The Many Faces of Information Disclosure

In this article we ask: what kind of information and how muchof it should firms voluntarily disclose? Three types of disclosuresare considered. One is information that complements the informationavailable only to informed investors (to-be-processed complementaryinformation). The second is information that is orthogonal tothat which any investor can acquire and thus complements theinformation available to all investors (preprocessed complementaryinformation). And the third is information that substitutesfor the information of the informed investors in that it revealsto all what was previously known only by the informed (substituteinformation). Our main results are as follows. First, in equilibrium,all types of firms voluntarily disclose all three types of information.Second, in contrast to the existing literature, complementaryinformation disclosure by firms strengthens investors' privateincentives to acquire information. Substitute information disclosureweakens private information acquisition incentives. Third, whilecomplementary information disclosure has an ambiguous effecton financial innovation incentives, substitute information disclosureweakens those incentives.     

Government and the Colonial Economies

From the time of Macquarie the beneficial effects of government came less from material support than from the recognition of an emerging free society, dependent for its success on the rule of law, the strengthening of property rights, improved administration, low taxation, and an environment of confidence and opportunity that encouraged voluntary flows of people and capital from Britain and Ireland. After 1860, the value of the government contribution to growth was reduced by the destabilizing and growth-distorting consequences of public investment. The economic contribution of colonial governments in thi later period was found less in their willingness to construct public capital assets and more in the provision of a favourable and permissive environment in which private decision-makers were to a large extent free to pursue their own private ends.     

Price determination based on quality An Application of Minimax

Samenvatting
Het komt dikwijh voor dat een partij goederen van eigenaar wisselt zonder dat hetzij koper hetzij verkoper de kwaliteit ervan precies kennen. In dergelijke ge-vallen wordt de prijs gewoonlijk vastgesteld op basis van een door arbitrage be-paalde kwaliteit. Het in dit artikel te bespreken contract werd in de Rotterdamse haven afgesloten tussen een koper en een verkoper die geregeldpartijen van elkaar overnamen met het doel te bezuinigen op arbitragekosten en tijd. Zij trachtten dit te bereiken door het onderling eens te worden over de kwaliteit volgens van te voren contractueel vastgelegde "spelregels".
Het resulterende "spel" kan met behulp van de minimax redenering worden opgelost - en vormt als zodanig een der zeer weinige voorbeelden van een praktijk-voorbeeld van speltheorie. De spelregels hidden echter niet tot het gewenste resultaat, en men gaat nu weer met de alouds vertrouwde orthodoxe arbitrage te werk.     

Statement of the Financial Economists Roundtable: Corporate Tax Reform

Corporate tax reform has been a controversial issue in the U.S. for several years, particularly as U.S. companies have accumulated cash in lower‐tax overseas subsidiaries, while some have used “inversions” to establish overseas corporate domiciles. Two features of U.S. corporate taxation stand out: 1. U.S. corporate income tax rates are the highest in the industrialized world. The federal rate is 35%; and, when combined with state taxes, it averages 39%, as compared to an OECD average of 24%. 2. U.S. corporations pay U.S. tax on their worldwide income, but can choose to avoid indefinitely corporate tax on foreign profits by not repatriating them. Neither feature is present in most other Western countries, where the norm is a “territorial” system that taxes companies only on their domestic profits. The Trump administration has proposed to cut U.S. corporate tax rates to 20%, thereby bringing them down to the OECD average, and to adopt a territorial tax regime like those found in most other Western nations. In this statement signed by 31 senior financial economists, the authors recommend cutting U.S. corporate tax rates, but retaining the current system of taxing the worldwide profits of U.S. companies (while giving them credit for taxes paid in overseas jurisdictions). Once U.S. rates drop to the international average, the economists point out, U.S. companies would have much less incentive under the worldwide system to use transfer pricing schemes to shift their profits to low‐tax jurisdictions than under the proposed territorial alternative. Indeed, under the current system, if the lower rates under consideration are enacted, the location of a company's business activity (including the firm's underlying intellectual property) would not affect its taxation. Along with lower corporate tax rates, the economists also recommend that Congress limit or remove the corporate option to defer the taxation of offshore profits and provide a schedule for repatriating off‐shore funds, using the inducement of the now lower rates as well as the possibility of a “tax holiday.”