effect on total GDP both initially and over a 40-year horizon, however. Consequently, there is no evidence that the large exogenous increase in life expectancy led to a significant increase in per capita economic growth. These results confirm that global efforts to combat poor health conditions in less developed countries can be highly effective, but also shed doubt on claims that unfavorable health conditions are the root cause of the poverty of some nations.

Exploring the sociological aspects of sleep and their links to current health debates, this unique text discusses why sleep has been so neglected in sociological literature and examines significant modern issues such as: the 24-hour society sleep and work homelessness dream analysis the medicalization and commodification of sleep. Written by a key international figure in medical sociology, this is the first sociological examination of sleep, making it important reading for academics and advanced students of medical sociology, health studies, and sociology, as well as for professionals and policy makers involved in the area.

Protect your children from dangers that lurk on the Internet. Learn to identify the real threats--be they pedophiles, cyber-stalkers, hackers, spyware, viruses, or adware--and formulate an effective protection plan. Choose the best software for your needs and your budget from the book’s independent review of firewalls, web filters, anti-virus products, and more. Plus, a companion Web site hosted by the author includes updated data and information. Get FREE eTrust EZ Antivirus Software for ONE YEAR with Purchase of This Book--a $29.95 USD value.

"Develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development." - abstract.

In this sample of 49 Latin American, OECD, and transition economies, it is the ineffective and discretionary administration of tax and regulatory regimes--not higher tax rates alone--as well as corruption, that increases the size of the unofficial economy. And countries with a larger unofficial economy tend to grow more slowly. Johnson, Kaufmann, and Shleifer (1997) found that, in post-communist economies, the unofficial economy''s share of GDP is determined by the extent of control rights held by bureaucrats and politicians. Exploring in detail the role of taxation and bribery, and using data from an expanded data set of 49 Latin American, OECD, and transition economies, Johnson, Kaufmann, and Zoido-Lobaton find that the unofficial economy accounts for a larger share of GDP where there is great bureaucratic inefficiency and discretion, and where firms experience a greater tax and regulatory burden, as well as more bribery and corruption. The unofficial economy is also much larger where there is less state revenue and where the rule of law is weak. They also find that countries with a larger unofficial economy tend to grow more slowly. Thus, this framework suggests an additional channel whereby corruption and ineffective regulatory and tax administration can result in lower growth: the unofficial economy. Wealthy OECD economies and some Eastern European economies find themselves in the "good equilibrium" of relatively low regulatory and tax burden (not necessarily low statutory tax rates), sizable revenue mobilization, good rule of law and control of corruption, and a small unofficial economy. Several countries in Latin America and the former Soviet Union exhibit characteristics consistent with a "bad equilibrium": the discretionary application of heavy regulatory and tax burdens, the weak rule of law, heavy bribery, and an active unofficial economy. In this large country sample (unlike in the earlier framework for transition economies only), the authors find that it is the ineffective and discretionary application of regulatory and tax regimes in many countries--not higher tax rates by itself--that increase the size of the unofficial economy. The tax burden reported by firms appears to be more a function of regulatory and bureaucratic inefficiency and discretion rather than of tax rates alone. This paper - a product of the Governance, Regulation, and Finance Group, World Bank Institute - is part of a larger effort in the institute to improve our understanding of institutional issues and their effects on development and of building a major new database on institutional indicators.

Taking recent debates on the body and society as its point of departure, the book critically re-examines a series of embodied issues and emotional agendas in health and illness.

This paper documents that the Rise of (Western) Europe between 1500 and 1850 is largely accounted for by the growth of European nations with access to the Atlantic, and especially by those nations that engaged in colonialism and long distance oceanic trade. Moreover, Atlantic ports grew much faster than other West European cities, including Mediterranean ports. Atlantic trade and colonialism affected Europe both directly, and indirectly by inducing institutional changes. In particular, the growth of New World, African, and Asian trade after 1500 strengthened new segments of the commercial bourgeoisie, and enabled these groups to demand, obtain, and sustain changes in institutions to protect their property rights. Furthermore, the most significant institutional changes and consequently the most substantial economic gains occurred in nations where existing institutions placed some checks on the monarchy and particularly limited its control of overseas trading activities, thus enabling new merchants in these countries to benefit from Atlantic trade. Therefore, the Rise of Europe was largely the result of capitalist development driven by the interaction of late medieval institutions and the economic opportunities offered by "Atlantic trade." Keywords: Capitalism, Economic Growth, Institutions, Political Economy, Social Conflict, Trade. JEL Classifications: O10, F10, P10, N13.

