Local House Price Diffusion

We contribute to the literature on house price diffusion by carrying out our analysis at three levels: CBSA (nationwide), town and census tract (Greater Boston Area). We estimate fixed‐effect models of house price growth on lagged growth (“Persistence”), nearby lagged growth (“Spillovers”) and Fundamentals growth. CBSA‐level Persistence and Spillover Effects are positive and significant. These large ripple/contagion effects likely contributed to the recent national‐level housing downturn. We find evidence of smaller town‐level Persistence and Spillover Effects. Hence, diffusion appears stronger across than within housing markets. Fundamentals and price expectations drive price diffusion, leaving room for bubbles from future price overoptimism.     

Hedging House Price Risk in China

The increasing risk associated with China's housing prices is globally recognized. However, hedging this risk is challenging because of a lack of financial derivatives on China's housing assets. We suggest that the short sale of futures contracts for construction raw materials, i.e., iron ore or/and steel, can act as useful tools to hedge the systematic risk of China's new home price. We first present evidence that there is a strong and stable correlation between changes in China's housing prices and global steel/iron ore prices. Using a hedging strategy model, we then show that, during the sample period between 2009 and 2015, 20.6% of the total unpredicted variance in Chinese housing prices can be hedged by shorting rebar and iron ore futures. We further examine this strategy with an event study based on the announcement of the “home‐purchase restriction” policy in April, 2010. The cumulative abnormal returns show that both steel and iron ore prices reacted significantly to this negative shock, and therefore the proposed strategy could substantially help investors offset losses in the housing market. We finally provide some evidences that this strategy can also help investors in specific regional housing markets, or the resale housing markets.     

Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets

Many of the problems facing U.S. electricity markets stem from blatant disregard for the advice and warnings of economists who specialize in these markets. The short list of disregarded economic advice includes existing market power of some generators; transmission discrimination, lack of efficient pricing of transmission congestion; inefficient retail prices; anemic incentives to minimize costs; and lack of consumer choice and experience, occasionally coupled with high switching costs. As uncomfortable as the current state of electric power restructuring may be, going back to full regulation likely would be worse. There is reason to hope that less direct paths to increased competition will resolve some of the worst policy patches and half-reforms. These less direct paths to increased competition include expansion of the size of geographic markets, geographic expansion of transmission unbundling, reductions in obstacles to long-term supply contracting, growth of demand response programs, improvements in generator efficiency and availability, and expansion of real-time pricing and customized energy services for commercial and industrial customers. In aggregate, these constitute a promising “quiet phase” of electric power reform.     

Why strategic factor markets matter: “New” multinationals' geographic diversification and firm profitability

This study examines firm profitability differences among “new” multinational enterprises (NMNEs) pursuing geographic diversification into two distinct types of geographic locations based on the development of strategic factor markets. Building on strategic factor markets theory, we propose that firm‐specific advantages of NMNEs contribute differentially to firm profitability because they evolve differently given strategic factor market differences in host compared to home countries. Using a sample of Korean manufacturing MNEs during the 1993–2003 period, we find that geographic diversification into resource‐poorer host countries has a positive relationship with firm profitability, whereas geographic diversification into resource‐richer host countries has a U‐shaped relationship with firm profitability. Our study demonstrates why strategic factor markets—an important and often overlooked contextual factor—matter in exploring rationales for geographic diversification. Copyright © 2014 John Wiley & Sons, Ltd.     

The Impact of the Taxpayer Relief Act of 1997 on Housing Turnover in the U.S. Single‐Family Residential Market

The Taxpayer Relief Act of 1997 (TRA97) replaced a one‐time, post‐age‐55 capital gain exclusion with a larger gain exclusion amount that could be protected every two years without requiring that the taxpayer trades up in housing. This action had the potential to impact housing transactions for every existing homeowner, regardless of age, as well as future purchasers of housing. We analyze household‐level data to determine if the repeated ability to exclude periodic recognized capital gains on housing from taxation shortened housing tenure significantly after TRA97 became effective. We next consider whether the decline was heterogeneous across age groups, across trading up and trading down and across geography. Given that the impact of TRA97 appears at first glance to be most profound for taxpayers close to 55 years of age, a somewhat surprising result of our research is that significant decreases in tenure are pervasive, appearing in all age ranges and in samples of homeowners who trade up and who trade down. Finally, we provide additional evidence at the aggregate level that TRA97 led to measurable changes in the price elasticity of housing turnover in the four geographic regions defined by the U.S. Census Bureau (Northeast, Midwest, South and West) and in states that are home to large metropolitan housing markets.     

Alternative Lending Channels and the Crisis in U.S. Housing Markets

To what degree has the development of alternative mortgage funding channels promoted the recent boom and bust in U.S. housing markets? Past research examined whether Alt‐A and subprime market shares are correlated with the housing bubble. This article expands the analysis to include the share of specific “alternative” lending terms and finds that the shares of interest‐only and negative amortization loans are important factors in explaining the housing bubble. This result suggests that research on the housing market bubble should focus on the impacts of loan contract terms rather than loan channel.     

