Growth versus Margins: Destabilizing Consequences of Giving the Stock Market What It Wants

We develop a model in which a firm can devote effort either to increasing sales growth, or to improving per-unit profit margins. If the firm's manager cares about the current stock price, she will favor the growth strategy when the market pays more attention to growth numbers. Conversely, it can be rational for the market to weight growth measures more heavily when it is known that the firm is following a growth strategy. This two-way feedback between firms' strategies and the market's pricing rule can lead to excess volatility in real variables, even absent any external shocks.     

Innovative Work Practices,Information Technologies,and Working Conditions: Evidence for France

We investigate the impact of new work practices and information and communication technologies (ICT) on working conditions in France. We use a unique French dataset providing information on individual workers for the year 1998. New work practices include the use of quality norms, job rotation, collective discussions on work organization, and work time flexibility. Working conditions are captured by occupational injuries as well as indicators of mental strain. We find that individuals working under the new practices face greater mental strain than individuals who do not. They also face a higher probability of work injuries, at least for benign ones. In contrast, our results suggest that ICT contribute to make the workplace more cooperative and to reduce occupational risks and injuries.     

Heterogeneity Gap in Stable Jurisdiction Structures

This paper examines a model of multijurisdiction formation where individuals' characteristics are uniformly distributed over a finite interval. Every jurisdiction locates a public facility and distributes its cost equally among the residents. We consider the notions of Nash and local Nash stability, and examine the existence and characterization of stable partitions. The main feature of this analysis is that, even under the uniform distribution, there are stable structures that exhibit a high degree of heterogeneity of jurisdictional sizes.     

Predicting Volatility in the Foreign Exchange Market

Measures of volatility implied in option prices are widely believed to be the best available volatility forecasts. In this article, we examine the information content and predictive power of implied standard deviations (ISDs) derived from Chicago Mercantile Exchange options on foreign currency futures. The article finds that statistical time-series models, even when given the advantage of “ex post” parameter estimates, are outperformed by ISDs. ISDs, however, also appear to be biased volatility forecasts. Using simulations to investigate the robustness of these results, the article finds that measurement errors and statistical problems can substantially distort inferences. Even accounting for these, however, ISDs appear to be too variable relative to future volatility.     

Exchange Rates and Monetary Policy Uncertainty

We document that a trading strategy that is short the U.S. dollar and long other currencies exhibits significantly larger excess returns on days with scheduled Federal Open Market Committee (FOMC) announcements. We show that these excess returns (i) are higher for currencies with higher interest rate differentials vis‐à‐vis the United States, (ii) increase with uncertainty about monetary policy, and (iii) increase further when the Federal Reserve adopts a policy of monetary easing. We interpret these excess returns as compensation for monetary policy uncertainty within a parsimonious model of constrained financiers who intermediate global demand for currencies.     

Ecological Intuition versus Economic “Reason”

This paper discusses the discount rate to be used in projects aimed at preserving the environment. The model has two different goods: one is the usual consumption good whose production may increase exponentially, and the other is an environmental good whose quality remains limited. The stylized world we describe is fully determined by four parameters, reflecting basic preferences, “ecological” and intergenerational concerns, and feasibility constraints. We define an ecological discount rate and examine its connections with the usual interest rate and the optimized growth rate. We discuss, in this simple world, different forms of the precautionary principle.     

Resource Use under Climate Stabilization: Can Nuclear Power Provide Clean Energy?

The long‐term goal of the Intergovernmental Panel on Climate Change (IPCC) is the stabilization of carbon concentration in the atmosphere. In this paper, we impose a carbon target concentration on a partial equilibrium model of the global energy sector. Specifically, we ask whether nuclear power can provide carbon‐free energy as fossil fuel resources become costly due to scarcity and externality costs. We find that nuclear power can reduce the cost of generating clean energy significantly and relatively quickly. However, beyond a few decades the role of nuclear power may be considerably reduced as uranium becomes scarce and renewables become economical. The cost of carbon when nuclear power supplies a significant share of energy is much lower than that of other studies. A policy implication is that current political and regulatory impediments to the expansion of nuclear generation may prove to be costly if large volumes of clean energy need to be supplied over a relatively short period of time.