A reexamination of state fiscal health and amnesty enactment

We use event history analysis to separately model a state’s first and then repeated tax amnesties and test the revenue yield versus the fiscal stress hypotheses using a panel of annual data from all 50 states for the period 1982–2010. We also split our sample into two sub-periods, 1982–1988 and 1989–2010, to more easily compare our results to other studies and to see if there is a significant difference between early tax amnesties and more recent ones. We find that state fiscal stress is more important than the potential yield from an amnesty, particularly for more recent amnesties. Our findings contrast with the existing literature which found evidence that states are likely to enact tax amnesties due to a revenue yield motive rather than a fiscal stress motive.     

Free samples, profits, and welfare: The effect of market structures and behavioral modes

This paper addresses an important and underresearched issue in the economics and marketing literatures: what are the managerial and social consequences when firms use business models that are based on the dissemination of free samples? We develop an analytical model of free samples for both digital and physical goods that addresses three fundamental managerial and social questions. First, what is the effect of different market structures (i.e., monopoly and oligopoly) and cost structures on optimal marketing policy and prices? Second, what is the effect of different behavioral modes on prices and free samples? Third, how do different market structures and behavioral modes affect social welfare?The main conclusion is that a number of standard results do not hold when firms have the option of selling products and of distributing free samples. For example, the optimal strategy for oligopolists who produce homogeneous goods and coordinate their marketing policies is to increase - not decrease - the quantity of sold output. Similarly, under well-defined cost and demand conditions, monopoly can lead to a socially inferior outcome to competition. From a policy viewpoint, the managerial and social welfare implications of free samples depend on the type of market structure (monopoly or oligopoly) and the behavioral modes chosen by the firms in an industry (e.g., whether to coordinate their free sample policies or to behave non-cooperatively).     

The Effect of New Product Announcements and Preannouncements on Stock Price

Previous event studies which deal with new products do notdistinguish between preannouncements (made in advance of a new productintroduction into the marketplace) and new product announcements (made closeto the time when the new product is introduced). Methodologically, eventstudies implicitly assume that information is homogeneous; that is, they donot consider the amount of information contained in the news release or thetype (e.g., whether detailed or not). This paper argues that new productevent studies should distinguish between announcements and preannouncementsbecause both types of information release events (IRE) are strategicallydistinct and convey different information signals to the marketplace.Methodologically, event studies should allow for informationalheterogeneity. We analyze a large sample of IREs from the 1980–1989period for firms whose stock is publicly traded, distinguishing betweenpreannouncements and announcements. We use content analysis to classify IREsaccording to the type and amount of information provided. The results showthat it is incorrect to jointly analyze announcements and preannouncements.On average, only preannouncements have a significant positive effect onstock prices. However, the signaling effect of preannouncements on stockprice is industry-specific. In particular, the results support Klein andLefflers theory (1981) that preannouncements in the manufacturing industryare effective strategic tools. We also investigate the impact of IREs onthe market risk (i.e., the risk that stockholders cannot diversify away) ofthe announcing and preannouncing firms. The results show that firm-specificand informational variables do not have any effect on market risk,regardless of the type of IRE (i.e., announcement or preannouncement).     

Corruption and military spending

Anecdotal evidence relates corruption with high levels of military spending. This paper tests empirically whether such a relationship exists. The empirical analysis is based on data from four different sources for up to 120 countries during 1985–1998. The association between military spending and corruption is investigated by using cross-section and panel regression techniques. The results suggest that corruption is associated with higher military spending as a share of both GDP and total government spending, as well as with arms procurement in relation to GDP and total government spending. The results can be interpreted as evidence that defense spending may be used as a component of an indicator of the quality of governance.     

Efficiency measures in retentive and expansive marketing of financial services

The importance of the allocative decisions between expansive and retentive marketing efforts is reviewed. Practical cost-benefit methods with minimum data requirements are designed to measure the relative economic efficiencies of retentive and expansive marketing. Econometric models are specified for cases where either extensive historical data are available or their collection is economically justified. An application to the marketing of services by a commercial bank is presented and discussed. Although the emphasis of the paper is on the organizational marketing of financial services, the methodology is applicable to a wide variety of products and services.     

Upgrade pricing, market growth, and social welfare

This paper studies the monopolist's dynamic pricing strategy when introducing successive generations of a durable product. We show that when consumers are semi-anonymous or exactly identified and the innovation is minor, the firm always offers an upgrade discount to former customers. However, the discount depends only on the quality of the old product. In contrast, for moderate and major innovations, the discount depends on the qualities and costs of both the old and the new products. The market growth rate affects the firm's pricing strategy only if consumers are anonymous; furthermore, the effect on prices depends on the discount rate and whether the market growth rate is high or low. For minor innovations, social welfare is maximized if consumers are anonymous. An interesting and paradoxical result is that, when innovations are moderate or major and consumers are semi-anonymous or exactly identified, price discrimination can actually lead to higher social welfare.     

THE COMPLEX RESPONSE OF MONETARY POLICY TO THE EXCHANGE RATE

We estimate a flexible non‐linear monetary policy rule for the United Kingdom to examine the response of policymakers to the real exchange rate. We have three main findings. First, policymakers respond to real exchange rate misalignment rather than to the real exchange rate itself. Second, policymakers ignore small deviations of the exchange rate; they only respond to real exchange under‐valuations of more than 4% and over‐valuations of more than 5%. Third, the response of policymakers to inflation is smaller when the exchange rate is over‐valued and larger when it is under‐valued. None of these responses is allowed for in the widely used linear Taylor‐type rules, suggesting that monetary policy is better analysed using a more sophisticated model, such as the one suggested in this paper.