Inflation, investment and economic performance: The role of internal financing

This paper studies a link between inflation and economic activity that is built on two hypotheses. First, firms mitigate informational frictions in financial markets by accumulating retained earnings over a period of time. Second, firms allocate earnings among three competing uses - dividends, current investment, and the accumulation of internal funds - and inflation directly distorts this allocation decision as well as the real value of accumulated internal funds. The model predicts that the level of inflation - both unanticipated and expected inflation - as well as the variability of inflation distort firms’ internal financing decisions, increases frictions in financial markets, reduces the level and efficiency of investment, and reduces aggregate output. The marginal effects of inflation are increasing in the inflation rate.     

The equilibrium set of two-player games with complementarities is a sublattice

Summary. I prove that the equilibrium set in a two-player game with complementarities, and totally ordered strategy spaces, is a sublattice of the joint strategy space. Received: May 31, 2001; revised version: October 4, 2002     

Class length and student performance: An extended study

Many accounting educators believe that the student learning of accounting is better facilitated over a longer period of time, rather than a shorter period of time. This study examined the results of student performance in two introductory accounting courses, comparing student performance results of four-week summer classes with the results of traditional 16-week courses. In this research, the same professor taught the spring and summer ACC 201 courses, and two other professors taught both the spring and summer ACC 211 courses. Also held constant were the lecture material, course assignment, and test content. The results of the study indicate that in general, students taking introductory accounting over four weeks fare about as well as students who take introductory accounting over a traditional 16-week period. These results have potential importance beyond accounting education and provide support to universities offering more block courses to better serve individual student needs.     

Double Moral Hazard,Monitoring, and the Nature of Contracts

generalized double-sided moral-hazard model, with risk-averse parties who mutually monitor each other (to get a reasonable idea of outcome/effort). The model considers trade-off between monitoring costs and moral hazard costs, which are endogenously determined by the extent of monitoring. Using this model, we formally prove a generalized version of Coase's conjecture – that the optimal contract minimizes the agency and risk costs. We then show how varying assumptions about the feasibility or cost of monitoring of the outcome or the worker's effort lead to different contracts being optimal. The analysis is then used to explain the nature of contracts observed in practice under many different situations. We will give an explanation as to why industrial workers typically work under wage contracts, while share contracts are common in agriculture and will explain why profit sharing is more common for senior managers than for the production workers. Received September 19, 2000; revised version received October 30, 1997     

The impact of product diversification strategy on the corporate performance of large Spanish firms

We analyze the impact of product diversification on performance. This topic has been discussed in the literature, and there is no consensus so far as to the significance or the direction of the impact. Performance is measured using Tobin's q for a sample of 103 large, non-financial Spanish firms (1992–1995). Diversification is measured by means of a categorical variable, as suggested by Varadarajan. The principal results indicate that the firms with intermediate levels of product diversification have the highest performance, while the firms with low and high levels of diversification show significantly lower performance, which performance is not significantly different between them.     

Regulating an Externality-Generating Utility Environmental Taxes Under Limited Information

Global warming is currently an important item on most nationalenvironmental agendas. In many countries, coal-fired electricity generatingstations represent an important source of greenhouse gases. We examinehow regulations to curb emissions affect public utility pricing regulationwhen regulators act non-cooperatively. We show that, when there is limitedinformation on fixed abatement costs, an environmental regulator prefersan emission tax over an output tax or a lump sum environmental tax. Thepublic utility regulator prefers the lump sum tax regime.     

Selecting Social Goals: J. M. Keynes and the Emergence of Ontological Rationality in Economics

In this paper we discuss the fundamental inconsistency that results from employing the two traditional concepts of rationality as the basis of selecting social goals. We then consider the possibility that the selection of social goals must be based on explicitly ethical criteria. To do so a third concept of rationality namely, ontological rationality, should be adopted. Moreover, we argue that J. M. Keynes in A Tract Monetary Reform based his public policy recommendations on a modified version of ontological rationality, thereby introducing ontological rationality into economics as the basis for selecting social goals.A previous version of this paper was presented at the Fifty-Eighth International Atlantic Economic Conference, October 7–10, 2004. The authors are grateful to session participants for their helpful suggestions, though the authors alone are responsible for the contents of the paper.     

Ex-post full surplus extraction,straightforwardly

Consider an estimate of the common value of an auctioned asset that is symmetric in the bidders’ types. Such an estimate can be represented solely in terms of the order statistics of those types. This representation forms the basis for a pricing rule yielding truthful bidding as an equilibrium, whether bidders’ types are affiliated or independent. We highlight the link between the estimator and full surplus extraction, providing a necessary and sufficient condition for ex-post full surplus extraction, including the possibility of independent types. The results offer sharp insights into the strengths and limits of simple auctions by identifying the source of informational rents in such environments. Harstad acknowledges hospitable accommodation by the Fuqua School of Business, Duke University, and the Olin School of Business, Washington University in St. Louis, during parts of this research. We are grateful for comments and suggestions from Richard McLean and Jeroen Swinkels.     

Subjective recursive expected utility

We axiomatize a subjective version of the recursive expected utility model. This development extends the seminal results of Kreps and Porteus (Econometrica 46:185–200 (1978)) to a subjective framework and provides foundations that are easy to relate to axioms familiar from timeless models of decision making under uncertainty. Our analysis also clarifies what is needed in going from a represention that applies within a single filtration to an across filtration representation.Part of this research was conducted when Ozdenoren visited MEDS in Fall 2003. We thank Tapas Kundu, Costis Skiadas, Jean-Marc Tallon and Tan Wang for helpful discussions and also thank audiences at Koc University, Northwestern University, the CERMSEM conference “ Mathematical Models in Decision Theory” at Universite Paris I, and the FUR XI conference on foundations and applications of utility, risk and decision theory