Real Estate Prices and Corporate Investment: Theory and Evidence of Heterogeneous Effects across Firms

In this paper, we investigate the effect of real estate prices on productive investment. We build a theoretical framework of firms' investment with credit rationing and real estate collateral. We show that real estate prices affect firms' borrowing capacities through two channels. An increase in real estate prices raises the value of the firms' pledgeable assets and mitigates the agency problem characterizing the creditor–entrepreneur relationship. It simultaneously cuts the expected profit due to the increase in the cost of inputs. We test our theoretical predictions using a large French database. We do find heterogeneous effects of real estate prices on productive investment depending on the position of the firms in the sectoral distributions of real estate holdings.     

A Remark on Color‐Blind Affirmative Action

Faced with legal challenges to explicitly race‐contingent admissions policies, elite educational institutions have turned to criteria that meet diversity goals without being formally contingent on applicant identity. We establish that under weak conditions that apply generically, such color‐blind affirmative action policies must be nonmonotone, in the sense that within each social group, some students with lower scores are admitted while others with higher scores are denied. In addition, we argue that blind rules can generate greater disparities in mean scores across groups conditional on acceptance than would arise if explicitly race‐contingent policies were permitted.     

DEMOGRAPHIC DEMAND SYSTEMS WITH APPLICATION TO EQUIVALENCE SCALES ESTIMATION AND INEQUALITY ANALYSIS: THE AUSTRALIAN EVIDENCE

This paper proposes and applies an alternative demographic procedure for extending a demand system to allow for the effect of household size and composition changes, along with price changes, on expenditure allocation. The demographic procedure is applied to two recent demand functional forms to obtain their estimable demographic extensions. The estimation on pooled time series of Australian Household Expenditure Surveys yields sensible and robust estimates of the equivalence scale, and of its variation with relative prices. Further evidence on the usefulness of this procedure is provided by using it to evaluate the nature and magnitude of the inequality bias of relative price changes in Australia over a period from the late 1980s to the early part of the new millennium.     

Market and Political/Regulatory Perspectives on the Recent Accounting Scandals

Not surprisingly, the recent accounting scandals look different when viewed from the perspectives of the political/regulatory process and of the market for corporate governance and financial reporting. We do not have the opportunity to observe a world in which either market or political/regulatory processes operate independently, and the events are recent and not well researched, so untangling their separate effects is somewhat conjectural. This paper offers conjectures on issues such as: What caused the scandalous behavior? Why was there such a rash of accounting scandals at one time? Who killed Arthur Andersen—the Securities and Exchange Commission, or the market? Did fraudulent accounting kill Enron, or just keep it alive for too long? What is the social cost of financial reporting fraud? Does the United States in fact operate a “principles‐based” or a “rules‐based” accounting system? Was there market failure? Or was there regulatory failure? Or both? Was the Sarbanes‐Oxley Act a political and regulatory overreaction? Does the United States follow an ineffective regulatory model?     

PRICES,INEQUALITY, AND POVERTY: METHODOLOGY AND INDIAN EVIDENCE

This paper uses a methodology for evaluating the distributional implications of price movement for inequality and poverty measurement. The methodology is based on a distinction between inequalities in nominal and real expenditure. The conversion of nominal to real expenditure takes into account the varying household preferences. The empirical application to the Indian budget datasets from NSS rounds 50, 55, and 61 shows the usefulness of the proposed procedures. The relative price changes in India have tended to be inequality and poverty reducing as confirmed by formal statistical tests. The result is robust to expenditure dependent equivalence scales. The progressivity of the relative price changes weakened in the second half of our time period as Fuel and Light overtook the composite group called “Miscellaneous” in recording the largest price increase. While the poverty rates registered a decline, which was marginal in the urban areas, there was a sharp increase in inequality.     

Coalition Formation with Binding Agreements

We study coalition formation in "real time", a situation in which coalition formation is intertwined with the ongoing receipt of pay-offs. Agreements are assumed to be permanently binding: They can only be altered with the full consent of existing signatories. For characteristic function games we prove that equilibrium processes—whether or not these are history dependent—must converge to efficient absorbing states. For three-player games with externalities each player has enough veto power that a general efficiency result can be established. However, there exist four-player games in which all Markov equilibria are inefficient from every initial condition, despite the ability to write permanently binding agreements.     

A Dynamic Incentive‐Based Argument for Conditional Transfers*

We compare the long‐run effects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike Mirrlees’ income taxation model, the distribution of skill evolves endogenously. Human capital accumulation follows the Freeman–Ljungqvist–Mookherjee–Ray OLG model with missing capital markets and dynastic bequest motives. Conditional transfers (funded by taxes on earnings of the skilled) are shown to induce higher long‐run output per capita and (both utilitarian and Rawlsian) welfare, owing to their superior effect on skill accumulation incentives. The result is established both with two skill levels, and a continuum of occupations.     

SHARECROPPING,LAND EXPLOITATION AND LAND‐IMPROVING INVESTMENTS*

This paper analyses the tenancy problem in a dynamic setup and addresses two long‐standing issues: inefficiency and lack of investment. It considers the problems that the tenant, with a shorter‐term interest in the farm than the landlord, might overexploit the land to maximize immediate returns even at the cost of future damages, and under‐supply long‐run productivity improving investments in land. I show that the efficient (first‐best) levels of input use and investment can be achieved (both in the steady state and in transition) by a suitable share contract which, by dampening incentives to maximize current returns, addresses the land exploitation problem, and by an appropriate cost allocation rule which can address the investment problem.