Investment and Uncertainty: A Theory‐based Empirical Approach*

This paper provides empirical evidence on the dynamic effects of uncertainty on firm‐level capital accumulation. A novelty in this paper is that the firm‐level uncertainty indicator is motivated and derived from a theoretical model, the neoclassical investment model with time to build. This model also serves as the base for the empirical work, where an error‐correction approach is employed. I find a negative effect of uncertainty on capital accumulation, both in the short run and the long run. This outcome cannot be explained by the model alone. Instead, the results suggest that the predominant mechanism at work stems from irreversibility constraints.     

Games Hospitals Play: Entry Deterrence in Hospital Procedure Markets

Strategic investment models, though popular in the theoretical literature, have rarely been tested empirically. This paper develops a model of strategic investment in inpatient procedure markets, which are well-suited to empirical tests of this behavior. Potential entrants are easy to identify in such markets, enabling the researcher to accurately estimate the entry threat faced by different incumbents. I derive straightforward empirical tests of entry deterrence from a model of patient demand, procedure quality, and differentiated product competition. Using hospital data on electrophysiological studies, an invasive cardiac procedure, I find evidence of entry-deterring investment. These findings suggest that competitive motivations play a role in treatment decisions.     

A political economy model of road pricing

In this paper, we use a simple majority voting model to study the introduction of urban congestion tolls. The model allows for different types of uncertainty and considers different uses of the toll revenues. The following results are obtained. First, we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante, although a majority would have been in favor after its introduction ex post. Moreover, if a majority is against road pricing ex ante, there will also be no majority for organizing an experiment that would take away the individual uncertainty. Second, political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls. Third, both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters. Importantly, the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing, including the systematic rejection of road pricing in referenda, the more favorable attitudes towards road pricing after than before its introduction, and tying the toll revenues to support public transport.     

The impact of government financial support on the performance of new firms: the role of competitive advantage as an intermediate outcome

This research examines the influence of government financial support on new firms' performance. Extant empirical research on the topic has found mixed results, which warrants an exploration of the theoretical basis for the impact of support policies on new firms' performance. Grounding the theoretical model in the resource-based view and institutional theories, this study contends that performance outcomes – e.g. revenues or profits – should not be the first outcomes of public policies to be examined. Instead, competitive advantage formation is suggested as a link between support policies and new firms' performance. Using new firms from the USA, we examine the impact of government financial support measures – government loans, guarantees and government equity – on firms' overall competitive advantage and more specific types of competitive advantage based on innovation, licensing-in, marketing and human capital. Controlling for family funding, bank financing, equity of business angels and venture capitalists, industry, size as well as entrepreneur's characteristics, the results reveal that government guarantees and government equity have a direct effect on new firms' competitive advantage and only an indirect impact on performance. Our results suggest to policy-makers to focus on helping new firms build the necessary capabilities to compete successfully in the marketplace.     

Ambiguity in Electoral Competition

The paper proposes an explanation to why electoral competition induces parties to state ambiguous platforms even if voters dislike ambiguity. A platform is ambiguous if different voters may interpret it as different policy proposals. An ambiguous platform puts more or less emphasis on alternative policies so that it is more or less easily interpreted as one policy or the other. I suppose that a party can monitor exactly this platform design but cannot target its communications to individuals one by one. Each individual votes according to her understanding of the parties’ platforms but dislikes ambiguity. It is shown that this electoral competition has no Nash equilibrium. Nevertheless its max–min strategies are the optimal strategies of the Downsian game in mixed strategies. Furthermore, if parties behave prudently enough and if the voters aversion to ambiguity is small enough, these strategies do form an equilibrium.     

Homevoters vs. leasevoters: A spatial analysis of airport effects

We use a public referendum on a new aviation concept in Berlin, Germany, as a natural experiment to analyze how the interaction of tenure and capitalization effects influences the outcome of direct democracy processes. We distinguish between homevoters, i.e., voters who are homeowners, and leasevoters, i.e., voters who lease their homes. We expect that homevoters would be more likely to support initiatives that positively affect the amenity value of a neighborhood because some of the related benefits of leasevoters are neutralized by adjustments in market rents. Likewise, homevoters would be more likely to oppose initiatives that negatively affect the amenity value of a neighborhood. Our empirical results are consistent with these expectations, implying that public votes on local public goods do not necessarily reflect the spatial distribution of welfare effects in mixed-tenure environments.     

A methodology for testing a new spatial model of elections

The purpose of this paper is to offer a methodology for testing a new spatial theory of elections. Specifically, it is shown that the new spatial model of elections developed by Enelow and Hinich (1984a) is statistically equivalent to assuming that a classical factor structure underlies the data that voters provide concerning the issue positions of themselves and the candidates. A factor analysis of the sample correlation matrix of candidate variables averaged over voters and issues provides consistent estimates of the candidate locations in the space of predictive dimensions postulated by Enelow and Hinich, and the facor scores assigned to the voters can be used to project the voters onto the same predictive space with the candidates. This new scaling method is used to locate the positions of voters and candidates in the underlying predictive space of the 1980 Presidential election. Internal checks confirm the empirical adequacy of the candidate locations, and probit analysis is used as an external check on the empirical adequacy of the voter locations. For the pre-election data, no loss of accuracy in predicting voter choice was found in moving from the issue data to the estimated factor locations of voters and candidates. For the post-election data, a modest drop in accuracy was discovered. Overall, the empirical adequacy of factor analysis was confirmed as a methodology for testing the new Enelow-Hinich spatial model of elections.     

