Performance persistence of fixed income mutual funds

The “winner-winner, winner-loser, gone” methodology allows tests for short-term performance persistence for government and corporate fixed income mutual funds from 1990 to 1999. Persistence occurs when “winner” (loser) funds remain “winner” (loser) funds. If intermediate-term (long-term) bond returns are higher than long-term (intermediate-term) bond returns for successive years, the z-statistic is positive. Persistence is negative in the opposite case, and the pattern holds for longer lag periods. Statistical significance and consistency between the sign of persistence and bond returns indicates persistent returns on bond funds, but the nature of persistence is driven by changes in interest rates. The authors would like to acknowledge the research assistance of Michael Serra and Michael Wieczorek. This research was supported in part by the McDonough School of Business and the Capital Markets Research Center at Georgetown University.     

Urban housing with discrete structures

Competitive equilibrium in an urban housing model with structures that cannot be readily aggregated or subdivided is analyzed in this paper. The price and quantity of services forthcoming from each dwelling occupied by a household is determined by the equality of competitive supply and demand. A stack algorithm is then developed to ensure households are assigned to dwellings so that they would not prefer to live in any other dwelling with an equilibrium price less than the one they would pay if they lived there. Using the Urban Institute Housing Model as an example, the results of this algorithm are compared with those of the algorithm developed by de Leeuw and Struyk (D-S). The stack algorithm yields greater price discounting of existing dwellings below the price of a new dwelling than does the D-S algorithm and, thus, a greater potential for housing prices to be increased by a demand subsidy such as a housing allowance.     

The short‐term impact of Brexit

• A scenario run on the Oxford Global Model suggests that Brexit would leave the level of UK GDP 1.3ppt lower by Q2 2018 compared with our baseline forecast that the UK votes to stay in the EU. A vote to leave would mainly shock business confidence but consumers would be adversely affected too. Exporters in price‐sensitive sectors would benefit from a weaker exchange rate.
• Market pricing suggests that sterling could initially fall by around 15% before recovering some of its losses, while the heightened uncertainty would also be expected to drive a sharp drop in equity prices in H2 2016.
• Brexit would present something of a dilemma for policymakers. While a weaker pound would cause inflation to initially spike upwards, we would expect the MPC to look through this and cut Bank Rate in order to support activity. And with the UK likely to retain its reputation as a safe haven, this would also see gilt yields stay lower for longer.
• Weaker growth would also put the Chancellor in breach of the fiscal mandate, though we would expect him to plead extenuating circumstances, rather than tighten policy and potentially exacerbate the slowdown.

     

The pay-for-performance dilemma

To recapitulate briefly, I believe that the basis for most of the problems we have with merit pay plans is the fact that the great majority of people think their own job performance is above average. Even a well-administered merit pay plan cannot give positive feedback to this majority. The consequence is likely to be that the individual's self-esteem is threatened. Too often one copes with such a threat by demeaning the importance of the job or by derogating the source—that is, disparaging the boss or management in general.In addition, merit pay emphasizes the direct relationship between job performance and dollar rewards, thereby detracting from intrinsic motivation in the work itself. A system that would switch the emphasis to rewards for self-development and opportunities for greater responsibility would seem to serve both individual and organizational goals in a more effective manner.     

Over the cliff edge and on to the rocks below

• ? If Brexit negotiations were to break down, the UK would face a significant increase in trade disruption from March 2019, even if it were able to put some basic trading arrangements in place. In a scenario where key sectors face extra friction, we find that the level of UK GDP would be 2.0% – or £16bn in cash terms – lower at the end of 2020 compared with our baseline. The impact on the remaining EU countries, including Ireland, would be much smaller .
• ? This article focuses on what a cliff‐edge Brexit means for trade costs and prices. This is only part of the equation – such a scenario would also influence supply chains and migration, while there is also potential for policymakers to mitigate some of the negative effects via looser policy.
• ? The notion that the UK could simply walk away from Brexit negotiations and rely on WTO rules to trade with the world is deeply flawed. The UK would need to re‐establish more than 750 very complex international arrangements just to maintain the status quo. We expect only the most critical issues – such as air travel – to be resolved by March 2019. Exporters also face a substantial increase in non‐tariff barriers.
• ? A breakdown in talks would also see both sides levying tariffs on imports from each other from March 2019, raising the cost of importing UK goods into the EU by 3.5% and by 3.1% for goods imported into the UK from the EU. For the UK, this will apply to roughly 60% of its goods exports and imports, but for all EU countries except Ireland the share would be less than 10%.
• ? The additional trade frictions would knock around 1pp a year off UK GDP growth in 2019 and 2020, resulting in a period of very weak growth. And the risks to this scenario are skewed to the downside – a slump in confidence or failure to establish the necessary customs infrastructure in time could easily generate a worse outcome

     

Herbert Davenport on the Single Tax: A Second Look

A bstract . Despite a recent claim to the contrary, Herbert J. Davenport was firmly against the Henry George proposal to try to raise all public funds from a tax on land. This is evidenced by two papers he wrote on the subject. Davenport argued that the single tax on land would prompt the inefficient use of substitutes for land, that it would tend to destroy the base upon which the tax was levied, and that it would offend our sense of justice, or the equal treatment principle. The most important and effective of his arguments appears to be the first. It was, more specifically, that in the event of a land tax, individuals would economize on land. They would farm more intensively, they would construct higher buildings, and they would exploit potential underground living space. This paper describes Davenport's arguments and shows why they have been misinterpreted in the past as supporting Henry George's tax theory.     

