The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

Forbearance: An empirical analysis

Several recent articles have analyzed conditions under which allowing capital-deficient banks to continue to operate may be optimal policy. This article examines the performance of banks admitted into the FDIC's Capital Forbearance Program between 1986 and 1989 and finds that, for the majority of these banks, there was no substantial improvement in their capital ratios. We use a logit regression analysis to attempt to identify those banks whose financial condition improved with forbearance and find that banks which did improve are not clearly identifiable from pre-forbearance financial data. Instead, the banks which improved did so due to infusions of new capital, extraordinary income, and improvements in the local economies, factors which are not easily identifiable ex ante by regulators. The conclusion is that, while some grants of forbearance may result in large saving to the FDIC, in the majority of cases granting forbearance to troubled banks is unlikely to reduce the expected loss to the deposit insurer.University of HoustonUniversity of HoustonCooperative Bank of Taiwan, Taipei, Taiwan     

A model of person‐pay interaction: how executives vary in their responses to compensation arrangements

A wealth of research indicates that both executive characteristics and incentive compensation affect organizational outcomes, but the literatures within these two domains have followed distinct, separate paths. Our paper provides a framework for integrating these two perspectives. We introduce a new model that specifies how executive characteristics and incentives operate in tandem to influence strategic decisions and firm performance. We then illustrate our model by portraying how executive characteristics interact with a specific type of pay instrument—stock options—to affect executive behaviors and organizational outcomes. Focusing on three individual‐level attributes (executive motives and drives, cognitive frame, and self‐confidence), we develop propositions detailing how executives will vary in their risk‐taking behaviors in response to stock options. We further argue that stock options will amplify the implications of executive ability, such that option‐heavy incentive schemes will increase the performance of talented executives but worsen the performance of low‐ability executives. Our framework and propositions are meant to provide a starting point for future theorizing and empirical testing of the interactive effects of executive characteristics and incentive compensation on strategic decisions and organizational performance. Copyright © 2010 John Wiley & Sons, Ltd.     

On the distribution of dividend payments and the discounted penalty function in a risk model with linear dividend barrier

In the framework of classical risk theory we investigate a model that allows for dividend payments according to a time-dependent linear barrier strategy. Partial integro-differential equations for Gerber and Shiu's discounted penalty function and for the moment generating function of the discounted sum of dividend payments are derived, which generalizes several recent results. Explicit expressions for the nth moment of the discounted sum of dividend payments and for the joint Laplace transform of the time to ruin and the surplus prior to ruin are derived for exponentially distributed claim amounts.     

Measuring fund style,performance and activity: a new style‐profiling approach

We construct new measures of fund style, performance and activity from linear combinations of off‐the‐shelf stock‐market indices. A fund's benchmark portfolio is a linear combination of two or more reference portfolios that in a least‐squares sense most closely approximates the fund's portfolio. The resulting linear combination scalar is itself a measure of fund style and the distance between a fund and its benchmark is a measure of fund activity. Our approach has a number of advantages over existing characteristic‐matching methods. We illustrate our approach using a data set of US institutional funds.     

Looking into the abyss? Brazil at the mid-2010s

In 2015, the Brazilian economy was afflicted by a lethal combination of a falling level of activity and accelerating inflation. Expectations for 2016 are equally or even more adverse, since the effects of rising unemployment emerge only after a lag. The domestic debate has opposed analysts who believe the crisis is due exclusively to past policy mistakes to analysts who believe that all was well until the government decided to implement austerity policies in 2015. A closer examination of the evidence shows that in fact both reasons contributed to causing the crisis, but it also suggests that its depth has a more proximate cause in the political collapse of the federal government in 2015, which led Brazilian society to an impasse for which a solution is not yet in view.     

On the Use and Abuse of Thorstein Veblen in Modern American Sociology, II: Daniel Bell and the 'Utopianizing' of Veblen's Contribution and Its Integration by Robert Merton and C. W. Mills

A bstract . The analyses and applications of Thorstein Veblen's social theory by Daniel Bell, Robert Merton , and C. Wright Mills are criticized. Bell's analysis is deficient because it distorts Veblen's proposal for economic reconstruction and because it treats him as a hopelessly Utopian theorist. Merton's use of Veblen's theory of status emulation by linking it with latent and manifest functions is a noteworthy accomplishment; yet Merton's utilization of Veblenian concepts is too sparing and essentially apolitical. Only the treatment of Veblen's theories by Mills is theoretically systematic and sufficiently political in tone. The significant import of Veblen's work for an indigenous critical theory resides in his theories of social value , status emulation, conflict and cultural lag.     

Tiebreaker: Certification and Multiple Credit Ratings

This paper explores the economic role credit rating agencies play in the corporate bond market. We consider three existing theories about multiple ratings: information production, rating shopping, and regulatory certification. Using differences in rating composition, default prediction, and credit spread changes, our evidence only supports regulatory certification. Marginal, additional credit ratings are more likely to occur because of, and seem to matter primarily for, regulatory purposes. They do not seem to provide significant additional information related to credit quality.