A topological invariant for competitive markets

This paper summarizes the concepts of global cones and limited arbitrage introduced in Chichilnisky (Economic Theory, 1995, 5, 79–108), and the corresponding results establishing that limited arbitrage is necessary and sufficient for the existence of a competitive equilibrium and for the compactness of Pareto frontier (announced in Chichilnisky (American Economic Review, 1992, 84, 427–434, and Chichilnisky (Bulletin of the American Mathematical Society, 1993, 29, 189–207). Using the same global cones I extend my earlier results to encompass ‘mixed economies’ based on Chichilnisky (CORE Discussion Paper No. 9527, 1995). I introduce a topological invariant for competitive markets which deepens the concept of limited arbitrage. This invariant encodes exact information on the equilibria and on the social diversity of the economy and all its subeconomies, and predicts a failure of effective demand.     

Arbitrage, equilibrium, and gains from trade: A counterexample

We present a counterexample to a theorem due to Chichilnisky (Bulletin of the American Mathematical Society, 1993, 29, 189–207; American Economic Review, 1994, 84, 427–434). Chichilnisky's theorem states that her condition of limited arbitrage is necessary and sufficient for the existence of an equilibrium in an economy with unbounded short sales. Our counterexample shows that the condition defined by Chichilnisky is not sufficient for existence of equilibrium. We also discuss difficulties in Chichilnisky (Economic Theory, 1995, 5, 79–107).     

Restricted houseswapping games

Restricted houseswapping games (RHGs) are a generalization of ‘one-sided matching games’, in which we specify a class II* of ‘allowable’ simple trading cycles. The cores of such games may be empty. Given II*, all possible closed RHGs have non-empty cores of II* is ‘strongly balanced’. Examples include the one-sided matching markets (^{Shapley and Scarf. Journal of Mathematical Economics 1974. 1. 23–37}. ^{Tijs et al., OR Spektrum 1984, 6, 119–123}; ^{Quinzii, International Journal of Game Theory 1984, 13, 41–60}) and the two-sided matching markets (^{Gale and Shapley. American Mathematical Monthly 1962. 69, 9–16}; ^{Shapley and Shubik, International Journal of Game Theory 1972, 1, 111–130}: and ^{Demange and Gale Econometrica 1985, 53, 873–888}).We then consider the subclass of RHGs in which there is no transferable resource. In this case, a weaker condition on II*, called ‘weak balancedness’, is sufficient to guarantee core non-emptiness. In addition, if II* is not weakly balanced, then there exists a preference profile such that the strict core of the resultant game is empty.Several other examples are given of II* that are (a) strongly balanced: (b) weakly balanced but not strongly balanced: and (c) not even weakly balanced.Finally, we discuss the issues of equilibrium definition, existence, and core-equilibrium allocation equivalence in RHGs.     

Unbounded exchange economies with satiation: How far can we go?

We unify and generalize the existence results in Werner [Werner, J., 1987. Arbitrage and the existence of competitive equilibrium. Econometrica 55 (6), 1403–1418], Dana et al. [Dana, R.-A., Le Van, C., Magnien, F., 1999. On the different notions of arbitrage and existence of equilibrium. Journal of Economic Theory 87 (1), 169–193], Allouch et al. [Allouch, N., Le Van, C., Page Jr., F.H., 2006. Arbitrage and equilibrium in unbounded exchange economies with satiation. Journal of Mathematical Economics 42 (6), 661–674], Allouch and Le Van [Allouch, N., Le Van, C., 2008. Erratum to “Walras and dividends equilibrium with possibly satiated consumers”. Journal of Mathematical Economics 45 (3–4), 320–328]. We also show that, in terms of weakening the set of assumptions, we cannot go too far.     

