Luxury Goods and the Equity Premium

This paper evaluates the equity premium using novel data on the consumption of luxury goods. Specifying utility as a nonhomothetic function of both luxury and basic consumption goods, we derive pricing equations and evaluate the risk of holding equity. Household survey and national accounts data mostly reflect basic consumption, and therefore overstate the risk aversion necessary to match the observed equity premium. The risk aversion implied by the consumption of luxury goods is more than an order of magnitude less than that implied by national accounts data. For the very rich, the equity premium is much less of a puzzle.     

ACCOUNTING FOR SOCIAL COSTS ASSOCIATED WITH RESALE PRICE MAINTENANCE

Resale price maintenance (RPM) can provide a positive or negative effect on social welfare. The evaluation depends on many factors, such as whether a high-demand or low-demand state exists, storage/holding costs, and disposal costs. A number of articles addressing the welfare effects of RPM conclude they enhance social welfare. Disposal costs for manufactured products are real and increasingly accounted for in firm costs, and are an essential issue in environmental economics. This article examines the case for RPM with disposal costs. When not incorporated into firm profits, RPM may be welfare reducing. (JEL D42 , D62 , D81 )     

The Aggregate and Distributional Effects of Financial Globalization: Evidence from Macro and Sectoral Data

We take a fresh look at the aggregate and distributional effects of policies to liberalize international capital flows—financial globalization. Both country‐ and industry‐level results suggest that such policies have led on average to limited output gains while contributing to significant increases in inequality. The country‐level results are based on 228 capital account liberalization episodes spanning 149 advanced and developing economies from 1970 to the present. Difference‐in‐difference estimation using industry‐level data for 23 advanced economies suggests that liberalization episodes reduce the share of labor income, particularly for industries with higher external financial dependence, higher natural propensity to use layoffs to adjust to idiosyncratic shocks, and higher elasticity of substitution between capital and labor.     

Disclosure Quality and Management Trading Incentives

This study examines whether managers strategically alter disclosure “quality” in response to personal incentives, specifically those derived from trading on their own account. Using changes in market liquidity to proxy for disclosure quality, I find that trading incentives are associated with disclosure quality choices. Tests are performed across three disclosure samples: management forecasts, conference calls, and press releases. Consistent with a desire to reduce the probability of litigation, I find evidence that managers provide higher quality disclosures before selling shares than they provide in the absence of trading. Consistent with a desire to maintain their information advantage, I find some, albeit weaker, evidence that managers provide lower quality disclosures prior to purchasing shares than they provide in the absence of trading.     

Matching Capital and Labor

We establish an important role for the firm by studying capital reallocation decisions of mutual fund firms. The firm's decision to reallocate capital among its mutual fund managers adds at least $474,000 a month, which amounts to over 30% of the total value added of the industry. We provide evidence that this additional value added results from the firm's private information about the skill of its managers. The firm captures this value because investors reward the firm following a capital reallocation decision by allocating additional capital to the firm's funds.     

Announcements

Driver, B. L., Brown, Perry J., &; Peterson, George L. (Eds.). Benefits of Leisure. 1991. State College, PA: Venture Publishing. ISBN 9–10251–48–7. 483 pp. Hardcover $31.95.

Stebbins, Robert A. 1992. Amateurs, Professionals, and Serious Leisure. Montreal: McGill‐Queen's University Press. ISBN 0–7735–0991–1. 171 pp. Hardcover $34.95.

Kraus, Richard, &; Shank, John. (1992). Therapeutic Recreation Service: Principles and Practices (4th ed.). Dubuque, IA: William C. Brown. ISBN 0–697–11026–5. 397 pp. Hardcover $48.43.     

Strategic Complementarity,Stabilization Policy,and the Optimal Degree of Publicity

This paper examines the welfare implications of public information dissemination within a model in which information is heterogeneous across agents and where a strategic complementarity is present. The focus of the analysis is on how the presence of stabilization policy affects the case for transparency. In considering this issue, it extends James and Lawler's (2011) contribution by incorporating an alternative payoff function and by employing a different representation of public disclosure. The study's key finding is that the conclusions drawn in its precursor are robust to these modifications; specifically, in the presence of optimally designed policy intervention zero transparency maximizes welfare.     

Gender and Race Differences in Company Training

Using recent data from the National Longitudinal Survey of Youth, it is found that among young workers from 1986 to 1991, there were no gender or race differentials in the likelihood of receiving training, in participation in multiple training events, or in hours of training received. White women, however, were more likely to receive more training per hour worked than white men. This gender differential appears to occur because white women are more likely to work fewer hours and to be employed in entry-level positions that are associated with greater training intensity.     

Migrant Organization and Hometown Impacts in Rural Mexico

The interaction between migration, development and rural democratization is not well understood. Exit is usually understood as an alternative to voice, but the Mexican experience with cross-border social and civic action led by hometown associations suggests that exit can also be followed by voice. This article explores migrant impacts on hometown civic life, focusing on voice and bargaining over community development investments of collective remittances that are matched by government social funds. The most significant democratizing impacts include expatriate pressures on local governments for accountability and greater voice for outlying villages in municipal decision-making.