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On July 1, 2020, Mauritius officially joined the ranks of High-Income Countries (HIC). It is a cruel historical irony that Mauritius reached the High-Income milestone during one of the worst years in its history. Mauritius delivered a highly successful health response to the global Covid-19 pandemic through a hard lockdown and subsequent quarantine measures, and as a result has effectively been ‘Covid-free’ from April 2020 to March 2021, when a second outbreak occurred. With a total of 1246 cases and 17 deaths, Mauritius has so far been able to avoid the large-scale health crisis observed in many other countries. However, Covid-19 has caused severe economic disruptions in Mauritius. An oil spill in August and Mauritius’ inclusion in the EU list of High Risk Third Countries for Money Laundering in October 2020 added further pressure. While the events of 2020 require dedicated responses in the short term, addressing the underlying challenges cannot be postponed if Mauritius is to make a strong recovery. The best strategy for a solid recovery lies in a combination of temporary support to firms and households affected by the shock with a comprehensive reform program to address pre-existing structural challenges. It is unlikely that a strategy of simply addressing the short-term effects by supporting ailing firms while waiting for global conditions to improve would suffice to put Mauritius’ economic and social development back on track. On the other hand, the crisis affords policy makers with the opportunity to confront long-festering challenges.

The continuous-time version of Kyle's (1985) model is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most important being that by setting a modest fee conditional of the order ow, the market maker is able to obtain a profit of the order of magnitude, and even better than, a perfectly informed insider. Our model also indicates why speculative prices are more volatile than predicted by fundamentals.

Agricultural price distortion which is the discrepancy between world market price of agricultural produce and price received by farmers as a result of market interventions by governments, either through subsidies or taxes or even trade protection systems, has received rare attention in the cocoa and coffee sub-sectors. This study examines the contribution of mobile phone technology in reducing price distortions in cocoa and coffee production. In addition, we tested stylized facts such as the development paradox, resource abundance, and group-size effect in agricultural price distortions literature. The findings suggest that access to mobile phones reduces the extent of price distortions. The effect of mobile phone usage on the extent of price distortion, the nominal rate of assistance, and relative price margin is conditional on internet connectivity. Whereas our results support the development paradox and group-size effect hypotheses, the resource abundance hypothesis is not supported. Based on our results, policies that seek to reduce the cost of telecommunication, increase competition in the telecommunication industry, and increase economic growth would go a long way to reduce price distortion in the cocoa and coffee industries.

The single auction equilibrium of Kyle's (1985) is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most important being that by setting a relatively modest "fee", the market maker is able to obtain a profit of the order of magnitude, and even better than, a perfectly informed insider. Our model indicates why speculative prices are more volatile than predicted by fundamentals. Noise traders may be uninformed, or partially informed. We analyze a situation where the market maker has private information as well as being non-fiduciary. In our model this leads to a more efficient market where the insider trades less and the market maker's profit increases.

Os limites dos subsídios agrícolas consolidados na Rodada Uruguai podem causar altos níveis de distorção no mercado dos produtos subsidiados. O presente estudo propõe limites nos valores de subsídios, por produto, calculados de maneira a se ter um nível máximo de distorção de preços no mercado mundial. Foi estimado um modelo de equilíbrio parcial para cada produto. Os resultados, para os principais produtos subsidiados nos EUA, tiveram como valor de subsídio máximo para distorcer um limite de 2% do seu preço internacional: US$ 1,0 bilhão para soja; US$ 0,6 bilhão para o algodão; US$ 0,2 bilhão para arroz; US$ 1,4 bilhão para o milho e US$ 1,3 bilhão para o trigo. Portanto, sugere-se que estes valores sejam considerados como parâmetro para os tetos de subsídio por produto.The limits to agricultural subsidies established in the Uruguay Round Agreement on Agriculture could cause trade-distorting domestic support. This study suggests limits in the subsidy value to level the maximum price distortion for each product. A partial equilibrium model was estimated for the products. The maximum value of subsidy to main agricultural products in the country-regionplaceUSA., causing a two percentage limit in their world price, were: US$ 1.0 billion to soybean; US$ 0.6 billion to cotton; US$ 0.2 billion to rice; US$ 1.4 to corn and US$ 1.3 billion to wheat. Therefore, those patterns of product value could be used as a parameter to product subsidy cap.

