IDEAS home Printed from https://ideas.repec.org/p/zbw/ilewps/69.html
   My bibliography  Save this paper

Agency costs in primary dealer systems

Author

Listed:
  • Silano, Filippo

Abstract

Easing their access to capital markets, governments have been establishing a primary dealer system. Via bilateral self-enforcing agreements ('dealerships'), government debt management units (DMUs) have been appointing national and global banks (the 'dealers') to actively participate in government securities auctions and/or enhance liquidity in the secondary market. The partnership's non-binding and long-run nature makes dealerships relational contracts. Developing a theoretical framework, this study examines the DMU-dealer principal-agent relationship, with the overarching purpose of identifying and mitigating agency costs. Apart from monitoring costs, the article argues that the partnership entails institutional room for public-private collusion. Although the practice would help fostering the partnership's longevity, it could trigger negative externalities. Mitigating potential risks, policy proposals advocate to enhance: (i) monitoring of the dealers' behaviour in fixed income markets, and (ii) transparency in the DMU's governance of industry's benefits.

Suggested Citation

  • Silano, Filippo, 2023. "Agency costs in primary dealer systems," ILE Working Paper Series 69, University of Hamburg, Institute of Law and Economics.
    • Handle: RePEc:zbw:ilewps:69
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/268755/1/ile-wp-2023-69.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    2. Péter Benczúr & Cosmin L. Ilut, 2016. "Evidence for Relational Contracts in Sovereign Bank Lending," Journal of the European Economic Association, European Economic Association, vol. 14(2), pages 375-404.
    3. Silano, Filippo, 2022. "Revolving doors in government debt management," ILE Working Paper Series 61, University of Hamburg, Institute of Law and Economics.
    4. Mr. George Iden & Mr. Marco Arnone, 2003. "Primary Dealers in Government Securities: Policy Issues and Selected Countries Experience," IMF Working Papers 2003/045, International Monetary Fund.
    5. Gustavo Piga, 2001. "Do Governments Use Financial Derivatives Appropriately? Evidence from Sovereign Borrowers in Developed Economies," International Finance, Wiley Blackwell, vol. 4(2), pages 189-219.
    6. Blyth, Mark, 2013. "Austerity: The History of a Dangerous Idea," OUP Catalogue, Oxford University Press, number 9780199828302, Decembrie.
    7. Peter G. Dunne, 2007. "Transparency proposals for European sovereign bond markets," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 15(2), pages 186-198, May.
    8. Michael Rieber, 1964. "Collusion in the Auction Market for Treasury Bills," Journal of Political Economy, University of Chicago Press, vol. 72(5), pages 509-509.
    9. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    10. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, Decembrie.
    11. Jude Browne, 2020. "The Regulatory Gift: Politics, regulation and governance," Regulation & Governance, John Wiley & Sons, vol. 14(2), pages 203-218, April.
    12. Peter G. Dunne, 2007. "Transparency proposals for European sovereign bond markets," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 15(2), pages 186-198, May.
    13. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
    14. Michael Rieber, 1964. "Collusion in the Auction Market for Treasury Bills: Rejoinder," Journal of Political Economy, University of Chicago Press, vol. 72(5), pages 515-515.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alfaro, Laura & Kanczuk, Fabio, 2006. "Sovereign Debt: Indexation and Maturity," IDB Publications (Working Papers) 1578, Inter-American Development Bank.
    2. van Schaik, A.B.T.M. & de Groot, H.L.F., 1997. "Productivity and Unemployment in a Two-country Model with Endogenous Growth," Other publications TiSEM 199301af-ebec-49ab-ad79-6, Tilburg University, School of Economics and Management.
    3. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    4. Roger McCain, 1987. "Reciprocity: Anthropological and economic theoretic perspectives," Forum for Social Economics, Springer;The Association for Social Economics, vol. 16(2), pages 13-25, September.
    5. Radygin Alexandr & Entov Revold & Apevalova E. & Shvetsov P., 2008. "Market Discipline and Contracts: Theory, Empiric Analysis, Law," Research Paper Series, Gaidar Institute for Economic Policy, issue 117P.
    6. Lazzarini, Sergio G., 2002. "Moving out of Committed Relationships," Insper Working Papers wpe_31, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    7. Harold L. Cole & Daniel Neuhann & Guillermo Ordonez, 2017. "A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information," PIER Working Paper Archive 17-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 May 2017.
    8. Tal Sadeh & Yehuda Porath, 2020. "Autonomous agencies and relational contracts in government bond issues," Regulation & Governance, John Wiley & Sons, vol. 14(4), pages 741-763, October.
    9. Catão, Luis A.V. & Mano, Rui C., 2017. "Default premium," Journal of International Economics, Elsevier, vol. 107(C), pages 91-110.
    10. Sergio G. Lazzarini & Gary J. Miller & Todd R. Zenger, 2008. "Dealing with the Paradox of Embeddedness: The Role of Contracts and Trust in Facilitating Movement Out of Committed Relationships," Organization Science, INFORMS, vol. 19(5), pages 709-728, October.
    11. Sokolovskyi, Dmytro, 2017. "Gaming modeling of self-enforcing agreements and free-rider problem," MPRA Paper 80818, University Library of Munich, Germany.
    12. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
    13. Xinshen DIAO & Terry L. ROE & A. Erinç YELDAN, 1999. "How Fiscal Mismanagement May Impede Trade Reform: Lessons From An Intertemporal, Multi-Sector General Equilibrium Model For Turkey," The Developing Economies, Institute of Developing Economies, vol. 37(1), pages 59-88, March.
    14. Ramon Moreno, 2001. "Pegging and stabilization policy in developing countries," Economic Review, Federal Reserve Bank of San Francisco, pages 17-29.
    15. Couharde, Cécile & Delatte, Anne-Laure & Grekou, Carl & Mignon, Valérie & Morvillier, Florian, 2020. "Measuring the Balassa-Samuelson effect: A guidance note on the RPROD database," International Economics, Elsevier, vol. 161(C), pages 237-247.
    16. Vitek, Francis, 2006. "Measuring the Stance of Monetary Policy in a Small Open Economy: A Dynamic Stochastic General Equilibrium Approach," MPRA Paper 802, University Library of Munich, Germany.
    17. Jacques Le Cacheux & Vincent Touzé, 2002. "Les modèles d'équilibre général calculable à générations imbriquées. Enjeux, méthodes et résultats," Revue de l'OFCE, Presses de Sciences-Po, vol. 80(1), pages 87-113.
    18. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    19. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2009. "Homo Reciprocans: Survey Evidence on Behavioural Outcomes," Economic Journal, Royal Economic Society, vol. 119(536), pages 592-612, March.
    20. repec:hal:wpspec:info:hdl:2441/2942 is not listed on IDEAS
    21. Robert Kollmann, 2012. "Limited asset market participation and the consumption‐real exchange rate anomaly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 566-584, May.

    More about this item

    Keywords

    public finance; government debt management; relational contracts; agency costs; dealers;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ilewps:69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/irhamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.