Land use in a circular city: Some numerical results

In a previous paper (“Land Use in a Circular City”, Journal of Economic Theory, 1974), I considered efficient land use and travel patterns in a circular city consisting of a homogeneous economic activity and a network of radial and circumferential roads. My analysis assumed that under decentralized optimum conditions, the price of traveling circumferentially through a radian would increase with distance from the city center. Under this and a second pricing assumption, an optimum would involve either restricting inward trip penetration or providing travelers with an inner ring road. This paper provides numerical illustrations of the optimum when trip penetration is restricted. The results suggest that the underlying pricing assumptions are likely not valid.     

An alternative approach to housing market segmentation using hedonic price data

Much empirical research has been devoted to housing market segmentation and the implications for the application of the Hedonic Price Model. Market segmentation is demonstrated empirically in (J. Urban Econ., 3:2, 146–166 (1976); J. Urban Econ., 7:1, 102–108 (1980); Rev. Econ. Statist., 66:3, 404–406 (1974)). There appears to be theoretical evidence (J. Pol. Econ., 82:1, 34–55 (1974)) that such empirical efforts may have been less than adequate. Unfortunately, the empirical applications of Rosen's model (J. Environ. Econ. Manag., 5, 81–102 (1978); J. Urban Econ., 5, 3, 357–369 (1978)) do not seem to effectively account for the complexity of the factors which cause multiple equilibria (market segmentation). This paper demonstrates empirically that market segments can be defined along more dimensions than hitherto have been included in any analysis.     

A dynamic CAPM with supply effect: Theory and empirical results

Breeden [Breeden, D. T. (1979). An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 7, 265–196] and Grinols [Grinols, E. L. (1984). Production and risk leveling in the intertemporal capital asset pricing model. The Journal of Finance 39, 5, 1571–1595] and Cox et al. [Cox, J. C., Ingersoll, J. E., Jr., & Ross, S. A. (1985). An intertemporal general equilibrium model of asset prices. Econometrica 53, 363–384] have described the importance of supply side for the capital asset pricing. Black [Black, S. W. (1976). Rational response to shocks in a dynamic model of capital asset pricing. American Economic Review 66, 767–779] derives a dynamic, multiperiod CAPM, integrating endogenous demand and supply. However, Black's theoretically elegant model has never been empirically tested for its implications in dynamic asset pricing. We first theoretically extend Black's CAPM. Then we use price, dividend per share and earnings per share to test the existence of supply effect with U.S. equity data. We find the supply effect is important in U.S. domestic stock markets. This finding holds as we break the companies listed in the S&P 500 into ten portfolios by different level of payout ratio. It also holds consistently if we use individual stock data.     

The weighted average cost of capital is not quite right: Reply to M. Pierru

In this journal [Miller, R. A. (2009). The weighted average cost of capital is not quite right. The Quarterly Review of Economics and Finance, 49, 128–138], I argued that the standard WACC formula is inadequate in most circumstances to reward stockholders and bondholders where the necessary cash flows are calculated separately to exactly cover the respective costs of capital. Axel Pierru [2009. ‘The weighted average cost of capital is not quite right’: A comment. The Quarterly Review of Economics and Finance, 49, 1219–1223] observes correctly that my assumed repayment schedules (equal periodic payments to bondholders; similarly for stockholders) imply a temporal drift in the debt (or leverage) ratio; he would recalculate the WACC annually. He proposes an alternative calculation of the repayment schedules under the constraint of a constant debt ratio. Here I suggest three additional possible repayment schedules; in general repayment schedules determine the drift in the debt ratio. However, the expected repayment schedules are established at the time the project is accepted and financed, hence the relevant debt ratio is that which exists at that time. The WACC for a specific project need not (and should not) be recalculated for that project throughout its financial life when that project has already been accepted and financed.     

Modeling tourism: A fully identified VECM approach

System-based cointegration methods have become popular tools for economic analysis and forecasting. However, the identification of structural relationships is often problematic. Using a theory-directed sequential reduction method suggested by Hall, Henry and Greenslade [Hall, S. G., Henry, S., & Greenslade, J. (2002). On the identification of cointegrated systems in small samples: A modelling strategy with an application to UK wages and prices. Journal of Economic Dynamics and Control, 26, 1517–1537], we estimate a vector error correction model of Hawaii tourism, where both demand and supply-side influences are important. We identify reasonable long-run equilibrium relationships, and Diebold–Mariano tests for forecast accuracy demonstrate satisfactory forecasting performance.     

