ENDING WELFARE AS WE KNOW IT: A MODEST PROPOSAL

Government welfare schemes are based on a false premise, the belief that forcible redistribution can be moral if the cause is just. People forget that whatever resources government has, it first had to take from someone. Government welfare schemes violate property rights and destroy incentives. There is no way to reform such a system simply. The only just system is one of voluntary charity. The government system, which relies on force, must be abolished and replaced by private charity.     

What’s trade got to do with it? Relative demand for skills within Swedish manufacturing

What’s Trade Got to Do with It? Relative Demand for Skills within Swedish Manufacturing. — This paper seeks to identify the contribution of trade and technological change to the increase in inequality between skilled and unskilled workers in Sweden since the 1970s. An empirical approach is adopted which allows for the outsourcing of the low-skill parts of the production chain to low-wage locations and is applied to detailed industry and bilateral trade data, the latter distinguishing between low-wage sources of imports and OECD countries. The paper finds that, in contrast to previous studies, trade with low-wage countries may have contributed to the rise in inequality in Swedish manufacturing. The empirical results also suggest that the increased use of technology also played a role in creating greater inequality between skilled and unskilled workers in Sweden, with the magnitude of this impact increasing in the 1990s.     

A LIKELIHOOD RATIO TEST OF THE ZERO-BETA CAPM IN AUSTRALIAN EQUITY RETURNS

This paper tests the zero-beta CAPM with Australian equity returns, using the multivariate approach developed by Gibbons (1982). For the period 1958 to 1987, based on its asymptotic distribution, the likelihood ratio test (LRT) statistic indicates a strong rejection of the model when an equally weighted market index is used. However, small sample adjustments to the test suggested by Jobson and Korkie (1982) and by Shanken (1985) place the validity of this conclusion in some doubt. When a value weighted market index is used for the period 1974 to 1987, the tests reveal at least moderate support for the zero-beta CAPM.     

Is television advertising being placed to reach product users?

Several textbooks, journal articles, and advertising practitioners indicate that the advertising for many products should be directed toward the heavy users of the product category. Other works suggest that advertising should be directed at current users of a brand to retain them or to users of competitive brands in an effort to attract them. The purpose of this article is to compare these directions for how advertising should be placed with data showing how advertising is being placed. The comparison is made using supermarket scanner panel data and household advertising exposure data. Examples are also provided to indicate the extent to which advertising could be targeted to heavy users of the product category and users of a brand, given the actual viewing and consumption patterns. Several implications for the placement of advertising are discussed.     

Default risk and equity returns: Australian evidence

We test whether default risk is related to equity returns using the Fama and MacBeth [Fama, E.F., MacBeth, J., 1973. Risk, return, and equilibrium: empirical tests. Journal of Political Economy 81, 607–636.] regression framework. The proxy we use for default risk is the default probability obtained from option-based models. Our findings show that default probability is negatively related to returns. While we find that size and book-to-market are related to default risk, the ability of these variables to explain cross-sectional variation in returns is not because they are proxying default risk. Further, our evidence suggests that the negative relationship between default probability and returns is not due to a leverage, volatility or momentum effect.     

Measuring Investment Distortions when Risk-Averse Managers Decide Whether to Undertake Risky Projects

We create a dynamic model in which a self-interested, risk-averse manager makes corporate investment decisions at a levered firm with characteristics typical of public US firms. We examine the magnitude of distortions in those decisions when a new project changes firm risk and find expected changes in the values of future tax shields and bankruptcy costs to be important factors. We evaluate the extent to which these distortions vary with firm leverage, debt duration, project size, managerial risk aversion, managerial non-firm wealth, and the structure of management compensation packages     

On Input and Output Translation Homotheticity

This note determines necessary and sufficient conditions for a production technology to exhibit both input translation homotheticity and output translation homotheticity without invoking joint efficiency.     

The wealthy world

John Edmunds. 2001. The Wealthy World: The Growth and Implications of Global Prosperity. New York: Wiley. 108 pages.