Sustainable social spending

The paper discusses a number of threats to the financial sustainability of social spending: increased internationalization of national economies, gradually higher relative costs of producing a number of human services, the “graying” of the population, slower productivity growth in the private sector, low employment rates, and various types of disincentive effects related to the welfare state itself, including moral hazard. I argue that threats from gradually rising costs of providing human services and disincentive effects of welfare-state arrangements, in particular moral hazard and benefit dependency, are more difficult to deal with than the other threats. I also discuss the choice between ad hoc policy reforms and automatic adjustment mechanisms, delegated to administrative bodies, for dealing with these threats. JEL Classification E62 · H31 · H53     

Sickness Absence and Local Benefit Cultures

In many countries, sickness absence financed by generous insurance benefits is an important concern in the policy debate. There are strong variations in absence behavior among local geographical areas. Such variations are difficult to explain in terms of observable socioeconomic factors. In this paper, we investigate whether such variations are related to group effects in the form of social interaction among individuals within neighborhoods. Well‐known methodological problems arise when trying to answer this question. A special feature of our efforts to deal with these problems is that we adopt several alternative approaches to identify group effects. Our study is based on a rich set of Swedish panel data, and we find indications of group effects in each of our approaches.     

The ICT revolution in consumer product markets

New information and communication technology (ICT) makes consumers better informed about available products, product quality and prices, which mitigates problems of asymmetric information. The entry of firms is facilitated, competition and economic efficiency is boosted and the market powers of households increased. Firms are likely to respond by increased product and price differentiation. There will also be considerable changes in the division of tasks between firms and households. But important obstacles to these developments are technological vulnerability, quality problems in the information on the Internet, cognitive limitations of individuals and weaknesses in the product‐delivery infrastructure in connection with Internet trade.     

The effect of the recent insider-trading scandal on stock prices of securities firms

This paper addresses the impact of the unethical business conduct of a few individuals that shook the financial market in 1986. Specifically, in the study undertaken for this paper, the wealth status of the shareholders of securities firms was examined in relation to the public disclosure of the insider-trading scandals involving Dennis Levine, Ivan Boesky, and their confederates. It was hypothesized that the expected market-adjusted stock returns for the securities firms would be negative as a result of the scandals. The findings of the study supported the hypothesis. Khalil M. Torabzadeh is Associate Professor of Finance at Radford University in Virginia. He earned his DBA in Finance from Mississippi State University in 1984. He began his teaching career at Appalachian State University, Boone, North Carolina, in 1982, and joined the faculty of Radford University in 1985. He has had articles published in the Journal of Financial Research and the Journal of Applied Business Research. Dan Davidson is Professor of Business Law at Radford University in Virginia. He has five teaching awards, including the Razorback Outstanding Business Faculty Award from the University of Arkansas. He is the author of four textbooks published by PWS Kent Publishing Co., and his articles have been published in the Journal of Business Ethics, the Business Law Review, the Education Forum, and the Journal of Insurance Issues and Practices, among others.Hamid Assar is an Assistant Professor of Finance at Radford University in Virginia. His educational background includes a PhD in Financial Economics (expected in 1989) from Southern Illinois University, an MBA from Central State University in Oklahoma, and a Masters degree in Economics from the University of West Virginia. His research interests are in the areas of mergers and acquisitions, financial markets, and international finance.     

An examination of long-lived asset impairments under SFAS No. 121

Until recently, the impairment of long-lived assets and identifiable intangibles was a controversial and unresolved accounting issue. Statement of Financial Accounting Standards (SFAS) No. 121 on long-lived asset impairments provides guidelines in selecting the conditions or circumstances that justify or necessitate a writedown and in measuring, recognizing, and disclosing the amounts of asset impairments. The results indicate that the financial impacts of 935 writedowns reported by 670 companies are quite significant and, in some cases, up to 10 times that of reported earnings. Moreover, the results indicate that industry classification consistently had a significant effect on the dependent variables used as proxies for the financial impacts of asset impairments.     

Overshooting,reform and retreat of the welfare state

Summary The paper discusses various reforms that may lower the costs of the contemporary welfare state, including a shift from taxes to actuarially fair, although still compulsory, insurance premia; wider use of co-insurance,etc. It is also suggested that social security entitlements are made more robust against political interventions by moving them outside of the government budget. Freer competition is suggested in the provision of social services. Reform of the political process is also discussed to avoid an overshooting of the welfare state in the sense that imperfections in the political process result in excessive welfare state spending.Seventh Tinbergen Lecture delivered on October 1, 1993 at De Nederlandsche Bank, Amsterdam for the Royal Netherlands Economic Association. I Am grateful for comments on an early draft of this paper by Thorvaldur Gylfason, Torsten Persson, Agnar Sandmo, Karl Gustaf Scherman, Lars E.O. Svensson, Paul Söderlind and Lars Söderström.     

Competing wage claims,cost inflation,and capacity utilization

This paper develops a theory of competing wage claims and cost inflation, and attempts to integrate this theory into the core of modern macroeconomic analysis. Specifically, the paper proposes an explanation for wage inertia and wage interdependence based on an application of duopoly theory to labor unions, and incorporates this microeconomic theory of labor union behavior into a macroeconomic general equilibrium model with goods, money, and bonds as well as two kinds of labor. Special emphasis is placed on the interplay between demand and cost factors in the inflation process and on the implications of wage competition among labor unions for the relationship between inflation and unemployment in the short and long run.