On the dynamics of the Israeli–Arab arms race

This article investigates the causal relationships between the military expenditures and military burden of the four major sides of the Israeli–Arab conflict, namely, Egypt, Israel, Jordan and Syria over the period 1960–2004. We utilize both the causality test suggested by Toda and Yamamoto [Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66, 225–250] and the generalized forecast error variance decomposition method of [Pesaran, M. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58, 17–29]. Our findings suggest weak causality that runs usually from Israel's to Arab's military spending. The strongest links are between Israel and Syria that are still in a state of enmity. No causality was detected between Israel's and Jordan's military spending.     

Asymptotics for out of sample tests of Granger causality

This paper presents analytical, Monte Carlo and empirical evidence concerning out-of-sample tests of Granger causality. The environment is one in which the relative predictive ability of two nested parametric regression models is of interest. Results are provided for three statistics: a regression-based statistic suggested by Granger and Newbold [1977. Forecasting Economic Time Series. Academic Press Inc., London], a t-type statistic comparable to those suggested by Diebold and Mariano [1995, Comparing Predictive Accuracy. Journal of Business and Economic Statistics, 13, 253–263] and West [1996. Asymptotic Inference About Predictive Ability, Econometrica, 64, 1067–1084], and an F-type statistic akin to Theil's U. Since the asymptotic distributions under the null are nonstandard, tables of asymptotically valid critical values are provided. Monte Carlo evidence supports the theoretical results. An empirical example evaluates the predictive content of the Chicago Fed National Activity Index for growth in Industrial Production and core PCE-based inflation.     

Market economies with many commodities

In this survey problems from the consideration of infinite dimensional commodity spaces in the Arrow-Debreu-McKenzie model are discussed. It has become clear in the last couple of decades that in order to address real policy questions, economic models that are both stochastic and dynamic have to be employed. These models lead naturally to infinite dimensional commodity spaces.

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Riassunto In questo lavoro si discutono i problemi che si presentano quando, in connessione all'esistenza e all'efficienza di equilibri Walrasiani nel modello di Arrow-Debreu-McKenzie, si ammette che lo spazio dei beni sia di dimensione non finita. è diventato chiaro nei due ultimi decenni che per affrontare questioni reali è necessario usare modelli sia dinamici che stocastici e ciò conduce in modo naturale alla considerazione di spazi infinito-dimensionali. Si rimane principalmente confinati alle economie di puro scambio al solo scopo di semplificare la trattazione.

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This paper has been presented atWorkshop in Economic Theory, Venice-June 2–7, 1997 organized by Istituto Veneto di Scienze, Lettere ed Arti and atXXI Convegno AMASES, Rome-September 10–13, 1997. It is an expanded version of our paper [5] that appeared inJournal of Economic Theory, vol. 74, n. 1, 1997, pp. 62–105. We are grateful to Karl Shell and Academic Press for permission to include that portion of the material here. The research of C. D. Aliprantis was supported in part by the NATO Collaborative Research Grant #941059.     

E-Leadership and Virtual Teams

In this paper we have identified some key challenges for E-leaders of virtual teams. Among the most salient of these are the following:

• The difficulty of keeping tight and loose controls on intermediate progress toward goals

• Promoting close cooperation among teams and team members in order to integrate deliverables

• Encouraging and recognizing emergent leaders in virtual teams

• Establishing explicit processes for archiving important written documentation

• Establishing and maintaining norms and procedures early in a team’s formation and development

• Establishing proper boundaries between home and work

Virtual team environments magnify the differences between good and bad projects, organizations, teams, and leaders. The nature of such projects is that there is little tolerance for ineffective leadership. There are some specific issues and techniques for mitigating the negative effects of more dispersed employees, but these are merely extensions of good leadership—they cannot make up for the lack of it.

