Historic District Influence on House Prices and Marketing Duration

Historic property designations have been lauded for spurring renovation beyond the historic structures themselves through positive externalities in surrounding neighborhoods. Previous historic district research focuses on whether historic designation results in a price premium. This paper takes a more comprehensive look at the buying process, which must consider marketing duration within the historic district as well as influences on the sale of properties adjacent to the historic district. We examine how historic district designation in Baton Rogue, Louisiana is capitalized either through a price premium or marketing duration and how that mechanism differs between neighborhoods inside and outside the historic district boundaries. We employ a three stage least square, 3SLS, model to account for the effects of endogenous marketing duration on price capitalization estimates. The estimates are consistent with search-market theory in that marketing duration absorbs part of the capitalization of historic designation. We find that the more certain benefits from historic designation within the district are reflected in a price premium while the reduced regulation coupled with the cachet of being located near but not inside the district result in shorter marketing duration.     

Architecture,historic zoning,and the value of homes

The principal objective of this paper is to detect any partial effects due to architecture on home value. The empirical results show that premium prices are associated with the historical architectural styles like colonial, federal, garrison, and Victorian. A second objective to detect potential impacts of historic zoning, however, does not show conclusively that the historic district of Newburyport has positive external effects.     

Peer R&D disclosure and corporate innovation: Evidence from American depositary receipt firms

In this paper, we examine the effect of peer research and development (R&D) disclosures on corporate innovation. R&D disclosures can generate externalities for related firms, enabling those firms to better infer a project's likely payoffs and thus prioritize projects with higher net present values. We use a sample of foreign firms cross-listed on U.S. exchanges to investigate whether U.S. peer firms experience externalities from the cross-listing firm's R&D disclosures. We find that R&D disclosures by cross-listing firms are associated with greater innovation for industry peers in the U.S. market, especially when product market competition is high. The effect also varies with the home country's legal protection systems, disclosure environments, and accounting reporting rules. Cross-sectional analyses indicate that the externalities are more pronounced in industries or firms that rely more on external financing and firms subject to higher financial constraints; disclosures of higher quality appear to promote innovation by ameliorating financing frictions. Overall, this study provides evidence of R&D disclosure as an industry-wide determinant of innovation, thereby contributing to literature on the real effects of peer disclosures.     

How can IMF policy eliminate country moral hazard and account for externalities?

Costly crisis prevention has positive external effects, which leads to free-riding of governments on each other's efforts. “Ordinary” IMF loans aggravate existing externalities, reinforcing the under-investment problem. We consider the reform proposals of the “Meltzer commission” in both loan and insurance models and show how the IMF can eliminate country moral. The efficiency-ensuring loan policy accounts for given externalities and involves effort-contingent discounts on interests or the extension of credit volume. Similar results hold for the insurance framework. Ex ante participation requires that smaller countries be “subsidized” by large ones, or that IMF policy consider distributional aspects in addition to efficiency.     

Historic Preservation: Preserving Value?

The creation of historic districts has become a common way to preserve historic buildings and neighborhoods. Advocates of historic districts assume that such districts augment, or at least, protect property values for homes within these districts. The existing economic literature supports this conclusion, but most studies seem to fall victim to an endogeneity bias since higher value homes are, all else equal, more likely to be included in districts. This study uses repeat-sales fixed effects (difference-in-differences) analysis to look at homes before and after the creation of districts in the Boston-Cambridge-Quincy MSA between 2000 and 2007, and thus control for this endogeneity bias. Secondarily, we re-examine the effects of a Massachusetts preservation policy, the Community Preservation Act (CPA) which, in part, supports historic preservation. We find evidence that the creation of a local historic district, on average, reduces home prices for homes in that district between 11.6 and 15.5%. This indicates that any restrictions implied by the creation of a district outweigh any benefits to homeowners within the district. If, instead, census block fixed effects are employed, the analysis shows a statistically insignificant impact, the sign and magnitude of which depends on the specification. Taken together with the repeat sales result, this confirms our intuition about the importance of controlling for omitted variables and endogeneity biases. Finally, we find evidence that the CPA also lowers property values, by less than 1%, and that being in a Historic District magnifies the negative effect of the CPA.     

The external effects of bank executive pay: Liquidity creation and systemic risk

We develop a conceptual framework that links the compensation incentives of bank executives to the risk and return externalities generated by banks but borne by society. Using 1994 to 2016 data from large U.S. commercial banks, we find that CEO pay-performance incentives reduce both negative systemic risk externalities and positive liquidity creation externalities, while pay-risk incentives increase both externalities. Our findings offer support for Federal Reserve guidelines that encourage greater reliance on long-term equity-based compensation, and they infer a regulatory tradeoff: Bank executive pay rules aimed at reducing systemic risk will result in reduced system-wide liquidity creation as well.     

