Negotiations under the threat of an auction

Many takeovers occur after one-on-one negotiations, which suggests a troubling lack of competition. We seek to determine whether acquirers in such friendly deals are truly insulated from competitive pressures. We study two countervailing influences: (1) potential but unobserved latent competition, i.e., the likelihood that rival bidders could appear, and (2) anticipated auction costs when negotiations fail. Using various proxies, we find that latent competition increases the bid premium offered in negotiated deals and that auction costs reduce the premium.     

Capitalization and the Voucher: An Analysis of Precinct Returns from California''s Proposition 174

In 1993, Californians voted on a school voucher initiative. We hypothesize that homeowners in good school districts understood the voucher to be a threat to their property values and thus voted against it. Precinct returns from Los Angeles County confirm this hypothesis. We also examine an alternative hypothesis explaining the relationship between school quality and precinct returns. According to the alternative, voters perceived the initiative to be a referendum on public school quality. To distinguish between the two hypotheses, we compare the voting patterns of homeowners and renters. The comparison does not favor one hypothesis over the other.     

Resource‐led Development: An Illustrative Example from Nigeria

Abstract: Several strategies are open to an economy in its attempt to attain sustainable economic development, depending on its historical background and resource endowment. One such strategy is the resource‐led strategy. Nigeria is very rich in crude oil and has reaped billions of petrodollars. However, the country faces the problem of successfully translating this huge oil wealth into sustainable development. This paper employs the vector error correction technique in examining the long‐run impact of the huge oil wealth accruing to Nigeria on its economic development. Basic indicators such as growth, private consumption, infrastructure (electricity), agriculture and manufacturing output growth rates are examined. The empirical results suggest a significant positive long‐run impact of per capita oil revenue on per capita household consumption and electricity generation while a negative relationship is established for GDP, agriculture and manufacturing. Even for those with a negative relationship at current period, there exist positive relationships at subsequent lags. Thus, oil revenue, if properly managed and invested, could be effectively used to induce oil‐led development for Nigeria provided that the initial inhibitions of corruption, lack of transparency, accountability and fairness in its use and distribution are removed.     

Labor productivity, wages, nationality, and foreign ownership shares in Thai manufacturing, 1996–2000

This paper compares labor productivity and wages among nationality and ownership groups of foreign multinational corporations (MNCs) and local plants in Thai manufacturing for 1996, 1998, and 2000. Disaggregating foreign MNCs by nationality or foreign ownership share revealed a few significant differences in both labor productivity and wages that were not present in more aggregate specifications. In these cases, there was a weak tendency for MNCs from Europe, Japan, and the United States to have relatively high labor productivity and wages, for wholly-foreign MNCs to have relatively high labor productivity, and for majority- and wholly-foreign MNCs to pay relatively high wages. However, these results suggest that the relationships among labor productivity or wages, on the one hand, and nationality or foreign ownership shares, on the other hand, were generally weak in Thai manufacturing. These results are also consistent with those of previous studies in suggesting that the relationship between labor productivity and foreign ownership in general was also rather weak, though the relationship between wages and foreign ownership was somewhat stronger.     

Monetary Policy Rules with Model and Data Uncertainty

In this paper we examine the prevalence of data, specification, and parameter uncertainty in the formation of simple rules that mimic monetary policymaking decisions. Our approach is to build real-time data sets and simulate a real-time policy-setting environment in which we assume that policy is captured by movements in the actual federal funds rate, and then to assess what sorts of policy rule models and what sorts of data best explain what the Federal Reserve actually did. This approach allows us not only to track the performance of alternative rules over time (hence facilitating a type of model selection among competing rules), but also to more generally assess the importance of the data revision process in the formation of macroeconomic time series models. From the perspective of real-time data, our results suggest that the use of data that are erroneous, in the sense that they were not available at the time decisions could have been made based on forecasts from the rules, can lead to the selection of quantitatively different models. From the perspective of finding a rule that best approximates what the Federal Reserve Board (Fed) has actually done (and hence from the perspective of finding a rule that best approximates what the Fed will do in the future), we find that (i) our version of “calibration” is better than naïve estimation, although both are dominated by an approach to rule formation based on the use of adaptive least-squares learning; (ii) rules based on data that are not seasonally adjusted are more reliable than those based on seasonally adjusted data; and (iii) rules based solely on preliminary data do not minimize mean square forecast error risk. In particular, early releases of data can be noisy, and for this reason it is useful to also use data that have been revised when making decisions using policy rules.     

Tax Clientele Effects in the Term Structure of UK Interest Rates

This paper tests for tax clientele effects in the term structure of UK interest rates. Five empirical models of the term structure of interest rates, incorporating tax effects, are estimated with daily data covering the period 31 March, 1995 to 3 August, 1995. In May 1995, the British government announced its intention to eliminate the tax exemption on capital gains from government bonds, but subsequently in July 1995 backtracked on some of its initial proposals. This period therefore forms the basis of a crude natural experiment in the sense that it provides an opportunity to examine tax clientele effects 'before' and 'after' an event which should have levelled greatly the taxing of government bonds. The empirical analysis suggests large tax clientele effects. However, there is little evidence of tax-specific term structures of interest rates.