SELECTED BIBLIOGRAPHY

An excellent reference for research on teams is M. E. Shaw, R. M. McIntyre, and E. Salas, “Measuring and Managing for Team Performance: Emerging Principles from Complex Environments,” in R. A. Guzzo and E. Salas, eds., Team Effectiveness and Decision Making in Organizations (San Francisco: Jossey-Bass, 1995). For a fuller discussion of teleworking and performance-management issues in virtual teams, see W. F. Cascio, “Managing a Virtual Workplace,” Academy of Management Executive, 2000, 14(3), 81–90, and also C. Joinson, “Managing Virtual Teams,” HRMagazine, June 2002, 69–73. Several sources discuss the issue of trust in virtual teams: D. Coutu, “Trust in Virtual Teams,” Harvard Business Review, May–June 1998, 20–21; S. L. Jarvenpaa, K. Knoll, and D. E. Leidner, “Is Anybody Out There? Antecedents of Trust in Global Virtual Teams,” Journal of Management Information Systems, 1998, 14(4), 29–64. See also Knoll and Jarvenpaa, “Working Together in Global Virtual Teams,” in M. Igbaria and M. Tan, eds., The Virtual Workplace (Hershey, PA: Idea Group Publishing, 1998).Estimates of the number of teleworkers vary. For examples, see Gartner Group, Report R-06-6639, November 18, 1998, and also Telework America survey, news release, October 23, 2001. We learned about CPP’s approach to managing virtual work arrangements through David Krantz, personal communication, August 20, 2002, Palo Alto, CA.There are several excellent references on emergent leaders. For example, see G. Lumsden and D. Lumsden, Communicating in Groups and Teams: Sharing Leadership (Belmont, CA: Wadsworth, 1993); Lumsden and Lumsden, Groups: Theory and Experience, 4th ed. (Boston: Houghton, 1993); R. W. Napier and M. K. Gershenfeld, Groups: Theory and Experience, 4th ed. (Boston: Houghton, 1989); and M. E. Shaw, Group Dynamics: The Psychology of Small Group Behavior, 3rd ed. (New York: McGraw-Hill, 1981).An excellent source for e-mail style is D. Angell and B. Heslop, The Elements of E-mail Style: Communicate Effectively via Electronic Mail (Reading, MA: Addison-Wesley Publishing Company, 1994). To read more on the growing demand for flexible work arrangements, see “The New World of Work: Flexibility is the Watchword,” Business Week, 10 January 2000, 36.For more on individualism and collectivism, see H. C. Triandis, “Cross-cultural Industrial and Organizational Psychology,” in H. C. Triandis, M. D. Dunnette, and L. M. Hough, eds., Handbook of Industrial and Organizational Psychology, 2nd ed., vol. 4 (Palo Alto, CA: Consulting Psychologists Press, 1994, 103–172).Executive SummaryAs the wired world brings us all closer together, at the same time as we are separated by time and distance, leadership in virtual teams becomes ever more important. Information technology makes it possible to build far-flung networks of organizational contributors, although unique leadership challenges accompany their formation and operation. This paper describes the growth of virtual teams, the various forms they assume, the kinds of information and support they need to function effectively, and the leadership challenges inherent in each form. We then provide workable, practical solutions to each of the leadership challenges identified.     

Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland

Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis [Neal, L., & Davis, L. (2005). The evolution of the rules and regulations of the first emerging markets: The London, New York, and Paris stock exchanges, 1792–1914. Quarterly Review of Economics and Finance, 45, 296–311] and Stringham [Stringham, E. (2003). The extralegal development of securities trading in seventeenth century Amsterdam. Quarterly Review of Economics and Finance, 43, 321–344] suggests that securities markets have successfully developed with little government oversight, numerous authors [including Black, B. (2001). The legal and institutional preconditions for strong securities markets. University of California Law Angeles Law Review, 48, 781–855; Coffee, J. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law, 25, 1–39; Frye, T. (2000). Brokers and bureaucrats: Building market institutions in Russia. Ann Arbor: University of Michigan Press; Glaeser, E., Johnson, S., & Shleifer, A. (2001). Coase versus the Coasians. Quarterly Journal of Economics, 116, 853–899; Mlčoch, L. (2000). Restructuring of property rights: An institutional view. In L. Mlčoch et al. (Eds.), Economic and Social Changes in Czech Society After 1989. Prague: The Karolinum Press; Pistor, K. (2001). Law as a determinant for equity market development – the experience of transition economies. In Peter Murrell (Ed.), The Value of Law in Transition Economies (pp. 249–287). Ann Arbor: Michigan University Press; Stiglitz, J. (1999). Whither reform. Ten years of the transition. Keynote Address, Annual Bank Conference on Development Economics, Washington, DC, April 28–30, 1999; Zhang, X. (2006). Financial market governance in developing countries: Getting the political underpinnings right. Journal of Developing Societies, 2, 169–196] argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.     

Increasing human and social capital by applying job embeddedness theory

Most modern lives are complicated. When employees feel that their organization values the complexity of their entire lives and tries to do something about making it a little easier for them to balance all the conflicting demands, the employees tend to be more productive and stay with those organizations longer. Job embeddedness captures some of this complexity by measuring both the on-the-job and off-the-job components that most contribute to a person's staying. Research evidence as well as ample anecdotal evidence (discussed here and other places) supports the value of using the job embeddedness framework for developing a world-class retention strategy based on corporate strengths and employee preferences.To execute effectively their corporate strategy, different organizations require different knowledge, skills and abilities from their people. And because of occupational, geographic, demographic or other differences, these people will have needs that are different from other organizations. For that reason, the retention program of the week from international consultants won’t always work. Instead, organizations need to carefully assess the needs/desires of their unique employee base. Then, these organizations need to determine which of these needs/desires they can address in a cost effective fashion (confer more benefits than the cost of the program). Many times this requires an investment that will pay off over a longer term – not just a quarter or even year. Put differently, executives will need to carefully understand the fully loaded costs of turnover (loss of tacit knowledge, reduced customer service, slowed production, lost contracts, lack of internal candidates to lead the organization in the future, etc., in addition to the obvious costs like recruiting, selecting and training new people). Then, these executives need to recognize the expected benefits of various retention practices. Only then can leaders make informed decisions about strategic investments in human and social capital.

Selected bibliography

A number of articles have influenced our thinking about the importance of connecting employee retention strategies to business strategies:

• R. W. Beatty, M. A. Huselid, and C. E. Schneier. “New HR Metrics: Scoring on the Business Scorecard,” Organizational Dynamics, 2003, 32 (2), 107–121.

• Bradach. “Organizational Alignment: The 7-S Model,” Harvard Business Review, 1998.

• J. Pfeffer. “Producing Sustainable Competitive Advantage Through the Effective Management of People,” Academy of Management Executive, 1995 (9), 1–13.

• C. J. Collins, and K. D. Clark. “Strategic Human Resources Practices and Top Management Team Social Networks: An Examination of the Role of HR Practices in Creating Organizational Competitive Advantage,” Academy of Management Journal, 2003, 46, 740–752.

The theoretical development and empirical support for the Unfolding Model of turnover are captured in the following articles:

• T. Lee, and T. Mitchell. “An Alternative Approach: The Unfolding Model of Voluntary Employee Turnover,” Academy of Management Review, 1994, 19, 57–89.

• B. Holtom, T. Mitchell, T. Lee, and E.Inderrieden. “Shocks as Causes of Turnover: What They Are and How Organizations Can Manage Them,” Human Resource Management, 2005, 44(3), 337–352.

