Corporate investment myopia: a horserace of the theories

This paper tests two theories of corporate investment myopia which predict a distortion in investment policy with respect to the standard net present value rule. The theories are confronted with the empirical evidence, allowing the theories to compete to explain investment behavior. Research and development expense is used to proxy for long-term investment in a pooled, cross-sectional time-series regression. I find that research and development expense is decreasing in the age of the Chief Executive Officer. Results are consistent with the hypothesis that agency costs are lower when the firm invests myopically, rather than follow a standard net present value rule.     

Wage and price controls in the equilibrium sequential search model

In this paper, we study the effects of wage and price controls on employment, output, and welfare in a simplified version of the Bénabou (J. Econom. Theory 60 (1993) 140) equilibrium sequential search model with bilateral heterogeneity. We show that a price ceiling increases output but the change in welfare depends on three effects: the reduction in aggregate search costs, the increase in surplus due to increased output, and the transfer of production to the least efficient firm. The model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage.     

Condorcet efficiency of positional voting rules with single-peaked preferences

Consider a three-alternative election with n voters and assume that preferences are single-peaked. LetC(λ,n) be the Condorcet efficiency of the rule that assigns 1,λ and 0 points (respectively) to each first, second and third place vote. An exact representation is obtained forC(λ,∞). This relation shows that Borda rule (λ=1/2) is not the most efficient rule. In addition to this result, exact closed form relations are provided forC(0,n),C(1/2,n) andC(1,n). All these relations are obtained by assuming that every admissible configuration of preferences is equally likely to occur. This research was supported in part by the Swedish Insitute     

Advertising,Price and Quality in Self–regulating Professions: A Survey

This paper surveys the theoretical and empirical literature on the relationship between advertising, fees and quality in the self–regulating professions. Much of the literature is derived from the perspective of advertising as an information–enhancing device, helping to reduce the information asymmetry between professional and client. This is consistent with the majority of the empirical studies which suggest that advertising tends to have a downward effect on professional fees, with little if any adverse effect on quality. There are, however, important issues of method and measurement which may lessen the force of this conclusion     

Money and specialization

Summary.  This paper examines the relationship between specialization and the use of money in two versions of the search-theoretic monetary model. The first version establishes a surprising result that specialization is more likely to occur in a barter economy than in a monetary economy. The result is reversed in the second version where a different specification of preferences is adopted to limit the scope of barter. This contrast between the results provides a concrete illustration of the general argument that money encourages specialization only when it enlarges the extent of the market. Received: January 31, 1995; revised version August 12, 1996     

Nonlinear Drift And Stochastic Volatility: An Empirical Investigation Of Short-Term Interest Rate Models

In this article I provide new evidence on the role of nonlinear drift and stochastic volatility in interest rate modeling. I compare various model specifications for the short‐term interest rate using the data from five countries. I find that modeling the stochastic volatility in the short rate is far more important than specifying the shape of the drift function. The empirical support for nonlinear drift is weak with or without the stochastic volatility factor. Although a linear drift stochastic volatility model fits the international data well, I find that the level effect differs across countries.     

Certainty Independence and the Separation of Utility and Beliefs

Economists often operate under an implicit assumption that the tastes of a decision maker are quite stable, while his beliefs change with the availability of new information. We show that for a general class of preferences, a separation of a key component of tastes, the utility function, from the other components of the representation is possible only if the decision maker's preferences satisfy a mild but not completely innocuous condition, called ‘certainty independence’. We also outline the axiomatic characterization of the preferences that obtain such separation, which are a subset of the biseparable preferences.     

Markets and pro-poor agricultural growth: insights from livelihood and informal rural economy models in Malawi

This article presents the development of a set of programming models describing the major features of different rural livelihoods and of the informal rural economy they together make up in Malawi. The models allow for differentiated responses by different household types to change and for the partial equilibrium effects of consequent supply, demand, and price adjustments in labor and grain markets. The models provide insights into the relations between own‐farm and nonown‐farm activities in different households' livelihoods and in the informal rural economy as a whole, and are used to investigate possible impacts of increasing cash crop prices and of a more open rural economy. Impacts of these changes on the poor are found to be critically dependent upon supply and demand elasticities in labor and grain markets, but the poor could potentially suffer significant losses from increased openness of the local economy leading to increased expenditure by less poor households on imported goods and services.     

Intertemporal Equity and Hartwick's Rule in an Exhaustible Resource Model*

In a standard exhaustible resource model, it is known that if, along a competitive path, investment in the augmentable capital good equals the rents on the exhaustible resource (known as Hartwick's rule), then the path is equitable in the sense that the consumption level is constant over time. In this paper, we show the converse of this result: if a competitive path is equitable, then it must satisfy Hartwick's rule.     

On the topological social choice model

The main goal of this paper is to show that if a finite connected CW complex admits a continuous, symmetric, and unanimous choice function for some number n>1 of agents, then the choice space is contractible. On the other hand, if one removes the finiteness, we give a complete characterization of the possible spaces; in particular, noncontractible spaces are indeed possible. These results extend earlier well-known results of Chichilnisky and Heal.