Discussion of “Contagion of accounting methods: evidence from stock option expensing”

Reppenhagen (Rev Account Stud, 2010) investigates how and through which channels contagion, i.e., accounting methods used by related firms, can influence a firm’s accounting choice. My discussion focuses on research design choices and the potential effect of factors other than those investigated in the study.     

Self-employment of immigrants and natives in Sweden – a multilevel analysis

Recent research suggests that self-employment among immigrants is due to a combination of multiple situational, cultural and institutional factors, all acting together. Using multilevel regression and unique data on the entire population of Sweden for the year 2007, this study attempts to quantify the relative importance for the self-employed of embeddedness in ethnic contexts (country of birth) and regional business and public regulatory frameworks (labour market areas). This information indicates whether the layers under consideration are valid constructs of the surroundings that influence individual self-employment. The results show that 10% (women) and 8% (men) of the total variation in individual differences in self-employment can be attributed to the country of birth. When labour market areas are included in the analyses, the share of the total variation increases to 14% for women and 12% for men. The results show that the ethnic context and the economic environment play a minor role in understanding individual differences in self-employment levels. The results can have important implications when planning interventions or other actions focusing on self-employment as public measures to promote self-employment often are based on geographic areas and ethnic contexts.     

Are the choices of people stochastically rational? A stochastic test of the number of revealed preference violations

Revealed preference tests are frequently used to check data on the behavior of agents for consistency with economic theory. Unfortunately these tests lack a stochastic element and thus one violation of revealed preference causes a rejection of the behavior being tested. To remedy this lack of a stochastic element in revealed preference analysis, we suggest a general, simple, and intuitive statistical procedure to test whether the observed number of violations is more consistent with a pre-specified type of non-degenerate behavior than with rational behavior. We illustrate this general procedure with an example using uniform random behavior that allows researchers to test whether the actual number of violations of revealed preference is more consistent with uniform random behavior than rational behavior. This statistical test takes advantage of the fact that nonparametric revealed preference tests involve known prices and expenditures. Our illustrative example is accompanied by some Monte Carlo exercises showing that the uniform test performs very well. We implement our test using datasets from two well-known economic experiments. One is a dataset on altruistic choices from Andreoni and Miller (Econometrica 70:737–753, 2002). The second is a dataset on the choices made by subjects who act within a token economy from Battalio et al. (West Econ J 11:411–428, 1973) and Cox (Econ J 107:1054–1078, 1997). We find that for a majority of subjects in one altruistic behavior sub-experiment uniform random behavior can be rejected in favor of rational behavior at the 10 % level of significance. For all but one subject, living in the token economy, uniform random behavior cannot be rejected. For that one subject in the token experiment uniform random behavior is rejected in favor of perverse economic behavior.     

Aggregate implications of indivisible labor, incomplete markets, and labor market frictions

We study the impact of tax and transfer programs on steady-state allocations in a model with search frictions, an operative labor supply margin, and incomplete markets. In a benchmark model that has indivisible labor and incomplete markets but no trading frictions we show that the aggregate effects of taxes are identical to those in the economy with employment lotteries, though individual employment and asset dynamics can be different. The effect of frictions on the response of aggregate hours to a permanent tax change is highly nonlinear. There is considerable scope for substitution between “voluntary” and “frictional” nonemployment in some situations.     

Median‐voter Equilibria in the Neoclassical Growth Model under Aggregation*

We study a dynamic version of Meltzer and Richard's median‐voter model where agents differ in wealth. Taxes are proportional to income and are redistributed as equal lump‐sum transfers. Voting occurs every period and each consumer votes for the tax that maximizes his welfare. We characterize time‐consistent Markov‐perfect equilibria twofold. First, restricting utility classes, we show that the economy's aggregate state is mean and median wealth. Second, we derive the median‐voter's first‐order condition interpreting it as a tradeoff between distortions and net wealth transfers. Our method for solving the steady state relies on a polynomial expansion around the steady state.     

Private Equity and Investment in Innovation: Evidence from Patents

The authors' analysis of the patenting activity of 472 companies that received private equity investments between 1986 and 2005 provides suggestive evidence of an increase in the effectiveness (though not necessarily the quantity) of their innovative activities. After such companies received private equity backing, the patents they applied for received more frequent citations than patents awarded before the involvement of PE firms. Companies acquired by private equity also show no sign of deterioration in patent “originality” and “generality,” which have been shown to be fairly reliable indicators of the fundamental nature of the research. And while there is no clear pattern of change in the level of patenting activity, corporate patent portfolios become more focused in the years after the private equity investments. The increases in our measure of patent “impact” are greatest in the areas that constitute the companies' historical core strengths. These findings are likely to prove increasingly important as private equity continues its incursions into growth areas of the economy.     

The Siting of Hazardous Waste Facilities in Federal Systems: The Political Economy of NIMBY

This paper offers a new political economy explanation for thepervasive problem of siting hazardous waste treatment facilitiesin federal system. We first show that a decentralized systemyields the first-best waste treatment capacity level and that acentralized structure gives rise to free-riding behavior amonglocal jurisdictions. In our model, each community seeks toinfluence the central government through political contributions.This leads to suboptimal levels of treatment capacity. Thecapacity is increasing in the compensation level if the marginalbenefit of treatment capacity is sufficiently large, and in thegovernment's weight on aggregate social welfare relative tolobbying activities. The centralized system can replicate thedecentralized system with a sufficiently high compensation level.Since compensation has proved difficult, a centralized systemfaces greater obstacles than a decentralized system.     

Small firms,business dynamics and differential development of economic well-being

In recent years a growing stream of research has examined the relationships between structural characteristics of regions and their levels of new firm formation. This empirical study aims at supplementing such findings with analyses that include other forms of business dynamics, and also the possible well-being effects of such dynamics. From a unique and comprehensive data set that tracks all births, deaths, expansions, and contractions of commercial business establishments in Sweden 1985–89, six groups of regions with different patterns of dynamics are extracted by means of cluster analysis. The clusters' structural characteristics and their development of economic well-being are also compared. The results suggesta) that the patterns of business dynamics are contingent on the structural characteristics of regions,b) that high formation and turnover of establishments are associated with a relative increase in economic well-being, andc) that small, autonomous firms have a vital role in this process.