This paper evaluates the importance of "property rights institutions," which protect citizens against expropriation by the government and powerful elites, and "contracting institutions," which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history, and document strong first-stage relationships between property rights institutions and the determinants of European colonization strategy (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using this instrumental variables approach, we find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible explanation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of contracting institutions, but are unable to do so against the risk of expropriation. Keywords: Contracts, Economic Growth, Financial Development, Institutions, Law and Finance, Legal Formalism, Legal Origin, Political Economy, Politics, Property Rights. JEL Classification: E44, G18, K00, N20, P16, P17.

We present a novel method for calibrating pricing models to incorporate the effects of the volatility Smile and its dynamics. This is made possible by simultaneously calibrating to the Smile surface of European options as well as to prices of Barrier options which encapsulate information on the Smile dynamics. An arbitrary combination of European and simple exotics may be calibrated to without over-fitting or resorting to non-stationary model parameters. This technique has a natural analogy with classical statistical mechanics, and also allows analytic derivation of hedge ratios. Numerical implementation of the calibration method utilises Monte Carlo and PDE approaches and we present results to illustrate its practical use and effectiveness.

The initial impact of the Asian financial crisis in Malaysia reduced the expected value of government subsidies to politically favored firms. Of the estimated $60 billion loss in market value for politically connected firms from July 1997 to August 1998, roughly 9% can be attributed to the fall in the value of their connections. Firing the Deputy Prime Minister and imposing capital controls in September 1998 primarily benefited firms with strong ties to Prime Minister Mahathir. Of the estimated $5 billion gain in market value for Mahathir-connected firms during September 1998, approximately 32% was due to the increase in the value of their connections. The evidence suggests Malaysian capital controls provided a screen behind which favored firms could be supported.

This critical account of the resurgence of emotions in social theory draws on a wide range of sources, both classical and contemporary to examine this once marginalised topic.

Among countries colonized by European powers during the past 500 years those that were relatively rich in 1500 are now relatively poor. We document this reversal using data on urbanization patterns and population density, which, we argue, proxy for economic prosperity. This reversal is inconsistent with a view that links economic development to geographic factors. According to the geography view, societies that were relatively rich in 1500 should also be relatively rich today. In contrast, the reversal is consistent with the role of institutions in economic development. The expansion of European overseas empires starting in the 15th century led to a major change in the institutions of the societies they colonized. In fact, the European intervention appears to have created an ''institutional reversal'' among these societies, in the sense that Europeans were more likely to introduce institutions encouraging investment in regions that were previously poor. This institutional reversal accounts for the reversal in relative incomes. We provide further support for this view by documenting that the reversal in relative incomes took place during the 19th century, and resulted from societies with good institutions taking advantage of industrialization opportunities.

Across 69 countries, higher tax rates are associated with less unofficial activity as a percent of GDP but corruption is associated with more unofficial activity. Entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption. Dodging the Grabbing Hand in this way reduces tax revenues as a percent of both official and total GDP. As a result, corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates.

We model policy reform as a way to affect the stochastic process of relative returns that firms face when switching from old to new activities. This stochastic process has an Ito process component that is noncontrollable and policy reforms result in jumps in relative returns that arrive according to a Poisson process. The intensity of policy reform depends on the arrival rate and magnitude of jumps. We use a single firm model to understand the reaction of the firm to such a stochastic process and the usual hysteresis results in switching between old and new activities. Aggregation to the level of all firms leads to an appropriate definition of the government payoff function, and we use this to obtain the optimal level of reform. The results are as follows: there exists and optimal level of radical reform that overcomes the hysteresis behavior of firms; if such a level is not desirable, then the intensity of policy reform is not an extreme point; and this gradual level of optimal reform is lower if uncertainty is higher.

Post-communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well-functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop

Digital photography, which transfers traditional film and darkroom techniques to the desktop computer, is offering new possibilities that are changing our entire approach to taking pictures.The Digital Photography Handbookis a complete illustrated guide to electronic photography, written in non-technical language that anyone can understand. The manual begins with an equipment guide to finding the right digital camera; there is also information on computers, monitors, scanners, and printers. The techniques section covers topics such as the gathering of digital images, creating a digital library, scanning, color printing, digital imagery and the Internet, and downloading to a PC. Finally, there are creative step-by-step projects for editing, retouching, special effects, and practical applications, such as greeting cards and sales documents.

In this sample of 49 Latin America, OECD, and transition economies, it is the ineffective and discretionary administration of tax and regulatory regimes--not higher tax rates alone--as well as corruption, that increases the size of the unofficial economy. And countries with a large unofficial economy tend to grow more slowly.