Self-Correcting Information Cascades

We report experimental results from long sequences of decisions in environments that are theoretically prone to severe information cascades. Observed behaviour is much different—information cascades are ephemeral. We study the implications of a theoretical model based on quantal response equilibrium, in which the observed cascade formation/collapse/formation cycles arise as equilibrium phenomena. Consecutive cascades may reverse states, and usually such a reversal is self-correcting: the cascade switches to the correct state. These implications are supported by the data. We extend the model to allow for base rate neglect and find strong evidence for overweighting of private information. The estimated belief trajectories indicate fast and efficient learning dynamics.     

The Effects of Advertising,Social Influences,and Self-Efficacy on Adolescent Tobacco Use and Alcohol Consumption

Exploring the simultaneous effects of key variables on the unhealthy consumption behavior of adolescents, two studies focused on the relative effects of advertising, parental and peer influence, and self-efficacy on adolescent tobacco use and alcohol consumption. The results suggest that (1) advertising effects are largely neutralized by parental and peer influence; (2) peer and parental influence strongly predict adolescent tobacco use and alcohol consumption; and (3) self-efficacy is a weak predictor of both adolescent risk behaviors.     

Economic Determinants and Information Environment Effects of Earnouts: New Insights from SFAS 141(R)

Contingent considerations (earnouts) in acquisition agreements provide sellers with future payments conditional on meeting certain conditions. Prior research provides evidence that acquiring firms use earnouts to minimize agency costs associated with acquisitions. Using earnout fair value information, recently mandated by SFAS 141(R), we provide new insights into the economic determinants to include earnout provisions in acquisition agreements, including motivations to resolve moral hazard and adverse selection problems, bridge valuation gaps, and retain target firm managers. We document variations in initial earnout fair value estimates and earnout fair value adjustments that correspond with these underlying motivations. We also provide evidence that target managers stay longer with the firm after the acquisition when earnouts are included primarily to retain target managers. Finally, we demonstrate that earnout fair value adjustments required by SFAS 141(R) provide valuable information to market participants and are negatively associated with the likelihood of contemporaneous and future goodwill impairments.     

AN EXPLORATORY COST-BENEFIT STUDY OF A BRITISH STANDARD FOR UPHOLSTERED FURNITURE FABRIC

Without an evaluation of the costs and benefits arising from the production of standards for consumer goods, consumer policy makers will be operating with incomplete information in their decision-making. A standard specification for a fabric used in upholstered furniture is costed to see what resources were used in its preparation and what benefits can be estimated to have accrued to the consumer.     

CALCULATING DEVELOPER CHARGES FOR URBAN INFRASTRUCTURE: A FEASIBLE METHOD FOR APPLYING MARGINAL COST PRICING

This paper considers the application of marginal cost pricing to the calculation of developer charges, also termed exactions or impact fees, in the contemporary urban environment. We derive an “ideal” measure of long-run marginal capacity cost (MCC) of urban infrastructure expansion. Given practical difficulties in estimating MCC, we develop an alternative Adjusted Amortization Method (AAM) with less onerous data requirements. Using a simulation model we compare the magnitudes of developer charges derived from the ideal MCC measure, our AAM method and three other common approaches to the measurement of MCC. Our results show that an adjusted version of the AAM formula performs very well.     

Unions and Firm Profits

This study examines the effect of unionization on manufacturing firm profits, extending earlier research by combining industry-level and firm-level measures of unionization. Using several profit measures, we find that quasi-rents from firm investments in intangible assets are a relatively greater source of union profit effects than product market concentration and that union profit effects occur largely in the first 10 percent of firm coverage, suggesting spillover effects on nonunion employees.     

Reconciling Financial Information at Varied Levels of Aggregation*

Financial statements summarize a firm's fiscal position using only a limited number of accounts. Readers often interpret financial statements in conjunction with other information, some of which may be aggregated in a different way (or not at all). This paper exploits properties of the double‐entry accounting system to provide a systematic approach to reconciling diverse financial data. The key is the ability to represent the double‐entry system by network flows and, thereby, access well‐recognized network optimization techniques. Two specific uses are investigated: the reconciliation of audit evidence with management‐prepared financial statements, and the creation of transaction‐level financial ratios.