Development of Trust: A Study of Interfirm Relationships in Vietnam

The radical political and economic reforms sweeping through former socialist countries during the last decade have opened rich opportunities for privately owned businesses to emerge and develop. Since the market institutions and infrastructures in these countries are largely underdeveloped, private firms in transition economies rely extensively on interfirm partnerships. This raises the question of how—in the absence of institutions that legitimate markets, contracts, and private property—managers of new business ventures develop new relationships. This paper addresses this issue through analysis of multiple subcontracting relationships formed at a private garment company in Vietnam. This analysis suggests that firms in transition economies develop interfirm trust in ways that are quite different from their counterparts in more highly developed economies.     

Raleigh building products: A teaching case that highlights the differences between IFRS and US GAAP

Within 5 years, the United States will join the rest of the world’s industrialized countries and many emerging economies in adopting International Financial Reporting Standards (IFRS). However, many educational programs have not yet developed full curricula or integrated case studies in existing programs to compare and contrast how US GAAP and IFRS would record and present major accounting transactions.Based on events that reflect real world scenarios, this study presents a series of three Raleigh Building Products cases as an instrument to fill the current IFRS education void. The first case in the series discusses US GAAP acquisition and consolidation activities, the second case examines asset and intangible impairment under US GAAP and IFRS, and the last case adds components that differ significantly between US GAAP and IFRS. The series of cases can be used stand alone or build upon each other throughout the semester. The combined cases focus on the following key concepts: (1) calculating acquisition price; (2) preparing combination financial statements including deleting LIFO reserves; (3) measuring goodwill and other intangibles; (4) determining the impairment of goodwill due to economic declines; and (5) comparing fundamental differences between US GAAP to IFRS. The attached teaching notes detail these matters and discuss the statements of cash flows under US GAAP and IFRS.Results from classroom use indicate that this case will benefit accounting students and practitioners as IFRSs become effective in the US.     

Choosing the Technical Efficiency Orientation to Analyze Firms' Technology: A Model Selection Test Approach

We focus on the importance of the assumptions regarding how inefficiency should be incorporated into the specification of the data generating process in an examination of a sector's production or efficiency. Drawing on the literature on non-nested hypothesis testing, we find that the model selection approach of Vuong (1989) is a potentially useful tool for identifying the best specification before carrying out such studies. We include an empirical application using panel data on Spanish dairy farms where we estimate cost frontiers under different specifications of how inefficiency enters the data generating process (in particular, efficiency is introduced as an input-oriented, output-oriented and hyperbolic parameter). Our results show that the different models yield very different pictures of the technology and the efficiency levels of the sector, illustrating the importance of choosing the most correct model before carrying out production and efficiency analyses. The Vuong test shows that the input-oriented model is the best among the models we use, whereas the output-oriented model is the worst. This is consistent with the fact that the input- and output-oriented models provide the most and least credible estimates of scale economies given the structure of the sector.     

Quasi-weightings, Trading, and Desirability Relations in Simple Games

We investigate the problem of simultaneously characterizing various classes of simple games in three different ways: (i) the existence of “quasi-weightings” in which smaller numerical values are assigned to losing coalitions than are assigned to winning ones, (ii) the robustness of “winningness” with respect to trades involving groups of players, and (iii) the acyclicity of certain strict “orderings” that intuitively correspond to the idea of one player being more desirable than another.Journal of Economic LiteratureClassification Number: C71.     

Optimal Categorical Transfer Payments: The Welfare Economics of Limited Lump-Sum Redistribution

Despite their importance in tax-transfer systems, categorical transfer payments, based on (nearly) exogenous characteristics such as disability or date of birth, have been deemphasized in optimal-tax analysis. I use the well-developed theory of first-best redistribution to clarify the welfare economics of categorical transfers, which are a form of limited lump-sum redistribution. The comparison to first-best redistribution explains how categorical transfers affect groups' labor supplies and utility levels, why the use of categorical transfers is inversely related to the planner's inequality aversion, and why their use reduces the optimal income tax rate.     

Models to measure goodwill impairment

Statement of Accounting Standards No. 142 [2001] superseded the former rules of accounting for amortization of goodwill under Accounting Principles Board Opinion No. 17 [1970]. Entities muxt now recognize annually impairments in the value of the good-will associated with purchased firms, rather than amortizing such expenses ratably over 40 years. This better matching of revenues and expenses provides for more valid financial statements, but also mandates accountants to select proper models to measure such impairment losses. The authors highlight some reasons for the issuance of this new standard, compare and contrast the effects of the discounted cash flows and residual income methods to measure such impairments, and suggest how to develop a conceptual model to adhere to the new authoritative provisions. (JEL M41)     

Using Scanner Data to Estimate Country Price Parities: A Hedonic Regression Approach

This paper uses scanner data from the bar-code readers of retailers to provide estimates of inter-country price parities at the level of the basic heading. The use of such data is appealing given its extensive coverage of transactions, information on weights, prices and characteristics of items at a highly detailed level. The study uses dummy variable hedonic and exact/superlative hedonic index number formulations applied to an inter-country context for both bilateral and multilateral comparisons. Unlike conventional methods, such methods are not confined to matched samples comparisons and thus make use of the entire sample. Their application extends to price survey data using checklists on characteristics. The application is to scanner data on about 1 million transactions for television sets over two months in three countries. It is, to the authors' knowledge, the first such use of scanner data and application of the above hedonic frameworks in this context.     

Ranking opportunity sets in a simple intertemporal framework

We extend the problem of ranking subsets (opportunity sets) of a set of alternatives to an intertemporal setting, whereby the agent makes a sequence of choice decisions over time. In particular, we show in a simple two-period model that an agent who satisfies five plausible axioms ranks opportunity sets in a lexicographic fashion. That is, the agent ranks opportunity sets based solely on the relative desirability of their first-period alternatives, and only if the first-period alternatives are thought equally desirable does the agent consider the second-period alternatives. We discuss this strong time-discounting result and the role of the axioms, and also show that the popular “independence” axioms employed in the existing “static” literature are inconsistent with some reasonable axioms regarding intertemporal choice.