Book reviews

Ohne Zusammenfassung     

Employment and child-care choices in Canada and the United States

In this paper we examine employment and child-care choices of two-parent families with young children in the United States and Canada, using a pooled data set based on recent national surveys in each country. We find that the employment and child-care choices of Canadian families are similar to those of U.S. families. Estimates of a model of employment and child-care choices indicate significant effects of child-care subsidies, child-care prices, and wage rates on employment and child-care choices. However, none of these factors helps to explain the differences in employment and child-care choices between the two countries.
Ce mémoire examine le choix de l'emploi et du soin des enfants dans les familles où il y deux parents aux Etats-Unis et au Canada en utilisant des données d'études récentes dans les deux pays. Il appert que les choix des familles canadiennes sont semblables à ceux des familles américaines. Les calibrations d'un modèle de ces choix montrent les effets significatifs des subventions au soin des enfants, du prix des soins des enfants, et des taux de salaires sur ces choix. Cependant, aucun de ces facteurs n'explique les diffrences dans les patterns de choix entre les deux pays.     

Estimating Income and Price Elasticities of Trade in a Cointegration Framework

This paper presents further evidence on the empirical regularity known as the "45-degree rule." Income and price elasticities of trade are estimated for 21 countries in a cointegration framework. More specifically, the autoregressive distributed lag (ARDL) modeling approach and the DOLS procedure are adopted to estimate the long-run structure. The empirical results confirm the existence of a systematic relationship between growth rates and income elasticity estimates: faster growing economies have high income elasticities of demand for their exports but lower import elasticities, which implies that faster growth can be observed without any marked secular trend in real exchange rates.     

Discrimination and Disidentification: The Fair-Start Defense of Affirmative Action

The Fair-Start Defense justifies affirmative action preferences as a response to harms caused by race- and sex-based discrimination. Rather than base a justification for preferences on the traditional appeal to self-esteem, I argue they are justified in virtue of the effects institutional discrimination has on the goals and aspirations of its victims. In particular, I argue that institutional discrimination puts women and blacks at an unfair competitive disadvantage by causing academic disidentification. Affirmative action is justified as a means of negating this unfair disadvantage.     

Politics, Insurance Regulation, and Unfunded Pension Liabilities

ABSTRACT: Insurance regulators operate in an environment in which resources are scarce and issues are most often complex and not salient to affected persons. Consequently, regulatory agencies, such as the Pension Benefit Guaranty Corporation (PBGC), need to use resources efficiently by making issues salient and not complex if regulatory goals are to be attained. To further its goal of full funding of defined benefit pension plans, the PBGC annually published a list of the Top Fifty Companies With the Largest Underfunded Pension Liability (LIST). This article investigates the issue of the economic effects of pension plan disclosure by measuring the share price response of the companies included on the LIST; then policy implications are drawn. The event study findings show that, on average, publication of the LIST did not have a negative effect on firm value. However, cross-sectional analysis provides some support for the contention that publication of the LIST had an economic cost on LISTed firms. The authors' results show that the value of large firms on the PBGC's list is less negatively affected at arrival (ARRIVAL) than smaller LISTed firms. Conversely, when firms leave the list (DEPARTURE), the value of large growth-oriented firms is more negatively affected than the value of other firms that reduce their unfunded pension liability. From a policy perspective, as hypothesized by Meier (1991), the PBGC used its scarce resources effectively by publishing the LIST. The issue of unfunded pension liability became less complex and more salient to interested parties. Consequently, consumer groups and political elites provided their support to further the regulatory agency's stated goal, which was the full funding of defined benefit pension plans. Furthermore, increased awareness of the underfunding problem contributed to the passage of the Retirement Protection Act of 1994.     

Is it worth subsidising regional repertory theatre?

Subsidies to the performing arts are usually justified by referenceto externality and public goods arguments that are hard to quantify.We suggest that subsidies to theatres may be appropriate becauseof their inability to engage in spatial price discriminationto capture consumer surplus. For one major theatre, we use audiencedata and the Clawson-Knetsch travel cost method to assess theextent of consumer surplus and find that it exceeds the levelof subsidy received from public sources. On the basis of thisexample, current subsidy levels are justifiable even withoutrecourse to traditional externality/public goods arguments.     

Competition and Competition Policy: Implications of Hong Kong's Reversion to China

The paper explores how Hong Kong's new status as China's Special Administrative Region (SAR) may affect the competitiveness of the industries and the relative position of companies owned by non-Hong Kong investors. The conclusion is that mainland Chinese firms will play an increasingly more important role in Hong Kong's economy and British firms will lose their dominance further. This does not, however, indicate a return to unequal competition in favor of firms from the sovereign country, but the beginning of a period of greater competition by all firms in Hong Kong, whether they be local or non-local. There is a risk that governmental and semi‐governmental corporations of the SAR and other Chinese governments may use their official and semi-official status to tilt the playing field in their favor, but appropriate competition law can address this concern.     

The Effect of Audit Quality on Earnings Management*

This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non-Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross-sectional version of the Jones 1991 model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non-Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10,379 Big Six and 2,179 non-Big Six firm years. Specifically, clients of non-Big Six auditors report discretionary accruals that are, on average, 1.5-2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non-Big Six auditors. This result also indicates that lower audit quality is associated with more “accounting flexibility”.