Time-varying connectedness of metropolitan housing markets

We construct a time-varying measure of connectedness for 382 U.S. metropolitan housing markets using monthly house price data from 1975 to the present. Housing connectedness in the long run is found to be much stronger than the instantaneous connectedness, both of which exhibit notable variation over time and across metropolitan areas. Unlike stock market connectedness, housing market connectedness leads the business cycle; it helps predict the likelihood of future recessions.     

Zero-tolerance for genetic pollution: Rice farming,pharm rice,and the risks of coexistence in California

California’s Rice Certification Act (RCA) requires specific planting and handling protocols for rice, including genetically engineered (GE) rice that could pose commercial risks to rice growers. Based on interviews with growers, marketers, activists, and other stakeholders, as well as secondary sources, this paper describes this policy’s emergence and evolution using a global commodity chain approach. Several studies suggest that GE herbicide tolerant rice would yield profits for California growers struggling with rising weed control costs. Instead, GE rice was greeted with scrutiny by the California industry and legislators because Asian export markets had zero-tolerance for GE rice contamination. This paper examines how nature’s agency—the “unruly” qualities of agro-ecosystem functions, the movement of wildlife, seeds, and pollen across space—strengthened narratives about risk and industry consensus around zero-tolerance rules for GE rice. In addition to recounting the origins of zero-tolerance demands and containment regulations for California rice, this research explores how calls for food safety and zero-tolerance rules are mobilized as surrogate for wider political economic aims.     

House Search Duration in Hot and Cold Residential Markets

This study analyzes the determinants of house search duration of consumption‐driven buyers and individual investors in different housing market environments. We use data from surveys of recent house‐buyers in “hot” and “cold” housing markets in the 2000s housing bubble in California characterized by rising and declining residential house prices, respectively. The average house price and the surveyed geographical area are the same for both periods. Expected house ownership horizon is shown to be an important determinant of the realized search duration in addition to commonly considered housing and buyer characteristics. We find a statistically significant positive effect of it on the time until purchase in both housing price environments for consumption‐driven buyers. We also find that consumption‐driven house purchases were highly pronounced in coastal areas in the hot market and inland areas in the cold market. In contrast, long‐horizon investment activity leads that of consumption activity in those areas. Short‐horizon investors, on the other hand, concentrated their house search activity in inland areas in both housing market environments.     

Price asymmetries and the path dependence of market power: Evidence from the U.S. airline industry

This paper uncovers price asymmetries across oligopolistic and monopolistic markets that are seemingly identical in structure but different in competitive history. This is done by identifying “quiet life” markets that have not (yet) experienced a change in structure, and “non-quiet life” markets that have been disrupted by firm entry and/or exit. Using a long panel dataset from the U.S. airline industry, we find that quiet life duopolies price significantly higher than duopolies that come about by entry in monopoly, and that quiet life monopolies price significantly lower than monopolies that come about by exit in duopoly. We show that the path towards a particular market structure matters for the determination of prices and explore several mechanisms that likely explain the price asymmetries, including engagement in anticompetitive behaviour, adjustment behaviour to market structure changes, and the cost heterogeneity of competing firms.     

Do House Price Levels Anticipate Subsequent Price Changes within Metropolitan Areas?

This research examines the relationship between hedonically controlled housing price levels and subsequent changes in those prices across locations within MSAs. Are areas with a high price relative to an “imputed rent” paying for higher appreciation? In an efficient market (e.g., Gordon Growth Model), as fundamentals (impute rent) differ across locations and change over time, anticipation of these should generate a positive correlation between (residual) price levels and subsequent price changes. We undertake these tests in four different MSAs using a panel of repeat‐sale house price indices that have been scaled to price levels with the hedonic attributes of the house and ZIP code. In three markets we find that identical houses in higher priced ZIP codes subsequently appreciate faster. In one market we find that there is little statistical difference.     

Labor Law,Economics, and Industrial Democracy: A Reconciliation.

This article analyzes the competing economic and industrial democracy/ voice views of unionism. It points out that the economic arguments vis-àvis unionism and the costs of union rent seeking depend on competitive markets. If markets vary in their competitive characteristics, however, and employers also have an incentive to rent-seek, then decentralized, NLRA-type unionism with minimal government interference in establishing bargaining outcomes may serve to restore competitive wages. The article concludes by evaluating some proposals to amend the NLRA in the context of this “symmetry of motives” framework.     

Favor prevalence in emerging markets: A multi-level analysis

Favors are a medium of exchange for social capital. Social capital creates social, political, and economic benefits for individuals, organizations, communities, and societies around the world. Favors promote cooperation between individuals and are used to bond individual actors with other individuals, groups, communities, and institutions. Favors are prevalent in business in emerging markets because of the presence of institutional voids, limited social and geographic mobility, and strong reciprocity norms. Favors create benefits and liabilities for business organizations and their networks. They produce outcomes beyond the favor exchange process that can be characterized as productive or perverse. Despite their prevalence and importance, favors and their dynamics are not well understood. We explore the antecedents, content, process, and consequences of favors. We conclude our multi-level analysis of favors with a discussion of the “breakeven” point for favors—the point where favors tip from having a positive effect to having a negative effect on organization performance. We present an integrated framework to explain the dynamics of favors in emerging market business contexts, and develop propositions to guide future research.     

