Legitimating Inequality: Fooling Most of the People All of the Time

Over the three decades leading up to the crisis of 2008, inequality dramatically increased in the United States and Great Britain. What stands out, but is seldom noted, is that this occurred within democracies where the relative losers—the overwhelming majority—could in principle have used the political system to block or reverse rising inequality. Why did they not do so? A glance at history reveals that peoples have only very infrequently contested inequality because they were led to believe that their inferior status in terms of income, wealth, and privilege was just, that it was not really so bad, or that it was necessary for their future well‐being. Ideological systems legitimated a status quo of inequality, or in more modern times even increasing inequality. This article surveys the manner in which inequality has been historically legitimated, first predominantly by religion, then predominately by economic thought. Attention is then focused on the manner in which contemporary economic science and its popular interpretations in the media have served to legitimate inequality in the U.S. since the mid‐1970s. The article concludes with a reflection on the unique conditions that enable the legitimation of inequality to be delegitimated.     

Precautionary Saving and Endogenous Labor Supply with and without Intertemporal Expected Utility

We analyze precautionary saving behavior in a framework with labor and nonlabor income risks, an endogenous supply of labor, and a representation of preferences that disentangles attitudes toward risk, attitudes toward intertemporal substitution, and ordinal preferences for consumption and leisure. This preference structure allows us to disentangle and to describe in an intuitive way the different forces that determine precautionary saving “in the small” and “in the large.”     

High School Economic Education and Access to Financial Services

This study provides a long-term assessment of economic education by examining an individual's decision to have a bank account. Using the results of a nationwide telephone survey, high school courses in economics and business reduced the probability that an adult was unbanked, ceteris paribus. In addition, adults who demonstrated a higher level of understanding of basic economic concepts were less likely to be unbanked. The results indicated that an individual's understanding of the economic system was as important as formal coursework in explaining access to basic financial services.     

MEASURING THE IMPACT OF EDUCATIONAL INTERVENTIONS ON THE ACADEMIC PERFORMANCE OF ACADEMIC DEVELOPMENT STUDENTS IN SECOND‐YEAR MICROECONOMICS

This paper analyses the impact of educational interventions made in the first‐ and second‐year microeconomics courses on academic development students' final mark in the second‐year course. It also addresses issues of methodology, specification, and statistical analysis with respect to other studies in the field. The results suggest that the educational interventions in the first‐year had a positive impact on the academic performance of the academic development cohort, relative to the mainstream cohort for the first period (2000‐2002). The results also suggest that the educational interventions introduced in the second period (2003‐2005), in the form of voluntary workshops, improved the academic performance of the academic development and mainstream cohorts.     

Common Divisors,Payout Persistence,and Return Predictability

In the finance and accounting literature, the use of a common divisor in the dependent and independent variables of ordinary least‐squares regressions is commonplace. What goes less recognized, however, is that their use induces spurious correlation between the regression variables and invalidates standard testing procedures. This paper analyses the common divisor problem by outlining analytical results concerning the expected R² and providing a simulation procedure that generates test statistics from which critical values can be drawn. To illustrate the procedure, we re‐investigate payout yield return predictability findings that have appeared in the literature and show that the results are spurious.     

The Interaction between Internal Control Assessment and Substantive Testing in Audits for Fraud*

We examine the interaction between internal control assessments and substantive testing in a model of fraud detection. The purpose of our study is to examine a two‐stage model of the auditor‐manager interaction in which the auditor assesses the “likelihood” or possibility of fraud in the first stage and conducts substantive tests in the second stage. We examine the allocation of audit resources across these two distinct facets of the audit. We find that, regardless of the auditor's allocation, the probability of undetected fraud remains the same, but the allocation of some audit resources to internal control assessment may provide cost savings for the auditor.