Throughout the past decades financial markets witnessed prolonged periods of increased volatility and the frequent formation and subsequent burst of bubbles. The dot-com bubble in the beginning of the millennium, the US house pricing bubble of 2006 that culminated in the recent global nancial crisis and the 2015 stock market bubble in China are but few examples for apparent inefficiencies if not outright failures of financial markets to correctly reflect asset prices. Investors acting in sync have been suspected to cause such unwanted market phenomena, compare e.g Wermers (1999). The destabilizing character of investor coordination has been made explicit in the theoretical literature under herding. The term refers to the behavior of individual investors following the decision of the majority or crowd despite of being endowed with information that advises them to take a different action (see Brunnermeier (2001), p.148). The claim that such behavior adversely affects financial markets is intuitive. Investors face a decision whether or not to buy a financial asset. As they observe other investors accumulating on one side of the market they loose confidence in their own information regarding the asset’s true value and follow the crowd instead. This already leads to amplified stock price movements. If, moreover, the crowd errs in buying or selling the asset, herding on the crowd’s action will drive prices away from the asset’s true value, which in turn contributes towards the formation of bubbles (or accelerated downturns) and extreme subsequent price reversals. It is, thus, not surprising that the theoretical herding literature has made great efforts to understand potential drivers of herd behavior. Lead by the seminal work of Bikhchandani et al. (1992) herding theory has identified reputational concerns, momentum trading strategies as well as correlated gathering of information as relevant drivers for investor herding. At the same time, celebrated empirical studies such as Lakonishok et al. (1992) and Sias (2004) have supplied measures to detect investor herding based on transaction data and provided insights which investor groups and asset types are particularly prone to herding. It is, however, noted by e.g. Devenow and Welch (1996) and Cipriani and Guarino (2014) that herding theory and the corresponding empirical literature are disconnected. While herd models rarely provide empirically testable hypotheses, empirical works do not rigorously tie their proposed measurement approaches to the theoretical concept of herding. This thesis contributes towards closing the gap between the theoretical and empirical herding literature. Papers 1 and 2 of this thesis derive testable hypotheses on two new drivers for investor herding from the model of Park and Sabourian (2011). The hypotheses are confirmed by applying the standard herd measure of Sias (2004) (Sias) to transaction data from the German stock market. Although the Sias measure is the best possible choice for our application, it still does not fully reflect the notion of theoretical herding intensity as implied by the model. To further bridge this gap, Papers 3 and 4 in this thesis design a new theory-founded herd measure that can be applied to real-world transaction data. Using the measure to analyze German stock market data from the recent financial crisis shows that herding is a rare event but has the potential to destabilize markets. Paper 5 serves an important integrating function in this thesis as it provides a strong theoretical link between investor herding and the destabilization of nancial markets - a fact rarely encountered in the existing nancial market herding literature, compare Eyster and Rabin (2010). Paper 5 proposes a framework to study the behavior of investors facing choices under ambiguity as opposed to quantiable risk. It derives precise conditions under which investor herding moves prices away from fundamentals contributing towards the formation and burst of bubbles. The results of Paper 5 validate the relevance to study investor herding and, thus, the eorts made in Papers 1 to 4., Phasen hoher Unsicherheit sowie das Entstehen und anschließende Platzen von Preisblasen kennzeichneten die Finanzmärkte der vergangenen Jahrzehnte. Beispiele hierfür sind die Dot-com Blase während der Jahrtausendwende, die Preisblase auf dem Wohnungsmarkt der USA von 2006, die in den Folgejahren eine globale Finanzkrise auslöste sowie die 2015 geplatzte Blase auf dem chinesischen Aktienmarkt. Diese