banking is diluted—compounded by modern “originate to distribute” practices and the well-documented principal-agent issues that they bring. In this state of the world, the assumption always is that retained earnings will outpace credit losses, a calculus that holds for a finite period. Then comes the crash. Collateral values deflate, delinquencies consume allowances, capital fills the shortfall and, finally, capital itself falls short. 24. Bonds included . As we turn our attention to the stock and rate of growth of nonfinancial private sector debt, we find ourselves
, shares or debt obligations of other cooperatives, and long-term securities or obligations. Investments in nonfinancial businesses or assets are typically prohibited. 7. The governance structure of CUs reflects the not-for-profit and member-driven nature of their cooperative structures . CUs do not have external shareholders and the principal-agent issues are less important than those arising from corporate structures. CU members elect a volunteer board of directors from their membership. Typically, the directors do not receive remunerations for their services. Each
( Altstadsaeter et al, 2014 ), Sweden ( Jacob and Alstadsaeter, 2013 ), while the more general view that principal-agent issues play an important role in corporate responses to taxation has also been documented for the US ( Chetty and Saez, 2005 , 2006 ). 13 The empirical framework underlying the wealth/income profiles estimates is summarized in the Appendix. Appendix I. Additional Table and Figures Table A1. The Distribution of LBT Rates, 2018 Federal State # Municipalities Average Min Max Baden-Württemberg 1,101 12
efficiency, and in line with modern amendments to neoclassical theory, he believes that government owners are likely to mismanage principal-agent issues more than private owners. He nonetheless preaches caution: In a competitive market “there exist mechanisms that could enable a public enterprise to operate as efficiently … as its private cousins. But if a market is monopolized, privatization by itself will not guarantee efficiency” ( Tandon, 1995 , p. 32). Tandon’s view is that (1) if government owners enhance competitive forces or use management methods and incentives
) [ θ A t − 1 − r t D t − 1 ] ( 2 ) Investors face an uncertain return on assets. Return is a random variable Θ, about which investors can only conjecture a probability distribution function F(θ) : ℝ → [0; l]. 18 Assuming away any principal-agent issues, 19 investors choose leverage to maximize the utility they expect to derive from dividends: max D t-1 ≥ 0 E t − 1 u ( δ t ) = ∫ ℝ u [ ( 1 − β ) ( 1 − τ ) ( ( θ − r t ) D t − 1 + θ E t − 1 ) ] d F ( θ ) ( 3 ) Investors are risk-averse and lenders are risk-neutral. We make the standard