Current production targets and strategic decisions by corporate managers

This article considers the potential role of current production targets in providing corporate managers with incentives for allocating their efforts toward operational and strategic decisions. Operational decisions relate to current production, while strategic decisions affect both current production and future profitability. A moral hazard exists to the extent that manager effort allocations are not observable. Of interest is the design of compensation contracts which efficiently resolve that hazard. Attention is mainly focused on distortions in current production away from targets which would be optimal if manager effort allocations were observable. The principal insight is that an increase in current production targets may, paradoxically, be motivated by a desire to induce a greater allocation of effort to strategic decisions.     

From Self-Interest Motives to Justice Motives: The Challenges of Some Experimental Results

A bstract .   This article begins by presenting experimental evidence that remains unexplained by standard and utility-extended economic models: experimental subjects tend to honor their promises even on occasions when an assessment of consequences asks them to defect; subjects voluntarily contribute to collective goods, and this contribution is highly conditional on others contributing as well; subjects evaluate and value the intentions behind actions as well as the consequences of actions. Arguments are sought for in moral philosophy that would more plainly explain the collected experimental evidence and that would help economists revise their explanatory frames. The hypothesis advanced is that the observed behavior may be interpreted as resulting from the moral strength of indignation and justice norms.     

Excludability, creativity and the case against the patent system

The patent system has many flaws. In its absence, there would probably be increased innovation if only because money spent on patents and lawsuits would be available for R&D. In any case, an inventor is to some extent protected by law provided he explains that an idea is his personal property. A patent adds nothing to the value of an impractical invention and little to one that might seem promising.     

Performance appraisal,employee development and organizational justice: exploring the linkages

Much has been written about performance appraisal (PA) in such a manner as to suggest that the process is politically driven, even though one of its primary purposes is said to be the development of the individual employee. Our examination of a cross-section of workers' perceptions of this process was therefore motivated by the need to determine whether they believed that they experienced fair outcomes from PA, and whether its usage was seen to contribute toward their career advancement.

Given the role unions are expected to play in shaping human resource outcomes, we hypothesized that workers in the non-union environment would experience lower levels of procedural and interactional justice than their trade-union counterparts. We also hypothesized that, since unions might be asked to walk a tightrope in contesting PA decisions affecting different persons who were union members, employers would be able to exercise much discretion in making those decisions, with the result that there would not be any appreciable difference in justice perceptions between union member and non-union member. A third hypothesis that informed the research was that workers' perceptions about the treatment received from performance appraisal were likely to influence their expectations regarding career advancement, as expressed through opportunities for training and development, pay for performance and promotions.

No significant differences in perception were found among union and non-union respondents' perceptions about the vast majority of procedural elements used in this study. Contrary to our hypothesis, non-union respondents expressed less unfavourable perceptions about the interactional elements than their trade-union counterparts. The results confirmed the hypothesis that workers who believed that performers were not treated fairly as a result of performance appraisal would also agree that their expectations regarding development and advancement were not being met. We found significant, but relatively moderate relationships between perceptions about treatment of performers and their expectations about career advancement.     

The demographic effects of income redistribution and accelerated economic growth revisited

The statistical basis of Winegarden's conclusions, i.e., that an egalitarian redistribution of incomes in a typical low-income country would cause a substantial increase in fertility, was examined in detail in that it casts doubt about the validity of all previous econometric studies based on international cross-sectional data. Winegarden's model is reproduced as are his findings. The reexamination of Winegarden's (1984) findings revealed 3 areas which suggest that his conclusions may require modification. In regard to family planning, Winegarden's results indicated that the introduction of a state-supported family planning program would cause a large decline in natality after about a decade. A much weaker relationship emerged when the fertility equation was recomputed using a more appropriate economic method. Further, the results were highly sensitive to changes in the threshold year used to classify countries with regard to family planning programs. It is argued that a qualitative index devised by Mauldin and Berelson (1978) provides a more reliable way to measure the effects of such programs than the binary variable Winegarden used. The use of this index fundamentally altered the findings regarding economic growth and income distribution. According to Winegarden's calculations, faster economic growth would have a pronatal impact in the more economically advanced nations yet help to reduce fertility for those countries in the early stages of development. In contrast, it was found that variations in the rate of economic growth had no discernible impact on natality. Winegarden's results suggested that an egalitarian redistribution of incomes would cause substantial increase in fertility in a typical low-income country, but it was found here that these distributional effects would be fairly modest over a wide range of incomes. Consequently, it appears that any concern about the demographic effects of greater equality in less-developed countries is not well-founded. The potential for reducing natality in the richer nations by means of income redistribution may be overstated by Winegarden's results.     

