Optimism and auditor liability

There is strong evidence that individuals are optimistic in the sense that they underrate the probability of a negative event occurring. This paper provides a positive theoretical analysis of how auditor optimism affects their incentives to take care under two liability rules: strict liability and a negligence rule. Under strict liability, auditors are held liable when they cause damages to investors. Under a negligence rule, auditors are held liable when they cause damages and in addition, act negligently, that is, fail to meet the standard of due care specified in legal and professional rules. I find the following results. (1) If due care is sufficiently close to the efficient level, a negligence rule distorts auditors’ incentives less than strict liability. Under strict liability, optimism makes the auditor overestimate the chances of finding material mistakes and thus induces suboptimal care. (2) If due care is too strict, the auditor will not exert due care but the same level of suboptimal care under either liability rule. (3) With increasing optimism and in the absence of punitive damages, strict liability becomes less preferable to a precise negligence rule. This statement also holds for vaguely defined standards of due care if due care is sufficiently strict or if auditor optimism is sufficiently high. (4) Punitive damages counteract suboptimal incentives generated by auditor optimism, especially under strict liability.     

Explaining the aggregate price level with Keynes's principle of effective demand

The mainstream view of Keynes's principle of effective demand is that it states something about quantities—and about quantities only. The principle is held to determine the levels of output and employment in a world not governed by Say's law. This paper argues that the principle of effective demand goes beyond this to explain not only ‘real’ activity levels but also the aggregate price level. A variant of the post-Keynesian D/Z-model is brought together with Marxian reproduction schemes to derive this result.     

Optimal design of rating-trigger step-up bonds: Agency conflicts versus asymmetric information

Agency conflicts and asymmetric information are two possible explanations that may rationalize the use of a step-up provision in the bond indenture. Within a continuous-time framework with bankruptcy costs and tax benefits, we analyze the optimal step-up bond design with respect to both frictions. We find that (i) contrary to existing results, step-up bonds are indeed able to mitigate the asset substitution problem, (ii) the use of a step-up feature can be a credible signal to overcome asymmetric information problems, and (iii) the optimal design as well as the conditions for the optimal use of step-up bonds is considerably different for the two explanations. This outcome implies that, based on observable firm and bond characteristics, it is possible to discriminate between the two motives underlying the use of step-up bonds.     

专家观点比哥本哈根会议更重要的

科尔尼经理Jochen Hauff参加了2009年12月在哥本哈根举行的联合国气候变化大会. 全世界都关注着这场国际性大会,每个人都期盼通过此次会议人类能取得重大进步,具体的、实质性的成果能够实现.毫不夸张地说,整个地球的重量仿佛都落到了这座北欧小城上.但在所有该说的都说了该做的都做了之后,我们却发现此次哥本哈根会议的成果并没有达到大多数人预期的效果.笔者认为,比哥本哈根会议对气候变化的影响更大的是企业具体行动的落实.     

Testing the growth effects of structural change

Against the backdrop of Baumol's model of ‘unbalanced growth’, a recent strand of literature has presented models that manage to reconcile structural change with Kaldor's ‘stylized fact’ of the relative constancy of per-capita real GDP growth. Another strand of literature goes beyond this, arguing that the expenditure shifts toward Baumol's ‘stagnant’ sector stimulate rather than dampen long-term economic growth because of the human capital-accumulating nature of major ‘stagnant’ services (like health care and education). This paper tests the relationship between structural change and economic growth empirically by means of a Granger-causality analysis of a panel of 18 OECD countries.     

The Seven Faces of Singaporeans: A Typology of Singapore Consumers and Their Aspirations and Life Satisfaction

A large-scale representative survey was conducted to examine lifestyle patterns of Singaporeans. The data were analyzed using a three-step approach. First, the underlying dimensions of Singaporeans' value system were identified using factor analysis. Based on 45 lifestyle and value items, six factors were obtained. The analysis suggests that the value system of Singaporeans can be described using the following six factors: (1) family values, (2) entrepreneurial spirit, (3) status, (4) traditional values, (5) materialism, and (6) society orientation. Second, these six factors were then utilized to identify clusters of Singaporeans with similar value profiles. The cluster analysis identified the following seven major groups of Singaporeans: (1) Traditional Family Oriented, (2) New Age Family Oriented, (3) Entrepreneurs, (4) Aspirers, (5) Materialists, (6) Pragmatists, and (7) Independents. Finally, to examine whether the identified value-based clusters could also be differentiated in terms of key demographic variables, a discriminant analysis was conducted. The results showed that the seven clusters had distinctive patterns along demographic variables. The examination of the aspirations and life satisfaction of the clusters showed that significant differences did exist among themselves. These differences in aspirations and life satisfaction were consistent with the traits and attitudes of the respective clusters and provided ample support to the grouping of the clusters.