Beyond Flying Geese: The Expansion of East Asia's Electronics Trade

The flying geese (FG) hypothesis, which asserts the sequential catching‐up processes of the latecomers, holds well in the past. Yet a simultaneous boom within the electronics industry across East Asia casts doubt on the applicability of the hypothesis. By using the RCA and NET indices, the paper finds that the FG pattern shows in the electronics industry as a whole, but not always so at the disaggregated level. This suggests that the FG formation may not appear in other industries, if they are involved in international production fragmentation or have differentiated products, and if certain latecomers have become new leaders.     

The Income Splitting Method: Is it Good for Both Marriage Partners?

Abstract. This paper analyzes how deviating from individual taxation affects married couples. The focus is on time allocation, on investment in family‐specific human capital and on distribution of income within the family. Two insights are discussed in detail. First, the distribution of tax‐reduction gains due to the income splitting system depends on whether the family has been started or not. After marriage, joint taxation increases redistribution among family members. Second, although joint taxation reduces the tax burden of the family, it might harm the marriage partner that is more productive in household production provided that potential marriage partners foresee the effects of joint filing on the time allocation within the family.     

The Effect of Communication Media on Cooperation

Abstract. We examine how communication affects cooperation with the help of seven standard public goods experiments that only differ with respect to the medium of pre‐play communication. Our treatments include bidirectional and unidirectional communication via (mostly electronic) auditory and/or visual channels. The results suggest that successful cooperation is attributable to the opportunity of ‘coordinating’ behavior in the communication phase. Furthermore, both the level and the stability of cooperation significantly interact with the communication medium, even though the content of communication is remarkably similar across the communication treatments.     

Accounting for the stock of human capital: Selected evidence and potential implications

Accounting for the Stock of Human Capital: Selected Evidence and Potential Implications. — Given the observed distribution of output and labor across countries, most capital flows should be from rich to poor countries. As is shown for a limited sample of countries, accounting for differences in the stock of human capital substantially reduces the implicit cross-country rate of return differentials. Additionally, accounting for human capital externalities based on independent empirical evidence, turns around the predicted rate of return differentials in favor of rich countries. Hence, the world economy may converge to a rather unequal distribution of incomes as long as human capital accumulation is neglected as the key variable limiting economic development.     

Competitive and Information Effects of Cross-Border Stock Listings

We examine the effect of 269 cross‐border listings on rivals in the listing and domestic markets and find that U.S. rivals experience significant gains whereas domestic rivals do not. Both competitive and information effects are important in explaining the reaction of U.S. rivals. Regarding the competitive effects, the reaction of rivals is less favorable when listings originate in developed countries and more favorable when listing firms do not have prior operating presence in the United States. Regarding the information effects, the reaction is less favorable when listings are combined with equity offerings and more favorable when the listing is the first to occur within an industry.     

When and how should infant industries be protected?

This paper develops and analyzes a welfare maximizing model of infant industry protection. The domestic infant industry is competitive and experiences dynamic learning effects that are external to firms. The competitive foreign industry is mature and produces a good that is an imperfect substitute for the domestic good. A government planner can protect the infant industry using domestic production subsidies, tariffs, or quotas in order to maximize domestic welfare over time. As protection is not always optimal (although the domestic industry experiences a learning externality), the paper shows how the decision to protect the industry should depend on the industry's learning potential, the shape of the learning curve, and the degree of substitutability between domestic and foreign goods.Assuming some reasonable restrictions on the flexibility over time of the policy instruments, the paper subsequently compares the effectiveness of the different instruments. Given such restrictions, the paper shows that quotas induce higher welfare levels than tariffs. In some cases, the dominance of the quota is so pronounced that it compensates for any amount of government revenue loss related to the administration of the quota (including the case of a voluntary export restraint, where no revenue is collected). In similar cases, the quota may even be preferred to a domestic production subsidy.     

The graph of Lindahl correspondence as the unique von Neumann-Morgenstern abstract stable set

In this paper, we consider a continuum economy with a finite number of types of agent, and several private and public goods. The main result of the paper is that the graph of the equal-treatment Lindahl equilibria mapping is the unique abstract stable set with respect to the dominance relation in economies with crowding effects introduced by Vasil'ev et al. in 1995. The external stability of this mapping implies that, for any equal-treatment allocation x in , that is not a Lindahl equilibrium, there exists a subeconomy of such that one of its equal-treatment Lindahl allocations blocks x. This result is a counterpart of the theorem of Mas-Colell for Aumann's atomless market with private goods.     

Short sellers and insider trading profitability: A natural experiment

We examine the impact of short sellers on insider trading profitability using a natural experiment of a pilot program which relaxed short-selling constraints for randomly selected pilot stocks. We find that pilot firms experienced a significant decrease in insider trading profitability during the pilot program. The results are more pronounced for the pilot firms with poor information quality, and for the pilot firms without corporate restrictions on insider trading. Our evidence suggests that short sellers serve an important market disciplinary role by reducing insider trading profitability.     

Terrorism activities and long-term annual management forecasts

We study the effects of terrorist attacks on firms’ long-term annual management earnings forecasts bias. We find that the managers of firms located closer to the epicenters of attacks are more likely to issue optimistic long-term annual earnings forecasts relative to the managers of a control group of unaffected firms. The exposure effect is stronger for more severe terrorist events, and firms with more uncertain fundamentals and less geographic diversification. In addition, we document that managers’ forecast optimism intensifies for firms with stronger negative stock market reaction to the terrorist event, for CEOs with higher ability and for companies that are more likely to issue equity or engage in acquisitions following the terrorist event. Overall, our results are consistent with the idea that long-term annual earnings forecasts are used by managers to counterbalance the short-term pessimistic response to terrorist attacks.     

Financial reporting consequences of natural disasters: Evidence from the impact of resource constraints at audit offices on non-affected clients

Disaster-affected clients demand significant additional effort from their audit office, and hence strain the audit office’s resources available to other non-disaster-affected clients. We consider audit offices with disaster-affected clients to be strained offices and find that, compared with clients audited by non-strained audit offices, non-disaster-affected clients audited by strained audit offices are more likely to have their financial statements restated. This result suggests the financial reporting quality of companies not directly exposed to disasters could also be negatively affected by the disasters, due to their auditors’ strained-resource issue. We further find such a negative effect is more pronounced when the degree of resource constraints is greater and when the audit office lacks client experience or industry expertise. We offer novel evidence of financial reporting consequences of natural disasters, focusing on the externality of disasters on companies not directly affected by disasters. The findings have important implications for regulators in making disaster-related policies, for auditors in managing their client portfolios, and for companies in making auditor choice decisions.