The Effects of Escalating Commitment on Ethical Decision-Making

Although scholars have invoked the escalation framework as a means of explaining the occurrence of numerous organizationally undesirable behaviors on the part of decision makers, to date no empirical research on the potential influences of escalating commitment on the likelihood of unethical behavior at the individual level of analysis has been reported in either the escalation or the ethical decision-making literatures. Thus, the main purpose of this project is to provide a theoretical foundation and empirical support for the contention that escalating commitment situations can induce unethical behavior in decision makers. An experimental research design utilizing a computerized investment task was administered to 155 undergraduate business majors as a means of assessing the hypotheses presented here. Results from a hierarchical logistic regression analysis found strong support for the contention that exposure to an escalation situation increases the likelihood of unethical behavior on the part of decision makers. Further, results also supported previous ethical decision-making findings by confirming the effects of locus of control (LOC) on ethical behavior. Specifically, the data indicated that individuals with an external LOC orientation were significantly more likely to select the unethical option than were individuals with an internal LOC orientation. Interestingly, support was not found for the effects of Machiavellianism or gender on ethical decision-making.     

The Effectiveness of Vehicle Safety Inspections: An Analysis Using Panel Data

We examined the effectiveness of state automobile safety inspections and present new evidence from a panel of the 50 states for the years 1981-1993. Our approach incorporated several innovations over previous studies of safety inspections; most significantly, we estimated a fixed-effects model that incorporated state-specific shifts in casualty rates. We found no evidence that inspections significantly reduce fatality or injury rates. Our study also provides evidence on the effects of speed limits, seat belts, and Peltzman's offsetting behavior hypothesis.     

Asset Prices and the Financial Crisis of 2007–09: An Overview of Theories and Policies

The financial crisis of 2007–09 has led to a rethinking of the role of monetary and financial regulatory policy. It has also called into question the benefits of financial innovation and monetary policy that focuses solely on inflation and the output gap. This paper discusses financial instabilities in general, the recent financial crisis as well as the appropriate role of monetary and financial regulatory policy in dealing with asset bubbles. The paper concludes by evaluating appropriate policies to reduce the economic impact of future financial crises.     

Jacques Le Bourva's theory of endogenous credit-money ∗

About 30 years ago, Jacques Le Bourva published two little-known articles that clearly set out the present post-Keynesian theory of endogenous money developed by Kaldor and Moore. The main features of these two articles are presented, in particular Le Bourva's belief that reverse causation, rather than the instability of the velocity function, is the key objection to the quantity theory of money and the mainstream theory of inflation. Other features include a graphical and an algebraic pedagogical representation of the theory of endogenous money, the use of the Banking school's efflux/reflux mechanism, the dismissal of the money multiplier, and the impossibility of an excess supply of money. Le Bourva's theory of inflation also resembles that adopted by many post-Keynesians, in which price increases due to excessive wage demands and attempts by firms to raise their profit margins to finance investment.     

Measuring inflation expectations: a survey data approach

Measures of expected inflation from consumer surveys are derived using a modification of the Carlson-Parkin probability approach, which does not assume unbiasedness of expectations, makes use of survey data on expected future as well as perceived past price developments and allows for time varying response thresholds. We apply this method to the normal, central-t and noncentral-t distributions, thereby investigating the effects of nonnormal peakedness and asymmetry. We find that the effects on expected inflation of the former are small and of the latter are substantial, without increasing the accuracy of the expectations, however. Expected and actual inflation show substantial persistence, and, for most of our expectations measures, are cointegrated. Furthermore, the forecast error is stationary, implying weak-form rationality. The co-movement of currently observed expected inflation measures and the unobserved 12-months-ahead inflation rate is of interest for policy makers, for example in the direct inflation targeting strategy. Notwithstanding this, caution is warranted in using them as information variables because the inflation expected by consumers is no causal determinant of actual future inflation.     

Bridging the Gap between Interest Rates and Investments

The links between interest rates, cost of capital, hurdle rates, and capital allocation have been remarkably weak during the last few years. For instance, whereas the current yield on the World Government Bond Index is a paltry 1.2%, survey evidence suggests that the median reported investment hurdle rate of S&P 100 companies is as high as 18%. In this report, members of J.P Morgan's corporate finance advisory group explain why the cost of capital for most companies is unlikely to increase materially even if interest rates rise as projected. This suggests that companies have room to lower their hurdle rates. Moreover, as the authors argue, a reduction in hurdle rates is likely to be beneficial since excessively high hurdle rates can have the effect of reducing value by sacrificing profitable growth opportunities and increasing the firm's risk profile. The report concludes with a framework for corporate hurdle rates and capital allocation strategies designed to help companies make better investment decisions.