The contingent convertible bond (or CoCo) is designed as a bail-in tool, which is written down or converted to equity if the issuing bank is seriously troubled and thus its trigger is activated. The trigger could either be rule-based or discretion-based. I show theoretically that the bail-in is less implementable and that the associated bail-in risk is lower if the trigger is discretion-based, as governments face greater political pressure from the act of letting creditors take losses. The political pressure is greater because governments have the sole authority to activate the trigger and hence can be accused of having 'blood on their hands'. Furthermore, the pressures could be augmented by investors’ self-fulfilling expectations with regard to government bailouts. I support this theoretic prediction with empirical evidence showing that the bail-in risk premiums on CoCos with discretion-based triggers are on average 1.13 to 2.91%p lower than CoCos with rule-based triggers.
Discovery and Imitation of Export Products and the Role of Existing Exporters in Korean Manufacturing / Chin Hee Hahn
This paper empirically examines what role of existing exporters play in the discovery of new export products and whether there are evidence of spillovers from export discovery. We find that existing exporters are more likely to discover new export products than non-exporters. We also find evidence of export discovery spillovers; export discovery of a product by some plants had an effect of increasing the probability of subsequent export market penetration of the same product by other plants. Export discovery spillovers are found to be stronger among geographically closely located plants. We argue that information spillovers is a part of the story: you learn from your neighboring discoverers about the profitability of potentially exportable products.
Assessing Alternative Renewable Energy Policies in Korea’s Electricity Market / Hyunseok Kim
This paper, focusing on the renewable portfolio standard (RPS), evaluates alternative renewable energy policies. We propose a tractable equilibrium model which provides a structural representation of Korea’s electricity market, including its energy settlement system and renewable energy certificate (REC) transactions. Arbitrage conditions are used to define the core value of REC prices to identify relevant competitive equilibrium conditions. The model considers R&D investments and learning effects that may affect the development of renewable energy technologies. The model is parameterized to represent the baseline scenario under the currently scheduled RPS reinforcement for a 20% share of renewable generation, and then simulated for alternative scenarios. The result shows that the reinforcement of the RPS leads to higher welfare compared to weakening it as well as repealing it, though there remains room to enhance welfare. It turns out that subsidies are welfare-inferior to the RPS due to financial burdens and that reducing nuclear power generation from the baseline yields lower welfare by worsening environmental externalities.