Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?

We estimate how much United States farms changed enterprise diversification in response to a marked increase in crop insurance coverage brought about by the 1994 Federal Crop Insurance Reform Act, which substantially increased insurance subsidies. The analysis exploits farm‐level panel census data to compare farm‐specific changes in enterprise diversification over time. By examining diversification decisions of the same farms over time, we control for time‐invariant unobserved individual heterogeneity. We then use pooled cross‐sectional data from the United States Department of Agriculture (USDA) Agricultural Resource Management Survey to estimate the relationship between farm diversification and average returns. We find that the insurance subsidies caused a modest increase in enterprise specialisation and production efficiency. Estimated efficiency gains are far less than the subsidies.     

U.S. food aid and American exports to recipient countries during the Cold War

In this article, we test to what extent the food aid granted by the U.S. during the Cold War was strategically motivated and used to promote U.S. interests. Using the data for the period 1971–1990, we investigate whether U.S. wheat aid had an effect on recipient countries’ total import of American products. The evidence we provide suggests a positive and robust relationship and thus it is consistent with the argument that U.S. food aid helped to create larger markets for U.S. producers.     

What Does CEOs’ Pay-for-Performance Reveal About Shareholders’ Attitude Toward Earnings Overstatements?

If overstatements were a symptom of the agency conflict, pay-for-performance sensitivities should have increased in response to the additional penalties for misreporting imposed by SOX. Our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002. To corroborate our interpretation, we show that (i) CEO pay-for-performance sensitivities are higher among firms whose shareholders stand to benefit from overstatements; (ii) this cross-sectional relationship weakens significantly after SOX; and (iii) the within-firm decrease in pay-for-performance sensitivity is most pronounced among firms with high pre-SOX shareholder benefits from overstatements.     

Equity in Financing Primary and Secondary Education

Abstract . Per pupil educational costs for Kansas counties are analyzed according to degree to which the county is rural. The loss or gain due to migration of educated young people is then added into the costs. Those costs are then compared to ability to pay according to a number of indicators in each category of the county. The impact of various forms of taxation to support schools is analyzed. Rural counties spend more per pupil and pay higher per capita property taxes. The differences in cost between rural and urban areas is even greater when the effects of migration are included. Household incomes tend to be lower in more rural counties. The effects of a court-ordered change in school finance will increase the inequalities between rural and urban areas. It is contended that reliance on the property tax contributes highly to this inequality.     

Measuring Lifetime Redistribution in Dutch Occupational Pensions

Summary  This paper assesses how the Dutch system of occupational pensions redistributes between and within generations. The approach in this paper deviates from the usual approach by incorporating the full life cycle in the measurements, rather than only the annual effects. In order to quantify redistribution, we use the level of educational attainment, gender and age to classify the pension fund population. For all groups distinguished, we measure in present value terms the average net benefit from participating in occupational pensions. The results indicate a sizable redistribution from males to females and from low educated to higher educated workers. On a lifetime basis, the impact of intergenerational transfers is modest. I am grateful to the two anonymous referees, Ed Westerhout, Casper van Ewijk, Lex Meijdam, Yvonne Adema and Peter Kooiman for their helpful comments on earlier drafts of this paper, and to Andre Nibbelink for his valuable computational assistance.     

THE GENERAL STRUCTURE OF OPTIMAL INVESTMENT AND CONSUMPTION WITH SMALL TRANSACTION COSTS

We investigate the general structure of optimal investment and consumption with small proportional transaction costs. For a safe asset and a risky asset with general continuous dynamics, traded with random and time‐varying but small transaction costs, we derive simple formal asymptotics for the optimal policy and welfare. These reveal the roles of the investors' preferences as well as the market and cost dynamics, and also lead to a fully dynamic model for the implied trading volume. In frictionless models that can be solved in closed form, explicit formulas for the leading‐order corrections due to small transaction costs are obtained.     

A Note on Forecasting Emerging Market Exchange Rates: Evidence of Anti‐herding

Using survey forecasts of a large number of Asian, European, and South American emerging market exchange rates, we studied empirically whether evidence of herding or anti‐herding behavior of exchange‐rate forecasters can be detected in the cross‐section of forecasts. Emerging market exchange‐rate forecasts are consistent with herding (anti‐herding) if forecasts are biased towards (away from) the consensus forecast. Our empirical findings provide strong evidence of anti‐herding of emerging market exchange‐rate forecasters.     

New Belgian Stock Market Returns: 1832–1914

The limited availability of high quality and computer readable data seriously impedes research in history and finance. We introduce a new monthly return series for Belgian owned equity based on Brussels Stock Market data for the period 1832–1914 as an improvement to the popular Drappier index. Over this period, our dataset includes 446,374 prices, 23,976 dividends, 371 stock and reverse splits (or other capital operations) on 2037 stocks of 1387 (foreign and Belgian) companies. Our dataset includes all shares and bonds but also high-quality information on prices, dividends, shares outstanding and market capitalization. In addition, company, country and sector information is available. We construct value weighted, price weighted and equally weighted indices as well as dividend yields. We find three important results. First, total nominal returns hover between 3.29% and 5.35% per annum, depending on how individual stocks are aggregated into the index. Second, dividend income constitutes the major part of total return and dividend distributions have a clear seasonal pattern. Third, the results highlight several drawbacks of the Drappier indices, especially an upward bias in expected equity performance.