Optimal wage contracts under asymmetric information and moral hazard when investment decisions are delegated

I derive an optimal wage contract when risky investment decisions are delegated by riskaverse owners/investors to risk-neutral agents. The owners/investors do not know the probability distribution over the returns of any investment made by an agent. They know only the mean and the variance, and the upper and lower bounds of the return realizations of the different positive net present value (NPV) investment opportunities that can be discovered by their agents. They observe only the returns realized at the end of the period. Moral hazard with respect to investments made by agents, who are protected by limited liability, is also possible: an agent can falsely claim to have invested in one type of positive NPV investment opportunity and invest in another, or the agent can falsely claim to have invested in a positive NPV investment and invest in a negative NPV investment. I show that an optimal wage contract is simple under such conditions of severe asymmetric information and moral hazard. (JEL G20, G31)     

Information theoretic approach to migration analysis

Information theory is employed to look at certain aspects of migration. It is suggested that the dividedness of a population into “movers” and “stayers” is better assessed by migration entropy. The notion of “migration inequality” is introduced and the principle of minimum entropy suggested as a criterion for fitting migrations models. Canadian census data are utilized for illustration purposes.     

Costs and utilization of hemophilia A and B patients with and without inhibitors

Objective:

To evaluate the health system costs among patients with hemophilia A and B with and without inhibitors over 5 years.

Methods:

This was a retrospective, observational study utilizing medical and pharmacy electronic medical records and administrative encounters/claims data tracking US patients between 2006–2011. Patients with diagnosis codes for hemophilia A and B were identified. Patients with inhibitors were characterized by utilization of bypassing agents activated prothrombin complex concentrate or factor VIIa on two or more distinct dates. Severity was classified as mild, moderate, or severe based on laboratory tests of clotting factor.

Results:

There were 160 hemophilia A patients and 54 hemophilia B patients identified. From this group, seven were designated as patients with inhibitors (five with hemophilia A and two with hemophilia B). Hemophilia A patients without inhibitors reported 65 (41.9%) as being severe, 19 (12.3%) as moderate, and 71 (45.8%) as mild. Hemophilia B patients without inhibitors reported nine (17.3%) had severe, 13 (25.0%) had moderate, and 30 (57.7%) had mild hemophilia. All patients with inhibitors had been hospitalized in the previous 5 years compared to 64 (41.3%) with hemophilia A without inhibitors and 22 (42.3%) with hemophilia B without inhibitors. The median aggregate cost per year (including factor and health resource use) was $325,780 for patients with inhibitors compared to $98,334 for hemophilia A patients without inhibitors and $23,265 for hemophilia B patients without inhibitors.

Conclusions:

The results suggest that, while the frequency of inhibitors within the hemophilia cohort was low, there was a higher frequency of hospitalizations, and the associated median aggregate costs per year were 3-fold higher than those patients without inhibitors. In contrast, hemophilia B patients experience less severe disease and account for lower aggregate yearly costs compared to either patients with hemophilia A or patients with inhibitors.     

Prices and Price Dispersion on the Web: Evidence from the Online Book Industry

Using data collected between August, 1999, and January, 2000, covering 399 books, we examine pricing by thirty-two online United States-based bookstores. At the aggregate level, we find that both advertising and competitive structure had the predicted effects. More competition led to lower prices and to lower price dispersion. Holding competitive structure constant, more widely advertised items also had lower prices. At the firm level, we observe considerable heterogeneity in behavior. Firms had differentiated (or attempted to differentiate) on dimensions such as brand, price, and selection.     

Retail Strategies on the Web: Price and Non–price Competition in the Online Book Industry

Two conflicting predictions have emerged regarding the effect of low–cost information on price. The first states that all Internet retailers will charge the same low price for mass produced goods. The second states that Internet retailers will differentiate to avoid intense price competition. Using data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores, we find similar average prices online and in physical stores and substantial price dispersion online. Analysis of product differentiation yields no clear results. The substantial premium charged by Amazon provides indirect evidence of product differentiation.     

Impact of the Financial Crisis on Cross‐Border Mergers and Acquisitions and Concentration in the Global Banking Industry

The global banking industry has seen dramatic changes in the past 40 years. Most recently, the financial liberalization of emerging markets and the global financial crisis have significantly impacted the market share of banks worldwide. This article investigates the impact of the 2007–2008 financial crisis on cross‐border mergers and acquisitions (M&As) in the banking sector and emphasizes the role of emerging‐market banks in the postcrisis consolidation trend. Using M&A data and concentration data over the period 2000–2013, our analysis indicates that the financial crisis had a significant impact on worldwide M&As, especially on the direction of the transactions. Emerging‐market banks appear to be major acquirers in the postcrisis period, targeting both neighboring countries and developed economies in Europe. We also observe an increase in bank concentration in developed markets most hit by the financial crisis, especially in the United States and the United Kingdom, whereas bank concentration decreased in emerging markets. © 2015 Wiley Periodicals, Inc.     

Reforms and Entry: Some Evidence from the Indian Manufacturing Sector

Traditional research in the context of product market entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry, and have identified industry-specific factors that affect entry rates. However, following de Soto (1989 ), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using three-digit industry-level data from India, for the 1984–97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry-level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations in entry rates during the 1990s were explained largely by state-level institutional and legacy factors. Past productivity growth affects net entry rates as well.     

Earnings management and market liquidity

The main purpose of this paper is to argue the extent that earnings management lowers disclosure quality. It should increase information asymmetry and impair trading liquidity. Using a large sample of NYSE firms from 1996 to 2001, we find evidence to suggest that firms which exhibit greater earnings management are associated with lower market liquidity. Our results are robust to both real and accounting based measures of earnings management and two well established measures of market liquidity. However, they are not consistent with the Easley et al. probability of informed trade measure.     

Narratives in managers’ corporate finance decisions

This article uses the extended case method to explore senior executives’ corporate finance decisions. We quantified firm’s finance practices using a mail survey, and then – to resolve puzzles in managers’ decision processes – conducted face‐to‐face interviews with chief finance officers of large listed firms. The interviews identified six themes as consistent influences on finance decisions: pressures imposed by clienteles; constraints on resources; risk management; heuristics; real options; and sustainability. We conclude that managers are logical and rational in their decisions, but employ a wider range of criteria than assumed in conventional finance theories.     

Brand related information as context: the impact of brand name characteristics on memory and choice

Consumer exposure to new brand names can occur in contexts with or without brand information being present. Whereas previous research has examined the effects of brand name characteristics (association set size and word frequency) on memory in the presence of brand information, this paper also assesses brand name effects in contexts without brand related information and extends it to brand consideration and choice. Two different processes are found to be operating as consumers retrieve brands and make a choice. Recall seems to benefit from a distinctiveness based route, which also guides consideration and choice. In contrast, implicit memory is influenced by familiarity, with corresponding consideration and choice effects. The implications are that firms’ choice of brand names and media needs to consider the combination of brand name characteristics that will lead to desired outcomes vis-à-vis distinctiveness or familiarity based processes.