Contracting With Wealth-Constrained Agents

We examine how a project owner optimally selects a project operator and motivates him to deliver an essential noncontractible input (e.g., effort) when potential operators are privately informed about their limited wealth. Truthful revelation of wealth is induced by promising a higher probability of operation and, if necessary, a greater share of realized profit the larger the nonrefundable bond that a potential operator posts. The project owner benefits when total wealth is widely dispersed among potential operators. Under plausible conditions, limited knowledge of wealth is not constraining for the project owner.     

Identifying sources of systematic variation in direct price elasticities from revealed preference studies of inter-city freight demand

Freight demand elasticity studies vary significantly in terms of the demand measure, data type, estimation method, commodity type, etc. This wide variation makes it difficult to compare empirical estimates when the differences may arise in part from the methods and data used. In this paper we conduct a comparative analysis to identify systematic sources of influence on direct price elasticity estimates in the context of freight transport, distinguishing between road, rail, and sea transport, using published direct price elasticities from 12 elasticity-derivative studies from five countries. The study focuses on revealed preference elasticities defined by the freight rate for tonnes and tonne kilometres of inter-city freight movements. Systematic sources that explain differences in direct price elasticities include the demand elasticity measure, mode, commodity class, model estimation form, country, and temporal nature of data (e.g., cross-section). Analysts can utilise the model outputs to adjust the empirical evidence from specific studies to control for differences that impact on the behavioural implications of comparative evidence.     

Corporate Governance as Part of the Strategic Process: Rethinking the Role of the Board

Commercial food health branding is a challenging branch of marketing because it might, at the same time, promote healthy living and be commercially viable. However, the power to influence individuals’ health behavior and overall health status makes it crucial for marketing professionals to take into account the ethical dimensions of health branding: this article presents a conceptual analysis of potential ethical problems in health branding. The analysis focuses on ethical concerns related to the application of three health brand elements (functional claims, process claims, and health symbols) as well as a number of general concerns that apply to health branding as such. Being a pioneering analysis, this article advances the academic understanding of health branding and provides practitioners with knowledge of important concerns to take into account when marketing health brands.     

The Effectiveness of Vehicle Safety Inspections: An Analysis Using Panel Data

We examined the effectiveness of state automobile safety inspections and present new evidence from a panel of the 50 states for the years 1981-1993. Our approach incorporated several innovations over previous studies of safety inspections; most significantly, we estimated a fixed-effects model that incorporated state-specific shifts in casualty rates. We found no evidence that inspections significantly reduce fatality or injury rates. Our study also provides evidence on the effects of speed limits, seat belts, and Peltzman's offsetting behavior hypothesis.     

A Model of Supplier Responses to Just-In-Time Delivery Requirements

When buyers provide incentives for suppliers to deliver just-in-time, suppliers can respond by choosing to hold additional inventory, reducing the variance of flow time to facilitate just-in-time production, or both. A model characterizing the supplier's optimal response to incentives for JIT delivery is presented. The model shows a situation where the optimal action of the supplier is to hold more inventory. When incentives for on-time delivery are increased, the supplier responds by decreasing the variance of flow time and by increasing the lead time allowance. However, the lead time allowance increases more quickly than the variance is reduced, resulting. in a net increase in the amount of inventory that must be held by the supplier. The result is that inventory is pushed upstream. This paper does not suggest that inventory is always pushed upstream in JIT purchasing. Rather, it provides a counter-example to those who presume that holding more inventory is always a non-optimal response to buyer's requests for JIT delivery.     

Beer Taxation and Alcohol-Related Traffic Fatalities

Most studies of alcohol-related traffic fatalities find beer taxes to be an important policy variable. This is surprising since beer taxes only have a small impact on consumption and heavy drinkers are the least responsive to prices. This study shows that the tax relationship is not robust across data periods and that it reflects missing variable biases. While lack of control for law enforcement effort does not appear to bias tax coefficients, failure to include determinants of alcohol consumption other than taxes and drinking age and/or factors that simultaneously determine drinking behavior and political support for alcohol taxes apparently do.     

A Comparison of Two Quadratic Approaches to Hedging in Incomplete Markets

This paper provides comparative theoretical and numerical results on risks, values, and hedging strategies for local risk-minimization versus mean-variance hedging in a class of stochastic volatility models. We explain the theory for both hedging approaches in a general framework, specialize to a Markovian situation, and analyze in detail variants of the well-known Heston (1993) and Stein and Stein (1991) stochastic volatility models. Numerical results are obtained mainly by PDE and simulation methods. In addition, we take special care to check that all of our examples do satisfy the conditions required by the general theory.     

Persistent Advantage or Disadvantage?: Evidence in Support of the Intergenerational Drag Hypothesis

By utilizing the Integrated Public Use Microdata Series (IPUMS) and a measure of occupational prestige (OCCSCORE) as a labor market outcome, the authors examine variations in the degree of labor market discrimination faced by several ethnic and racial groups in the United States between 1880 and 1990. Results demonstrate that the sharpest decline in labor market discrimination against blacks occurred between 1960 and 1980. For black males the extent of labor market discrimination was greater in all census years in IPUMS after 1880 until 1970, evidence contradicting the conventional expectation that market-based discrimination will decline progressively over time by dint of competitive pressure. Finally, after replicating George Borjas' "ethnic capital" exercise, the authors pool the 1880, 1900, and 1910 data to determine the relative magnitude of a group's gains and losses in occupational prestige due to group advantage or disadvantage in human capital endowments and due to favorable or unfavorable treatment (nepotism or discrimination) of those endowments in the labor market. The authors then examine statistically whether the group human capital advantage or disadvantage and group exposure to nepotism or discrimination at the turn of the century affects labor market outcomes for their descendants today. Results indicate strong effects of the past on present labor market outcomes. Hence, the essence of the study is the statistical demonstration that there are significant and detectable effects on current generations of the labor market experiences of their racial/ethnic ancestors.