EQUIVALENCE SCALES AND THE WELFARE OF CHILDREN: A COMMENT ON “IS THERE BIAS IN THE ECONOMIC LITERATURE ON EQUIVALENCE SCALES?”

In a recent issue of this journal, M. Luisa Ferriera, Reuben C. Buse, and Jan-Paul Chavas argue that the equivalence scales implicit in the official U.S. poverty line and in public welfare programs overcompensate parents for their children, with resulting negative distributional and incentive effects. We show that their analysis is based on a very particular, and ethically unappealing, assumption about the importance of children's well-being.     

The Influence of Institutions on Corporate Governance through Private Negotiations: Evidence from TIAA-CREF

This paper analyzes the process of private negotiations between financial institutions and the companies they attempt to influence. It relies on a private database consisting of the correspondence between TIAA-CREF and 45 firms it contacted about governance issues between 1992 and 1996. This correspondence indicates that TIAA-CREF is able to reach agreements with targeted companies more than 95 percent of the time. In more than 70 percent of the cases, this agreement is reached without shareholders voting on the proposal. We verify independently that at least 87 percent of the targets subsequently took actions to comply with these agreements.     

Measuring technological change: Aircraft turbine engines

Recent Rand research indicates that improved estimates of costs and schedules might be obtainable for the development and procurement phases of the system acquisition cycle if techniques were available to assess the technological advance being sought. This report describes the development and testing of such a technique using the technology of aircraft turbine engines as an example. The measure of technological advance developed in this study is intended to capture mainstream trends. It is not able to identify fine differences among turbine engines or to distinguish small differences in contractor proposals. It is intended to provide a broader understanding of the technological advance being sought in an engine development program and to provide information for use in making decisions concerning development policy. Multiple regression analysis is used to estimate a multidimensional tradeoff surface of the parameters characterizing engine technology and to trace out the movement of the tradeoff surface over time. The equation with the best statistical properties contained parameters thought to be important in turbine engine development and had coefficients consistent with a priori notions of technological change.The data base included the first model of a given turbine engine to pass the Model Qualification Test required of all American production engine types of the past 30 years. Examination of the history of turbine engine progress suggests very strongly that single parameter analysis cannot capture the richness of the development process. The data were divided into a number of subsamples covering various time periods to test whether the shape of the tradeoff surface changed over time. When divided into equal halves, the subsamples were indistinguishable. Divided by thirds, the most recent period showed a slight increase in the rate of technological advance, but the increase was barely significant statistically. In nine out of ten cases, the rate of increase of technology of growth versions of engines was less than the average trend of technology for new engines. This result indicates that when design features are frozen in hardware, technology growth cannot take full advantage of newly developed techniques.     

The zero-information-limit condition and spurious inference in weakly identified models

In many econometric models the asymptotic variance of a parameter estimate depends on the value of another structural parameter in such a way that the data contain little information about the former when the latter is close to a critical value. This paper introduces the zero-information-limit-condition (ZILC) to identify such models where ‘weak identification’ leads to spurious inference. We find that standard errors tend to be underestimated in these cases, but the size of the asymptotic t-test may either be too great (the intuitive case emphasized in the ‘weak instrument’ literature) or too small as in two cases illustrated here.     

Role of corporate governance in mitigating the selective disclosure of executive stock option information

We examine the nature and extent of statutory executive stock option disclosures by Australian listed companies over the 2001–2004 period, and the influence of corporate governance mechanisms on these disclosures. Our results show a progressive increase in overall compliance from 2001 to 2004. However, despite the improved compliance, the results reveal managements’ continued reluctance to disclose more sensitive executive stock option information. Factors associated with good internal governance, including board independence, audit committee independence and effectiveness, and compensation committee independence and effectiveness are found to contribute to improved compliance. Similarly, certain external governance factors are associated with improved disclosure, including external auditor quality, shareholder activism (as proxied by companies identified as poor performers by the Australian Shareholders’ Association) and regulatory intervention.     

Antecedents and Consequences of Mutual Trust in PPPs

This article aims to identify the antecedents and consequences of mutual trust in public-private partnerships (PPPs), making use of the theory of mutual trust to develop the conceptual model. The article then tests hypotheses to find the role of trust in PPPs and also to identify the antecedents and consequences. Data have been collected from personnel working in government, corporate and non-profit sectors related to a post-earthquake psychological rehabilitation program in China. A total of 234 usable responses have been obtained with a return rate of 69.2%. The results of structural equation modeling show that while mutual communication, corporate reputation, and shared value influence mutual trust between partners positively, opportunism exerts negative influence on trust; in addition, trust also influences performance, commitment, and long-term relationships between partners. We conclude that mutual trust eliminates opportunism and increases confidence between partners, leading to improved inter-firm performance. If the partners establish trust in the PPP, they reap all other benefits of cooperation of PPPs.