Measurement Error in Education and Growth Regressions*

The use of the perpetual inventory method for the construction of education data per country leads to systematic measurement error. This paper analyzes its effect on growth regressions. We suggest a methodology for correcting this error. The standard attenuation bias suggests that using these corrected data would lead to a higher coefficient. Our regressions reveal the opposite. We discuss why this is the case.     

Catching a draft: on the process of selecting quarterbacks in the National Football League amateur draft

The reverse order college draft gives the worst teams in the National Football League (NFL) the opportunity to hire the best amateur talent. For it to work effectively, teams must be able to identify the “best” talent. Our study of NFL quarterbacks highlights problems with the draft process. We find only a weak correlation between teams’ evaluations on draft day and subsequent quarterback performance in the NFL. Moreover, many of the factors that enhance a quarterback’s draft position are unrelated to future NFL performance. Our analysis highlights the difficulties in evaluating workers in the uncertain environment of professional sports.     

Option trading and individual investor performance

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.     

INTERNATIONAL CLIMATE AGREEMENTS UNDER INDUCED TECHNOLOGICAL CHANGE

We examine the impact of technological change on the stability of climate coalitions and explore how international cooperation on abatement affects the incentives of signatories to invest in R&D to reduce emissions. We compare the case of no technological change with exogenous technological change and induced technological change. In the latter case R&D investments are endogenous. We find that the highest equilibrium pay‐offs are achieved in the case of induced technological change. Furthermore, the formation of a climate coalition boosts R&D investments in carbon abatement technologies in signatory countries.     

Early Retirement Behaviour in the Netherlands: Evidence From a Policy Reform

In the early 1990s the Dutch labour unions and employer organisations agreed to transform the generous and actuarially unfair early retirement (ER) schemes into less generous and actuarially fair schemes that reward individuals for postponing retirement. The starting dates of these new ER programs varied by industry sector. In this study, we exploit this variation in starting dates to estimate the causal impact of the policy reform on early retirement behaviour. We use a large administrative dataset, the Dutch Income Panel 1989–2000, to estimate hazard rate models for the retirement age. We conclude that the policy reform has indeed induced workers to postpone retirement. Both the wealth effect (lower ER wealth) and the substitution effect (lower implicit taxes on retirement postponement) are significant, the latter being more substantial.     

The mixed blessing of a deregulatory endpoint for the public switched telephone network

Receiving authority to dismantle the wireline public switched telephone network (PSTN) will deliver a mixture of financial benefits and costs to incumbent carriers and also jeopardize longstanding legislative and regulatory goals seeking ubiquitous, affordable and fully interconnected networks. Even if incumbent carriers continue to provide basic telephone services via wireless facilities, they will benefit from substantial relaxation of common carriage duties, no longer having to serve as the carrier of last resort and having the opportunity to decide whether and where to provide service. On the other hand, incumbent carriers may have underestimated the substantial financial and marketplace advantages they also will likely lose in the deregulatory process. Legislators and policy makers also may have underestimated the impact of no longer having the ability to impose common carrier mandates that require carriers to interconnect so that end users have complete access to network services regardless of location.This paper will identify the potential problems resulting from prospective decisions by National Regulatory Authorities (NRAs), such as the United States Federal Communications Commission (FCC), to grant authority for telecommunications service providers to discontinue PSTN services. The paper also will consider whether in the absence of common carrier duties, private carriers providing telephone services, including Voice over the Internet Protocol (VoIP), voluntarily will agree to interconnect their networks. The paper will examine three recent carrier interconnection issues with an eye toward assessing whether a largely unregulated marketplace will create incentives for carriers to interconnect networks so that consumers will have ubiquitous access to PSTN replacement and other broadband services.The paper concludes that private carrier interconnection models and information service regulatory oversight may not solve all disputes, or promote universal service public policy goals. Recent Internet interconnection and television program carriage disputes involving major players such as Comcast, Level 3, Fox, Cablevision and Google point to the possibility of increasingly contentious negotiations that could result in balkanized telecommunications networks with at least temporary blockages to desired content and services by some consumers.     

