Unit versus Ad Valorem Taxes in Multiproduct Cournot Oligopoly

The welfare dominance of ad valorem taxes over unit taxes in a single‐market Cournot oligopoly is well known. This article extends the analysis to multimarket oligopoly. Provided all ad valorem taxes are equal and positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, ad valorem taxes are shown to dominate in multiproduct equilibrium. Conditions exist, however, under which economic efficiency declines upon replacing specific taxes with ad valorem taxes that preserve output levels. We discuss the roles of unit cost covariances across multiproduct firms, and also of complementarity in demand, in determining the extent of cost efficiencies arising under ad valorem taxation. For goods that are complementary or independent in demand, conditions are found such that industry profits decline upon use of ad valorem taxes.     

Seasonality and Consumption-Based Asset Pricing

Most of the evidence on consumption-based asset pricing is based on seasonally adjusted consumption data. The consumption-based models have not worked well for explaining asset returns, but with seasonally adjusted data there are reasons to expect spurious rejections of the models. This paper examines asset pricing models using not seasonally adjusted aggregate consumption data. We find evidence against models with time-separable preferences, even when the models incorporate seasonality and allow seasonal heteroskedasticity. A model that uses not seasonally adjusted consumption data and nonseparable preferences with seasonal effects works better according to several criteria. The parameter estimates imply a form of seasonal habit persistence in aggregate consumption expenditures.     

False (and Missed) Discoveries in Financial Economics

Multiple testing plagues many important questions in finance such as fund and factor selection. We propose a new way to calibrate both Type I and Type II errors. Next, using a double-bootstrap method, we establish a t-statistic hurdle that is associated with a specific false discovery rate (e.g., 5%). We also establish a hurdle that is associated with a certain acceptable ratio of misses to false discoveries (Type II error scaled by Type I error), which effectively allows for differential costs of the two types of mistakes. Evaluating current methods, we find that they lack power to detect outperforming managers.     

Consequences of Deregulation for Commercial Banking

In recent years, many of the restrictions on banking activities adopted following the banking collapse of the 1930s have been eroded by improvements in technology and high interest rates, which led to increasing direct competition from unregulated institutions. Beginning in the 1970s, the regulatory agencies, state legislatures, and the Congress have moved to liberalize these restrictions. Based on research on economies of scale and scope, the experience of the conglomerate merger movement of the 1950s and 1960s, the observed effects of changes in state laws governing branches and holding companies, foreign experience, and experience in other industries that underwent deregulation, banking deregulation is likely to lead to reductions in the number of banks and increases in their efficiency, geographic scope, and product diversification. Such an outcome is consistent with the survival of a large number and variety of financial institutions and need not endanger the safety of the banking system.