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The following is a short introduction to this special issue, which builds on and significantly extends and updates the research published recently in the Iwanami Series on Japanese economic history. First, we offer a modern interpretation of four institutional elements that are particularly important for understanding the growth path of the Japanese economy. These are (a) ownership; (b) regulation of factor markets; (c) labor mobility and (d) the judiciary. These four elements properly clarify the incentive structure behind economic institutions. We then briefly explain how the four articles in this special issue—two at the macro level providing updated estimates of long-run rates of growth in gross domestic product (GDP) and total factor productivity (TFP), and two at the micro level examining institutional changes in specific markets—build on this unified framework, and deepen our understanding of Japanese economic history.

We provide a new framework to analyze law and public finance from the perspective of difference in legal origins. The size of the welfare system differs from country to country. The security net provided by the family and other informal institutions also varies. Our two-sector model links these phenomena. We consider two cases of security. The first considers security achieved through intra-household resource redistribution in the traditional sector. The second case considers the welfare state, which taxes the modern sector. Switching from intense family security to an extensive welfare state model enhances growth because state taxation on the modern sector harnesses the potential productivity of the entire economy. In contrast, countries with low levels of family security should transition to a small welfare state model to sustain growth. This finding explains the different trends of welfare benefits in civil law and common law countries. The different sizes of the welfare state have their origins in family law, which differently stipulates family security between civil law and common law countries.

We present a framework to analyze the impact of ownership structure on stockholder/manager conflicts. We first predict that, in an inefficient market, investors motivate managers to pursue a higher return on equity instead of a higher return on asset, and that this focus on short-term performance leads to leverage distortion. Using a sample of late nineteenth- to early twentieth-century Japanese firms, we show that mediocre performing firms boosted the return on equity by bond flotation, and a higher president-ownership concentration raised the return on asset and controlled bond leverage. Thus, president-ownership concentration offsets market inefficiency.

Free competition in product markets is a common characteristic in capitalist economies. Meanwhile, regulations on the land, labour, and financial markets have changed over time in each capitalist economy and are distinct. We address this issue in the Japanese context. Medieval Japan under the second shogunate of Muromachi in the fourteenth century instituted a free competition regime for land, labour, and financial markets. An outcome was wealth inequality and social destabilization. The third shogunate of Edo vested peasants with property rights and regulated the land, labour, and financial market to maintain them as owner-farmers. The regime created an institutional arrangement where the stem farming family functioned as the centre of resource allocation. Deregulation after the Meiji Restoration of 1868 weakened the family-focused arrangement but did not entirely remove it. Traits of the family-focused arrangement form the specific characteristic of modern Japanese capitalism.

Regulation of foreclosure in a financial crisis has been a centuries-long conundrum to authorities. Japan in the fifteenth and sixteenth centuries had free financial, land and coercive labor markets. It raised the growth but resulted in recurrent financial crises. Therefore, the Edo shogunate, 1600–1868, banned coercive labor, protected peasants’ property right and regulated the farmland-collateral loans. Seeking an appropriate degree of regulation, the shogunate first banned foreclosure and invited a credit shrink. Then the shogunate introduced legislation to legalize foreclosure of pledged farmland as clarifying the rights of borrowers. The regulation asymmetrically lowered interest rates for timely repayment.

Modern contract law generally does not allow property rights or similar claims to be made against employees. This undermines a claim on the return on the employer's investments in recruiting and training a worker, making them vulnerable to possible infringement from a bystander. Accordingly, employers’ investment in recruiting and training might become deficient. Therefore, protecting an employer's investment, balanced against the mobility of the labour market for better employer/employee matches, has emerged as an issue during the transition towards a market-based economy. This article explores how the Japanese state court in its early period addressed this issue in the tight labour market of the silk-reeling industry, which was the leading industry at that time. Initially, the court directly protected the interests of employers whose employees were poached, at the expense of workers’ mobility. Then, it seemed to govern transactions between employers indirectly as a shadow off-the-equilibrium path. Thus, an employer whose employee was poached and an employer who carried out the poaching would privately negotiate to settle the dispute, using a possible suit as a threat against the poacher. An examination of the suits that were actually filed supports this hypothesis. This indirect governance facilitated labour market mobility with some protection of the original employer's claim.

In the 1880s, Japan experienced its first stock investment boom, which was highly leveraged by the banking sector. In 1890, its first financial crisis occurred and triggered a de-leveraging process. With a high lower bound of the conventional interest rate intervention under the fixed exchange rate regime, the Bank of Japan decided to implement a massive securities purchases first time among major industrial economies and continued this unconventional policy until the early 1900s. We examine how the unconventional intervention for a decade affected the stock prices and the trade volumes, and show that the upward distortion in market pricing was considerable and that the equity-risk premium accordingly dropped, which meant socialization of the risk associated with the industrial investment.

