Are Household Services Overvalued?

A bstract . It has been argued that estimates of the magnitude of household services relative to the Gross National Product (GNP) are generally overstated. Although under certain conditions this conclusion is justified, the explanations given are sometimes questionable. It is shown here that when overstatements do occur it is due to the need for valuation adjustments rather than quantity adjustments to the estimates. Moreover, depending on the points to be demonstrated it is equally correct to express such estimates as a percentage of the GNP or as a percentage of GNP plus household services. Some have argued to the contrary. It is further shown here that when valuations are adjusted to reflect labor market conditions and other factors, estimates of household services are reduced considerably.     

Trading and liquidity in the catastrophe bond market

We provide first insights into secondary market trading, liquidity determinants, and the liquidity premium of catastrophe bonds. Based on transaction data from TRACE (Trade Reporting and Compliance Engine), we find that cat bonds are traded less frequently during the hurricane season and more often close to maturity. Trading activity indicates that the market is dominated by brokers without a proprietary inventory. Liquidity is high in periods of high trading activity in the overall market and for bonds with low default risk or close to maturity, which results from lower order processing costs. Finally, using realized bid–ask spreads as a liquidity measure, we find that on average, 21% of the observable yield spread on the cat bond market is attributable to the liquidity premium, with a magnitude of up to 141 bps for high-risk bonds.     

Complementarity and substitutability between farm and nonfarm activities: Evidence from agricultural households in Tanzania

Increasing evidence shows that farm households in developing countries maintain a portfolio of income-generating activities. Concerns have been raised that household income diversification to include nonfarm activities will stifle farm works, and thus reduce agricultural productivity. On the contrary, some evidence of complementarity between the farm and nonfarm activities in rural areas has been found. This paper uses data from the fourth and the fifth waves of Tanzania's National Panel Surveys to examine whether there exists complementarity or substitutability between farm and nonfarm activities in rural Tanzania. The findings show that participation in off-farm work and nonfarm business activities has no clear relationship to the adoption and use of improved agricultural practices, namely, irrigation, fertilizers, pesticides, and herbicides. Participation in off-farm work and nonfarm business activities does not also seem to directly influence agricultural investments, production, and productivity nor overall household income. These results suggest that the complementary and substitution effects of nonfarm activities offset each other in Tanzania, implying that proper policies are required to unleash the potential impact of nonfarm activities on agriculture.     

When Do Firms Adjust Bonus Targets Intrayear? Evidence from Sales Executives' Targets*

This study investigates when and why intrayear bonus target revisions occur. This is important as intrayear target revisions occur regularly in practice but are not well understood. Specifically, we analyze two potential drivers of intrayear bonus target revisions: reduced managerial incentives owing to managers dropping out of the incentive zone of their piecewise defined bonus function and potential spillovers from planning target revisions that reflect changes in performance expectations during the year. We also investigate the effects of organizational characteristics on intrayear bonus target revisions. Using data collected from sales executives via multiple waves of surveys, we find evidence for both predicted drivers. In addition, consistent with our predictions, we find that the levels of delegated decision authority, intrafirm interdependencies, and information asymmetry negatively moderate the positive association between reduced managerial incentives and revision likelihood. Our paper contributes to the target setting literature by being the first study to investigate intrayear bonus target revisions and shed light on when firms commit to not revising such targets intrayear.     

The price of poverty: The association between childhood poverty and adult income and education in Sweden, 1947–2015

Childhood poverty increases the likelihood of being poor as an adult. We know relatively little about this persistence of poverty in the past and whether it changed as modern welfare societies developed. This study both analyses determinants of childhood poverty and assesses the association between childhood poverty and economic outcomes in adulthood for men and women who grew up in southern Sweden, and who were followed to adulthood regardless of where in Sweden they resided. Poverty is measured in relative terms. Being raised by a single mother, foreign origin, and being raised in a context where the household head was not employed were important risk factors for childhood poverty. Growing up in relative poverty was in turn associated with low income and education in adulthood. Both the persistence and intensity of childhood poverty mattered, and so did the age during which poverty was experienced. Patterns were similar for men and women, and there was no consistent change over time as the Swedish welfare state expanded.     

Loss leading with salient thinkers

In various countries, competition laws restrict retailers' freedom to sell their products below cost. A common rationale, shared by policymakers, consumer interest groups and brand manufacturers alike, is that such “loss leading” of products would ultimately lead to a race-to-the-bottom in product quality. Building on Varian's (1980) model of sales, we provide a foundation for this critique, though only when consumers are salient thinkers, putting too much weight on certain product attributes. But we also show how a prohibition of loss leading can backfire, as it may make it even less attractive for retailers to stock high-quality products, decreasing both aggregate welfare and consumer surplus.     

Political culture: a theory in search for methodology. An editorial

Quality & Quantity -     

Direct and indirect effects of continuous treatments based on generalized propensity score weighting

This paper proposes semi- and nonparametric methods for disentangling the total causal effect of a continuous treatment on an outcome variable into its natural direct effect and the indirect effect that operates through one or several intermediate variables called mediators jointly. Our approach is based on weighting observations by the inverse of two versions of the generalized propensity score (GPS), namely the conditional density of treatment either given observed covariates or given covariates and the mediator. Our effect estimators are shown to be asymptotically normal when the GPS is estimated by either a parametric or a nonparametric kernel-based method. We also provide a simulation study and an empirical illustration based on the Job Corps experimental study.     

Corporate carbon risk exposure,voluntary disclosure,and financial reporting quality

The study examines whether corporate carbon risk exposure is associated with financial reporting quality and whether voluntary carbon disclosure mediates the relationship. We analyze data drawn from firms traded on the Johannesburg Stock Exchange (JSE), for the period 2011 to 2015. We document robust evidence that firms with higher carbon risk exposure tend to provide financial statements of poorer quality (i.e., direct effect) and this association is partially mediated through voluntary carbon disclosure (i.e., indirect effect). The overall negative association between corporate carbon risk exposure and the firm's financial reporting quality is partly explained by the quality of voluntary carbon disclosure.