Americanism and financial accounting theory – Part 1: Was America born capitalist?

This paper (Part 1), and two related papers (Part 2: The ‘modern business enterprise’, America's transition to capitalism, and the genesis of management accounting; and Part 3: Adam Smith, the rise and fall of socialism, and Irving Fisher's theory of accounting), explore historical links between American ideology and Irving Fisher's theory of accounting. They explain Fisher's theory as the product of America's exceptional transition to capitalism and the ideological consequences. Part 1 uses Marx's theories of the transition in England, of colonisation, and of ideology, to construct an accounting history model of America's transition to capitalism that identifies the dominant social relations of production and calculative mentalities, and uses them to predict the accounting signatures and political ideologies we should observe if the theories are correct. Parts 1 and 2 test the model. Part 3 explores the ideological consequences of America's transition, for America and financial accounting. Scholars generally assume that America was ‘born capitalist’; historians argue it became capitalist sometime from the late 18th to early 19th centuries. The model, however, identifies early farmers as ‘simple commodity producers’ who, it predicts, kept only single entry accounts of debt, and had a ‘producer’ ideology of ‘equality’ and ‘freedom’. It identifies planters and manufacturers as ‘semi-capitalists’ – part merchant capitalist and part simple commodity producer – who it predicts calculated ‘profit’ as consumable surplus, pursued the ‘simple rate of profit’, controlled only prime costs, and had an ideology of ‘individualism’ that combined the producers’ ideology with the merchants’ ‘laissez-faire’. Part 1 re-examines evidence from accounts to around the mid-19th century, which confirms that farmers were not capitalists and that even the most advanced merchants, manufacturers and planters were semi-capitalists. Part 2 searches for capitalists in the second half of the 19th century. It re-examines evidence from the accounts of the Boston Associates who historians have seen as ‘proto-industrial capitalists’; from the railroads heralded by Chandler as the beginning of ‘managerial capitalism’; and from ‘entrepreneurial capitalists’ like Andrew Carnegie who created the large corporations that conquered America from the 1880s. Their financial accounts and cost management systems reveal the same semi-capitalist mentality found in the early 19th century. Re-examination of the ‘costing renaissance’ in the 1890s and evidence from the DuPont Powder Company and General Motors from 1900 to 1920, suggests that only from around 1900, after escalating conflict between ‘capital and labour’, did the capitalist mentality appear in new management accounting systems focused on ‘return on investment’. Part 3 shows that the accounting evidence closely correlates with the history of American political ideology. It argues that Adam Smith's Wealth of Nations dominated American politics until the late 19th century because it theorised a nation of simple commodity producers and semi-capitalists. It explains the delay in America's transition compared to Britain's, and the decline in the popularity of laissez-faire from the 1880s, as consequences of this exceptional starting point. ‘Big business’ capitalism created an ideological problem for America's ruling elite, particularly the threat of socialism from around 1900 to 1920. Part 3 argues that Fisher's neoclassical theory of ‘capital’ and ‘income’, designed as a critique of Marx, responded to this problem and played an important role in undermining middle class support for socialism. Fisher said he based his theory on accounting practice, particularly double entry bookkeeping, but Part 3 shows he did not use or understand it, which divorced his accounting from reality. American history's legacy to the world, the papers therefore conclude, is a pathological theory of financial accounting.     

Benefits of a Reallocation of Nitrate Emission Reductions in the Rhine River Basin

In an attempt to improve ecological conditions of theRhine, emission reduction targets have been set fordifferent substances. For most substances targets havebeen met. However, nutrient emission reductions arebehind schedule. It may be clear from intuition, andhas also often been described in economic literature,that a flat reduction rate applied to all emittingsectors, though appealing because of equity reasons,may not be cost-effective. This paper explores theleast cost allocation of nitrate emission reductionsfor the Rhine river basin, analysing differentagricultural sectors and wastewater treatment plants.Results show that costs of meeting emission reductiontargets can be brought down by almost 20% through aclever allocation of these targets.