We show that imposing a NSR has a number of effects. First, it softens competition among EPNs and rebalances the fee structure in favor of cardholders and to the detriment of merchants. Second, we show that the NSR is a profitable strategy for EPNs if and only if the network effect from merchants to cardholders is sufficiently weak. Third, the NSR is socially (un)desirable if the network externalities from merchants to cardholders are sufficiently weak (strong) and the merchants' market power in the goods market is sufficiently high (low). Our policy advice is that regulators should decide on whether the NSR is appropriate on a market-by-market basis instead of imposing a uniform regulation for all markets.

The author proposes as an optimal solution for Greece the replacement of its existing bonds with new high quality bonds that will have a high quality liquid collateral for their principal, such as Eurobonds or a guarantee by the EFSF or the ESM. As part of the solution, Greece retires its bonds early through direct purchases (or through the intermediation of the ESM) to take advantage of the 30% or higher market discount. This solution (i) converts present debt to long term debt; (ii) reduces the size of the total Greek debt; (iii) keeps Greek banks solvent; (iv) improves the quality of Greek debt to achieve lower interest rates; and (v) will likely *not* create a “credit event.”

The creation of Trichet bonds will result in various advantages both in comparison to the present unstable situation and other proposed solutions. First, the long duration of Trichet bonds will eliminate the immediate crisis caused by short term expiration of significant amounts of debt which is looming over Greece, Ireland, Portugal, Spain and possibly other EU countries. Second, the guarantee of the principal with the zero-coupon ECD bond collateral increases the quality of the Trichet Bonds compared to existing sovereign debt. Third, the market for the new Trichet Bonds will be liquid and likely to trade at appreciating prices as refinancing (roll-over) risk is reduced and time is allowed for economic reforms by the issuing countries (a condition of the ECB) to take effect.

In addition, the exchange of existing sovereign debt for Trichet bonds will force many European banks holding the sovereign debt to take the write-offs required, thus making their own balance sheets more transparent. Many European banks are thought to have large holdings of sovereign debt from the “peripheral” countries that have not been marked-to-market, and thus represent sizeable potential losses for the banks when the sovereign debt is ultimately restructured, as we believe it must be over the next few years. Most of the sovereign bank debt likely to be exchanged, however, is held by larger German, French and Swiss banks with the capability (if not necessarily the desire) to take the write-offs required. The overhang of such future losses affects the entire European banking system at a time when it too is being restructured. The ECB, and the European central banks need to identify those banks that are impaired by excessive sovereign holdings and assist them in recapitalization – the sooner the better – but they should also push the larger, stronger banks to accept the exchange offers in the interest of bank transparency and restructuring as well as in resolving the sovereign debt problem. Clearly the two problems – sovereign debt and bank restructuring – are connected. The issuance of Trichet Bonds, will help to resolve both problems by recognizing market realities and offering an easier way out than through a forced, cram-down restructuring once the ailing sovereigns exhaust their ability to repay the existing debt.

There are significant advantages to Trichet bonds over other discussed solutions to the sovereign debt problem. One such proposed solution is the issuance of “Euro Bonds” guaranteed by the Eurozone countries or the EU itself for the purpose of redeeming sovereign bonds by market purchases, or by lending the proceeds to the countries involved for them to acquire their debt. Apart from the considerable political obstacles to such a program, the undertaking actually makes it less likely that existing self-interested debt-holders will sell in the market. The implication of the program is that either through market interventions that push prices up, or by the assumption that the program will continue to enable the debt to be retired at par on maturity, debt-holders won’t sell unless the price is pushed high enough to constitute a bailout. The ECB’s current efforts to support the prices of distressed sovereign bonds is currently having this effect, which transfers some, if not all of the cost of resolving the problem to European taxpayers, where increasingly it is resented.

The alternative approach, that has only been discussed by market participants, is for a Russian or Argentine solution in which the debt-holders are made a take-it-or-leave-it offer to exchange outstanding debt for new, generally illiquid bonds at an arbitrary price that discourages future investment by the market. Such an approach is understood by the sovereign debt market to constitute a de facto default. Such a default would likely have serious adverse consequences for the Euro and the EU, and may be less likely that a bailout of some kind.

The great advantage of Trichet Bonds is that they avoid both bailouts and defaults.

Quantifying content’s role is challenging because there is a positive feedback loop (network effects) between content and adoption: more content stimulates adoption which in turn increases the incentive to create content. We develop a methodology to overcome this endogeneity problem and accurately measure content’s impact. We find a statistically and economically significant effect, implying that policies promoting content creation can substantially increase Internet adoption even in the short run. Because it is ubiquitous, Internet content is also a useful tool to affect social change across countries.

Content has a greater effect on adoption in countries with more disparate languages, making it a useful tool to overcome linguistic isolation, and in countries with international Internet gateways, underlining the importance of high-speed infrastructure in delivering content.

In this paper, I consider the impact of a departure from this current system. I examine the possible impact of last-mile broadband providers’ imposing “termination fees” on third-party content providers or application providers to reach end-users. Broadband providers would engage in paid prioritization arrangements – that is, application and content providers could pay the broadband provider to have their traffic prioritized over competitors’ services. I argue that these arrangements would create inefficiency in the market and harm innovation. Because the last mile access broadband market is concentrated and consumers face switching costs, these concerns are particularly significant.

Broadband providers insist that imposing these new charges will greatly improve network investment, and thus these charges are beneficial. I argue that this is not the case. Possible higher revenues from discrimination may simply be returned to shareholders and not invested. Additionally, evidence suggests networks invest more under non-discrimination requirements, and paid prioritization schemes would divert money towards managing scarcity instead of expanding capacity. Paid prioritization could even create an incentive for broadband providers to create congestion to increase the price of prioritized service.