The development of job embeddedness theory is captured in the following articles:

• T. Mitchell, B. Holtom, T. Lee, C. Sablynski, and M. Erez. “Why People Stay: Using Job Embeddedness to Predict Voluntary Turnover,” Academy of Management Journal, 2001, 44, 1102–1121.

• T. Mitchell, B. Holtom, and T. Lee. “How To Keep Your Best employees: The Development Of An Effective Retention Policy,” Academy of Management Executive, 2001, 15(4), 96–108.

• B. Holtom, and E. Inderrieden. “Integrating the Unfolding Model and Job Embeddedness To Better Understand Voluntary Turnover,” Journal of Managerial Issues, in press.

• D.G. Allen. “Do Organizational Socialization Tactics Influence Newcomer Embeddedness and Turnover?” Journal of Management, 2006, 32, 237–257.

Executive SummaryEmployee turnover is costly to organizations. Some of the costs are obvious (e.g., recruiting, selecting, and training expenses) and others are not so obvious (e.g., diminished customer service ability, lack of continuity on key projects, and loss of future leadership talent). Understanding the value inherent in attracting and keeping excellent employees is the first step toward investing systematically to build the human and social capital in an organization. The second step is to identify retention practices that align with the organization's strategy and culture. Through extensive research, we have developed a framework for creating this alignment. We call this theory job embeddedness. Across multiple industries, we have found that job embeddedness is a stronger predictor of important organizational outcomes, such as employee attendance, retention and performance than the best, well-known and accepted psychological explanations (e.g., job satisfaction and organizational commitment). The third step is to implement the ideas. Throughout this article we discuss examples from the Fortune 100 Best Companies to Work For and many others to demonstrate how job embeddedness theory can be used to build human and social capital by increasing employee retention.     

Quarterly beta forecasting: An evaluation

Ever since the inception of betas as a measure of systematic risk, the forecast error in relation to this parameter has been a major concern to both academics and practitioners in finance. In order to reduce forecast error, this paper compares a series of competing models to forecast beta. Realized measures of asset return covariance and variance are computed and applied to forecast beta, following the advances in methodology of Andersen, Bollerslev, Diebold and Wu [Andersen, T. G., Bollerslev, T., Diebold, F. X., & Wu, J. (2005). A framework for exploring the macroeconomic determinants of systematic risk. American Economic Review, 95, 398–404; and Andersen, T. G., Bollerslev, T., Diebold, F. X., & Wu, J. (2006). Realized beta: Persistence and Predictability. In T. Fomby & D. Terrell (Eds.), Advances in Econometrics, vol 20B: Econometric Analysis of Economic and Financial Times Series., JAI Press, 1–40.]. This approach is compared with the constant beta model (the industry standard) and a variant, the random walk model. It is shown that an autoregressive model with two lags produces the lowest or close to the lowest error for quarterly stock beta forecasts. In general, the AR(2) model has a mean absolute forecast error half that of the constant beta model. This reduction in forecast error is a dramatic improvement over the benchmark constant model.     

Karl Mittermaier and the hands of classical liberalism

Karl Mittermaier (1938–2016) completed a work in 1987 titled The Hand Behind the Invisible Hand: Dogmatic and Pragmatic Views on Free Markets and the State of Economic Theory, published for the first time in 2020. Here I treat Mittermaier's rich meditation, which I interpret as a pursuit of greater coherence in classical liberal thought. Mittermaier emphasises the moral, cultural, and institutional preconditions of a liberal market order, and argues that some of the preconditions depend on people feeling that they have reason to embrace such classical liberal principles. The preconditions, then, depend in part on the perception of coherence and appeal of the liberal order.     

Evolving Game Theory

Jörgen W. Weibull (1995) Evolutionary Game Theory. MIT Press. £18.50 $30 xv+265 pp. Ken Binmore, Alan Kirman and Piero Tani (eds) (1993) Frontiers of Game Theory. MIT Press. £40.50 $47.50 350 pp.