Social Discount Rates from Stratospheric Ozone Control*

We develop a model of optimal project timing to infer the discount rate US residents attach to investments in stratospheric ozone preservation. In this model, the calendar date at which preservation-related benefits offset costs is shown to be an increasing function of the real social rate of time preference. Estimates of US costs and benefits associated with the original (1987) Montreal Protocol are used to determine a range of discount rates from the US control of stratospheric ozone depletion. From this example the range is about 3.0 to 8.77 per cent.     

Seebohm Rowntree and secondary poverty, 1899–19541

This article, focusing on Seebohm Rowntree's poverty surveys, considers the importance and durability of the concept of secondary poverty. It argues that secondary poverty was a central component of Rowntree's first survey of York, carried out in 1899, and in his lectures and writing in the Edwardian period. Moreover, secondary poverty remained an important feature of Rowntree's analysis during the interwar years and after the Second World War, and was adopted by other researchers in various ways. Although secondary poverty was not seriously examined in the published version of Rowntree's 1936 York survey, there is evidence that it was originally intended to feature, and it is clear that impressionistic evidence of poverty was gathered by Rowntree's investigators, as had been the case in 1899. Moreover, although it was completely expunged from the third survey of York, carried out by Rowntree and Lavers in 1950, a separate inquiry into secondary poverty was carried out in the early 1950s, with a number of prominent supporters. Subsequently, dissatisfaction with income‐based definitions and measurements of poverty allowed the concept of secondary poverty to continue to exercise an influence on the study of poverty in the postwar period.     

The Fundamental Review of the Trading Book: Implications for Portfolio and Risk Management in the Banking Sector

The Fundamental Review of the Trading Book (FRTB) is the promised overhaul of bankmarket risk regulation. FRTB retains the authorized use of proprietary risk models, however, it introduces two additional criteria: (i) P&L attribution (PLA) tests and (ii) desk-level backtests. We examine empirically whether these additional criteria influence risk management and portfolio management practice, specifically portfolio construction and choice of risk model. We find that the PLA tests demand significant alignment with risk factors, however, the backtests do not incentivize use of superior risk models. This has important implications for the efficacy of the capital-based regulatory system.     

MODELING THE INCIDENCE OF SELF‐EMPLOYMENT: INDIVIDUAL AND EMPLOYMENT TYPE HETEROGENEITY

Modeling the incidence of self‐employment has traditionally proved problematic. Although the supply‐side characteristics of the self‐employed are well documented, we argue that the literature has neglected demand‐side aspects. We explore the determinants of self‐employment using the U.S. Survey of Consumer Finances. We present results from an econometric framework that allows us to model, separately and simultaneously, the influences of individual heterogeneity (i.e., supply‐side factors) and employment type heterogeneity (i.e., demand‐side factors) on the probability of self‐employment. Our findings suggest that while individual characteristics are important determinants of self‐employment, there are factors specific to the type of employment that influence self‐employment. (JEL J23, J33, C25, C10)     

Foreign Institutional Ownership and the Global Convergence of Financial Reporting Practices

This paper investigates whether foreign institutional investors affect the global convergence of financial reporting practices. Using several measures of reporting convergence, we show that U.S. institutional ownership is positively associated with subsequent changes in emerging market firms’ accounting comparability to their U.S. industry peers. We identify this association using an instrumental variable approach that exploits exogenous variation in U.S. institutional investment generated by the JGTRRA Act of 2003. Further, we provide evidence of a specific mechanism—the switch to a Big Four audit firm—through which U.S. institutional investors affect reporting convergence. Finally, we show that, for emerging market firms, an increase in comparability to U.S. firms is associated with an improvement in the properties of foreign analysts’ forecasts.     

Identifying Price Reviews by Firms: An Econometric Approach

Price reviews are a potentially costly activity. A significant fraction of unchanged prices may stem from firms not reviewing prices, rather than from obstacles to changing prices per se, such as menu costs. In this paper, we disentangle these two causes of price stickiness by estimating an inflated ordered probit model on a panel of French manufacturing firms. The results point to a low frequency of price reviews, suggestive of the relevance of information costs as a determinant of the observed price stickiness. In view of the “inattentive producers” literature, pointing that the source of price rigidity matters, this is suggestive of a large real effect of monetary policy.     

Individual Investors and Local Bias

The paper tests whether individuals have value‐relevant information about local stocks (where “local” is defined as being headquartered near where an investor lives). Our methodology uses two types of calendar‐time portfolios—one based on holdings and one based on transactions. Portfolios of local holdings do not generate abnormal performance (alphas are zero). When studying transactions, purchases of local stocks significantly underperform sales of local stocks. The underperformance remains when focusing on stocks with potentially high levels of information asymmetries. We conclude that individuals do not help incorporate information into stock prices. Our conclusions directly contradict existing studies.