Simulating Partial Asset Divestitures to 'Fix' Mergers

In this paper, we apply and extend merger simulation methodology to analyze the effectiveness of partial divestitures as a 'fix' to remedy the possible anticompetitive effects of horizontal mergers. Typically, antitrust agencies require merging firms to divest assets so that the status quo before the merger is restored, that is, they favor a 'full divestiture'. We focus on the effectiveness of a partial divestiture as an antitrust remedy (where a subset of products owned by the merging firms is spun off). Although this is not the type of full divestiture favored by antitrust agencies, we argue here that a partial divestiture could leave consumers better off after the merger than they were before - under certain conditions. Using a real-world example, we show how divesting a relatively close substitute creates competition that offsets the anticompetitive effects of combining products that are relatively distant substitutes. This result stands even when the divestee is moderately inefficient.     

Trade and Turnover: Theory and Evidence

Is the pattern of trade correlated with cross‐sector differences in job turnover? Theoretically, external shocks feed through to changes in domestic employment and cross‐sector differences in turnover give rise to compensating wage differentials, which feed through to output prices. Using two different datasets on turnover, we find strong evidence that normalized US net exports by sector are negatively correlated with job destruction and worker separation rates. Weaker evidence suggests a positive correlation between normalized net exports and job acquisition. Using sector‐specific job destruction data for both Canada and the US, we find confirmation of the theoretical prediction that normalized net exports to Canada are negatively related to the ratio of the US job destruction rate to the Canadian job destruction rate.     

Recovering the production technology from the cost function

An alternative technique for recovering the technology from the cost function is investigated. The recovery method uses an optimization problem with a finite number of constraints that, under appropriate conditions, has, the equations of Shephard's lemma among the first order conditions. Hence, a justification is provided for the technique of recovering the production function from the cost function by solving the system of equations generated by Shephard's lemma. The alternative technique also recovers the output distance function from the cost function in the multioutput case.The editor for this paper was R. Robert Russell.     

Trust, Reciprocity, and Social History: A Re-examination

Berg et al. (Games and Economic Behavior, 10, pp. 122–142, 1995) study trust and reciprocity in an investment setting. They find significant amounts of trust and reciprocity and conclude that trust is a guiding behavioral instinct (a primitive in their terminology). We modify the way information is presented to participants and, through a questionnaire, prompt strategic reasoning. To our surprise, none of our various treatments led to a reduction in the amount invested. Previously reported experimental results to the contrary did not survive replication. Our results suggest that those by Berg, Dickhaut, and McCabe are rather robust to changes in information presentation and strategic reasoning prompts. We discuss the implications of these findings.     

Pedigree or Placement? An Analysis of Research Productivity in Finance

We examine pedigree and placement effects of research productivity in finance and find a notable placement effect: authors who are currently affiliated with "elite" institutions tend to be more productive, especially among the top three finance journals. The placement effect, however, weakens in more recent years. We also observe a pedigree effect in the top three journals, where there is a higher concentration of publications by authors with degrees from "elite" institutions. We provide rankings of the institutions that are best at developing and training scholars.     

The Value of Teachers' Pensions in England and Wales*

The paper examines in detail the value of pension provision to teachers in the public sector in England and Wales, comparing pension accrual under both the pre‐ and the post‐2007 schemes. We find that, at the median, pension accruals under the old scheme rules were worth 14.7 per cent of current salary to members, while if the new scheme rules were applied to all current members this would fall to 11.2 per cent. We find that this reduction in generosity is more than sufficient to offset the increase in generosity implied by rising life expectancies over the last quarter of a century. In addition, we show how the estimates depend on both the shape of the underlying age–earnings profile and the headline pay award. We find that the value of the new scheme rules to Teachers' Pension Scheme (TPS) members is similar to the value of the defined contribution pension offered to civil servants, but worth more than a simple, example, private sector defined contribution scheme.     

Leveraging Associations: The Promotion of Cultural Sponsorships

SUMMARY

Sponsorship of the arts is growing as a marketing communication method, and companies are using this tool to achieve various business objectives. These include branding, corporate hospitality, and building community relations. The activities that the companies engage in to promote the sponsorships are guided by the objectives they wish to achieve. Additional leveraging is supported by advertising and public relations for branding. For corporate hospitality, promotional support is vested in personal selling with public relations initiatives. For community relations, promoting the sponsorship is focused primarily on public relations activities with an emphasis on personal selling.     

The financial instability hypothesis: A stochastic microfoundation framework

This paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy. The analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model with firms that have heterogeneous capital structures. The model is solved both numerically and analytically, by means of a stochastic approximation that is able to replicate quite well the numerical solution. These methodologies, by overcoming the restrictions imposed by the traditional microfounded approach, enable us to provide some insights into the stabilization policies which may be effective in a financially fragile system.