Fiscal Policy Effectiveness in Japan

The effectiveness of fiscal policy in Japan over the past decade has been a matter of great controversy. We investigate the effectiveness of Japanese fiscal policy over the 1976–1999 period using a structural VAR analysis of real GDP, tax revenues, and public expenditures. We find that expansionary fiscal policy, whether in the form of tax cuts or of public works spending, had significant stimulative effects. Using a new method of computing policy multipliers from structural VARs, we calculate that the multiplier on tax cuts is about 25% higher at a four-year horizon than that on public works spending, though both are well in excess of one. A historical decomposition reveals that Japanese fiscal policy was contractionary over much of the 1990s, and a significant proportion of the variation in growth can be attributed to fiscal policy shocks; accordingly, most of the run-up in public debt is attributable to declining tax revenues due to the recession. Examining savings behavior directly, we find limited evidence of Ricardian effects, insufficient to offset the short-term effects of discretionary fiscal policy. J. Japan. Int. Econ., December 2002, 16(4), pp. 536–558. Federal Reserve Bank of New York, New York, and Institute for International Economics, Washington, DC. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E62, E65, E21.     

Price Dispersion Over the Business Cycle: Evidence from the Airline Industry

This study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry. Performing a fixed‐effects panel analysis on seventeen years of data covering two business cycles, we find that price dispersion is highly pro‐cyclical. This effect is especially pronounced for legacy carriers relative to low‐cost carriers. We show that our empirical result is consistent with firms' implementing second‐degree price‐discrimination tactics.     

Understanding the long-term implications of retailer returns in business-to-business relationships

Providing end consumers with the ability to return products is an important part of a retailer’s service offering. While research in reverse logistics has explored the movement of returned merchandise upstream, little research examines the relational implications of returned merchandise in the business-to-business (B2B) context. This research explores the relational implications, as well as the impact on the supplier salesperson’s behaviors, of retailer returns. Using a comprehensive dataset which includes longitudinal archival returns data, as well as two waves of retailer surveys reporting on salesperson behaviors, our research investigates how retail returns impact salesperson responses in the following time period, retailer perceptions of the relationship in the following time period, and returns in the following time period. Consistent with a reciprocal exchange perspective, results suggest that when salespeople respond to returns by engaging in relationship building behaviors, these behaviors are noted by the retailer, which in turn results in fewer returns in a future time period.     

Superstition and real estate prices: transaction-level evidence from the US housing market

We investigate the impact of superstition on prices paid by Chinese-American home buyers. Chinese consider 8 lucky and 4 unlucky. Lacking explicit buyer ethnicity identifiers, we develop a binomial name classifier, a machine learning approach applicable to any data set containing names, that allows for falsification tests using other ethnic groups, and mitigates ambiguity from the transliteration of Chinese characters into the Latin alphabet. Chinese buyers pay 1–2% premiums for addresses including an 8 and 1% discounts for addresses including a 4. These results are unrelated to unobserved property quality; no premium exists when Chinese sell to non-Chinese. The persistence of superstitions reflects the extent of cultural assimilation.     

The use of organized commodity markets to manage food import price instability and risk

The article explores the possibility of insuring the price risks of wheat and maize imports of low‐income food‐deficit countries (LIFDCs). Optimal strategies for an importing agent, who hedges with futures and options are derived, based on the objective of minimizing the unpredictability of import bills. Ex post simulations for a set of LIFDCs are run on wheat and maize imports hedged with futures and options in the Chicago Board of Trade, to explore the extent to which hedging reduces the unpredictability in import bills. Simulations encompass both periods of normal price behavior, as well as the period of global upheaval that occurred in 2007 and 2008. Results show that hedging with futures alone affords agents considerable opportunities for reducing import cost unpredictability, and the same holds with options, albeit, to a lesser extent. However, during the recent price spike of 2007–2008, hedging with options would have increased the unpredictability of some countries’ maize import bills, due to the combination of erratic import patterns and pronounced market uncertainty.     