Market frictions and the competitive advantage of internal labor markets

Research summary : We show that frictions in labor and capital markets can be a source of competitive advantage for affiliates of corporate groups over stand‐alone firms in environments where benefits from internal markets' flexibility are high. We argue that the advantage of flexibility in changing labor inputs is related to how difficult it is to change capital inputs. We predict that if substituting labor with capital is difficult, the group advantage of flexibly changing labor would be stronger in countries with high levels of financial development. Consistent with this prediction, we find a stronger competitive advantage for group affiliates in countries with rigid labor markets but flexible capital markets. In these environments, group affiliates are more prevalent and outperform stand‐alone firms in terms of growth and profitability. Managerial summary : This research shows that the capacity to redeploy workers across internal units of the firm can be a source of competitive advantage in countries that impose strict employment protection laws. We show that the strategic advantage of labor flexibility is affected by how difficult it is to change capital inputs and that labor flexibility is a stronger source of competitive advantage in countries where developed financial markets allow for more flexible capital adjustment. In these settings, strategies designed to lower costs of internal mobility (e.g., locations of greater geographic concentration between units and in regions with less competitive external markets), development of corporate culture supportive of frequent change, and personnel development through internal rotation can result in substantial financial payoffs. Copyright © 2015 John Wiley & Sons, Ltd.     

Cannibalization and option value effects of secondary markets: Evidence from the US concert industry

We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary‐market firms caused by intermediaries entering secondary markets: the “cannibalization” and “option value” effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products are more likely to have separate primary and secondary markets, and will therefore appropriate more value when secondary markets thicken. Firms selling products that are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry. Copyright © 2014 John Wiley & Sons, Ltd.     

Defining market boundaries

This study shows how spatial information about product supply and demand can be used to determine the geographic extent of markets. It demonstrates that markets thus defined allow finer-grained measurement of competitive conditions than is possible using conventional approaches. Two procedures are developed and contrasted: one, called a natural market approach, is drawn from the Industrial Organization economics literature; the second, called an enactment approach, is associated with the open systems perspective on organizations. Applied to a set of hospitals in the San Francisco Bay area, geographic market boundaries established in these ways are shown to lead to finely defined markets, and to reveal strong variation in competitive conditions across the area—variation not detectable if conventional approaches to market definition are used. It is shown that these approaches have applications beyond geographic market definition, and can also be applied to define markets in term of product or service types.     

Hen housing system information effects on U.S. egg demand

The U.S. egg industry has been moving rapidly towards “cage-free” aviary housing as an alternative to conventional cages for hens. A choice experiment was used to evaluate the U.S. public’s willingness to pay (WTP) for egg attributes including housing system, color, size, and certifying agency. A significant difference in WTP for hen housing systems was found using video information treatments describing hen housing systems. When respondents were shown videos of egg production systems, they were indifferent between cage-free aviary and the alternative enriched colony hen housing system whereas with no video information the respondents clearly preferred the cage-free system. Results point towards potential public misunderstanding of the costs and benefits associated with the “cage-free” egg label designation and highlight potential discrepancies between industry commitments and informed consumer preferences.     

The system-wide impact of healthy eating: Assessing emissions and economic impacts at the regional level

Encouraging consumers to shift their diets towards a lower meat/lower calorie alternative has been the focus of food and health policies across the world. The economic impacts of such changes on regions have been less widely examined, but are likely to be significant, especially where agricultural and food production activities are important for the region. In this study we use a multi-sectoral modelling framework to examine the environmental and economic impacts of such a dietary change, and illustrate this using a detailed model for Scotland. We find that if household food and drink consumption follows healthy eating guidelines, it would reduce both Scotland’s “footprint” and “territorial” emissions, and yet may be associated with positive economic impacts, generating a “double dividend” for both the environment and the economy. The economic impact however depends critically upon how households use the income previously spent on higher meat/higher calorie diets. Furthermore, the likely (but not modelled) benefits to health suggest the potential for a “triple dividend”.     

Return and Volatility Transmission in U.S. Housing Markets

This article uses the Case‐Shiller U.S. Home Price Indices to analyze spatial dependencies across 16 metropolitan markets for the period January 1989 to June 2006. Return transmission patterns establish New York, San Francisco and Miami as among the most influential markets. In terms of volatility linkages, there is a considerable amount of transmission in the East between New York, Boston and Washington, DC, and innovations in the housing markets of Miami, Los Angeles and San Francisco play an influential role within their respective regions. In comparison, markets in the Central and Mountain regions appear to be relatively independent from external influences. Overall, the linkages appear to be more intensive during the active phase of the real estate market (1999–2006) than during the calm phase (1989–1998).