Does the ownership structure affect firms' performance? We first theoretically show that in an inefficient market, investors motivate managers to pursue a higher return on equity, the short-term performance indicator instead of a higher return on asset, the long-term indicator and encourage managers to distort the financial leverage. This self-fulfilling distortion implies that, in an inefficient market, a higher concentration of ownership improves long-term performance by containing the distortion. To test the prediction, we build a new dataset of Japanese firms from 1878 to 1910. Then, we show that the Japanese market then was inefficient, that the bond flotation was distorted among low and mediocre performing firms, and that a higher concentration of ownership at the president improved the return on asset. These results are consistent with the tendency in contemporary non-US advanced economies. A higher concentration of ownership offsets the adverse effects of a less efficient capital market.

An intrinsic feature of a pre-modern society is in its fragmentary markets. Fragmentary markets are more likely to fail in the coordination of resource allocation. However, if a concentrated market is exogenously formed and the market could provide the only price to local markets, the market can work as a pivot of coordination for development. Treaty port markets imposed on nineteenth-century Japan worked as the pivot and ignited Japan's industrialization. We examine the silk-reeling industry, which was the major export industry and which led to Japanese industrialization, and the role of treaty ports in its development.

This paper studies the determinants of agrarian tenancy contract choice and its implication on productivity in prewar Japan. Rapid agricultural growth under extensive tenancy relationships in prewar Japan was achieved with the prevalence of a unique rent reduction contract, which was more efficient than a share tenancy or a pure fixed-rent contract in terms of provision of incentives and risk-sharing. Despite its potential efficiency, a rent reduction contract incurred substantial transaction costs, which may have inhibited its adoption outside Japan. The prevalence of this contract in prewar Japan was likely due to the presence of villages that reduced such costs through informal governance of the private tenancy relationships. We found quantitatively at the village level that the choice of tenancy contract in prewar Iwate prefecture was affected by risk and possibly transaction costs. Furthermore, a sign of Marshallian inefficiency was found at the prefecture level, where the prevalence of tenancy and productivity is negatively correlated and such inefficiency was worse in prefectures with a greater proportion of share tenancy.

Many economies have seen growth in industrial clusters during their industrialization, and the relational contracts between manufacturers and subcontractors are often the organizational basis of clusters. We predict that, if manufacturers form relational contracts with subcontractors, if manufacturers closely collude with each other when trading with subcontractors, if information about subcontractors’ past actions is only imperfectly shared by manufacturers as hearsay, and if demand shock is considerable, then premium subcontractors suffer more from market volatility than ordinary subcontractors would and hence, it is optimal for manufacturers to shield premium subcontractors against the risk. We then study Kiryu, a kimono weaving cluster that expanded from the late nineteenth century with the development of new synthetic dyeing techniques. We show that premium subcontracting weavers were allowed long-term relational contracts and specialization, which shielded already honest weavers against market volatility and induced them to be diligent and to acquire skills.

Until the beginning of the 1880s, most Japanese silk exports were to France. The French silk market, however, shrank after the French Panic of 1882, while the U.S. market expanded during the 1880s. In the United States, power looms were widely used in the silk industry, so the demand for even-quality silk was rising. Japanese manufacturers had to produce uniform filatures (machine-reeled silk) for export to the United States. Kaimeisha, which was the leading association of silk manufacturers in Suwa district, Nagano prefecture, had been producing silk for the French market and had relied on wholesale merchants in Yokohama for quality control. After the French Panic, Kaimeisha introduced the production system which offered incentives for the re-reeling and inspection of silk, thus succeeding in the production of uniform filatures, which it labeled with its own Kaimeisha trademark. In order to expand business, Kaimeisha obtained financing from wholesale merchants and local banks, which were relatively modern financial institutions.Another silk manufacturers association, Kairyosha, followed suit and introduced a production system similar to Kaimeisha's. This second organization, however, was financed by traditional financial institutions and was managed by a rural moneylender. The moneylender's participation in management was detrimental to meeting the rising level of quality control required in the U.S. market. The moneylender demanded an increase in deliveries of silk by hiring new association members as he profited by lending them money to purchase cocoons and receiving discounts on members' deliveries. The situation was particularly disfavorable to quality control because membership to the association was not steady.

Schooling, an observable signal, decreases its impact on wages as employers “publicly” learn workers’ hidden types over workers’ experience in the market. This symmetric employer learning hypothesis has been empirically contested by, first, asymmetry of incumbent and entrant employers, and second, larger-than-imagined complementarity between schooling and work experience, which could enshroud learning effect. Microanalysis of Japanese steel industry shows, 1) experience before entering the long-term employment is complementary to schooling, 2) employer learning effect dominates the complementarity effect after workers’ joining the long-term employment. It suggests that reported evidences of employer learning have in fact captured internal labor market effect.

