An Integrated Modular Approach to Teaching Introductory Economics

The authors describe the design and administration of a large two-semester course in principles of economics that permits both students and faculty some choice of both subject matter and meeting times during the semester. Students complete a standardized nine-week core and are then allowed to select topical modules. Advantages and disadvantages are discussed.     

In Search of Commitment-Oriented Human Resource Management Practices and the Conditions that Sustain Them

Drawing on data from a survey of human resource management (HRM) in Irish organizations, the paper examines the incidence of coherent bundles of commitment-oriented HRM practices and deploys loglinear modelling to test a series of hypotheses concerning external and internal factors which sustain such practices. The paper identifies the low overall incidence of cohesive commitment-oriented HRM practices in organizations in Ireland. The analysis establishes that the strategic integration of HRM into corporate strategy strongly favours the adoption of such practices, as does the avoidance of union recognition. No link can be established empirically between sectoral turbulence or dynamism and either the adoption or non-adoption of coherent sets of commitment-oriented HRM practices. Nor does the modelling identify any core set of underlying features which, when observed concurrently, greatly increases the likelihood that commitment-oriented HRM practices will be adopted.     

Are Tax Effects Important in the Long-Run Fisher Relationship? Evidence from the Municipal Bond Market

Are nominal bonds appropriately discounted for taxes? Empirical estimates of the response of nominal interest rates to changes in inflation, the Fisher effect, have failed to produce a definitive answer. Four reasons have been put forward as possible explanations: (i) Tobin effects, (ii) fiscal illusion, (iii) peso problems, and (iv) different estimators. Utilizing data on taxable and tax-exempt bond interest rates and several different estimators, we find that the Fisher effect estimates are always larger for the taxable bond relative to the tax-exempt bond, suggesting that fiscal illusion and different estimators cannot account for the previous results.     

Multinationals and human resource practices in Ireland: a rejection of the 'new conformance thesis'

In a previous edition of this journal, Turner et al. (1997a) claim that the industrial relations and human resource management practices of multinational companies operating in Ireland bear a close resemblance to those of indigenous firms. The advancement of this (new) conformance thesis stands in stark contrast to much recent work on Irish industrial relations. In this paper we criticize Turner et al.'s argument for its failure to appreciate and acknowledge the weight of evidence both internationally and in Ireland which points to the predominance of 'country-of-origin effects' over 'hostcountry effects', especially in countries characterized by weak industrial relations systems. We are also critical of the empirical basis of the 'new conformance thesis'. In analysing data from a recently conducted national workplace survey our doubts as to the empirical validity and generalizability of Turner et al.'s results are confirmed. In brief, the 'new conformance thesis' is refuted and the employment relations practices of foreign- and particularly US-owned establishments are shown to be very different from those of Irish workplaces.     

Comparative analysis of labor market dynamics using Markov processes: An application to informality

This paper discusses a set of statistics for examining labor market dynamics in developing countries and offers a simple search model that informs their interpretation. It then employs panel data from Argentina, Brazil and Mexico to generate a set of preliminary stylized facts about patterns of sectoral transition and duration. Finally, it nests two competing views of the informal sector within the model and uses variation in the statistics across age and the business cycle to help discriminate between them. The results suggest that a substantial part of the informal sector, particularly the self-employed, corresponds to voluntary entry, although informal salaried work may correspond more closely to the standard queuing view, especially for younger workers.     

Long-Range Dependence in U.S. Home Price Volatility

The existence of GARCH effects in a financial price series means that the probability of large losses is much higher than standard mean-variance analysis suggests. Accordingly, several recent papers have investigated whether GARCH effects exist in the U.S. housing market, as changes in house prices can have far-ranging impacts on defaults, foreclosures, tax revenues and the values of mortgage-backed securities. Some research in finance indicates that the conditional variance of some assets exhibits far greater persistence, or even “long memory”, than is accounted for in standard GARCH models. If house prices do indeed have this very persistent volatility, properly estimating the conditional variance to allow for such persistence is crucial for optimal portfolio management. We examine a number of U.S. metropolitan areas, and find that, for those with significant GARCH effects, more than half indeed exhibit the very high persistence found in other assets such as equities. We also find that, for those markets exhibiting such persistent volatility, C-GARCH models typically do a better job in forecasting than standard GARCH models. Moreover, there is some tentative evidence that metro areas with the fastest appreciation may be most likely to have such long memory conditional variance. These findings should help in improving risk management, through, for instance the construction of better-specified value-at-risk models.     

HARVESTING VALUE FROM ENTREPRENEURIAL SUCCESS

This article discusses ways for entrepreneurs to gain liquidity from their businesses, either with or without a sale of the business. In today's financial arena there is a wide variety of methods and financing vehicles that can enable private companies to harvest liquidity to meet their own needs for growth, the consumption requirements of their founders, or the challenges of tax and estate planning. For companies with limited growth opportunities but fairly stable cash flows, the alternatives range from orderly liquidation to highly leveraged transfers of ownership such as those accomplished by leveraged buyouts, ESOPs, and mezzanine finance. For companies with abundant growth opportunities, value is typically maximized through sale to a strategic buyer or an initial public offering of equity (although a new hybrid called the "private IPO" has recently emerged that looks more like an LBO than an IPO).
In order to achieve its full potential, a company should be financed in such a way that enables it to continue through its natural business lifecycle, regardless of whether that matches the human lifecycle of its founder. So long as leadership succession can be arranged, the business lifecycle can determine the course of the company. Indeed, selling the business is the value-maximizing solution only if there is a strategic buyer willing to pay a premium above the business's stand-alone value, or if the founder wants to withdraw from the business and has no preferred successor.
Moreover, for the vast majority of companies, going public is not the recommended means for "cashing out." An IPO is likely to be a value-maximizing (and emotionally satisfying) experience only for (1) companies with valuable growth prospects that require funding for investment and (2) owner-entrepreneurs who are willing to subject themselves to the scrutiny and fluctuations of the market.     

Hayek, Keynes, and modern macroeconomics

The Great Recession seems to be creating a change in the trend of macroeconomic thinking. Prior to the financial crisis of 2008, dynamic stochastic general equilibrium (DSGE) models dominated the macroeconomics literature without any apparent challengers on the horizon. Since then, however, we have seen an increasing interest in macroeconomic models that address the state of confidence (??animal spirits??), complexity, cognition, and radical uncertainty. Most of the renewed interest in animal spirits, complexity, cognition, and radical uncertainty has come from a more or less ??Keynesian?? perspective. We discuss the potential to emphasize these elements from a more ??Hayekian?? perspective and argue that Austrian approaches to macroeconomics along these lines are more likely to resonate with mainstream economists than in years past.