SENIORITY SEATING AT THE ROYAL OPERA HOUSE

This paper examines lotteries and seniority queues as formsof commodity bundling price discrimination. There are good andbad seats, and two types of potential purchasers. Offered thechoice of a high-priced good seat and a moderately-priced bundleof good and bad seats, cutomers self-select into high and lowvaluation types. For single period purchases, the bundle isa lottery over good and bad seats. For repeated purchases, monopolistssuch as the Royal Opera House can do better by setting up aseniority allocation system.     

Growth and Public Debt: What Are the Relevant Trade‐Offs?

The interplay between growth and public debt is addressed considering a Barro‐type (1990) endogenous growth model where public spendings are financed through taxes on income and public debt. The government has a target level of public debt relative to GDP, and the long‐run debt‐to‐GDP ratio is used as a policy parameter. We show that when debt is a large enough proportion of GDP, two distinct balanced‐growth paths (BGPs) may coexist, one being indeterminate. We exhibit two types of important trade‐offs associated with self‐fulfilling expectations. First, we show that the lowest BGP is always decreasing with respect to the debt‐to‐GDP ratio while the highest one is increasing. Second, we show that the highest BGP, which provides the highest welfare, is always locally indeterminate while the lowest is always locally determinate. Therefore, local and global indeterminacy may arise and self‐fulfilling expectations appear as a crucial ingredient to understand the impact of debt on growth, welfare, and macroeconomic fluctuations. Finally, a simple calibration exercise allows to provide an understanding of the recent experiences of many OECD countries.     

Insights into University Freshman Weight Issues and How They Make Decisions About Eating

The transition from high school to college represents a life turning point during which health behavior paths may be influenced. This study addresses the internal and external factors that guide students' eating decisions as they are understood and relayed by students through qualitative methods. A sample of 102 second semester college freshmen participated in a two‐week data collection period. Results show that many students are caught in a negative cycle of food choices with notable social and environmental determinants impacting both their physical and emotional health.     

Detection Avoidance and Deterrence: Some Paradoxical Arithmetic

This paper extends Malik's analysis to the case where criminals' avoidance efforts and public expenditures in the detection of criminals are strategic complements in the aggregate technology of control of illegal behaviors. In this set up, we show that whenever criminals' avoidance efforts are more sensitive to the frequency than to the severity of sanctions, it is always socially efficient to set the fine at the maximal possible level. However, several paradoxical consequences occur: there may exist overdeterrence at optimum; more repressive policies lead to fewer arrests of offenders while more crimes may be committed; at the same time, the society may be closer to the first best number of crimes.     

A Political Agency Theory of Central Bank Independence

We propose a simple theory to explain why, and under what circumstances, a politician delegates policy tasks to a technocrat in an independent institution and then analyze under what conditions delegation is optimal for society. Our theory builds on Holmström's (1982, 1999) “hidden effort” principal–agent model. The election pressures that politicians face, and the absence of such pressures for technocrats, give rise to a dynamic incentive structure that formalizes two rationales for delegation, one highlighted by Hamilton (1788) and the other by Blinder (1998) . Delegation trades off the cost of having a possibly incompetent technocrat with a long‐term job contract against the benefit of having a technocrat who (i) invests more effort into the specialized policy task and (ii) is better insulated from the whims of public opinion. A natural application of our framework suggests a new theory of central bank independence.     

The Difference between Earnings and Operating Cash Flow as an Indicator of Financial Reporting Fraud*

This paper examines the relation between earnings and operating cash flow to derive and test an indicator of financial statement fraud. Accrual measurement concepts indicate that financial statement fraud should be associated with high levels of earnings relative to operating cash flow. We demonstrate that the excess of earnings over operating cash flow is extreme in most fraud cases in years immediately prior to the fraud discovery based on a sample of 56 fraud cases from 1978 to 1991. We compare the distribution of the earnings minus operating cash flow variable for fraud firms with that for a sample of 60,453 firm-years for firms listed on COMPUSTAT. We test a logistic regression model in which the discovery/nondiscovery of fraud is the dependent variable, and earnings minus operating cash flow is the explanatory variable. Other control variables are included in the model based on prior studies. Results are consistent with expectations derived from accrual measurement theory. We then examine the predictive ability of the model using our sample of fraud firms and a sample of nonfraud firms in the same four-digit SIC code industries. Observations for the fraud firms are for the fiscal year prior to the discovery of fraud. Observations for the nonfraud firms are for the same fiscal years as the fraud firms in the same industries. The predictive ability of the model, including the excess of earnings over operating cash flow, is substantially higher than the predictive ability of the model omitting this variable. We conclude that the earnings-operating cash flow relation provides important information for those interested in identifying financial statement fraud, especially when considered in conjunction with other factors associated with fraud risk.