A model of project evaluation with limited attention

Summary This paper characterizes the optimal policy for a model in which manager may adopt an endogenous number of projects but has only limited resources to devote to their evaluation and maintenance. In any period, the manager may discard any subset of existing projects but may evaluate only one existing or one new project which is then either discarded or restored. Both its current return and the probability with which a project may be restored depends only on the number of periods since its last evaluated. For a manager whose objective is to maximize the sum of discounted returns, the optimal policy takes one of two forms. A discard policy specifies that the manager evaluate a new project in each period and discard current projects at some critical age. An age inspection policy specifies that the manager evaluate a new project only if all current projects are sufficiently young.Support from the C. V. Starr Center for Applied Economics and the Research Resource Committee of the Rutgers Graduate School of Management is gratefully acknowledged. We thank Roy Radner for valuable assistance in the early stages of the work.     

Veblen's Theory of Institutional Change: An Explanation of the Deregulation of Japanese Financial Markets

A bstract In his 1915 essay "The Opportunity of Japan," Thorstein Veblen theorized that traditionai Japanese institutions would undergo evolutionary change as Japan exploited borrowed industrial technology and became integrated into the global business enterprise system. This article explains the recent liberalization of Japanese financial markets which followed Japan's rise to economic prominence within the context of Veblen's theory of institutional development of the enterprise system. The Japanese process of financial deregulation is reviewed, Veblen's predictions Japan are presented and an explanation provided for the liberalization of Japanese financial markets .     

Keeping Two Sets of Books: The Relationship Between Tax and Incentive Transfer Prices

Multinational enterprises use two types of transfer prices: the tax transfer price to achieve optimal tax outcomes and the incentive transfer price to provide appropriate incentives to offshore managers. The two optimal transfer prices are independent if taxable income is assessed using the formula apportionment approach. Under the separate entity approach, however, they are interdependent: they both decrease as the penalty for noncompliance with the arm's length principle increases; and the tax transfer price decreases and the incentive transfer price increases as the marginal cost of production increases. We also examine the case where the incentive transfer price is negotiated rather than dictated by the parent. The results are robust to different market structures and tax environments.     

Estimation of a non-invertible moving average process: The case of overdifferencing

The effect of differencing all of the variables in a properly specified regression equation is examined. Excessive use of the difference transformation induces a non-invertible moving average (MA) process in the disturbances of the transformed regression. Monte Carlo techniques are used to examine the effects of overdifferencing on the efficiency of regression parameter estimates, inferences based on these estimates, and tests for overdifferenccing based on the estimator of the MA parameter for the disturbances of the differences regression. Overall, the problem of overdifferencing is not serious if careful attention is paid to the properties of the disturbances of regression equations.     

A MARKET WITH FRICTIONS IN THE MATCHING PROCESS: AN EXPERIMENTAL STUDY*

We construct a laboratory market in which there is a friction in the matching between buyers and sellers. Sellers simultaneously post prices and then buyers simultaneously choose a seller. If more than one buyer chooses the same seller, the seller's single unit is randomly sold to one of them. Our results show a broad consistency with theoretical predictions, although price dispersion exists and is slow to decay. Prices also exceed the equilibrium level when there are only two sellers, and buyers' purchase probabilities are insufficiently responsive to price differences when there are two sellers.     

The First U.S. Food Stamp Program: An Example of Rent Seeking and Avoiding

Abstract . Rent seeking involves the wasteful expenses incurred to secure, acquire, or maintain a monopoly position. Rent avoiding involves the expenditures undertaken to avoid the imposition of rent-seeking costs. Each represents a social cost of Tullock rectangle loss in addition to the dead-weight or Harberger triangle loss that combined to form the Harberger-Tullock trapezoid social cost. The first Food Stamp Program in the United States came about through the rent-seeking and/or rent-avoiding efforts of farmers, grocers, bankers, and other economic agents and did not lead to the promotion of social welfare. The evidence of these self-interested efforts was gleaned from articles in the New York Times and government documents. The first Food Stamp Program also fits the economic theory of regulation developed by Stigler, Jordan, Peltzman and others, and it involved imposed costs on economic agents as the program evolved.     

Unionism and the public sector

It is incorrect and misleading to speak of unionization as a ‘human right’. The only human right is ‘self-ownership’, i.e. to pursue goals with one's own abilities but with no force or fraud against others. Government cannot dispense rights, only privileges and protections to some at the expense of others. A minimal degree of coercion exercised by government is unavoidable. But labor unions are not governments. Government has granted significant privileges to unions in the private sector, but such are not appropriate for public sector unions.