The Year in Review: Economics at the Antitrust Division, 2005–2006

This paper covers the activities of the Economic Analysis Group (EAG) of the Antitrust Division, U.S. Department of Justice, during 2005–2006. It describes the economic analysis undertaken by EAG in several important investigations, appellate matters, and other activities as an advocate for competition.The views contained herein are solely those of the authors and do not necessarily represent those of the U.S. Department of Justice.     

Behavioral assumptions and theory development: the case of transaction cost economics

From a critical realist perspective, I discuss the role played by behavioral assumptions in organization theories, and use transaction cost economics as an illustrative example. Core behavioral assumptions often constitute the foundation of the mechanismic explanations of a theory, and thus should play a pivotal role in theory development. I distinguish between assumption‐based and assumption‐omitted theory testing, and show that empirical research in transaction cost economics has been dominated by assumption‐omitted testing. To establish a solid foundation for a new theory, management researchers should pay more attention to assumption‐based testing. Copyright © 2006 John Wiley & Sons, Ltd.     

Management earnings forecasts and other forward-looking statements

We identify forward-looking statements (FLS) in firms’ disclosures to distinguish between “forecast-like” (quantitative statements about earnings) and “other”, or non-forecast-like, FLS.  We show that, like earnings forecasts, other FLS generate significant investor and analyst responses. Unlike earnings forecasts, other FLS are issued more frequently when uncertainty is higher. We then show that earnings-related FLS are more sensitive to uncertainty than quantitative statements, suggesting that managers are more likely to alter the content than the form of FLS when uncertainty is higher.  Our study indicates that incorporating other FLS into empirical measures provides a more comprehensive proxy for firms’ voluntary disclosures.     

Who Receives Medicaid in Old Age? Rules and Reality

Medicaid is a government programme that also provides health insurance to the elderly who have few assets and either low income or catastrophic health care expenses. We ask how the Medicaid rules map into the reality of Medicaid recipiency, and we ask what other observable characteristics are important to determine who ends up on Medicaid. The data show that both singles and couples with high retirement income can end up on Medicaid at very advanced ages. We find that, conditioning on a large number of observable characteristics, including those that directly relate to Medicaid eligibility criteria, single women are more likely to end up on Medicaid – so are non‐white people, but, surprisingly, their higher recipiency is concentrated in the higher income percentiles. We also find that people with low incomes who have a high‐school diploma or higher degree are much less likely to end up receiving Medicaid than their less‐educated counterparts. All of these effects are large and depend on retirement income in a very non‐linear way.     

POSTERIOR‐PREDICTIVE EVIDENCE ON US INFLATION USING EXTENDED NEW KEYNESIAN PHILLIPS CURVE MODELS WITH NON‐FILTERED DATA

Changing time series properties of US inflation and economic activity, measured as marginal costs, are modeled within a set of extended New Keynesian Phillips curve (NKPC) models. It is shown that mechanical removal or modeling of simple low‐frequency movements in the data may yield poor predictive results which depend on the model specification used. Basic NKPC models are extended to include structural time series models that describe typical time‐varying patterns in levels and volatilities. Forward‐ and backward‐looking expectation components for inflation are incorporated and their relative importance is evaluated. Survey data on expected inflation are introduced to strengthen the information in the likelihood. Use is made of simulation‐based Bayesian techniques for the empirical analysis. No credible evidence is found on endogeneity and long‐run stability between inflation and marginal costs. Backward‐looking inflation appears stronger than forward‐looking inflation. Levels and volatilities of inflation are estimated more precisely using rich NKPC models. The extended NKPC structures compare favorably with existing basic Bayesian vector autoregressive and stochastic volatility models in terms of fit and prediction. Tails of the complete predictive distributions indicate an increase in the probability of deflation in recent years. Copyright © 2014 John Wiley & Sons, Ltd.     

Seemingly inconsistent analyst revisions

In about 20%–30% of cases where an analyst revises two outputs (namely, earnings estimates, target prices, or stock recommendations) simultaneously, the two estimates are revised in opposite directions. Existing literature notes that these inconsistent outputs are widespread, and concludes that they are lower-quality, driven by strategic bias, and are viewed as less valid by investors. We find that these characterizations are generally inaccurate. Apparent inconsistency is largely driven by accounting and economic factors, with only limited evidence that investment banking-related conflicts play a role. Moreover, inconsistent outputs are neither less accurate than consistent outputs nor do they resolve less investor uncertainty upon their release. Overall, our results suggest that researchers should be cautious in interpreting the correlation between analyst outputs as a measure of bias or quality, and in using a single analyst output as a proxy for an analyst's overall views.     

Geographic distribution of suicide and railway suicide in Belgium, 2008–2013: a principal component analysis

This study investigated the geographic distribution of suicide and railway suicide in Belgium over 2008--2013 on local (i.e., district or arrondissement) level. There were differences in the regional distribution of suicide and railway suicides in Belgium over the study period. Principal component analysis identified three groups of correlations among population variables and socio-economic indicators, such as population density, unemployment, and age group distribution, on two components that helped explaining the variance of railway suicide at a local (arrondissement) level. This information is of particular importance to prevent suicides in high-risk areas on the Belgian railway network.     

Wage Differentials among Ownership Groups and Worker Quality in Vietnamese Manufacturing

Wholly foreign multinational enterprises (WFs), joint-venture multinationals (JVs), state-owned enterprises (SOEs) pay higher wages than domestic private firms in Vietnamese manufacturing. In large samples of medium–large (20+ employees) firms, conditional differentials accounting for worker education and occupation, as well as capital intensity, size, and shares of female workers, were substantially smaller, but positive and significant. Wage levels and differentials varied substantially among industries. Conditional differentials remained positive and significant for WFs and JVs in most of the 11 industries examined, but estimates of SOE-private differentials were insignificant in most industries. Robustness checks using 2007 data yielded similar results.