UMBRELLA DAMAGES: TOWARD A COHERENT ANTITRUST POLICY

Price‐fixing cartels usually do not involve all members of an industry. To the extent that the nonconspiring industry members set their prices under the price umbrella of the cartel, the customers of the nonconspiring firms suffer overcharges just like customers of the conspiring firms. Whether these so‐called umbrella plaintiffs have standing to sue for antitrust damages is an unresolved policy question, because the Supreme Court has not spoken on “umbrella damages.” In this article, we identify the judicial concerns regarding umbrella damage claims, which can be traced to Mid‐West Paper and Petroleum Products Antitrust Litigation. These decisions raise concerns that the fact of injury is conjectural and the measurement of the damages is speculative. We first review the divided judicial treatment of standing for umbrella plaintiffs. Next, we describe the economics of umbrella pricing, which reveals that umbrella claims are not inherently conjectural. We then examine the econometric analysis necessary to estimate damages, demonstrating that umbrella damage estimates are not inherently speculative. We also examine some difficulties that exist in damage estimation generally and for umbrella plaintiffs in particular. Finally, we argue that granting standing to umbrella plaintiffs is consistent with the goals of antitrust policy. (JEL L1, L4, K2)     

Focusing on volatility information instead of portfolio weights as an aid to investor decisions

When faced with the challenge of forming a portfolio containing a risky and a risk-free asset, investors tend to apply the same portfolio weights independently of the volatility of the risky asset. This “percentage heuristic” can lead to different levels of portfolio risk when the same investor is presented with a more or a less risky asset. Using four experiments, we show that asking investors to choose the return distribution for their portfolio while keeping the exact portfolio weights unknown leads to greater similarity in levels of portfolio volatility (across different levels of risk of the risky asset) than asking investors to choose this distribution while additionally facing the portfolio weights. Higher consistency in risk taking is obtained both between and within test subjects.     

Estimating the public economic consequences of introducing varenicline smoking cessation therapy in South Korea using a fiscal analytic framework

Background and aims: Smoking gives rise to many cross-sectorial public costs and benefits for government. Costs arise from increased healthcare spending and work-related social benefits, while smoking itself provides significant revenue for government from tobacco taxes. To better understand the public economic impact of smoking and smoking cessation therapies, this study developed a government perspective framework for assessing smoking-attributable morbidity and mortality and associated public costs. This framework includes changes in lifetime tax revenue and health costs, as well as changes in tobacco tax revenue, from fewer smokers.

Methods: A modified generational accounting framework was developed to assess relationships between smoking-attributable morbidity and mortality and public economic consequences of smoking, including lifetime tax revenue gains/losses, government social transfers, and health spending. Based on the current prevalence of smoking in South Korean males, a cohort model was developed for smokers, former-smokers, and never-smokers. The model simulated the lifetime discounted fiscal transfers for different age cohorts in 5 year age bands, and the return on investment (ROI) from smoking cessation therapy.

Results: Former smokers are estimated to generate higher lifetime earnings and direct tax revenues and lower lifetime healthcare costs due to the reduction of smoking-attributable mortality and morbidity compared to smokers, even after accounting for reduced tobacco taxes paid. Based on the costs of public investments in varenicline, this study estimated a ROI from 1.4–1.7, depending on treatment age, with higher ROI in younger cohorts, with an average ROI of 1.6 for those aged less than 65.

Conclusions: This analysis suggests that reductions in smoking can generate positive public economic benefits for government, even after accounting for lost tobacco tax revenues. The results described here are likely applicable to countries having similar underlying smoking prevalence, comparable taxation rates, and social benefit protection provided to individuals with smoking-related conditions.     

Linking organizational social exchange to intention to leave: Does normative commitment matter?

Abstract

This study examines the effects of organizational social exchange on normative commitment and intention to leave the organization. We develop a moderated mediation model with normative commitment as a mediator in the relationship between organizational social exchange and the intention to leave, and individual-level power distance as a moderator of the indirect link between organizational social exchange and the intention to leave via normative commitment. We collected the data for our two-wave study from 176 employees of a bank in Macau. The results of hierarchical regressions and bootstrapping analyses largely support our hypotheses.     

Variance Decomposition Analysis for Nonlinear Economic Models1

In this paper, we propose a new method called the total variance method and algorithms to compute and analyse variance decomposition for nonlinear economic models. We provide theoretical and empirical examples to compare our method with the only existing method called generalized forecast error variance decomposition (GFEVD). We find that the results from the two methods are different when shocks are multiplicative or interacted in nonlinear models. We recommend that when working with nonlinear models researchers should use the total variance method in order to see the importance of indirect variance contributions and to quantify correctly the relative variance contribution of each structural shock.     

Rationing in IPOs

We provide a model of bookbuilding in IPOs, in which the issuer can choose to ration shares. Before informed investors submit their bids, they know that, in the aggregate, winning bidders will receive only a fraction of their demand. We demonstrate that this mitigates the winners curse, that is, the incentive of bidders to shade their bids. It leads to more aggressive bidding, to the extent that rationing can be revenue-enhancing. In a parametric example, we characterize bid and revenue functions, and the optimal degree of rationing. We show that, when investors information is diffuse, maximal rationing is optimal. Conversely, when their information is concentrated, the seller should not ration shares. We provide testable predictions on bid dispersion and the degree of rationing. Our model reconciles the documented anomaly that higher bidders in IPOs do not necessarily receive higher allocations.     

Corporate social responsibility and the wealth gains from dividend increases

This study examines whether corporate social responsibility (CSR) influences the stock price response to dividend increase announcements and changes in subsequent operating performance. We find that dividend increasing firms with lower CSR scores elicit higher abnormal announcement returns and greater improvements in industry‐adjusted operating performance. These findings support the argument in the literature that socially responsible firms are more transparent and commit to higher ethical standards than other firms, suggesting that they suffer fewer agency and informational problems (Kim, Park, & Wier, 2012). Consequently, larger dividend payouts reduce agency costs in firms with lower CSR commitments, thereby generating higher wealth gains for shareholders.