Recognition v. Disclosure, Auditor Tolerance for Misstatement, and the Reliability of Stock-Compensation and Lease Information

We examine whether information in footnotes might lack reliability because auditors permit more misstatement in disclosed, as opposed to recognized, amounts. In both the stock‐compensation and lease settings, audit partners require greater correction of misstatements in recognized amounts than in the equivalent disclosed amounts. Debriefing questions indicate that the partners make these decisions knowingly, even though they expect greater client resistance to correcting recognized amounts, because they view recognized amounts as more material. Partners also spend more time on correction decisions for recognized information. While prior literature suggests that amounts are often relegated to footnotes because they are less reliable, our results suggest that the actual choice to disclose versus recognize can also reduce information reliability. These results have implications for the interpretation of prior research on the reliability of recognized and disclosed numbers, for financial‐accounting standard setters who may want to consider the reliability effects of their recognition versus disclosure decisions, and for auditing standard setters who may wish to clarify auditors' responsibilities for preventing misstatements in disclosed amounts.     

PHOTOVOLTAIC TECHNOLOGY AND MARKETS

Photovoltaics—"solar power"—retains a strong fascination as a future sustainable energy source for the planet some 120 years after its discovery, 80 years after Einstein explained its physics, 30 years after the first laboratory device was produced, and 25 years after its first commercial application. This paper examines the market for photovoltaics at prices above those required for competitive bulk grid-connected wholesale electricity, surveys current and possible future manufacturing technologies, describes the processes of technology introduction and manufacturing cost reduction, and discusses policy implications.     

Why Has U.S. Inflation Become Harder to Forecast?

We examine whether the U.S. rate of price inflation has become harder to forecast and, to the extent that it has, what changes in the inflation process have made it so. The main finding is that the univariate inflation process is well described by an unobserved component trend-cycle model with stochastic volatility or, equivalently, an integrated moving average process with time-varying parameters. This model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well.     

Baking for the common good: a reassessment of the assize of bread in Medieval England1

This article reassesses the structure of the assize of bread and its relevance for bakers and consumers in late medieval England. It has long been thought that the laws governing the manufacture and sale of bread, although adhering to a logical relationship between weight and price, were nevertheless ill‐considered in formulation, calculation, and enactment and did not, in reality, provide the stable allowance recommended for bakers. By examining the economic and moral ideology underlying the assize of bread it is possible to demonstrate that legislators were actually employing a rationale that best fitted contemporary circumstances and retail practices. There nevertheless remained one fundamental flaw in its construction, which was to have implications for its enforcement.     

The Internet and Civil Society: Environmental and Labour Organizations in Hong Kong

