Callable Bonds: A Risk-Reducing Signalling Mechanism

The theory of financial economics has failed to distinguish advantages of callable bonds from those of short-term debt. This paper shows that either type of borrowing can signal a firm's better prospects but that short-term debt does so at the cost of weakened risk-sharing with capital markets. By issuing either equity or long-term, non-callable debt, a firm with poor investment opportunities will not pool its prospects with those of a better firm. But equity produces superior risk-sharing. Perhaps this explains the almost complete absence of long-term, non-callable bonds from observed corporate capital structures.     

IDENTIFYING INTERDEPENDENCIES BETWEEN SOUTH-EAST ASIAN STOCK MARKETS: A NON-LINEAR APPROACH

This paper considers the question of how shocks to returns are transmitted across South-East Asian equity markets. Using a reasonably general statistical model our results suggest that a negative-return innovation leads to higher levels of domestic volatility than a positive innovation of equal magnitude. There is strong evidence that returns shocks are transmitted across markets, impacting not only on prices, but also on volatility. Any shock, positive or negative, serves to raise volatility.     

Lobbying and Uniform Disclosure Regulation

This study examines the costs and benefits of uniform accounting regulation in the presence of heterogeneous firms that can lobby the regulator. A commitment to uniform regulation reduces economic distortions caused by lobbying by creating a free‐rider problem between lobbying firms at the cost of forcing the same treatment on heterogeneous firms. Resolving this tradeoff, an institutional commitment to uniformity is socially desirable when firms are sufficiently homogeneous or the costs of lobbying to society are large. We show that the regulatory intensity for a given firm can be increasing or decreasing in the degree of uniformity, even though uniformity always reduces lobbying. Our analysis sheds light on the determinants of standard‐setting institutions and their effects on corporate governance and lobbying efforts.     

The Role of Arbitration Costs and Risk Aversion in Dispute Outcomes

The effects of risk aversion and of arbitration costs on bargaining outcomes are investigated using data from 171 simulated negotiations. The results are generally consistent with predictions from a simple economic bargaining model. We find strong evidence that directs costs of arbitration lead to higher rates of agreement. There is only weak evidence the risk aversion is related to the probability of agreement, but negotiated settlements seems to favor the less risk-averse bargainer.     

Disclosing Physician Ratings: Performance Effects and the Difficulty of Altering Ratings Consensus

I examine effects of a health care system's policy to publicly disclose patient ratings of its physicians. I find evidence that this policy leads to performance improvement by the disclosed, subjective ratings and also by undisclosed, objective measures of quality. These effects are consistent with multitasking theory, in that physicians respond to the disclosure by providing more of a shared input—time with patients—that benefits performance by ratings and underlying quality. I also find, as predicted by information cascade theory, that the ratings become jammed to some degree near initially disclosed values. Specifically, raters observe the pattern of initial ratings and follow suit by providing similar ratings. Finally, I find evidence that physicians anticipate rating jamming and so concentrate their effort on earlier performance in order to set a pattern of high ratings that later ratings follow. These results demonstrate that the disclosure of subjective ratings can benefit performance broadly but can also shift effort toward earlier performance.     

Quality of Farmers' Market Produce: Flavor and Pesticide Residues

Previous research has demonstrated advantages of farmers' markets in price and social atmosphere. Following a multi-method research strategy, additional investigations were done on produce flavor and pesticide residues. Double-blind flavor trials with nine separate produce items showed a significant preference for farmers' market over supermarket produce on four items, and equivocal results for the remaining five items. Neither the farmers' market nor the supermarket produce contained detectable pesticide residues above the safe tolerance levels set by federal and state agencies.