Nonlinearities and Fractional Integration in the US Unemployment Rate*

This paper proposes a model of the US unemployment rate which accounts for both its asymmetry and its long memory. Our approach introduces fractional integration and nonlinearities simultaneously into the same framework, using a Lagrange multiplier procedure with a standard null‐limit distribution. The empirical results suggest that the US unemployment rate can be specified in terms of a fractionally integrated process, which interacts with some nonlinear functions of labour‐demand variables such as real oil prices and real interest rates. We also find evidence of a long‐memory component. Our results are consistent with a hysteresis model with path dependency rather than a non‐accelerating inflation rate of unemployment (NAIRU) model with an underlying unemployment equilibrium rate, thereby giving support to more activist stabilization policies. However, any suitable model should also include business cycle asymmetries, with implications for both forecasting and policy‐making.     

Voter turnout in a multidimensional policy space

Many factors influence the likelihood of citizens turning out to vote. In this paper we focus our attention on issue voting, that is, on the likelihood that different policies offered by politicians affect the probability of voting. If voters consider both the benefits and the costs of voting, rational voters will only vote when politicians offer differentiated policies. In a multidimensional policy space this implies that citizens only vote when they perceive enough difference on the issues they care about the most. We investigate the role of voter abstention due to indifference in a unidimensional and a multidimensional policy setting using data from the US National Election Studies for 1972–2000 and find support for our predictions: voters perceiving a small difference between the platforms of the Democratic and Republican parties are less likely to vote; and voters who perceive the two parties as more different on a larger number of issues are significantly more likely to vote.     

MANAGING THE PROCESS OF REMOVING CAPITAL CONTROLS: WHAT DOES THE LITERATURE SUGGEST?

Economic theory suggests that opening the capital account should allow a country to diversify away economic shocks, increase capital inflows, expand economic growth and efficiency as well as encourage governments to pursue good policies. The empirical evidence with regard to these theoretical predictions, however, are in some instances debatable. Many studies, for example, have reported mixed results as it relates to the impact of capital account integration on growth, exchange rates, trade and policy discipline. This paper provides a review of this literature as well as some recommendations for policymakers in relation to managing the process of removing capital controls.     

Growth Opportunities,Stockholders' Claim/Liability on Pension Plans,and Corporate Pension Policies

In this study, I derive the value of stockholders' claim on a pension surplus and stockholders' liability for a pension deficit in the post‐Employee Retirement Income Security Act regulatory environment. Based on that valuation, I develop a model of corporate pension policies in which sponsoring firms weigh contributions to their pension plan against the exercise of growth options in the allocation of limited financial resources. The model shows how corporate pension funding and asset allocation policies are shaped by the sponsoring firms' characteristics, such as growth options, the marginal corporate tax rate, and regulatory variables such as the deficit reduction contribution rate, the variable‐rate insurance premium, and the maximum possible fraction of operating assets that can be seized by the Pension Benefit Guaranty Corporation. I discuss policy and empirical implications of the theoretical results. Copyright © 2016 John Wiley & Sons, Ltd.     

Does Direct Democracy Increase Voter Turnout? Evidence from the 2004 General Election

Abstract . This empirical study seeks to broaden the interpretation of the “rational voter model” so as to include the potential effects of “direct democracy” on the voter participation rate. Direct democracy is assumed to take two forms: initiatives and popular referenda. This study tests the hypothesis that direct democracy may not on balance significantly affect voter turnout because, although it may elevate the expected gross benefits of voting by “empowering voters,” the transactions/information costs correlative with direct democracy raise the costs of voting. Using cross‐section analysis for the 50 states for the 2004 general election, this study finds that the existence of initiatives and/or referenda does not significantly influence voter turnout.     

Institutions for Financial Development: What are they and where do they come from?

Abstract.  Among the fundamental causes of long-run economic performance, differences in 'institutions' have received considerable attention in recent years. At the same time, a large body of theoretical and empirical work shows that financial development can have a big effect on economic performance. This raises the more fundamental question as to why some countries have developed financial markets while others do not. This paper reviews the theoretical and empirical research on this issue and shows that one of the channels whereby better institutions may have an effect on economic development is through the consolidation of larger and better financial markets. An issue that is left aside in this paper relates to what regulations and policies lead to better functioning capital markets. At some level, one can think of regulations and policies as particular types of institutions. Nonetheless, institutional problems are deeper causes leading to poor economic performance; bad policies might simply be part of the channels through which they influence performance. Thus, addressing the question of what determines the emergence of 'good' institutions – i.e. institutions that promote financial development – seems particularly important. Recent research providing some answers to this question is also reviewed.     

