Who's in charge of the central city? The conflict between efficiency and equity in the design of a metropolitan area

A circular metropolitan area consists of a central city surrounded by a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show that (1) there typically exist two equilibria: one in which the poor form the voting majority in the central city and the other in which the rich form the majority in the central city; (2) there is an efficiency vs. equity trade-off as to which equilibrium is preferred; and (3) if the central city contains only poor households, equity favors expanding the central city to include rich households. The third result arises not because of a fiscal subsidy from rich to poor households induced by a property tax but rather because of a change in house price capitalization.     

Managerial Opportunism? Evidence from Directors' and Officers' Insurance Purchases

We analyze a sample of 72 IPO firms that went public between 1992 and 1996 for which we have detailed proprietary information about the amount and cost of D&O liability insurance. If managers of IPO firms are exploiting superior inside information, we hypothesize that the amount of insurance coverage chosen will be related to the post-offering performance of the issuing firm's shares. Consistent with the hypothesis, we find a significant negative relation between the three-year post-IPO stock price performance and the insurance coverage purchased in conjunction with the IPO. One plausible interpretation is that, like insider securities transactions, D&O insurance decisions reveal opportunistic behavior by managers. This provides some motivation to argue that disclosure of the details of D&O insurance decisions, as is required in some other countries, is valuable.     

Dynamic scoring: Alternative financing schemes

Neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be expansionary or contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.     

Mergers to Monopoly

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.     

The role of investment banks in acquisitions

We compare acquisitions completed with and without investmentbank advice over the 1981 to 1982 period. We find that the choiceto use an investment bank depends on the complexity of the transaction,the type of transaction (takeovers versus acquisitions of assets),the acquiror's prior acquisition experience, and the degreeof diversification of the target firm. Although acquisitionannouncement returns are lower for firms using investment banks,this difference can be explained by differences in transactioncharacteristics. These results suggest that transaction costsare the main determinant of investment banking choice, followedby contracting costs and asymmetric information costs.     

Human capital,investment and growth: Some results from an endogenous growth model

Recent theoretical literature on the sources of economic growth has emphasized the role of human capital as an internal contributing force in the growth process. Empirical results reported in this paper provide support for this theoretical proposition. Cross-country data from 32 developing countries indicate that human capital (as alternatively measured by the primary school enrollment rate or the adult literacy rate) exerts a significant positive impact upon output growth.