The global LeChatelier Principle and multimarket equilibria

LeChatelier (Comptes Rendus 99:786, 1884) and LeChatelier (Ann Mines 13(2):157, 1888) proposed that the adjustment of a physical system to a disturbance in its equilibrium was smaller as constraints are added to the adjustment process. Samuelson (Econometrica 28:368–379, 1960) showed that this Principle applied to a stable multimarket equilibrium for the case that all commodities are gross substitutes. We note that the Principle also applies to the stable equilibria of markets for which commodities can also be gross complements as formulated by Morishima (Osaka Econ Pap 1:101–113, 1952). Further, the Morishima and gross substitute cases are the only cases to which the Principle can apply, based only upon the stability hypothesis and a specification of the gross substitute/complement relations among commodities. We show that the Milgrom and Shannon (Econometrica 62:157–180, 1994) single crossing conditions specified for monotone comparative statics can be configured appropriate to the Morishima case to give global conditions for the LeChatelier Principle to apply to a multimarket equilibrium.     

FINANCING URBAN INFRASTRUCTURE: KNOWNS,UNKNOWNS, AND A WAY FORWARD

Improved urban infrastructure is widely believed to be essential in facilitating economic growth and in improving the lives of urban dwellers, both in developed and in developing countries. This paper focuses on several dimensions of urban infrastructure finance: finance for major infrastructure improvements in major economic centers, finance for expansion of basic municipal services in secondary cities and towns, and intergovernmental systems for financing investments with impacts beyond jurisdictional limits. It reviews what is “known” about current practices in these areas, using international evidence and case studies and summarizing international best practices. It also indicates areas in which knowledge gaps remain. Despite these “unknowns,” there are avenues by which our understanding of infrastructure schemes can be enhanced, and some suggestions for a research agenda on financing urban infrastructure are offered in the concluding section.     

Who is Who

News

Who is Who     

Supplier innovativeness, organizational learning styles and manufacturer performance: An empirical assessment

Suppliers have become an increasingly important source of product and process innovation. While case studies have documented how supplier innovation can benefit a manufacturer, this relationship has not been empirically validated, nor have contingencies been explored. Using organizational learning theory we posit that the link between supplier innovativeness and manufacturer performance is moderated by the “fit” between the learning styles of the manufacturer and supplier. We empirically test our hypotheses using hierarchical linear modeling of survey responses from 148 manufacturers concerning 592 suppliers. Results indicate that supplier innovativeness has positive impacts on multiple dimensions of manufacturer performance. Results show that when the outsourced activity involves low levels of design responsibility by the supplier, it is more beneficial for the two partners to have contrasting learning styles. However, when the outsourced activity is design-intensive, it is more beneficial to have a supplier with an explorative learning style.     

Rational plunging and the option value of sequential investment: The case of petroleum exploration

The potential to invest sequentially in related assets creates a tradeoff between diversification and concentration. Loading a portfolio with correlated assets has the potential to inflate variance, but also creates information spillovers and real options that may augment total return and mitigate variance. We examine this tradeoff in the context of petroleum exploration. Using a simple model of geological dependence, we show that the value of learning options creates incentives for investors to plunge into dependence; i.e., to assemble portfolios of highly correlated exploration prospects. Risk-neutral and risk-averse investors are distinguished not by the plunging phenomenon, but by the threshold level of dependence that triggers such behavior. Aversion to risk does not imply aversion to dependence. Indeed the potential to plunge should be larger for risk-averse investors than for risk-neutral investors. We test the empirical validity of our theory by examining bidding activity in petroleum lease sales. We find significant plunging behavior across a broad sample of oil companies. We also find that privately-held firms pursue even more concentrated (less diversified) prospect portfolios than publicly-held firms—which we attribute to risk aversion rather than size.     

WAS THE GOLD STANDARD REALLY DESTABILIZING?

This paper investigates the extent to which the high macroeconomic volatility experienced in the classical Gold Standard era of US history can be attributed to the monetary policy regime per se as distinct from other shocks. For this purpose, we estimate a small dynamic stochastic general equilibrium model for the classical Gold Standard era. We use this model to conduct a counterfactual experiment to assess whether a monetary policy conducted on the basis of a Taylor rule characterizing the Great Moderation data would have led to different outcomes for macroeconomic volatility and welfare in the Gold Standard era. The counterfactual Taylor rule significantly reduces inflation volatility, but at the cost of higher real‐money and interest‐rate volatility. Output volatility is very similar. The end result is no welfare improvement. Copyright © 2012 John Wiley & Sons, Ltd.     

A number‐of‐modes reference rule for density estimation under multimodality

We consider kernel density estimation for univariate distributions. The question of interest is as follows: given that the data analyst has some background knowledge on the modality of the data (for instance, ‘data of this type are usually bimodal’), what is the adequate bandwidth to choose? We answer this question by extending Silverman's idea of ‘normal‐reference’ to that of ‘reference to a Gaussian mixture’. The concept is illustrated in the light of real data examples.     

IFRS Adoption and Accounting Quality: A Review

Abstract

In 2002, the European Union (EU) Parliament passed a regulation that requires consolidated and simple accounts for all companies listed in the EU to use International Financial Reporting Standards (IFRS) for fiscal years starting after 1 January 2005. This change in accounting systems will have a large impact on the information environment for EU companies. This paper provides a review of the literature on adoption of different Generally Accepted Accounting Principles (GAAP). We thus provide background and guidance for researchers studying the change in accounting quality following widespread IFRS adoption in the EU. We argue that cross-country differences in accounting quality are likely to remain following IFRS adoption because accounting quality is a function of the firm's overall institutional setting, including the legal and political system of the country in which the firm resides.     

Sector choices for public service delivery The transaction cost implications of executive turnover

The question of whether private firms should contract out for products and services or provide them internally (i.e. become more vertically integrated) has been a topic that has concerned scholars for many years. This article argues that the transaction costs in local contracting choices are linked to the characteristics of political systems that influence political and administrative uncertainty. Our analysis examines the transaction costs that result from executive turnover. Specifically, we are concerned with how uncertainty resulting from turnover in leadership positions in city government affects the ability of a municipality to negotiate contracts, make credible commitments to suppliers and faithfully uphold and enforce contracts once they are in force. We find that manager turnover reduces the likelihood of contracting with private sector providers. Mayor turnover has the opposite effect increasing contracting with both government and for-profit providers.