Correlation Tests for Competitive and Cournot Equilibria

This note derives simple correlation tests for eithercompetitive or Cournot conduct. Robustness of theprocedure is theoretically explored and a time-seriescorrection for inflation or market growth is derived.     

Operational risk and equity prices

We use an empirical model to categorize firms into portfolios based on operational risk. Using these portfolios, we show that a strategy of buying firms in the highest decile of operational risk and shorting firms in the lowest decile of operational risk earned a positive but insignificant risk-adjusted average return of 0.72% per month from 1990 to 2000. However, from 2001 to 2010, the same strategy earned a significantly negative risk-adjusted average return of ?1.50% per month. This change occurred during a time characterized by an increasing number of high profile operational losses and regulatory changes surrounding operational risk.     

Equilibrium in abstract economies without ordered preferences

We extend a theorem of G. Debreu on the existence of equilibrium in a generalized N-person game (‘A Social Equilibrium Existence Theorem’). Applying standard techniques the result can be used to prove the existence of equilibrium in economies with interdependent preferences, price-dependent preferences and preferences which may be both non-transitive and non-complete. This generalizes a recent theorem of A. Mas-Colell.     

Environmental,social, and governance practices and perceived tail risk

Using the implied volatility smirk on individual equity securities to measure perceived tail risk, we find that better environmental, social and governance (ESG) practices significantly reduce ex-ante expectations of a left-tail event. Our findings are robust to using multiple model specifications and to adjusting for potential endogeneity concerns. We also show that, while practices in each ESG pillar are important in reducing perceived tail risk, the environmental pillar plays the most important role. Our results indicate that investors consider strong ESG practices to be insurance against left-tail events rather than wasteful investment borne out of managers’ own values or self-interest.     

Consumer debt and unemployment

We present evidence that US consumer debt has varied inversely with unemployment rates since 1990, potentially reflecting responses by households and/or lenders to adverse labour market conditions, and helping explain why consumer debt recently fell despite low interest rates. For several measures of debt, unemployment exhibits greater explanatory power and economic significance than interest rates.     

The Competitive Impact of Disclosure Requirements in the Credit Card Industry

Theoretical studies have questioned the efficacy of mandatory disclosure requirements under various conditions, but empirical studies of disclosure requirements have been rare. This paper tests the impact of the Fair Credit and Charge Card Disclosure Act of 1988, enacted specifically to increase the degree of competition in the credit card industry in the face of suspected consumer search costs. The findings suggest that the Act failed to achieve its intended purpose.     

Dynamics of Progression in Mountain Bike Racing

A major tenet of the recreation specialization framework is that people progress to higher stages of involvement over time. Results from recent studies suggest that involvement may actually be marked by stability or decline. Little is known about the extent to which people progress in outdoor activities where objective standards of performance exist. The purpose of this study was to examine the antecedents of objective and subjective progression among competitive mountain bike racers. Specialization dimensions of behavior, skill, and commitment differentiated among three classes of participants: Category 1, 2, and 3 racers. Specialization dimensions were also used to predict participants’ subjective progression in participation over the past five years and next five years. Relationships between specialization dimensions and subjective measures of progression differed with endurance skill and personal commitment being most significant. This study provides insight into the dynamics of progression, particularly in outdoor activities where objective performance standards exist.     

Machiavellianism,social norms,and taxpayer compliance

This study is the first to examine the relationships among Machiavellianism, social norms and taxpayer intentions to fraudulently overstate their deductions. We theorize and empirically document that (a) high Machiavellian taxpayers report significantly less ethical social norms, suggesting that reported social norms are influenced by cognitive biases such as social projection and Machiavellian cynicism; (b) reported social norms are, in general, significantly associated with tax evasion intentions; (c) social norms partially mediate the relationship between Machiavellianism and evasion intentions. Our findings imply that experimental research that controls for key personality traits such as Machiavellianism will be necessary to test the effectiveness of potential interventions designed to enhance social norms and tax compliance. Our findings also raise questions regarding the validity of certain social norm measures used in recent studies, particularly in the case of high Machiavellians. In contrast to much prior research, gender was not associated with the likelihood of committing tax fraud in our multivariate models, suggesting that the higher levels of tax compliance often associated with females may be eroding.