The convergence of least squares learning in stochastic temporary equilibrium models

Summary. This paper provides conditions for the almost sure convergence of the least squares learning rule in a stochastic temporary equilibrium model, where regressions are performed on the past values of the endogenous state variable. In contrast to earlier studies, (Evans and Honkapohja, 1998; Marcent and Sargent, 1989), which were local analyses, the dynamics are studied from a global viewpoint, which allows one to obtain an almost sure convergence result without employing projection facilities. Received: April 7, 2001; revised version: September 5, 2001     

Do investors actually value sustainability? New evidence from investor reactions to the Dow Jones Sustainability Index (DJSI)

Research Summary: Research exploring investor reactions to sustainability has substantial empirical limitations, which we address with a large‐scale longitudinal financial event study of the first global sustainability index, DJSI World. We examine investor reactions to firms from 27 countries over 17 years that are added, deleted, or continue on the index. We find that once relevant controls and comparisons to observationally equivalent firms beyond the index are included, DJSI events have only limited significance and/or materiality. Nonetheless, investors' valuation of sustainability around the world has evolved over time, involving diminishing reactions to U.S. firms and increasing benefits, particularly of continuation on the index, over time. The study highlights the importance of careful analysis and longitudinal global samples in making inferences about the financial effects of social performance. Managerial Summary: The debate about how investors perceive corporate social responsibility (CSR) predates Milton Friedman's famous statement that the only social responsibility of business is to increase profits. Although extensive research has studied whether sustainability contributes to financial performance, we have yet to understand whether investors believe it pays off. This financial event study of reactions to the addition, continuation, and deletion from DJSI World, the first global sustainability index, shows that investors care little about DJSI announcements. Nonetheless, there is some evidence that global assessments of sustainability are converging and that investors may increasingly be valuing continuation on the DJSI, suggesting that firms may gain at least limited benefits from reliable sustainability activities.     

Using users: When does external knowledge enhance corporate product innovation?

Prior research on corporate innovation highlights the importance of accessing external knowledge from other firms and universities. However, survey evidence indicates that product users are perhaps the most important source of external knowledge. We build on existing theory to identify the conditions under which user knowledge contributes to corporate innovation and when the benefits will be greatest. Using a panel dataset of medical device companies and their collaborative efforts with innovative physicians, we find evidence that inventive collaborations with users enhance corporate product innovation and that the benefits are greatest in new technology areas and in the generation of radical innovations. Copyright © 2013 John Wiley & Sons, Ltd.     

Transformations of the state variable and learning dynamics

This article examines dynamics in a model where agents forecast a one dimensional state variable through ordinary least squares regressions on the lagged values of the state variable. We study the stability properties of alternative transformations of the state variable, such as taking logarithms, which the agent can endogenously set forth. Surprisingly, for the considered class of economies, we found that the transformations that an econometrician would attempt are destabilizing, whereas alternative transformations, which an econometrician would never consider, such as convex transformations, are stabilizing. Therefore, we ironically find that in our set‐up, an active agent who is concerned about learning the economy’s dynamics and who in an attempt to improve forecasting transforms the state variable using standard transformations, is more likely to deviate from the steady state than a passive agent.     

When does advice impact startup performance?

Why do some entrepreneurs thrive while others fail? We explore whether the advice entrepreneurs receive about managing their employees influences their startup's performance. We conducted a randomized field experiment in India with 100 high-growth technology firms whose founders received in-person advice from other entrepreneurs who varied in their managerial style. We find that entrepreneurs who received advice from peers with a formal approach to managing people—instituting regular meetings, setting goals consistently, and providing frequent feedback to employees—grew 28% larger and were 10 percentage points less likely to fail than those who got advice from peers with an informal approach to managing people, 2 years after our intervention. Entrepreneurs with MBAs or accelerator experience did not respond to this intervention, suggesting that formal training can limit the spread of peer advice.     

How firms respond to being rated

While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower‐cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select ‘socially responsible,’ and avoid ‘socially irresponsible,’ companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory. Copyright © 2010 John Wiley & Sons, Ltd.     

ON STRATEGY‐PROOFNESS AND THE SALIENCE OF SINGLE‐PEAKEDNESS

We consider strategy‐proof rules operating on a rich domain of preference profiles. We show that if the rule satisfies in addition tops‐onlyness, anonymity, and unanimity, then the preferences in the domain have to satisfy a variant of single‐peakedness (referred to as semilattice single‐peakedness). We do so by deriving from the rule an endogenous partial order (a semilattice) from which the concept of a semilattice single‐peaked preference can be defined. We also provide a converse of this main finding. Finally, we show how well‐known restricted domains under which nontrivial strategy‐proof rules are admissible are semilattice single‐peaked domains.     

The structure of strategy-proof random social choice functions over product domains and lexicographically separable preferences

We characterize the class of dominant-strategy incentive-compatible (or strategy-proof) random social choice functions in the standard multi-dimensional voting model where voter preferences over the various dimensions (or components) are lexicographically separable. We show that these social choice functions (which we call generalized random dictatorships) are induced by probability distributions on voter sequences of length equal to the number of components. They induce a fixed probability distribution on the product set of voter peaks. The marginal probability distribution over every component is a random dictatorship. Our results generalize the classic random dictatorship result in Gibbard (1977) and the decomposability results for strategy-proof deterministic social choice functions for multi-dimensional models with separable preferences obtained in LeBreton and Sen (1999).     

Unions and Efficient Training

The paper examines the optimal level of training investment when trained workers are mobile, wage contracts are time-consistent, and training comprises both specific and general skills. The firm has ex post monopsonistic power that drives trained workers' wages below the social optimum. The emergence of a trade union bargaining at the firm-level can increase social welfare, by counterbalancing the firm's ex post monopsonistic power in wage determination. Local union-firm wage bargaining ensures that the post-training wage is set sufficiently high to deter at least some quits, so that the number of workers the firm trains is nearer the social optimum     

Does the Length of Maternity Leave Affect Maternal Health?

The objective of this paper is to investigate the impact of the length of maternity leave on maternal health in a sample of working mothers. Two measures of depression and a measure of outpatient health visits are used to represent maternal health. Ordinary least squares models provide baseline estimates, and instrumental variables models account for the potential endogeneity of the return-to-work decision. The findings suggest that returning to work later is associated with a reduction in the number or frequency of depressive symptoms. There is suggestive but inconclusive evidence that longer maternity leave is associated with a lower probability of being a likely case of clinical depression and a lower likelihood of having frequent outpatient visits during the first six months after childbirth. These findings contribute to the literature on maternal leave policy, which focuses primarily on the benefits of leave for child health and development, by evaluating the influence of longer maternal leave on the health of mothers.