The Effect of Better Information on Income Inequality

We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is modelled by a distribution of innate ability across agents. This distribution is common knowledge but, at young age, no agent knows his/her ability. The production of human capital depends on each individual’s investment in education. This investment decision is taken only after observing a signal which is correlated to his/her true ability, and which is used for updating beliefs. Thus, a better information system affects the distribution of human capital in each generation. Assuming separable and identical preferences for all individuals, we derive the following results in equilibrium: (a) If the relative measure of risk aversion is less (more) than 1 then more information raises (reduces) income inequality. (b) When a risk sharing market is available better information results in higher inequality regardless of the measure risk aversion. We are grateful to Alex Cukierman, Zvi Eckstein, Yona Rubinstein and Daniel Tsiddon. An anonymous referee made extremely useful comments and suggestions. Financial support from the German-Israeli Foundation for Scientific Research and Development (GIF) is gratefully acknowledged.     

A POSSIBLE RECONCILIATION OF SOME OF THE CONFLICTING FINDINGS ON CLOSED-END FUND DISCOUNTS: A NOTE

The most obvious explanation for the closed-end fund puzzle, the existence of managerial contribution (i.e., managerial performance less managerial fees), has been called into disrepute because of the inability of researchers to consistently document a negative relationship between such benefits and discounts. We present a model which shows that it is possible to account for some of the stylized facts without abandoning market efficiency and rationality. It is suggested that when one takes into consideration the impact of managerial contribution on the probability of open-ending, a negative relationship between managerial contribution and discounts actually may result.     

The Effect of Trading Halts on the Speed of Price Discovery

Trading halts are aimed at reducing information asymmetry by granting investors the opportunity to reassess trades upon arrival of new, substantial information. This study is the first to address the efficiency of the price discovery process with respect to time, i.e., the speed of adjustment to new information. A unique database allow us to conduct an event study analysis and measure the impact of trading halts on price discovery while controlling for content, operational and value effects. We find that information dissemination following trading halts is over 40% faster and that abnormal trading activity is positively related to the speed of price adjustment.     

Utility in Case-Based Decision Theory

This paper provides two axiomatic derivations of a case-based decision rule. Each axiomatization shows that, if preference orders over available acts in various contexts satisfy certain consistency requirements, then these orders can be numerically represented by maximization of a similarity-weighted utility function. In each axiomatization, both the similarity function and the utility function are simultaneously derived from preferences, and the axiomatic derivation also suggests a way to elicit these theoretical concepts from in-principle observable preferences. The two axiomatizations differ in the type of decisions that they assume as data. Journal of Economic Literature Classification Number: D80.     

Saving behavior in stationary equilibrium with random discounting

Summary. We study the implications of random discount rates of future generations for saving behavior and capital holdings in a steady state competitive equilibrium with heterogeneous population. A well-known difficulty in deterministic economies with heterogeneous households is that in steady state only the most patient households hold capital. In this paper we state conditions under which this random discounting is sufficient for households other than the most patient ones to save. We thus provide a simple and natural way of overcoming the aforementioned difficulty. Received: December 28, 1998; revised version: May 19, 1999     

The meaning of work,employment relations,and strategic human resources management in Israel

The paper deals with the meaning of work, employment relations, and strategic human resources management. First it shows that Israeli workers have become more individualistic and materialistic, and less collectively oriented, as instrumental achievements outweigh contributions to society. These issues apparently influence employment relations and organizational policies. Next, it deals with the corporatist employment relations system, based on tri-partite collective bargaining among employees, employers, and the state. During various times, the relative balance of power among the three parties swayed considerably, according to major political, economic and social events taking place in society. The final section on strategic human resources management focuses on the transition of Israel's Human Resources profession, from the traditional HR role to the new Strategic Human Resource Management role. These three spheres have gone through some significant changes in the last several decades, perhaps not parallel to most industrial nations.