No-trade-deal Brexit would lower GDP by 1ppt by 2022

• ▀ A no-trade-deal Brexit would result in UK GDP being 1ppt lower than our baseline forecast at the end of 2022. Increased trade frictions and a negative reaction from financial markets would more than offset looser policy settings.
• ▀ Even if an FTA is agreed, trade between the UK and EU will be subject to new customs and regulatory trade barriers. If a trade deal is not agreed, tariffs will also be levied on UK-EU trade, while non-tariff barriers are likely to be higher.
• ▀ A no-trade-deal outcome would almost certainly see the BoE undertake further quantitative easing. A further, temporary, loosening of fiscal policy would also be likely, with higher government investment an obvious option.

     

Is literacy shared within households? Theory and evidence for Bangladesh

A member of a collective-action households may or may not share the benefits of literacy with others in that household; the shared gains from doing so may well be offset by a shift in the balance of power within the family. Using household survey data for Bangladesh, we find strong external effects of education on individual earnings. Holding a range of personal attributes constant, an illiterate adult earns significantly more in the non-farm economy when living in a family with at least one literate member. These effects are strongest, and most robust, for women. Omitted-variable bias cannot be ruled out but would also be consistent with an intra-household externality of literacy.     

Tiebout choice and residential segregation by race in US metropolitan areas, 1980–2000

This article examines the link between local government fragmentation, or “Tiebout choice,” and segregation between black and white residents. As suggested by Tiebout [Tiebout, C., 1956. A pure theory of local public expenditures. Journal of Political Economy 64, 416–424.], fragmented local governance structures may encourage households to vote with their feet and sort into communities based on their willingness to pay for local public services. This outcome has been well documented. The nuance explored here is that, if the demand for local public services varies by race or if households have preferences for neighbors with specific racial characteristics, local government fragmentation may foster an increase in residential segregation by race across neighborhoods and jurisdictions. Results from metropolitan-level regressions suggest that increased Tiebout choice is associated with increases in black–white residential segregation within US metropolitan areas. Comparable results are obtained from household-level estimates, where the black racial composition of a household's census tract of residence is regressed on household-level controls and racially stratified measures of Tiebout choice. Results from both approaches suggest that a 10% increase in Tiebout choice would increase neighborhood segregation by no more than 1%, while segregation across jurisdictions would increase by between 4% and 7%.     

Inducing Employees to Leave: A Comparison of Four Severance Options

This study examines the demographic, economic, and psychographic characteristics of 324 blue‐collar workers who were offered four options for either retirement or severance from the organization. Consistent with previous research, individuals who accepted retirement options have more organizational tenure and believed that the packages would provide stable financial futures. A key finding for those who accepted the nonretirement options is that comparable employment would be available. The study concludes with research limitations and suggestions for future research.     

An efficient binomial method for pricing¶American options

We present a new method for obtaining fast and accurate estimates of the price of an American put option by binomial trees. The method is based on the interpolation of suitable values obtained by modifying the contractual strike. A time-saving procedure allows us to derive all the interpolating data from a unique standard backward procedure. Received: 16 July 2001 / Accepted: 19 April 2002 {The authors would like to thank an anonymous referee for helpful comments. We also thank Antonino Zanette for his help in the refinements of the numerical procedures.     

Free expression in the workplace: Does the public-private distinction matter?

This article presents an argument for a judicial approach to ward employee free speech cases that would afford private sector employees substantially greater free speech protection. The argument proceeds first by examining a recent case,Novosel v. Nationwide Insurance Company, which if followed widely as precedent would make the public-private distinction much less important in employee free speech cases. This examination results in a strong endorsement of theNovosel decision. A clear statement of the reasons for the endorsement, however, takes one far beyond the opinion of the court into an analysis of the conditions under which courts may rely upon public policy as a basis for decision.     

Business Size Composition and Management Training Needs of Countries in the Eastern Caribbean

A bstract . Size composition of Eastern Caribbean businesses was found to be bimodal. Very few businesses employed 10 to 50 people, most had either a larger or a smaller number. This unexpected result emerged from a survey to determine management training needs in the region. The survey included 134 face-to-face interviews with business people. Respondents gave several possible explanations for this unusual pattern; among those mentioned were historical factors, barriers to entry, and to access to credit; racial stereotypes , and status perceptions. Respondents described the microbusiness sector and types of management training and of education that would stimulate the growth of micro businesses in contrast to training that would improve performance at larger companies. Respondents felt that restructuring the business sector of each economy, in terms of product mix as well as size composition, would help stimulate economic growth in the region.