The New Zealand Fair Trading Act of 1986: Deceptive Advertising

In 1986, New Zealand introduced the Fair Trading Act, legislation aimed at consumer protection. This act was modeled after similar Australian legislation, while taking into account the legislation and precedents of other countries including the United States, England, and Canada. Although wording of different nations' legislation is often similar, unique national conditions may give rise to different interpretations. The emergence of the Act may indicate a movement toward minimal international standards in consumer protection legislation among common law countries and to a lesser extent, a large number of Western nations. This paper examines the content and performance of the Act concerning deceptive advertising. Available evidence suggests that the frequency and severity of deceptive advertising has declined. Knowledge of the New Zealand experience provides insight into the evolution of consumer protection legislation and insight for American firms planning commerce there.     

Private Equity Performance: What Do We Know?

We study the performance of nearly 1,400 U.S. buyout and venture capital funds using a new data set from Burgiss. We find better buyout fund performance than previously documented—performance has consistently exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund's life and more than 3% annually. Venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. Our conclusions are robust to various indices and risk controls. Performance in Cambridge Associates and Preqin is qualitatively similar to that in Burgiss, but is lower in Venture Economics.     

The Strategic Exercise of Options: Development Cascades and Overbuilding in Real Estate Markets

This article develops an equilibrium framework for strategic option exercise games. I focus on a particular example: the timing of real estate development. An analysis of the equilibrium exercise policies of developers provides insights into the forces that shape market behavior. The model isolates the factors that make some markets prone to bursts of concentrated development. The model also provides an explanation for why some markets may experience building booms in the face of declining demand and property values. While such behavior is often regarded as irrational overbuilding, the model provides a rational foundation for such exercise patterns.     

STOCHASTIC FRONTIER ANALYSIS OF SPECIALIST SURGEON CLINICS

Stochastic frontier analysis was used to estimate the technical efficiency of specialist surgeon practices based in Gauteng Province, South Africa. The analysis was conducted for both single and multiple output production functions, while efficiency was allowed to depend upon surgeon and practice characteristics. Multiple output models, due to an increase in the number of observations, can be more precisely estimated and, as there are multiple observations per surgeon, can be estimated with fixed effects. The results of the analyses suggest that efficiency averages around 50% for this sample and is convex in years of surgical experience. The benefit of multiple output analysis – improved precision – obtains, while surgeon‐level fixed effects alleviate some concerns related to unobserved heterogeneity.     

THE CURSE OF DEMOCRACY AS AN INSTRUMENT OF REFORM IN COLLAPSED COMMUNIST ECONOMIES

I will begin with some general remarks on democracy. Then, I will discuss democracy as an instrument of reform in a collapsed communist economy.     

Measuring and Motivating Quantity, Creativity, or Both

We examine how worker productivity differs when compensation is based on quantity, creativity, or the product of both measures. In an experiment in which participants design “rebus puzzles,” we find that combining quantity and creativity measures in a creativity‐weighted pay scheme results in creativity‐weighted productivity scores that are significantly lower than those generated by participants with quantity incentives alone. Follow‐up analysis indicates that relative to participants in the quantity‐only condition, participants in the creativity‐weighted condition produce approximately the same number of high‐creativity puzzles, but produce significantly fewer puzzles overall. Thus, while participants rewarded for creativity‐weighted output tend to restrict their production to high‐creativity efforts, they are unable to translate this focus into a greater volume of high‐creativity output. Implications address a possible explanation for firms' reluctance to incorporate creativity measures within multidimensional performance measurement systems, notwithstanding published suggestions to do so.     

Labor Market Outcomes of Persons with Mental Disorders

We present nationally representative estimates of unexplained employment and wage differentials between nondisabled persons and persons with mental disorders, a disabled group subject to exceptionally strong stigma. Estimates are provided for persons with mental disorders overall, and for subgroups of mood, anxiety, adjustment, and psychotic disorders. The results reveal distinctly different patterns of outcomes across subgroups, consistent with a severity gradient such that persons with adjustment disorders experience the most favorable outcomes, while persons with psychotic disorders experience the least favorable.     

Tax Planning and the Exercise of Employee Stock Options*

This paper analyzes tax planning by holders of employee stock options and examines their response to a proposed tax rate increase. Consistent with tax planning, the frequency of exercise is greater for employees affected by the tax change than for (1) employees unlikely to be affected by the tax increase who contemporaneously held identical options, and (2) employees with comparable incomes who held similar options in other years. Despite the greater frequency of exercise, less than one-third of the option holders who would benefit most from exercise for tax reasons chose to exercise early.