The intrinsic fallacy of market mechanism and private property rights in alleviating the tragedy of the commons

ABSTRACT

Economists’ solution to the tragedy of the commons relies on well-defined property rights and competitive market mechanism for limiting individuals’ self-serving, short-sighted actions that result in a dramatic depletion of the common resources. However, this solution implicates a serious threat in terms of sustainability. Recently, deterioration of genetic diversity reached alarming levels, mainly attributed to escalating economic pressure that obliges farmers to shift from local breeds towards more profitable and more productive industrial breeds. This study empirically examines the efficiency of the free market mechanism as a solution to the tragedy of the commons through a unique natural experiment in which a huge demand shock arises regarding sheep. Results robustly show that the free market mechanism can cope with even a very challenging demand shock through the adjustment of prices without any shortage of the commodity. However, this finding does not guarantee that such an outcome is sustainable over the very long term. Analysis of the growth rate of the local sheep breeds population and cross-breed sheep population shows that the trend is overwhelmingly in favour of cross-breeds, thus supporting concerns for a free market mechanism, intrinsically driving the extinction of local sheep breeds, an invaluable genetic resource.     

Debt, debt structure and corporate performance after unsuccessful takeovers: evidence from targets that remain independent

Significant increases in the level of target leverage have been previously documented following unsuccessful takeover attempts. This increased leverage may signal managerial commitment to improved performance, suggesting that corporate performance and leverage should be positively related. If, however, the increased leverage leads to further managerial entrenchment, then corporate performance and leverage should be negatively related. In this paper, we reexamine both motivations for the observed increase in leverage. Furthermore, we argue that changes in the composition of debt are also important, besides changes in the level of leverage. In particular, bank debt has frequently been assigned a proactive, beneficial monitoring role in the literature. Besides confirming the increase in the level of leverage, we also document increases in bank debt surrounding cancelled takeovers. As a result, we find a more complex relation between corporate performance and debt use: Overall, the relation between corporate performance and leverage is negative, as predicted by a dominant entrenchment effect. However, increases in bank debt reduce the adverse effect of the increase in the level of leverage.     

Performance measurement manipulation: cherry-picking what to correct

A common feature of managerial and financial reporting is an iterative process wherein various parties selectively correct particular measurements by challenging them and subjecting them to increased scrutiny. We model this feature by adding an agent appeal stage to the standard moral hazard model and show that it can be optimal to allow the agent to decide which performance measures to appeal, despite the agent’s incentive to cherry-pick. In the presence of measurement errors, the agent is incentivized by increased opportunities for cherry-picking that arise if he chooses the “right” vs. the “wrong” acts.

An approach to detecting plagiarism in spreadsheet assignments: A digital answer to digital cheating

Accounting instructors often experience frustration when confronted by plagiarism in student assignments. Also, they face difficulty verifying and proving cases of plagiarism. Students have increasingly found it easier to plagiarize assignments because of digitization in education. Instructors face an important pedagogical challenge due to digitization based plagiarism. Digitization, however, provides instructors with tools to address this issue. This paper showcases three tried and tested methods built into spreadsheet software to identify and detect plagiarism in spreadsheet based assignments. The first method is a manual method of hiding unique markers in files sent to students. The second method involves hiding a formula that can track plagiarism in more detail. The third method uses a program code to track issues related to authorship of assignments. These methods along with a compiled list of strategies discussed in this paper can help reduce plagiarism.     