Whose Crystal Ball to Choose? Individual Difference in the Generalizability of Concept Testing

The product development literature has identified several individual characteristics that could influence how subjects respond to new products in concept tests. Few of these characteristics have been thoroughly investigated. The purpose of this research is to examine whether a number of personality traits (1) do influence concept evaluation scores and (2) can be used to identify respondents who provide substantially higher‐quality data in concept testing and whether the answers to these questions change for major versus minor innovations. The data quality of the concept testing data is defined using the generalizability theory, which provides a decision‐specific G‐coefficient. Higher quality means a G‐coefficient closer to 1 for a particular managerial decision. A Web‐based study to concept test 10 appliance innovations on multiple occasions was conducted among 105 panelists from the Institute for Online Consumer Studies (IOCS). During the concept testing, respondents' innovativeness, change‐seeking tendency, and propensity to exert cognitive effort were also measured. The results showed that the respondent characteristics influence the mean evaluation of the concepts and the psychometric quality of the concept testing data: (1) there is a significant linear relationship between concept scores and all of the innovativeness scales and change‐seeking measures; (2) the effect of innovativeness on concept testing outcomes is even more substantial for major innovations than for minor innovations; (3) the study provides evidence that the quality of concept testing data provided by respondents varies substantially with their innovativeness, whereas the differences are more modest when scaling just minor innovations; (5) there are also strong effects on data quality for the Need to Evaluate scale used to capture cognitive effort characteristics; and (6) there is little effect of segmenting on social desirability on data quality. Managerially, the current results indicate that a product manager wanting to concept test a pool of appliance concepts can benefit from screening for the respondents who will provide higher‐quality concept testing data. For example, respondents who are high on domain‐specific innovativeness provide the highest‐quality concept testing data for both minor and major innovations. The effects of traits are stronger for major innovations, supporting the claim that subject selection is a more critical issue in concept testing of major innovations. Product managers can improve the quality of their concept testing data without an increase in cost by screening the subjects they use in concept testing.     

Exploring consumer conflict management in service encounters

Consumer researchers have yet to examine how consumers frame and deal with conflict. Understanding how consumers manage conflict is essential for service providers seeking to effectively recover instances of service failure, and avoid the costs associated with increasing instances of consumer anger. Using a modified grounded theory approach, we develop a model of consumer conflict management drawing on 39 informant accounts of service failures. The emergent model proposes that consumers’ conflict style is related to whether conflict is framed in task or personal terms. Task-framed conflicts resulted in more productive conflict styles than those framed in personal terms. Self vs. other orientation moderated the relationship between conflict frame and conflict style. These findings help us better understand the nature of consumer conflict and identify the importance of carefully targeting service recovery efforts to reduce instances of anger.     

HOW A UNIQUE CULTURE PROPOSITION BECAME A USP

How can you transform the way you do things into a compelling sales proposition? Zurich Insurance has created a Unique Culture Proposition which may well be its Unique Selling Point. Adam Kingl tells the story.     

The effect of weather on consumer spending

There has been a great deal of anecdotal evidence to suggest that weather affects consumer decision making. In this paper, we provide empirical evidence to explain how the weather affects consumer spending and we detail the psychological mechanism that underlies this phenomenon. Specifically, we propose that the effect of weather – and, in particular, sunlight – on consumer spending is mediated by negative affect. That is, as exposure to sunlight increases, negative affect decreases and consumer spending tends to increase. We find strong support for this prediction across a series of three mixed methods studies in both the lab and the field.     

Internal rationality, imperfect market knowledge and asset prices

We present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are ‘internally rational’, i.e., maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future, but agents may not be ‘externally rational’, i.e., may not know the true stochastic process for payoff relevant variables beyond their control. This includes future market outcomes and fundamentals. We apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investors? expectations of the price and dividend in the next period, rather than by expectations of the discounted sum of dividends. As a result, learning about price behavior affects market outcomes, while learning about the discounted sum of dividends is irrelevant for equilibrium prices. Stock prices equal the discounted sum of dividends only after making very strong assumptions about agents? market knowledge.