Beipiele belegen, dass es auf Finanzmärkten durchaus auch über längere Zeitrume zu Ineffizienzen und Fehlpreisbildungen kommen kann. Es wird vermutet, dass gleichgerichtetes Handeln von Investoren solches Marktversagen bedingen kann, vergleiche Wermers (1999). Wenn ein solch koordiniertes Investorenverhalten destabilisierend auf Märkte wirkt, spricht die theoretische Literatur von Herdenverhalten. Der Begriff beschreibt ein Verhaltensmuster, bei dem Investoren blind und wider besseren Wissens der Entscheidung der Mehrheit oder der Masse folgen, z.B. eine Aktie zu kaufen oder verkaufen (siehe Brunnermeier (2001), S. 148). Dass sich solches Herdenverhalten tatschlich negativ auf das Funktionieren von Finanzmärkten auswirken kann, belegt folgende vereinfachte Argumentation: Investoren sehen sich mit der Entscheidung konfrontiert, z.B. eine Aktie zu kaufen oder zu verkaufen. Sie besitzen Informationen, dass der Kauf der Aktie nicht gewinnversprechend ist. Sie beobachten jedoch, dass viele andere Investoren die Aktie kaufen, was einen steigenden Aktienpreis bedingt. Die Investoren verlieren Vertrauen in ihre eigene Information und folgen wider besseren Wissens und trotz gestiegener Preise der Masse der Anleger und kaufen die Aktie. Dass ein solches Verhalten an sich bereits Preistrends verstärkt und somit zu erhöhten Aktienkursschwankungen führt, liegt auf der Hand. Falls jedoch obendrein die Masse der Anleger den Wert der Aktie überschätzt hat, trägt Herdenverhalten zur Entstehung von Blasen bei, bei deren Platzen es in kürzester Zeit zu extremen Kurskorrekturen kommt. Es ist daher kaum verwunderlich, dass die theoretische Literatur viel über die möglichen Treiber von Herdenverhalten diskutiert. Nach der wegweisenden Studie von Bikhchandani et al. (1992) hat die theoretische Herdenliteratur Sorgen um den eigenen Ruf, Momentum Handelsstrategien sowie Analyse identischer Informationen als mögliche Ursachen für Herdenverhalten von Investoren identiziert. Gleichzeitig entwickelten bekannte empirische Arbeiten wie die von Lakonishok et al. (1992) und Sias (2004) häufig wiederverwendete Maße zur Quantizierung von Herdenverhalten und lieferten empirische Evidenzen, welche Investorengruppen und welche Aktien besonders von Herdenverhalten betroffen sind. Devenow und Welch (1996) sowie Cipriani und Guarino (2014) stellen jedoch fest, dass die theoretische und die empirische Forschung zum Thema Herdenverhalten nur lose miteinander verknüpft sind. Die entwickelten theoretischen Modelle liefern beispielsweise nur selten empirisch überpürfbare Hypothesen. Demgegenüber stellen empirische Arbeiten keinen direkten Zusammenhang zwischen den entwickelten Maßen und den entsprechenden theoretischen Konzepten des Herdverhaltens her. Das Ziel dieser Disseration ist es daher, einen Beitrag zu leisten, die Lücke zwischen theoretischer und empirischer Herdenliteratur zu schließen. Papiere 1 und 2 leiten Hypothesen hinsichtlich der Auswirkungen von Informationsrisiko und Marktunsicherheit auf Herdenverhalten ab und testen diese empirisch. Zu diesem Zweck wird das Herdenmaß von Sias (2004) auf Transaktionsdaten vom deutschen Aktienmarkt angewendet. Obwohl das Sias Maß die bestmögliche Wahl ist, stellen wir fest, dass es immer noch Diskrepanzen gibt zwischen dem, was Sias misst und dem, was die Theorie als Herdenintensität beschreibt. Um diese Lücke weiter zu schließen, entwickeln Papiere 3 und 4 ein theoriebasiertes Maß, welches auf echte Transaktionsdaten anwendbar ist. Die Analyse von entsprechenden Daten vom deutschen Aktienmarkt zeigt, dass Herdenverhalten während der globalen Finanzkrise von 2008 ein seltenes Phnomen ist. Wenn es jedoch auftritt, dann wird der Markt dadurch destabilisiert. Papier 5 bildet einen wichtigen Rahmen für die gesamte Dissertation, da es den Zusammenhang zwischen Herdenverhalten an Finanzmrkten und potentiellem Marktversagen klarer theoretisch fundiert, als dies in der Literatur bisher der Fall ist, vergleiche Eyster und Rabin (2010). Es entwickelt ein Modell, welches die Untersuchung des Verhaltens von Investoren ermöglicht, die mit nicht quantizierbaren Unsicherheiten (Ambiguität) konfrontiert sind. Es leitet Bedingungen her, unter denen Herdenverhalten von Investoren die Preise tatsächlich langfristig vom wahren Wert einer Anlage entkoppelt und so zu Blasenbildungen führt. Damit belegt das fünfte Papier die Relevanz des Studiums von Herdenverhalten an Finanzmärkten und hebt damit noch einmal die Wichtigkeit der Analysen der ersten vier Papiere hervor.

