Long‐term information,short‐lived securities

The authors explore strategic trade in short‐lived securities by agents who have private information that is potentially long‐term, but do not know how long their information will remain private. Trading short‐lived securities is profitable only if enough of the private information becomes public prior to contract expiration; otherwise the security will worthlessly expire. How this results in trading behavior fundamentally different from that observed in standard models of informed trading in equity is highlighted. Specifically, it is shown that informed speculators are more reluctant to trade shorter‐term securities too far in advance of when their information will necessarily be made public, and that existing positions in a shorter‐term security make future purchases more attractive. Because informed speculators prefer longer‐term securities, this can make trading shorter‐term contracts more attractive for liquidity traders. The conditions are characterized under which liquidity traders choose to incur extra costs to roll over short‐term positions rather than trade in distant contracts, providing an explanation for why most longer‐term derivative security markets have little liquidity and large bid‐ask spreads. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:465–502, 2006     

PERESTROIKA'S POLITICAL ECONOMY

Abel Aganbegyan, The Challenge: Economics of Perestroika . London: Hutchinson "Second World" Series, 1988. xxvii + 248 pp.
Padma Desai, Perestroika in Perspective: the Design and Dilemmas of Soviet Reform . Princeton, NJ: Princeton UP, 1989. ix + 138 pp.
Anders Aslund, Gorbachev's Struggle for Economic Reform: The Soviet Reform Process, 1985–88 . London: Pinter, 1989. x + 218 pp.     

Reviews

“THE RURAL ECONOMY” M. Healey and B. llbery (Eds), 1985: The Industrialization of the Countryside Norwich: Geo Books, £32.50.

P. Lowe, G. Cox, M. MacEwen, T. O'Riordan, M. Winter, 1986: Countryside Conflicts. The Politics of Farming, Forestry and Conservation.

Aldershot: Gower Publishing Company, £19.50 hardback, £8.95 paper.

E. Stern and J. Turbin, 1986: Youth Employment and Unemployment in Rural England. Report of a One Year Pilot Study in Four Rural Areas for the Development Commission Development Commission/Tavistock Institute of Human Relations.

“GLOBAL RESTRUCTURING, LOCAL RESPONSE?” Philip Cook (Ed), 1986: Global Restructuring, Local Response. London: Economic and Social Research Council £10.00.

“LOCAL ECONOMIC DEVELOPMENT” Cordle, P., 1985: Employment and Industrial Development-Local Authority Initiatives. CIPFA, £5.00. V. Hausner (Ed) 1986: Critical Issues in Urban Economic Development, Volume II. Oxford: Clarendon Press, £22.50

“CRISIS IN THE INDUSTRIAL HEARTLAND” Spencer, K., Taylor, A., Smith, B., Mawson, J., Flynn N. and Batley, R., 1986: Crisis in the Industrial Heartland: A Study of the West Midlands. Oxford University Press, £7.95.

“BLACK POLITICS AND URBAN CRISIS” Brian D. Jacobs, 1986: Black politics and urban crisis in Britain. Cambridge: Cambridge University Press £25.00 Hardback.

“UNEMPLOYMENT AND LABOUR MARKET POLICIES” Hart, P. E. (Ed), 1986: Unemployment and Labour Market Policies Aldershot: Gower, 1950     

Intergenerational Mobility under Private vs. Public Education*

Intergenerational earnings mobility is analyzed in a model where human capital is produced using schooling and parental time. In steady states more mobile societies have less inequality, but in the short run higher mobility may result from an increase in inequality. Starting from the same inequality, mobility is higher under public than under private education. A rise in income shocks, for example due to increased returns to ability, or a switch from public to private schooling both increase inequality. However, increased shocks raise mobility in the short run and do not affect it in the long run, whereas an increased role for private schooling reduces mobility in both the short and long run. That these differences may help to identify the source of changes in inequality, and other real‐world implications, are illustrated in a brief discussion of time trends and cross‐country differences.     

Auditor specialization, perceived audit quality, and audit fees in the local government audit market

Prior governmental research implies a positive relation between auditor specialization and audit quality, but the effect of specialization on audit fees is mixed. However, no single governmental study investigates the effect of auditor specialization on both audit quality and audit fees. Also, prior studies focus on either large- or small audit firms and often employ indirect proxies for audit quality. We study the effects of auditor specialization on perceived audit quality and audit fees. Our data represent both Big 5 and smaller audit firms and include three market-based measures of specialization. We survey 241 Florida local government finance directors and find that specialization is positively associated with perceived audit quality but not with audit fees. We also find that Big 5 auditors, often used as a proxy for higher audit quality in prior research, are not uniformly associated with increased perceived audit quality but consistently charge higher audit fees. Our results confirm a relation between measures of audit firm specialization and audit quality and raise questions regarding audit firm size and audit quality in the municipal sector. Our findings suggest that engaging specialized auditors may be good policy for many local governments.