Cross-base tax elasticity of capital gains

This paper studies the cross-base tax elasticity of capital gains realizations to labour income taxes when capital gains are taxed at a separate proportional tax rate. Using a longitudinal panel of over 265 000 individuals in Sweden, this paper shows in a regression kink design that labour income taxes affect capital gains realizations in two ways. An increase in the marginal labour income tax rate increases the likelihood of realizing capital gains and the amount of realized capital gains. One implication of this result is that labour income taxes have a lock-out effect but that the magnitude of this effect is smaller than the lock-in effect of the actual capital gains tax.     

Confounded,augmented and constrained replicator dynamics

The quantitative methodology derived from replicator dynamics for empirical studies of economic evolution is becoming increasingly well developed in theory but is rarely applied in practice. One reason is the relatively naïve nature of current methods, which focus on the evolution of a single characteristic in a single environment. This assumption constrains the analysis of real selection processes in which firms operate in several markets and their products have several characteristics that interact to determine fitness. This entails that measurement of economic selection becomes confounded: characteristics that are associated with firm growth are not becoming more frequent in the population. The reason for confounded selection is that characteristics interact to augment or constrain the rate and direction of evolution and one-dimensional, single trait replicator dynamics cannot cope with confounded selection. The contribution of this paper is to develop an approach that serves to explicitly analyse confounded selection. The primary elements of the method are the selection gradients of the characteristics and the covariance matrix of the characteristics. Based on these, the method motivates a taxonomy of selection based on the interaction of characteristics. Applying the method to a population of firms will shed light on potentially confounded selection. It will reveal the indirect effects of characteristics on selection and the augmentation and constraints created thereby.     

Communication & competition

Charness and Dufwenberg (Am. Econ. Rev. 101(4):1211–1237, 2011) have recently demonstrated that cheap-talk communication raises efficiency in bilateral contracting situations with adverse selection. We replicate their main finding and extend their design to include competition between agents. We find that communication and competition act as “substitutes:” communication raises efficiency in the absence of competition but not with competition, and competition raises efficiency without communication but lowers efficiency with communication. We briefly review some behavioral theories that have been proposed in this context and show that each can explain some but not all features of the observed data patterns. Our findings highlight the fragility of cheap-talk communication and may serve as a guide to refine existing behavioral theories.     

The effect of activation on the post-activation civilian earnings of reservists

To fight wars in Iraq and Afghanistan, the Department of Defense has relied heavily on its reserve components. Among the hardships of activation is the possibility that reservists might suffer an earnings loss following their period of active-duty service due to difficulties reentering the civilian labor market. This paper reports estimates of the effect of activation on the post-activation civilian earnings of reservists employing administrative data on earnings and periods of activation. Our results indicate that reserve activations lead to moderate losses in civilian earnings in the year immediately following activation that disappear and turn to earnings gains in subsequent years.     

What is an ‘endogenous state space’?

Summary. In the literature on choice under unforeseen contingencies, the decision maker behaves as if she aggregates possible instances of future rankings indexed by a set S. The set S is interpreted as a subjective state space even though subsequent rankings need not conform to any one of the aggregated utilities. This paper proposes a definition for a subjective state space under unforeseen contingencies that is topologically unique, derives its existence from preference primitives as opposed to the representation of preferences, and does not commit to an interpretation in which states correspond to future realized rankings. The definition topologically concurs with and extends the identification of the essentially unique subjective state space due to Dekel, Lipman and Rustichini [4].Received: 28 October 2003, Revised: 13 October 2004, JEL Classification Numbers: D11, D81, D91.I thank Eddie Dekel, Alan Kraus, Bart Lipman, Chris Shannon, and the referee for some helpful remarks.     

The diffusion of innovation theory and the effects of IFRS adoption by multinational corporations on capital market performance: a cross-countryanalysis

This article seeks to contribute to International Financial Reporting Standards (IFRS) literature by examining the effects of adopting IFRS on stock market performance worldwide from the diffusion of innovation theory perspective. Our study revealed several interesting findings after using combinations of unique panel data sets from 110 countries worldwide and conducting a robust empirical analysis from 1995 to 2014. First, we found a positive association between late mandatory IFRS adoption and stock market integration in Europe. Second, our findings indicate a significant negative association between early IFRS adoption and the following financial indicators: stock market trading volumes, stock market capitalization, market turnover, and market return. Third, our study reveals an insignificant association between early IFRS adoption and stock price volatility alongside stock market development. Our findings are robust and have significant practical and policy implications for regulators and policymakers of multinational corporations.     

Influence of endogenous reference points on the selling decisions of retail investors

Using trader-level data, we examine the impact of the stock-specific endogenous reference points, the ‘realized-return’ and the ‘peak-return’ of the prior round on the selling propensity in a subsequent investment round in the same asset. The selling propensity rises significantly near the endogenous reference points. The significance is greater when the holding period is relatively shorter and when the time gap between the consecutive rounds is lower, implying a recency effect. Finally, the impact is more substantial on traders holding fewer stocks. The results imply that traders' prior stock-specific experience plays a significant role in the reference point formation.     

Regulating Data Privacy and Cybersecurity

This paper studies firms' data privacy and cybersecurity choices. We emphasise the strategic interdependence between these decisions and demonstrate that security in both the market equilibrium and the social optimum tends to be higher when data is shared. We also identify important market failures in the sense that firms tend to under-invest in security and over-share data. Our welfare analysis of a minimum security standard, disclosure and consumer education policies, liability rules and consumer mitigation strategies highlights the need for a co-ordinated approach to regulation.