Reforms in recent decades have sharply reduced the distortions affecting agriculture in developing countries, particularly by cuts to agricultural export taxes and by some reductions in government assistance to agriculture in high-income countries, but international trade in farm products continues to be far more distorted than trade in nonfarm goods. This paper summarizes a series of empirical studies that focus on the effects of the remaining distortions to world merchandise trade for poverty and inequality, especially in developing countries. To obtain different insights into the various impacts, two global studies are undertaken using the World Bank's Linkage model, one multi-country study uses the Global Trade Analysis Project (GTAP) model, and ten country case studies are also included, each using a national economy-wide model. The Linkage model results suggest that liberalization will reduce international inequality, largely by boosting farm incomes and raising real wages for unskilled workers in developing countries, and will reduce the number of poor people worldwide by 3 percent. The analysis based on the GTAP model for a sample of 15 countries, and the ten stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.

This paper analyzes the economic effects of agricultural price and merchandise trade policies around the world as of 2004 on global markets, net farm incomes, and national and regional economic welfare and poverty, using the global economy wide Linkage model, new estimates of agricultural price distortions for developing countries, and poverty elasticity's approach. It addresses two questions: to what extent are policies as of 2004 still reducing rewards from farming in developing countries and thereby adding to inequality across countries in farm household incomes? Are they depressing value added more in primary agriculture than in the rest of the economy of developing countries, and earnings of unskilled workers more than of owners of other factors of production, thereby potentially contributing to inequality and poverty within developing countries (given that farm incomes are well below non-farm incomes in most developing countries and that agriculture there is intensive in the use of unskilled labor)? Results are presented for the key countries and regions of the world and for the world as a whole. They reveal that, by moving to free markets, income inequality between countries will be reduced at least slightly, all but one-sixth of the gains to developing countries will come from agricultural policy reform, unskilled workers in developing countries the majority of whom work on farms will benefit most from reform, net farm incomes in developing countries will rise by 6 percent compared with 2 percent for non-agricultural value added, and the number of people surviving on less than US$1 a day will drop 3 percent globally.

This paper summarizes a new database that sheds light on the impact of trade-related policy developments over the past half century on distortions to agricultural incentives and thus also to consumer prices for food in 75 countries spanning the per capita income spectrum. Price support policies of advanced economies hurt not only domestic consumers and exporters of other products but also foreign producers and traders of farm products, and they reduce national and global economic welfare. On the other hand, the governments of many developing countries have directly taxed their farmers over the past half-century, both directly (e.g., export taxes) and also indirectly via overvaluing their currency and restricting imports of manufactures. Thus the price incentives facing farmers in many developing countries have been depressed by both own-country and other countries' agricultural price and international trade policies. The authors summarize these and realted stylized facts that can be drawn from a new World Bank database that is worthy of the attention of political economy theorists, historians and econometricians. These indicators can be helpful in addressing such questions as the following: where is there still a policy bias against agricultural production? To what extent has there been overshooting in the sense that some developing-country food producers are now being protected from import competition along the lines of the examples of earlier-industrializing Europe and Japan? What are the political economy forces behind the more-successful reformers, and how do they compare with those in less-successful countries where major distortions in agricultural incentives remain? And what explains the pattern of distortions across not only countries but also industries and in the choice of support or tax instruments within the agricultural sector of each country?