To what extent has the internet strengthened civil society? In which ways have civil society organizations (CSOs) used the internet to communicate their missions, enhance the discussion of public issues, extend networks and mobilize collective actions? This article seeks to answer these and related questions by reporting on an empirical study in Hong Kong. The study involves an analysis of the web pages launched by 14 environmental groups and 22 labour organizations on the one hand, and in‐depth interviews with representatives of five of these organizations on the other. Due to the lack of resources and low level of e‐readiness among most CSOs, as well as the prevalence of a parochial outlook among most labour organizations, the new technology has only found limited application in Hong Kong. At the same time, due to a top‐down management orientation, the leaders of these CSOs have been more inclined to use the technology to communicate with each other than to build networks with rank‐and‐file members and supporters. Nonetheless, the findings of this study suggest that the technology has much potential for pluralizing public discourse, involving more people in rational‐critical discussion of key public issues, as well as enhancing the capacity of existing CSOs to develop a sense of community and get mobilized. The technology also facilitates the emergence of novel types of collective action and as such taps into resources that are otherwise unavailable. In addition, the new technology makes it possible for individual activists to seek each other out, further cultivate their sense of community and launch collective actions on issues ignored by existing CSOs. Finally, it is through the synergy of online/offline discourses and activities that the internet exerts much of its positive impact on the expansion of civil society. Dans quelle mesure internet a‐t‐il renforcé la société civile? Comment les organisations de la société civile (OSC) ont‐elles utilisé internet pour annoncer leurs missions, améliorer le débat sur les questions publiques, prolonger les réseaux et mobiliser des actions collectives? Pour répondre à ces questions et à d’autres, l’article rend compte d’une étude empirique sur Hong‐Kong. Celle‐ci couvre, d’une part, l’analyse de pages Web créées par 14 groupes environnementaux et 22 organisations syndicales et, d’autre part, des entretiens approfondis avec des représentants de cinq de ces entités. La pénurie de ressources et le faible niveau de maturité en nouvelles technologies au sein de la plupart des OSC, ainsi que la vision étriquée de la plupart des organismes syndicaux, ont conduit à des applications limitées de ces technologies à Hong‐Kong. Parallèlement, à cause d’un fonctionnement hiérarchisé, les dirigeants de ces OSC ont eu davantage tendance à recourir à la technologie pour communiquer entre eux que pour bâtir des réseaux avec des membres de base et des partisans. Néanmoins, d’après l’étude, la technologie peut permettre de diversifier le discours public en impliquant davantage de personnes pour débattre de manière rationnelle et critique des problèmes publics essentiels et en renforçant la capacité des OSC existantes à développer un sens communautaire et à mobiliser. De plus, la technologie facilite l’apparition de nouveaux types d’action collective, puisant ainsi dans des ressources par ailleurs inaccessibles. En outre, la nouvelle technologie permet aux militants de s’adresser les uns aux autres, de nourrir leur sens communautaire et de lancer des actions communes sur des aspects délaissés par les OSC existantes. Pour finir, c’est grâce à la synergie des activités et discours en ligne et classiques qu’internet exerce une grande part de son impact positif sur l’essor de la société civile.     

The Determinants of Firm Profitability in Australian Manufacturing

This study provides new evidence on the determinants of the profitability of Australian manufacturing firms by analyzing a unique firm-level data set of firm performance over the period 1984-93. The panel nature of the data permits the estimation of dynamic profitability models over the business cycle, to test both the persistence and cyclicality of firm profitability. Econometric results suggest that lagged profitability is a significant determinant of current profit margins, and that industry concentration is positively related to firm profit margins. Also, profit margins are found to be procyciical in concentrated industries but counter-cyclical in less concentrated industries.     

Book Reviews

Books reviewed:
Christopher A. Conte, Highland Sanctuary: Environmental History in Tanzania's Usambara Mountains .
Alfredo Saad-Filho and Deborah Johnston (eds.), Neoliberalism: A Critical Reader .
Stephen J. Russell, Agriculture, Prosperity and Modernization of French Rural Communities, 1870–1914. Views from the Village .
David Mosse, Cultivating Development: An Ethnography of Aid Policy and Practice .
Kees Jansen and Sietze Vellema (eds), Agribusiness and Society: Corporate Responses to Environmentalism, Market Opportunities and Public Regulation .
Gareth Austin, Labour, Land and Capital in Ghana: From Slavery to Free Labour in Asante, 1807–1956 .     

Rediscounting under Aggregate Risk with Moral Hazard

Freeman (1999) proposes a model in which discount window lending and open‐market operations have different effects. This is important because in most of the literature these policies are indistinguishable. However, Freeman's argument that the central bank should absorb losses associated with default to provide risk sharing stands in stark contrast to the concern that central banks should limit their exposure to credit risk. We extend Freeman's model by introducing moral hazard. With moral hazard, the central bank should avoid absorbing losses and Freeman's argument breaks down. However, we show that policies resembling discount window lending and open‐market operations can still be distinguished in this new framework. The optimal policy is for the central bank to make a restricted number of creditors compete for funds. By restricting the number of agents, the central bank can limit the moral hazard problem. By making them compete with each other, the central bank can exploit market information that reveals the state of the economy.