Can “good” architecture meet the market test?

Architectural quality is a public good characteristic of a building for which a market failure may occur. A hedonic price equation for office space in downtown Chicago is estimated to determine if the value of “good” architecture has been internalized by tenants or owners of commercial buildings. The regression results indicate that a considerable rent premium is paid for “good” new architecture but not for “good” old architecture. The results also yield information about the impact on office rent of other building characteristics such as age, height, location, and amenities.     

ESTIMATING EXPECTED EXCESS RETURNS USING HISTORICAL AND OPTION‐IMPLIED VOLATILITY

We test the relation between expected and realized excess returns for the S&P 500 index from January 1994 through December 2003 using the proportional reward‐to‐risk measure to estimate expected returns. When risk is measured by historical volatility, we find no relation between expected and realized excess returns. In contrast, when risk is measured by option‐implied volatility, we find a positive and significant relation between expected and realized excess returns in the 1994–1998 subperiod. In the 1999–2003 subperiod, the option‐implied volatility risk measure yields a positive, but statistically insignificant, risk‐return relation. We attribute this performance difference to the fact that, in the 1994–1998 subperiod, return volatility was lower and the average return was much higher than in the 1999–2003 subperiod, thereby increasing the signal‐to‐noise ratio in the latter subperiod.     

Bargaining When Exchange Affects the Value of Future Trade

We examine bargaining in a dynamic context where exchange between two parties affects the potential surplus from future trade. In this setting traders negotiate current contracts anticipating the impact of their agreement on future exchanges. We show that in growing environments these dynamic considerations will often ameliorate bargaining inefficiencies associated with private information and facilitate exchange as both parties cooperate to nurture the relationship. In contrast, we find that in declining environments dynamic considerations will often exacerbate bargaining inefficiencies and hinder trade, as both parties are hesitant to let the relationship mature. These findings have implications for preferences to form long-lived relationships.     

Business School Rankings and Business School Deans: A Study of Nonprofit Governance

We examine the relation between business school dean turnover and MBA program rankings from 1990–2002. We find little evidence that dean departures are related to changes in a school's overall rank in the US News & World Report rankings. However, dean turnover increases following drops in the Business Week rankings and deterioration in the student placement score as measured by US News & World Report. These results are significant in both a statistical and economic sense. Our findings suggest that schools react either directly to the rankings or to information that is reflected in the rankings.     

Investment and interest rate policy: a discrete time analysis

This paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy. It conducts the analysis in a Calvo-style sticky price model. A key innovation is to add investment spending to the analysis. In this environment, local real indeterminacy is much more likely. In particular, all forward-looking interest rate rules are subject to real indeterminacy.     

ON THE PREDICTABILITY OF GROWTH IN EARNINGS PER SHARE

Arguments are given to support the hypothesis that corporate earnings per share are predictable by simple forecasting models. If income numbers have predictable properties, growth is predictable and theories of corporate valuation become more credible. Notions that EPS growth are completely unpredictable are disputed.     

Monetary policy shocks and productivity measures in the G-7 countries

An implication of two-country international real business cycle models is that total factor productivity should be an exogenous stochastic process. Economic theories which feature labor hoarding, variable capacity utilization, and increasing returns predict that measured productivity shifts are not exogenous; instead, expansionary aggregate demand shocks should lead to an increase in measured productivity. For each of the G-7 countries, this paper measures quarterly aggregate total factor productivity for the domestic country and its rest-of-world (G-6) counterpart. In each case the domestic productivity measures are not strictly exogenous: expansionary U.S. monetary policy shocks, as well as other G-6 monetary policy shocks, lead to productivity expansions. The evidence indicates that international business cycle models are misspecified unless they feature endogenous productivity mechanisms.Received: June 2001, Accepted: December 2001, JEL Classification: E5, F4Correspondence to: Charles L. EvansFor their helpful comments, we thank Mario Crucini, Patricia Reynolds, and Steve Strongin. The views expressed in this paper do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.     

Why Exempt Doctors from the Market?

The medical profession in the United Kingdom is almost completely protected from the dissatisfaction of patients. Chris Charles, a solicitor, calls for the abolition of restrictive practices in the NHS and the re-establishment of consumer sovereignty.