This chapter begins with a brief summary of the long history of national distortions to agricultural markets. It then outlines the methodology used to generate annual indicators of the extent of government interventions in markets, details of which are provided in Anderson and appendix A. A description of the economies under study and their economic growth and structural changes over recent decades is then briefly presented as a preface to the main section of the chapter, in which the nominal rates of assistance and consumer tax equivalents (NRA and CTE) estimates are summarized across regions and over the decades since the 1950s. These estimates are discussed in far more detail in the regional chapters that follow. A summary is also provided of an additional set of indicators of agricultural price distortions presented in chapter eleven that are based on the trade restrictiveness index first developed by Anderson and Neary (2005). In chapter twelve the focus shifts from countries to commodities, and all the various distortion indicators are used to provide a sense of how distorted are each of the key farm commodity markets globally. Then chapter thirteen uses the study's NRA and CTE estimates to provide a new set of results from a global economy-wide model that attempts to quantify the impacts on global markets, net farm incomes and welfare of the reforms since the early 1980s and of the policies still in place as of 2004. The chapter concludes by drawing on the lessons learned to speculate on the prospects for further reducing the disarray in world agricultural markets.

Despite reforms over the past quarter-century, world agricultural markets remain highly distorted by government policies. Traditional indicators of those price distortions such as the nominal rate of assistance and consumer tax equivalent provide measures of the degree of intervention, but they can be misleading as indicators of the true effects of those policies. By drawing on recent theoretical literature that provides indicators of the trade- and welfare-reducing effects of price and trade policies, this paper develops more-satisfactory indexes for capturing distortions to agricultural incentives. It then exploits the agricultural distortion database recently compiled by the World Bank to generate estimates of them for both developing and high-income countries over the past half century, based on a sample of 75 countries that together account for all but one-tenth of the world's population, gross domestic product (GDP) and agricultural production. While they are still only partial equilibrium measures, they provide a much better approximation of the true trade and welfare effects of sectoral policies without needing a formal model of global markets or even price elasticity estimates.

This paper explores endogenous institution formation under a catching-up strategy in developing countries. Since the catching-up strategy is normally against the compartive advantages of the developing countries, it can not be implemented through laissez-faire market mechanisms, and a government needs to establish non-market institutions to implement the strategy. In a simple two-sector model, the authors show that an institutional complex of price distortion, output control, and a directive allocation system is sufficient to implement the best allocation for the catching-up strategy. Furthermore, removing any of the three components will make it no longer implementable. The analysis also compares the best allocation and prices under the catching-up strategy with their counterparts under no distortions. The results of this paper provide important implications for understanding the institution formation in the developing countries that were pursuing a catching-up strategy after World War II.

This study on Latin America is based on a sample of eight countries, comprising the big four economies of Argentina, Brazil, Chile, and Mexico; Colombia and Ecuador, two of the poorest South American tropical countries; the Dominican Republic, the largest Caribbean economy; and Nicaragua, the poorest country in Central America. Together, in 2000-04, these countries accounted for 78 percent of the region's population, 80 percent of the region's agricultural value added, and 84 percent of the total gross domestic product (GDP) of Latin America. The key characteristics of these economies-which account for only 4.5 percent of worldwide Gross Domestic Product (GDP), but 7.7 percent of agricultural value added and more than 10 percent of agricultural and food exports. The table reveals the considerable diversity within the region in terms of stages of development, relative resource endowments, comparative advantages and, hence, trade specialization, and the incidence of poverty and income inequality. This means that these countries represent a rich sample for comparative study. Nicaragua's per capita income is only one-seventh the global average, while the incomes of Colombia and Ecuador are one-third of this average. By contrast, the per capita incomes of Argentina and Chile average just one-eighth below and that of Mexico is one eighth above the global average. Only Argentina, Brazil, and Nicaragua are well above the global average in endowments of agricultural land per capita; the Dominican Republic and Ecuador are well below this average; and Chile, Colombia, and Mexico are a little less than one-third above the average.