Contemporary Japanese firms recruit new graduates and promote from within, providing a rare example of the 'ports of entry' policy. This microanalysis of the steel industry in the 1930-60s shows that the internal labor market had been continuously enhanced after the 1930s, but mid-career recruiting was active, previous experience served as signal of ability, and employees’ fertility decision largely depended on previous experience as well as tenure until the 1960s, while the return on education sharply increased after the 1950s. These facts indicate that extended schooling replaced mid-career experience after the 1970s alongside technology-education complementary development.

We describe several strategies for the calibration of one factor Hull-White model with constant or time-dependent mean reversion and volatility parameters to the interest rate vanillas. We propose an efficient approximation formula for the swaption implied volatility which enables us to estimate the mean reversion independently of the volatility.We give the closed-forms for exact pricing using explicit integrals of the model parameters and propose parametric forms for the mean reversion and volatility. We test their performance in terms of quality of fitting and stability w.r.t. market changes, and show that excellent fits can be obtained without suffering from instabilities. Furthermore, our calibration methods and parameter control techniques allow for an elegant interpretation of market moves, which we illustrate with an in-depth analysis of Lehman crisis in the fall of 2008.

This paper studies the determinants of agrarian tenancy contract choice and its implication on productivity in prewar Japan. Rapid agricultural growth under extensive tenancy relationships in prewar Japan was achieved with the prevalence of a unique rent reduction contract, which was more efficient than a share tenancy or a pure fixed-rent contract in terms of provision of incentives and risk-sharing. Despite its potential efficiency, a rent reduction contract incurred substantial transaction costs, which may have inhibited its adoption outside Japan. The prevalence of this contract in prewar Japan was likely due to the presence of villages that reduced such costs through informal governance of the private tenancy relationships. We found quantitatively at the village level that the choice of tenancy contract in prewar Iwate prefecture was affected by risk and possibly transaction costs. Furthermore, a sign of Marshallian inefficiency was found at the prefecture level, where the prevalence of tenancy and productivity is negatively correlated and such inefficiency was worse in prefectures with a greater proportion of share tenancy.

Japanese economy was losing its stability in the interwar period. Faced with the challenge, Moritaro Yamada gave an understanding that the stability of Japanese political economy before the First World War had been maintained by paternalistic institutions both of agricultural and industrial sectors, not based on thoroughly modern market mechanism. This then influential observation can still be supported by the classical dual economy model. However, as a scholar in the period of institutional change, Yamada failed to rightly predict the direction of change. While Yamada expected the change should lead to impersonal market mechanism, the real history showed people rather built a planned economy during the war and recovered stability. Yamada fs mistake was mainly in that he underestimated the significance of risk sharing in the paternalist organizations. At the gturning point h where labor changed into scarce resource from surplus resource, two vectors with opposite directions could exist. Riskier opportunities for higher wages would encourage people to accept market mechanism based on impersonal exchange. Dissolution of risk sharing in paternalistic organizations would make people call for the sate taking on the role as a large welfare state. In Japan, especially in the middle of the Great Depression, the latter factor became dominant.

A sustainable fiscal state needs to have two critical factors: A stable tax base and access to an efficient bond market. The Tokugawa Shogunate had a stable land tax revenue, which was inherited to modern Japan after the Meiji restoration. Taxation, however, was restricted by the constitution after the Meiji restoration. The parliament opposed to expansionary policy in the early 1890s, and then it turned to support that at the exchange of governmental commitment to investment in social infrastructure. The government committed to investment to increase productivity, and was allowed to raise tax rate. About the bond market, at the other hand, the government had issued bonds only in the domestic market until the mid 1890s. In the late 1890s, after Japan joined the international gold standard, the government began to issue considerable amount of bonds, and the balance surged during the Russo-Japanese war in 1904-1905. Now the London market efficiently financed Japanese government. In the early 20th century, the government was one and only one player that had established its own reputation in the international financial market. Hence balance of Japanese government bonds was the only route to import capital. This route also provided Japanese economy with macroeconomic stability, offsetting short-term current account deficit by import of capital. Japan had finally been equipped with necessary instruments as a stable and sustainable fiscal state.

This chapter analyzes the modernization of the silk-reeling industry, focusing on the most prosperous silk reeling district of Suwa. The rapid growth of silk reeling in Suwa is attributed to the establishment of an efficient factory system. Its capacity to supply large amounts of high quality raw silk matched the rising demand from the mechanized silk weaving industry in the United States, resulting in strong competitiveness in the export market.

