Microeconomic regulation

Sebastian Barnes, Robert Hillman, George Wharf, Duncan MacDonald, 16 July 2021

As the economy locked down in March 2020, businesses across the UK struggled to operate. And yet, fewer firms declared bankruptcy during the pandemic than in preceding years. This column introduces a model designed to examine the economic impact of Covid-19. It determines that government assistance rescued previously profitable firms that might not have survived lockdowns, but also propped up weaker firms that would have failed in normal times. The difficulties in effectively targeting aid justifies the expansive support distributed during the crisis.

Simeon Djankov, Eva (Yiwen) Zhang, 09 July 2021

The economic shock triggered by Covid-19 shut down thousands of businesses and cost millions of workers their jobs. The goal of government response to this shock was simple: keep the lights on for as long as possible. This column describes how while some advanced economies have moved ahead with changes in their bankruptcy law to make it easier for distressed companies to keep running, developing countries have not reformed their procedures. A possible solution is to devise policies that reduce the share of the informal economy and put more pressure on reforming formal institutions.

Rustam Jamilov, Hélène Rey, Ahmed Tahoun, 05 July 2021

Cyber risk poses serious threats for businesses around the world. This column develops a new text-based measure of cyber risk exposure by leveraging computational linguistics and quarterly earnings transcripts for 12,000+ firms from 85 countries over the past 20+ years. Cyber threats have tripled since 2013 and affected a lot more countries and industries. Cyber risks are priced into the stock market and are contagious. The authors conclude that cyber risk is a source of systemic risk for firms and markets.

John Gathergood, Arna Olafsson, 04 July 2021

Households’ tendency to hold liquid savings at low interest rates and, at the same time, revolving debt at high interest rates is a long-standing puzzle in household finance. This pattern of behaviour has been observed across many countries, on a variety of revolving credit products including credit cards and overdrafts. Using increasingly available transaction-level data sourced from financial services providers, this column shows that co-holding is often short-lived, and may be best explained by consumers keeping separate ‘savings’ and ‘debt’ accounts earmarked for different forms of expenditures, a form of mental accounting.

Simeon Djankov, Eva (Yiwen) Zhang, 21 June 2021

In much of the world, property sales are highly regulated and expensive. Using World Bank data, this column shows that while regulators and administrators still pose barriers to transferring property, countries have actually seen tremendous progress in reducing compliance costs in the area of registering property over the past 15 years. In the wake of the Covid-19 pandemic, moving public services online has provided opportunity to reduce compliance costs further by holding the level of regulation constant and easing the way in which it is administered. 

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