This chapter deals with the distortions to price incentives for agriculture that result from the trade, exchange rate and domestic policies in place in the four main South Asian countries, by summarizing and comparing the findings and themes of the more-detailed case studies on India, Pakistan, Bangladesh and Sri Lanka. Attention is paid most to India, which accounts for around four fifths of South Asia's population, Gross Domestic Product (GDP) and agricultural GDP. The principal focus is on the level of and trends in distortions for agriculture as a whole, and how these have changed over time relative to those for non-agricultural traded sectors in these countries. Previous studies have established that in India, Pakistan and Sri Lanka, policies strongly favored manufacturing over the principal agricultural crops, although the extent of anti agricultural bias diminished considerably between the 1970s to 1995. The new country studies extend the earlier estimates up to 2005 and back to 1965, and provide long term estimates of distortions to relative agricultural incentives in Bangladesh for the first time. As well, these new studies broaden the coverage of previous research by including estimates for the fresh fruit and vegetables sector in India, and the dairying sectors in India and Pakistan. In South Asia both of these sectors account for large shares of the rural economy as measured by their contributions to GDP.

This chapter begins with a brief summary of economic growth and structural changes in the region since the 1950s and of agricultural and other economic policy developments as they affected the farm sector at the time of and in various stages after independence from colonial powers. The chapter then summarizes estimates of the nominal rate of assistance (NRA) and the relative rate of assistance (RRA) to farmers delivered by national farm and nonfarm policies over the past several decades, as well as the impact of these policies on the consumer prices of farm products, using the project's methodology (Anderson et al. 2008). The final sections point to what the author have learned and draw out implications of the findings, including for poverty and inequality and for possible future directions of policies affecting agricultural incentives in Africa.

The purpose of this paper is to provide an overview of the literature on the political economy of policy instrument choice and relate it to the experiences in agriculture. The paper is therefore organized as follows. The second section provides a ranking of policies as to their transfer efficiency and determines the standard of evaluation, given that no policy is perfect in achieving its goals. The third section explores why political competition does not ensure that an efficient policy instrument is chosen. The following two sections explain the two key theories: enforcement and commitment problems in section four, and information and agency problems in section five. Section six presents the important Grossman-Helpman model of inefficient policy choice that falls outside these two general theories. Section seven describes how policy instrument choice in agriculture is often a discrete outcome in response to a crisis and therefore becomes path dependent, resulting in a status quo bias. Section eight describes how trade agreements can affect policy instrument choice. The final section gives some guidance as to the outstanding issues.

This paper outlines the methodological issues associated with the task of measuring that actual delivered direct protection or taxation to individual agricultural industries, as well as the direct protection or anti-protection to non-agricultural sectors. It begins with a guide to what elements in principle could be measured. There are two key purposes of the distortion estimates being generated by this project are: 1) to provide a long annual time series of indicators showing the extent to which price incentives faced by farmers and food consumers have been distorted directly and indirectly by own-government policies in all major developing, transition and high-income countries, and hence for the world as a whole; and 2) to attribute the price distortion estimates for each farm product to specific border or domestic policy measures, so they can serve as inputs into various types of partial and general equilibrium economic models for estimating the effects of those various policies on such things as national and international agricultural markets, farm value added, income inequality, poverty, and national, regional and global welfare.

We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect-where increasing inequality allows innovators to charge higher prices and (negative) market-size effects-with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality. Copyright 2006, Wiley-Blackwell.