Does auditor designation by the regulatory authority improve audit quality? Evidence from Korea

In Korea, the regulatory authority designates external auditors for firms that are deemed to have strong incentives and/or great potential for opportunistic earnings management, and mandates these firms to replace their incumbent auditors with new designated auditors and to retain them for a certain period, typically one to three years. We call this regulatory regime ‘auditor designation’. This paper investigates whether the auditor designation rule in Korea is effective in deterring managers from making income-increasing earnings management. Consistent with our hypothesis, we find that the level of discretionary accruals is significantly lower for firms with designated auditors than firms with a free selection of auditors. We also find that firms with mandatory auditor changes (i.e., auditor designation) report significantly lower discretionary accruals compared to firms with voluntary auditor changes. The above findings are robust to a battery of robustness checks. Overall, our results are consistent with the notion that the auditor designation enhances audit quality and thus the credibility of financial reporting.     

Agglomeration,tax competition,and fiscal equalization

This paper analyzes the impact of fiscal equalization on asymmetric tax competition when positive agglomeration externalities are present. It uses a model focusing on the strategic reason for capital taxes to demonstrate that per capita fiscal capacity equalization improves the spatial allocation of capital provided a sufficiently rich (marginally) larger region and sufficiently strong agglomeration externalities. If tax revenue is used to finance public goods, per capita fiscal capacity equalization generally cannot simultaneously eliminate public good inefficiency and spatial inefficiency. However, the achievement of full efficiency for ex ante identical regions requires excessive (full) equalization in the presence (absence) of agglomeration externalities.     

An optimal auction with identity‐dependent externalities

We analyze the problem of a seller of multiple identical units of a good who faces a set of buyers with unit demands, private information, and identity‐dependent externalities. We derive the seller's optimal mechanism and characterize its main properties. We show that the probability that a buyer obtains a unit is an increasing function of the externalities he generates and enjoys. Also, the seller's allocation of the units of the good need not be ex post efficient. As an illustration, we apply the model to the problem faced by a developer of a shopping mall who wants to allocate and price its retail space among anchor and non‐anchor stores. We show that a commonly used sequential mechanism is not optimal unless externalities are large enough.     

Tourism, globalization, social externalities, and domestic welfare

One of the impacts of globalisation has been the growth in tourism and mobility of capital. This paper examines the welfare effect of tourism on the host economy with imperfect competition. Three channels that affects domestic welfare by tourism are: social externalities accompanied with tourists, the terms of trade effect via rises in the non-tradable prices, and the resource movement effect to the manufacturing sector. Owing to the positive terms-of-trade effect and/or the beneficial resource movement effect, the optimal levels of tourism occur at the situations that tourists bring negative social externalities to the economy.     

Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance

Fannie Mae and Freddie Mac are unique and controversial participants in the housing finance system of the United States. Because of these enterprises' federal government charters, the financial markets believe that the government would not allow Fannie and Freddie to fail to honor their debt obligations, and they are thereby able to borrow more cheaply in credit markets; in turn, they lower interest rates for residential mortgages. If the financial markets are right, however, Freddie and Fannie also create a contingent liability for the government. Though there are positive externalities from home ownership, the Fannie/Freddie route is far too broad and unfocused to address those externalities effectively. Privatization, accompanied by targeted federal assistance for potential first-time low- and moderate-income home buyers, would be a superior policy direction.     

Mergers and Acquisitions: An Experimental Analysis of Synergies, Externalities and Dynamics

Mergers and acquisitions improve market efficiency by capturing synergies between firms. But takeovers also impose externalities (both positive and negative) on the remaining firms in the industry. This paper describes a new equilibrium concept designed to explain and predict takeovers in this setting. We experimentally compare the new equilibrium concept to that of competing concepts in situations without and with externalities. Moreover, we examine the predicted dynamics of takeovers and outcome implications of those dynamics. Our experimental results support the predictions of the new equilibrium concept and provide implications for further empirical tests.     

Trading externalities and new equity issues in emerging markets

The volatility in emerging market finance over the last decade has highlighted the importance of developing equity exchanges to enhance risk sharing between international investors. Debt markets do not allow for as much risk sharing. Theoretically, stock market development involves trading externalities, as the decision by one firm to list provides a positive spillover for other firms considering an initial offering. This theory thus has a clear policy implication in terms of deliberate government action to promote stock market development. This paper tests empirically for the existence of trading externalities in developing countries, and finds evidence of such externalities for Latin American, but not Asian, stock markets.     

