The Economic Logic for Conditioning Bell Entry into Long Distance on the Prior Opening of Local Markets

One of the most important and most contentious issues for regulation and competition raised by the 1996 Telecommunications Act is when to authorize the regional Bell companies to offer long-distance services. The Department of Justice (DOJ) adopted a standard requiring that a Bells local market must first be irreversibly open to competition. This paper analyzes the competitive benefits and costs of authorizing Bell entry, explains the DOJs standard, and argues that the incentives created by this standard will help achieve the Acts competitive goals more efficiently and rapidly than other standards, ultimately reducing the need for intrusive regulation.     

Entry and barriers to entry in emerging markets

This note briefly introduces the symposium on entry and entry barriers in emerging markets edited by Nauro Campos and Saul Estrin. The symposium contains four inter-related case studies focusing in depth on the relationship between entry of new firms and institutional arrangements in four major emerging markets: Brazil, China, India and Russia. We find that entry rates are not necessarily low in emerging markets, and that institutional quality is a complex and “fuzzy” notion so that its impact on the entry process is not straightforward.     

FROM THE WAR ON POVERTY TO WELFARE REFORM: HOW THE AMERICAN UNDERSTANDING OF THE CAUSES OF POVERTY CHANGED

The American understanding of the causes of poverty has changed significantly since the War on Poverty was launched in 1964. It was then commonly believed that jobs were unavailable to the poor and that poverty should be reduced by doles. Today most observers contend that jobs are available for the poor, and that poverty stems from self-defeating behaviours that doles exacerbate.     

A Prescription for Monetary Policy in the Bush Administration

How should the Federal Reserve conduct monetary policy for stable growth and low inflation? Professor Anna Schwartz of the National Bureau of Economic Research in New York, argues that the American central bank should steadily reduce the rate of monetary growth.     

It’s all about audit quality: Perspectives on strategic-systems auditing

We discuss the antecedents of and rationale for what has become known as Strategic-Systems Auditing (SSA). We also describe the conceptual foundation and key elements of SSA. We observe that the auditor employing SSA conceives the audit as a process of evidence-driven, belief-based, risk assessment. We also illustrate facets of this process, including how the auditor, by acquiring a rich understanding of how and how well management is executing its business-model, develops rich (e.g., distributional) expectations of future financial-statement amounts and disclosures. These expectations form a benchmark against which the auditor later compares and investigates management’s asserted financial-statement amounts and disclosures. Finally, we pose and respond to some of the more common questions about elements of SSA and complete the paper by suggesting some educational innovations and high-value targets for research.One salient message is that SSA first emerged in the 1990s as an attempt to enhance audit quality in response to changes in the audit environment. Another salient message is that SSA continues to equilibrate, adapting to more recent environmental changes, especially society’s demand for greater protection from financial-statement fraud. Such adaptation requires ongoing, significant intellectual investments by audit practitioners and audit scholars/educators.     

An analysis of the economic justification for consolidation in a secondary security market

This paper considers whether all trading in a listed security should be required to go through an exchange. To this end, the incentives for a brokerage firm to offer in-house execution services are discussed, and an analytical framework is developed which shows that, under idealized conditions, fragmentation of the market through in-house execution services would not result in any overall deterioration of market performance characteristics. However, when some of the idealized conditions are relaxed, the market fragmentation arising from in-house execution causes the gains to some customers to be more than overcome by the losses to others. The analysis, which also takes account of the desirability of enforcing reasonable trading priority rules (such as priority by price and time) across all traders, yields several public policy implications. For some unlikely scenarios, it would be possible, through appropriate commission sharing and a perfectly operating intermarket trading system, for optimal overall market performance to be consistent with the market fragmentation inherent in in-house execution services. However, for most realistic scenarios, fragmentation would cause a deterioration in the quality of the market. Thus it seems desirable to require that all trading go through a central exchange with a consolidated limit order book.     

Can you standardize international marketing strategy?

The intent of this paper is to examine the possibilities for standardization of marketing elements within a multinational marketing strategy. A majority view among international marketers is that each national is unique, and thus each must be treated as a separate and independent operation. This “localized” strategy view is examined first. A growing number of international marketers however, are finding that by standardizing various elements oftheir marketing strategy across national borders, cost savings and/or increased revenues to be realized can yield greater profits. The second, and major, part of the paper examines the opportunities for and potential benefits of standardization of product, packaging, advertisting, and pricing.     

The impact of designated market makers on security prices

This paper is divided into two distinct parts. Part I, Empirical Evidence, tests a previously formulated variance, thinness relationship for security returns. First quarter 1972 daily returns variance is regressed on market value of shares, share price, trading activity, sales variance, and institutional holdings for 178 firms selected by stratified random sampling from AMEX and NYSE (specialist exchanges), and from Tokyo and Rio de Janeiro (non-specialist exchanges). The principal finding is that returns variance and market value are inversely related on non-specialist exchanges, but not on specialist exchanges; this difference is attributed to specialists' impact. Part II, Policy Proposals, discusses the manner in which designated market makers may be effectively incorporated into a continuous auction exchange. Issues discussed include: desirability of price stabilization, transfers implicit in the existing U.S. specialist system, consolidation and public availability of the limit order book, number of designated market makers for a security, competitive bidding, and compensation for performing the price stabilization function. Stabilization is modeled as an external economy, and specific policy proposals for internalizing it are advanced.