Random coefficient regression and the long-run phillips curve for the U.S.

This research suggests that a random coefficient regression model is well-suited for analyzing long-run versus short-run movements in wages and unemployment and is an improvement over some empirical techniques typically used.     

A note on the independence of irrelevant alternatives in probabilistic choice models

The purpose of this note is to show that there is no necessary relationship between the independence of irrelevant alternatives (IIA) property and stochastic independence of the errors in probabilistic choice models.     

An equilibrium analysis of information aggregation and fluctuations in markets with discrete decisions

This paper shows how the interaction between decentralized information gathering and discreteness of investment decisions at the individual level can generate random fluctuations in aggregate investment that involve occasionally large allocation errors. This interaction is illustrated in a model in which private information is costly to acquire and prices reveal information. The unique rational expectations equilibrium outcome of the model is shown to always be noisy and characterized by investment levels which may be high simply because uninformed investors are buying under the impression that the high price is a signal of good investment opportunities.     

Analysis of the effects of settlement of interfirm lawsuits

This study examines the effects of news on settlement of interfirm lawsuits. We hypothesize that the defendant firms suffer damaged reputation as news on the interfirm lawsuit remains in the ‘public eye’, as such ending the litigation process through settlement is good news for the defendant firms. Thus, the stock market will react positively to the defendants when news of a settlement is announced. On the other hand, settlements end the free publicity that the plaintiffs enjoy. In addition the plaintiffs settle for less money than they initially seek. Thus, the implication of a reduced cash flow expectations that the announcement of settlements brings to the plaintiffs will cancel out the positive reputation effect. Therefore, there will be no significant stock market reaction to the plaintiffs when a settlement is announced. Furthermore, the stock market will show no significant reaction to the defendants who have been the subject of more than one lawsuit in a relatively short period of time prior to a settlement because their reputation is too severely damaged to be remedied through removal of their name from the limelight. The results of our analysis support the hypotheses and offer some insight for strategy development. Copyright © 2006 John Wiley & Sons, Ltd.     

Does One Size Fit All? A currency union with asymmetric transmissions and a stability pact

The theory of optimal currency areas stresses that a single currency zone should have symmetry across shocks and structures. What happens if the monetary transmission mechanisms differ so that a common monetary policy has different effects in different places? Using a fully specified econometric model, we find that such asymmetries are likely to destabilise the business cycle and put countries out of phase with each other in a way that cannot be corrected by deficit-constrained national fiscal policies. Market discipline, however, could achieve this. Hence, the question is whether the markets would create sufficient discipline on their own.     

Toward a Phylogenetic Reconstruction of Organizational Life

Synopsis Classification is an important activity that facilitates theory development in many academic disciplines. Scholars in fields such as organizational science, management science and economics and have long recognized that classification offers an approach for ordering and understanding the diversity of organizational taxa (groups of one or more similar organizational entities). However, even the most prominent organizational classifications have limited utility, as they tend to be shaped by a specific research bias, inadequate units of analysis and a standard neoclassical economic view that does not naturally accommodate the disequilibrium dynamics of modern competition. The result is a relatively large number of individual and unconnected organizational classifications, which tend to ignore the processes of change responsible for organizational diversity. Collectively they fail to provide any sort of universal system for ordering, compiling and presenting knowledge on organizational diversity. This paper has two purposes. First, it reviews the general status of the major theoretical approaches to biological and organizational classification and compares the methods and resulting classifications derived from each approach. Definitions of key terms and a discussion on the three principal schools of biological classification (evolutionary systematics, phenetics and cladistics) are included in this review. Second, this paper aims to encourage critical thinking and debate about the use of the cladistic classification approach for inferring and representing the historical relationships underpinning organizational diversity. This involves examining the feasibility of applying the logic of common ancestry to populations of organizations. Consequently, this paper is exploratory and preparatory in style, with illustrations and assertions concerning the study and classification of organizational diversity.     

Incentive effects of benevolent intervention: The case of government loan guarantees

There has been a substantial recent growth in government loan guarantees to ailing firms in the United States. This paper investigates the potential incentive effects of this practice. Using the simplest available two-period model, it is shown that when firms know that loan guarantees may be forthcoming, they may be induced to adopt riskier investments and take on more leverage. These perverse incentive effects imply that the actual loan-guarantees-related contingent liability of the government could be much larger than suspected. Our policy recommendation is that the government either abandon the practice altogether or set up a federal agency that sells loan guarantees to all firms at prices that depend on the riskiness of the firm's assets and its leverage.