Forced Development and Urban Land Prices

This paper examines the distortions in property markets resulting from government actions to alleviate externalities associated with vacant lots. Using an equilibrium based real option model, the analysis indicates that announcement of a program of forced development may actually delay market-based development. By incorporating externalities associated with vacant lots into the model, the analysis indicates that owners of neighboring developed property benefit suggesting such programs will be politically popular.     

Compensation contracts and fire sales

This paper analyzes the impact of remuneration practices on banks’ risk-taking in a model with fire sales externalities. When these externalities are not internalized by a bank's shareholders and executives, borrowing and fire sales are higher than the socially optimal level. Our analysis shows that plain-vanilla equity fails to internalize fire sales externalities. Deferred equity and long-term bonuses unrelated to short-term profits can restore social efficiency. Bail-in bonds can achieve efficiency at a smaller cost since they allow for state-contingent payments. It is not the level but the composition of variable compensation that determines the inefficiency. Excessive regulation may lead to suboptimal levels of risk-taking. Government guarantees reinforce the fire sales externalities and the need for regulation.     

Convergence of accounting standards and financial reporting externality: evidence from mandatory IFRS adoption

Using mandatory adoption of International Financial Reporting Standards (IFRS) as a natural experiment, we examine whether reporting externalities can be magnified when financial disclosures are based on a common set of accounting standards. Specifically, we investigate and find that the changes in publicly available information of mandatory IFRS adopters (due to the convergence of accounting standards) can impact the investment efficiency of prior voluntary adopters. While we document positive externalities of mandatory IFRS, we also observe heterogeneity in these spillover effects at the firm and the country level, suggesting that externalities increase with improvements in the comparability of accounting information.     

Fiscal externalities and the design of intergovernmental grants

This paper describes the tax and expenditure externalities that can occur in a federation, focusing on the (relatively neglected) vertical tax and expenditure externalities which arise when state governments' tax and expenditure decisions affect the federal government's budget constraint and vice versa. Formulas are derived for matching grants which correct the distortions in governments' decision-making caused by fiscal externalities. With vertical tax externalities, the matching revenue grant may result in transfers from the state government to the federal government. With vertical expenditure externalities, the federal government should provide a matching expenditure grant equal to the additional federal revenue that is generated from an additional dollar spent by a state on productivityenhancing activities such as education.     

The assignment and division of the tax base in a system of hierarchical governments

Vertical externalities, changes in one level of government’s policies that affect the budget of another level of government, may lead to non-optimal government policies. These externalities are associated with tax bases that are shared or “co-occupied” by two levels of government. Here I consider whether co-occupancy of tax bases is desirable. I examine the optimal extent of the tax bases of a lower level of government (local) and a higher level (state). I find that it is optimal to have co-occupancy in the absence of other corrective policies if commodities in the tax bases are substitutes. Further, if the state government can differentially tax the co-occupied segment of the tax base and the segment it alone taxes it will obtain the (second-best) outcome obtained with other policy instruments such as intergovernmental grants.     

Regional Integration as Diplomacy

Regional integration agreements are examples of second-bestpolicies and have an ambiguous impact on welfare. This articlebuilds a model in which regional integration agreements unambiguouslyraise welfare by correcting for externalities. It assumes thattrade between neighboring countries raises trust between themand reduces the likelihood of conflict. The optimum interventionin that case is a subsidy on imports from the neighbor. Thearticle shows that an equivalent solution is for the neighboringcountries to tax imports from the rest of the world—thatis, to form a regional integration agreement—togetherwith some domestic taxes. The article shows that (1) the optimum tariffs on imports fromthe rest of the world are likely to decline over time; (2) deepintegration implies lower optimum external tariffs if it isexogenous; (3) optimum external tariffs are higher before deepintegration and lower thereafter if deep integration is endogenous;and (4) enlargement of bloc size (in terms of symmetric countries)has an ambiguous impact on external tariffs but raises welfare,and some form of domino effect exists.     

Private equity in the global economy: Evidence on industry spillovers

Using a novel dataset on global private equity investments in 19 industries across 52 countries, we find that labor productivity, employment, profitability, and capital expenditures increase for publicly-listed companies in the same country and industry as private equity investments. Our results show that positive externalities created by private equity firms are absorbed by other companies within the same industry. Consistent with prior literature on competitive spillovers, these effects are more pronounced in country-industries with higher levels of competition, stronger institutions, and moderate levels of technological development suggesting that the competitive pressures from private equity-backed firms cause industry peers to react.