危机迫使中国向内看

中国是否能够与美国、德国在出口市场上竞争并不是很重要，问题是，中国要在与美国、德国在中国国内市场展开竞争时，具有竞争力。     

The Squam Lake Report: Fixing the Financial System*

In these excerpts from The Squam Lake Report, fifteen distinguished economists analyze where the global financial system failed, and how such failures might be prevented (or at least their damage better contained) in the future. Although there were many contributing factors to the crisis—including “agency” problems throughout the financial system and a bankruptcy code poorly suited for reorganizing financial firms—at the core of the problem is a potential conflict between the risk-taking proclivity of financial institutions and the interests of the economy at large that must be managed at least in part through more effective regulation. The Squam Lake Report provides a nonpartisan plan to transform the regulation of financial markets in ways designed to limit systemic risk while preserving—to the extent possible and prudent—the economies of scale and scope that justify the existence of today's large financial institutions. To reduce the risks that large banks will fail, the authors call for higher capital requirements based on more effective assessments of the risks of bank assets and liabilities, as well as a new systemic regulator that should be part of the central bank. To reduce the costs of failure when it occurs, the authors propose that banks be required to create “living wills” laying out their plan to sell assets or shut down operations in the event of financial trouble. As part of that plan, regulators are urged to “aggressively encourage” banks to issue “contingent” debt capital securities that convert into equity.     

The Effect of Bank Relations on Investment Decisions: An Investigation of Japanese Takeover Bids

We study 154 domestic mergers in Japan during 1977 to 1993. In contrast to U.S. evidence, mergers are viewed favorably by investors of acquiring firms. We document a two-day acquirer abnormal return of 1.2 percent and a mean cumulative abnormal return of 5.4 percent for the duration of the takeover. Announcement returns display a strong positive association with the strength of acquirer's relationships with banks. The benefits of bank relations appear to be greater for firms with poor investment opportunities and when the banking sector is healthy. We conclude that close ties with informed creditors, such as banks, facilitate investment policies that enhance shareholder wealth.     

The Effect of a Program‐Based Housing Move on Employment: HOPE VI in Atlanta

We combine records of Atlanta Housing Authority (AHA) clients, Georgia Department of Labor (DOL) employment records, and neighborhood characteristics to analyze the causal effect of an exogenous move out of public housing on the employment of public housing residents. The exogenous move was caused by a HOPE VI or HOPE VI‐like project in Atlanta. We find that such an exogenous move has a positive and statistically significant effect on the probability of employment for those residents who moved relative to other public housing tenants. We also compare the change in employment of those whose exogenous move was to another public housing unit to those who took a housing voucher. We also compare the change in the probability of employment associated with an exogenous move and a voluntary move and find that both types of moves are associated with a greater probability of employment as compared to those who did not move.     

Towards Holistic "Front Ends" In New Product Development

Any firm that hopes to compete on the basis of innovation clearly must be proficient in all phases of the new-product development (NPD) process. However, the real keys to success can be found in the activities that occur before management makes the go/no-go decision for any NPD project. In other words, the most significant benefits can be achieved through improvements in the performance of the front-end activities—product strategy formulation and communication, opportunity identification and assessment, idea generation, product definition, project planning, and executive reviews. Noting the inherent difficulty of managing the front end, Anil Khurana and Stephen R. Rosenthal discuss findings from in-depth case studies of the front-end practices in 18 business units from 12 U.S. and Japanese companies. They offer a process view of the activities that the front end comprises, and they discuss the insights that their case studies provide regarding key success factors for managing the front-end activities. The case studies involved companies in industries ranging from consumer packaged goods to electronics and industrial products. Foremost among the insights provided by the case studies is the notion that the greatest success comes to organizations that take a holistic approach to the front end. A successful approach to the front end effectively links business strategy, product strategy, and product-specific decisions. Forging these links requires a process that integrates such elements as product strategy, development portfolio, concept development, overall business justification, resource planning, core team roles, executive reviews, and decision mechanisms. The case studies suggest that firms employ two general approaches for achieving these links. Some companies rely on a formal process to lend some order and predictability to the front end. Other companies strive to foster a company-wide culture in which the key participants in front-end activities always remain focused on the following considerations: business vision, technical feasibility, customer focus, schedule, resources, and coordination. This cultural approach is more prevalent among the Japanese firms in the study; the U.S. firms tend to rely on formality of the front-end process. The case studies also suggest that the front-end approach must be compatible with the firm's product, market, and organizational contexts. For example, standardized approaches seem to work best for incremental innovations.