Does culture influence IPO underpricing?

This paper examines how cultural differences influence cross-sectional variation in IPO underpricing across 39 countries. We conjecture that cultural difference across geographic boundaries will influence the acceptance of and the expectations for IPO underpricing. Cross-sectional differences in culture are measured using Hofstede's six cultural dimensions. Our analysis shows that high power distance and high long term orientation are significantly associated with higher IPO underpricing. We also show that underpricing is significantly lower in countries characterized by high uncertainty avoidance. When the model is expanded to include legal origin, market based and corporate governance variables, the three cultural factors remain significant. Our findings provide further evidence that culture impacts capital market returns. Overall, our finding that culture impacts IPO underpricing, suggests important implications for policy makers and investors.     

Random incentive systems in a dynamic choice experiment

Experiments frequently use a random incentive system (RIS), where only tasks that are randomly selected at the end of the experiment are for real. The most common type pays every subject one out of her multiple tasks (within-subjects randomization). Recently, another type has become popular, where a subset of subjects is randomly selected, and only these subjects receive one real payment (between-subjects randomization). In earlier tests with simple, static tasks, RISs performed well. The present study investigates RISs in a more complex, dynamic choice experiment. We find that between-subjects randomization reduces risk aversion. While within-subjects randomization delivers unbiased measurements of risk aversion, it does not eliminate carry-over effects from previous tasks. Both types generate an increase in subjects’ error rates. These results suggest that caution is warranted when applying RISs to more complex and dynamic tasks.     

Ergodicity, State Prices, and Long Bond Returns

We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.     

Competitive Conditions in the Tanzanian Commercial Banking Industry

Abstract: Since 1991, Tanzania has made important improvements in reforming its financial sector, dismantling the state‐dominated banking sector and allowing foreign bank entry. Despite this, the banking industry is still concentrated with low accessibility to financial services. Large foreign banks dominate the financial landscape, preventing competitive dynamism to permeate the sector. This paper analyses the competitive nature of the Tanzanian banking industry from 2004 to 2008. Utilizing a rich bank level data set, we employ the Panzar–Rosse methodology to compute the competitive index, taking into account risk, efficiency, regulatory and macroeconomic factors. The results show that banks in Tanzania earned their income under conditions of oligopolistic conduct. Moreover, the competitive index derived from an interest revenue equation was not significantly different from that obtained using an aggregate revenue measure. This suggests that the degree of contestability from traditional intermediation activities approximates overall bank behaviour. The overall message is that greater market contestability can be achieved by adopting measures aimed at stimulating competitiveness in the banking sector, including consolidating gains on the macroeconomic front and allowing more foreign bank entry so as to increase the spread of banking services.     

INSPECTING THE FOUNDATIONS OF LIBERALISM

Liberal justice is rooted in a system of conventions. They arise spontaneously as behavioural equilibria that bring mutual advantage to those adopting them. They protect life, limb, property and the pursuit of peaceful purposes, and require the fulfilment of reciprocal promises. Collective choice, where some impose choices on others who submit, violates liberal justice and reduces the set of freedoms. Liberalism and democracy are incompatible as organising principles and 'liberal democracy' is a contradiction in terms.     

Some Fundamental Truths About Tourism: Understanding Tourism's Social and Environmental Impacts

This paper offers an empirical case study of ecotourism in the island state of Cuba. The paper attempts to gauge the success Cuba has had in establishing eco-tourist practices that could be considered sustainable, and provides analysis of the various political factors that condition this success. Using some well-known benchmarks of sustainable eco-tourist practices, the paper presents the results of numerous interviews with key informants involved with ecological tourism in Cuba, archival research and observations from on-site visits to key ecotourism projects to examine the relative success of ecotourism on the island. Concluding that Cuba has had mixed success in moving to sustainable ecotourism, the paper examines the various political constraints that will likely determine the trajectory of Cuba’s ecotourism in the near and medium term.     

Comment on “Speculations on the Future of Advertising Research”

Abstract

David Stewart's “Speculations…” are based on the existence of a crisis in advertising. This comment takes a contrary position, premised on the derived and cyclical nature of advertising demand.     

Faculty Role Models and Diversifying the Gender and Racial Mix of Undergraduate Economics Majors

The sex, race, and undergraduate composition of newly minted Ph.D.s in economics is analyzed. Liberal arts colleges are shown to yield a disproportionate number of female economists while economists of color tend to come from comprehensive universities.