An alternative interpretation of the discontinuity in earnings distributions

We show that the asymmetric effects of income taxes and special items for profit and loss firms contribute to a discontinuity at zero in the distribution of earnings. Income taxes draw profit observations towards zero while negative special items pull loss observations away from zero. These earnings components are thus expected to contribute to a discontinuity even in the absence of discretion. We show our results are not an artifact of deflation and that other common components of earnings do not have similar effects on the earnings distribution around zero.

Multilateral aggregation-theoretic monetary aggregation over heterogeneous countries

We derive fundamental theory for measuring monetary service flows aggregated over countries within a multicountry area. We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the unilateral representative agent approach. These results are being used by the European Central Bank in construction of its Divisia monetary aggregates database, with convergence from the most general to the more restrictive approaches expected as economic convergence within the area proceeds. Our theory permits monitoring the effects of policy over a multicountry area, while also monitoring the distribution effects of policy among the countries.     

Bivariate income distributions for assessing inequality and poverty under dependent samples

As indicators of social welfare, the incidence of inequality and poverty is of ongoing concern to policy makers and researchers alike. Of particular interest are the changes in inequality and poverty over time, which are typically assessed through the estimation of income distributions. From this, income inequality and poverty measures, along with their differences and standard errors, can be derived and compared. With panel data becoming more frequently used to make such comparisons, traditional methods which treat income distributions from different years independently and estimate them on a univariate basis, fail to capture the dependence inherent in a sample taken from a panel study. Consequently, parameter estimates are likely to be less efficient, and the standard errors for between-year differences in various inequality and poverty measures will be incorrect. This paper addresses the issue of sample dependence by suggesting a number of bivariate distributions, with Singh–Maddala or Dagum marginals, for a partially dependent sample of household income for two years. Specifically, the distributions considered are the bivariate Singh–Maddala distribution, proposed by Takahasi (1965), and bivariate distributions belonging to the copula class of multivariate distributions, which are an increasingly popular approach to modelling joint distributions. Each bivariate income distribution is estimated via full information maximum likelihood using data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey for 2001 and 2005. Parameter estimates for each bivariate income distribution are used to obtain values for mean income and modal income, the Gini inequality coefficient and the headcount ratio poverty measure, along with their differences, enabling the assessment of changes in such measures over time. In addition, the standard errors of each summary measure and their differences, which are of particular interest in this analysis, are calculated using the delta method.     

Game theoretic modeling of increasing returns to scale

This paper surveys the analysis, by means of cooperative game theory, of economies in which there are increasing returns to scale. In the first section necessary and sufficient conditions for the existence of a core of a general equilibrium economy are considered. In the second section, the partial equilibrium approach to increasing returns production, which developed along with the natural monopoly literature, is surveyed. The close relationship between the general equilibrium and partial equilibrium approaches is emphasized.     

The Correct use of Confidence Intervals and Regression Analysis in Determining the Value of Residential Homes

This paper shows that (1) the principle of substitution has been misinterpreted in regression analysis on residential homes by the misuse of the confidence interval; (2) the proper confidence interval to judge the accuracy of the equation is the mean CI; and (3) the accuracy of the equation can be improved by applying factor analysis to the entire data set rather than a predetermined neighborhood. These results are illustrated in a sample of 571 residential sales in Northwest Arkansas during 1975. The data are divided into clusters, and a regression equation is computed for each. The results show that the mean confidence interval is the correct application of the principle of substitution. The correct decision rule to determine the superiority of the multi-equation or the single equation model compares the explained to the unexplained variation. These results should allow the appraiser to select properties that are better suited for comparison. This will improve the accuracy of the regression analysis and resulting estimates of property value.     

Foreclosure,REO, and Market Sales in Residential Real Estate

Assessment of lender and third-party bidder acquired properties at foreclosure auction is provided. Properties acquired at foreclosure auction by third-party bidders transact at a discount to lender dispositions of real estate owned (REO) properties. The discount reflects a reduction in costs associated with lender owned (REO) dispositions and uncertainty faced by third-party bidders. Moreover, there is a ranking in transaction prices among initial purchases by third-party bidders at foreclosure auction, REO sales, non-distressed property sales and the subsequent sales of third-party bidder acquired properties. Third-party bidder auction prices are below REO sale prices, which are below non-distressed property sale prices, which are below the subsequent sale prices of third-party bidder acquired properties. The price spacing by cohort is logical, intuitive and economically justified in a market with rational participants. Implications are also apparent for the measurement of price changes, net sale proceeds and returns to residential real estate.     

Multinationals do it better: Evidence on the efficiency of corporations' capital budgeting

With U.S. multinational enterprises playing increasingly important roles in the global economy, it is important to understand the efficiency of their capital budgeting decisions. We examine an unbalanced panel of 332 U.S. firms from 1992–2000. Using the deviation of a firm's estimated marginal Tobin's q from a benchmark as an indicator of effective resource allocation, we find that widespread multinationals make more efficient capital budgeting decisions. We also test whether this reflects the MNEs' investment locations, but do not obtain support for the hypotheses that they might be monitored by more agents or more successfully resist pressures from interest groups and governments.     

Internal Versus External Capital Markets in the Insurance Industry: The Role of Reinsurance

This study compares internal and external sources of capital in the insurance industry by analyzing reinsurance activity between affiliated and unaffiliated insurers. Tests are performed using data from a large sample of property-liability insurers that are affiliated with at least one other property-liability insurer. Results indicate that while demands for internal and external reinsurance have some factors in common, there are cost-based differences in internal and external capital, as well as structural differences in the use of internal and external reinsurance. Results are consistent with previous theories related to internal versus external capital markets.