Does interpersonal emotion regulation ability change with age?

Societal and political changes mean that individuals are working until later in life, leading to interest in whether older workers' effectiveness differs from that of younger workers. An important predictor of work effectiveness is ‘interpersonal emotion regulation’, that is, the management of others' feelings. However, little is known so far about whether there are age-related changes in interpersonal emotion regulation ability. In this article, I apply theoretical evidence about aging to a model of the composite tasks involved in interpersonal emotion regulation, in order to form predictions about age-related differences in the management of others' feelings. I further review the existing empirical evidence base, to highlight areas where predictions are supported and areas where further research is needed. It is hoped that this article will guide future empirical work in this important area, in order to broaden the evidence base on age and emotion regulation.     

Dynamics in the fragmentation of political party systems

Fragmentation is an important dimension of political party systems. It concerns the proliferation of minor parties and the willingness of voters to vote for them. Past research relates party fragmentation to the voting system in a country; by Duverger's hypothesis, fragmentation should be highest in counties with proportional representation. The entropy measure is used to quantify fragmentation. The upper limit of fragmentation is analyzed in 24 countries, and the patterns of change in fragmentation are identified with mathematical difference equations, testing the idea that voters and parties evolve toward an equilibrium in fragmentation. The highest level of fragmentation is found comparable with a psychological limit on human information processing. In 17 of 22 countries, fragmentation moves toward an equilibrium, regardless of the type of voting system, and countries with higher equilibrium levels usually evolve more slowly. The results affirm the stability of democratic governments but raise questions about voters' strategies and suggest that some voters may try to control fragmentation when they vote.     

Cross-border mergers and acquisitions with heterogeneous firms: Technology vs. market motives

The most common form of foreign direct investment (FDI) is cross-border mergers and acquisitions (M&A). A common explanation for M&A activity identified in the industrial organization literature is that firms seek technological expertise. However, this has not been examined in the FDI literature. In this paper, I develop and estimate a model of cross-border M&A and focus on the technology seeking explanation. In particular, I develop a general equilibrium model of exporting, greenfield FDI, technology-seeking cross-border M&A, and market-seeking cross-border M&A with heterogeneous firms. The model predicts that firms from a larger country are more likely to acquire in a smaller country when M&A activity is driven by a technology-seeking motive, but the opposite is true when it is driven by a market-seeking motive. Using detailed data on worldwide M&A activity from 1985 to 2007, I find empirical evidence that cross-border M&A activity exhibits behavior consistent with this prediction.     

A public choice model of the role of multinational firms in international relations

Multinational firms play a crucial role in the transmission of international policies across sovereign states. The present paper models the international policy equilibrium when conflict arises between two states, in which one state wishes to modify the policy choices of another state, and both the governments and their policy choices are subject to a self-interest maximization process on the part of voters, firms and government agents. Multinational firms are able to engage in lobbying activity in both their home countries and host countries in order to maximize firm-level profits. The analysis examines cases of both democratic and autocratic host countries.     

Conditions under which econometric models will outperform naive models

Brodie and de Kluyver have reported empirical results in which simple naive models have produced forecasts as accurate as those derived from econometric models. I apply some recent theoretical results to show that these findings are plausible. I also suggest some general conditions under which econometric models will outperform naive models.     

Modeling undecided voters to forecast elections: From bandwagon behavior and the spiral of silence perspective

Forecasting election results has been a highly attractive activity among political and social scientists. Different forecasting methods have been proposed, but those based on public opinion polls are the most common. However, there are challenges to using opinion polls, especially because they neglect undecided voters. Due to the significant number of undecided participants and their impact on voting outcomes, we analyze the potential behavior of undecided voters by considering opinion polls and sentiment based on voter expectation from the perspective of the bandwagon effect and the spiral of silence. We establish a hierarchical Bayesian forecasting model to predict voting results, and apply it to the 2016 United States presidential election and the 2016 Brexit referendum. The results of our model suggest that voting outcomes are more predictable when fully utilizing the impact of undecided voters. The results indicate that integrating aggregated polls into the hierarchical Bayesian framework is a strong predictor for forecasting outcomes, and they provide evidence for the influence of sentiment based on voter expectation in forecasting election results.     

How Competitive Action Mediates the Resource Slack–Performance Relationship: A Meta‐Analytic Approach

The fungibility of organizational slack provides firms significant latitude in addressing both internal and market pressures. A vast literature suggests that slack influences firm performance; however, the empirical record is mixed, and the underlying mechanism linking slack to performance remains ambiguous. We address these issues by theoretically expanding the slack–performance model to include mediation. Specifically, we develop and test a model in which a firm’s competitive behaviours direct the utilization of slack toward the realization of firm performance. Our meta‐analytic‐based structural equation model supports partial mediation, showing that competitive behaviours provide some resolution to the conflicted understanding of how slack affects performance. Further, we provide value to the slack literature by consolidating the evidence for the effects of various types and forms of organizational slack. Beyond providing robustness to our theoretical model, doing so offers a more complete understanding of how operationalizations of slack and performance outcomes matter.