We have seen many cases where the factory system emerges and realizes higher productivity in the process of industrialization. However, also seen in history is that other types of production organization have kept expanding and have reached at some high performance. For instance, the putting-out system rather than the factory system has sometimes been chosen in the fabric industry, where the flexibility of production and the variety of products are especially important to respond to the fashion. This type of production organization has prospered even during the industrialization since the 19th century, supported by the development of some modern technologies such as synthetic dyes. This study inquires a case of the silk fabric industry in Kiryu, Gunma Prefecture, Japan. In Kiryu, the traditional silk textile industry developed in the Tokugawa era, and the industry even grew more under the putting-out system during the industrialization in Japan since the late 19th century, because the putting-out system with synthetic dying was the optimal combination to realize the variety of products required in the mass consumption in the industrial society.

Human tasks are often multidimensional. Holmstrom and Milgrom (1991) concluded that ghigh-powered h incentives cannot work unless all dimensions of these tasks are observable in the firm. However, as this study shows, if the firm can observe the price vector of its products in the market, distinguish each dimension of the price vector, and connect the information with signals from workers in the firm, then the use of multidimensional ghigh-powered h incentives becomes feasible. Product differentiation with committed quality satisfies those conditions, which has been practiced by the Japanese, but not by the Western, manufacturing for a century.

In this paper we survey the literature on the role of communities in the development of a market economy in Japan. The role of communities has long been explored implicitly as well as explicitly in the literature on the Japanese economic history. In this survey we focus on the export industries in the early stage of the modern economic development. In the late 19th century, when the traditional legal and private institutions which had governed transactions, collapsed, and at the same time the modern institutions were still underdeveloped, it was highly possible that problems due to information asymmetry between sellers and buyers were serious. In fact, we can find many evidences of moral hazard and adverse selection in the documents of this period. On the other hand, since just after the opening up of the international trade in 1858, large amount of products including silk and tea, were exported to foreign countries. This implies some mechanisms worked to resolve the problems stemming from information asymmetry. In the case of silk industry, private associations based on local communities, prevented from moral hazard and adverse selection by establishing brands, which, in turn, were protected by the local government. This case suggests that a market economy was complementary with local communities, and that the function of local communities, in turn, was complemented by the role of local governments.

This paper investigates determinants of geographic distribution of share tenancy and analyzes its efficiency implications in pre-war Iwate prefecture, Japan. The distribution of share tenancy was attributable to risk represented by yield variability, which in turn was affected by seasonal winds called Yamase and topographic features. That risk raised transaction costs of adopting a fixed-rent tenancy associated with the common custom of rent reduction in Japan that mitigated the problem of risksharing. Estimation results suggest that risk, wealth, and strength of community ties were the main determinants of contract choice.

Based on the survey of the literature on production organizations in the field of economic history, business history and economics, we discuss the framework for a historical research on production organizations. Also, we analyze the choice of production organizations between the putting-out system and the factory, using the prefecture level panel data of the weavings industry in pre-war Japan.

We studied the Nb doping effect on the electrical characteristics of MOCVD-PZT capacitors using uniformly Nb-doped Pb(Zr, Ti)O3 (UND-PZT) and δ-Nb-doped PZT (DND-PZT) prepared by MOCVD. The 2Pr for UND-PZT was small and the UND-PZT hysteresis shifted in a positive direction. However, the 2Pr for DND-PZT decreased by only 5.5% and the hysteresis of DND-PZT didn't shift. In addition, the leakage current of DND-PZT decreased by one order at low bias compared to non-doped PZT, because the δ-Nb-doping layer maintains the barrier height, higher than that of none-doped PZT due to defect compensation. As a result, Nb1% DND-PZT was well suited to use Nb doping which decreases leakage current at low voltage and maintains 2Pr.

Elliptic curve cryptosystems([19,25]) are based on the elliptic curve discrete logarithm problem (ECDLP). If elliptic curve cryptosystems avoid FR-reduction([11,17]) and anomalous elliptic curve over Fq ([34,3,36]), then with current knowledge we can construct elliptic curve cryptosystems over a smaller definition field. ECDLP has an interesting property that the security deeply depends on elliptic curve traces rather than definition fields, which does not occur in the case of the discrete logarithm problem (DLP). Therefore it is important to characterize elliptic curve traces explicitly from the security point of view. As for FR-reduction, supersingular elliptic curves or elliptic curve E/Fq with trace 2 have been reported to be vulnerable. However unfortunately these have been only results that characterize elliptic curve traces explicitly for FR- or MOV-reductions. More importantly, the secure trace against FR-reduction has not been reported at all. Elliptic curves with the secure trace means that the reduced extension degree is always higher than a certain level.In this paper, we aim at characterizing elliptic curve traces by FR-reduction and investigate explicit conditions of traces vulnerable or secure against FR-reduction. We show new explicit conditions of elliptic curve traces for FR-reduction. We also present algorithms to construct such elliptic curves, which have relation to famous number theory problems.