Uban Tolled Roads and the Value of Travel Time Savings*

The recent interest in the privatization of major urban roads has opened up the debate on the tolling of such facilities. Central to the identification of optimal tolls is a knowledge of the amount of money individuals are willing to outlay to save travel time. This paper combines a utility maximization framework with stated response data to determine values of time savings in the presence of varying levels of toll for the full set of urban journey purposes. The empirical results provide a basis for establishing one benchmark for toll setting, in the context of substantial lengths of urban roads. There are no tolled urban roads in any major urban area throughout the world     

The Price Elasticity of Demand for Whole Life Insurance

In this study a real price index is created for whole life insurance sold in the United States from 1953 to 1979. New purchases of whole life insurance are shown to be negatively related to changes in this cost index, contrary to what has been widely accepted in the insurance literature, but consistent with economic theory. The existence of strong price elasticity of demand for whole life insurance does not ensure, however, that the insurance industry manifests a high degree of price competition.     

CO‐MOVEMENT OF AUSTRALIAN STATE BUSINESS CYCLES*

We use a variety of techniques to examine the nature and degree of co‐movement among Australian state business cycles. Consistent with the results of Dixon and Shepherd (2001 ), we find that these cycles move quite closely together, with particularly strong links between the cycles of the larger states. We then seek to understand the causes of this co‐movement by using an unobserved components model to distinguish between various shocks and their transmission. Our model implies that the major source of this co‐movement in state activity is the commonality of shocks affecting state cycles. In contrast, spillovers of region‐specific shocks appear to play only a minor role in creating co‐movement, though region‐specific shocks themselves have a moderate influence on cyclical fluctuations. These findings are consistent with the results of recent studies for the United States, Canada and Europe, where common shocks have also been found to dominate regional cyclical activity.     

Measuring Financial Integration via Idiosyncratic Risk: What Effects Are We Really Picking Up?

We study the method proposed by Flood and Rose (FR, 2004, 2005) for checking for financial integration by estimating the risk-free rate using the idiosyncratic component of individual stock returns. Performing simulations with data with a known return generation process, we find that the FR methodology produces poor estimates of the risk-free rate, and hence the FR method fails to accept integration when true. We then show analytically that the FR method actually provides an estimate of the market return, and conclude the FR methodology would also falsely accept integration as long as the market returns in the two markets do not differ widely.     

Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View

The trading mechanism for equities on the Tokyo Stock Exchange (TSE) stands in sharp contrast to the primary mechanisms used to trade stocks in the United States. In the United States, exchange-designated specialists have affirmative obligations to provide continuous liquidity to the market. Specialists offer simultaneous and tight quotes to both buy and sell and supply sufficient liquidity to limit the magnitude of price changes between consecutive transactions. In contradistinction, the TSE has no exchange-designated liquidity suppliers. Instead, liquidity is provided through a public limit order book, and liquidity is organized through restrictions on maximum price changes between trades that serve to slow down trading. In this article, we examine the efficacy of the TSE's trading mechanisms at providing liquidity. Our analysis is based on a complete record of transactions and best-bid and best-offer quotes for most stocks in the First Section of the TSE over a period of 26 months. We study the size of the bid-ask spread and its cross-sectional and intertemporal stability; intertemporal patterns in returns, volatility, volume, trade size, and the frequency of trades; and market depth based on the response of quotes to trades and the frequency of trading halts and warning quotes.     

The effects of antifraud rules and ex post verifiability on managerial disclosures*

Abstract. Both theoretical and experimental research has shown that full disclosure of private information will be observed when disclosures are credible. Disclosures are generally considered to be credible when they either are subject to an antifraud rule, are ex post verifiable, or are both. However, little consideration has been given to the individual and interactive effects of these conditions. This paper presents arguments concerning the effects of antifraud rules and ex post verifiability on disclosures of private information and the reaction to those disclosures. It predicts an equilibrium of full disclosure only when an antifraud rule is in effect, independent of the presence or absence of ex post verification. Further, one adverse selection problem is posited to disappear after repeated observations, regardless of antifraud rules or ex post verifiability. These assertions are tested by 20 laboratory experiments, which, in addition, provide insight into the effect of a legal system on disclosures. The results generally support the analytical assertions. Résumé. Les recherches théoriques aussi bien qu'expérimentales ont démontré que la présentation intégrale de l'information à caractère privé est observée lorsque les renseignements fournis sont crédibles. Ces renseignements sont généralement jugés crédibles lorsqu'ils sont assujettis à une règle anti-fraude, lorsqu'ils peuvent être verifiés ex post ou lorsqu'ils présentent ces deux caractéristiques. Jusqu'à maintenant, cependant, on s'est peu intéressé aux conséquences particulières et interactives de ces caractéristiques. Les auteurs présentent ici leur argumentation au sujet des conséquences des règles anti-fraude et de la vérifiabilité ex post sur la présentation d'information privée et sur la réaction à la présentation de cette information. Selon eux, l'équilibre de présentation intégrale de l'information n'est atteint que dans le cas où s'applique une règle anti-fraude, indédependamment de l'existence d'une vérification ex post. Plus encore, ils concluent à la disparition d'un problème de sélection préjudiciable après des observations répétées, peu importe les règles anti-fraude ou la vérifiabilité ex post. La véracité de ces affirmations est mise à l'épreuve dans le cadre de 20 expériences en laboratoire qui livrent en outre certaines indications relatives à l'incidence d'un système juridique sur la présentation d'information. Les résultats viennent généralement appuyer les hypothèses d'analyse.     

An end to boom and bust - can the Chancellor deliver?

In his Mansion House speech, the Chancellor of the Exchequer emphasised his desire to avoid the boom and bust cycle that has characterised the UK economy in recent years. The objective of a more stable economy is one with which it is hard to disagree. It strikes a chord with all those who have to take long-term decisions in the business community. But can the Chancellor deliver? In this article, we argue that despite the changes to the government's economic policy framework in recent years, many of the causes of the past instability of the UK economy remain. And while the Chancellor seeks to retain short-term control of interest rate decisions, there is always the risk that political pressures on monetary policy will be an added source of volatility.