Accumulation and distribution of human capital: the interaction between individual and aggregate variables

The paper analyses the joint evolution of accumulation and distribution of human capital in an OLG framework. Dynamics arises from the interplay between human capital distribution and individual variables—inherited human capital and inborn ability. Such interaction drives individual investment in human capital and accumulation in the economy. According to initial distribution the model provides different dynamical behaviours linking growth and inequality; in general economies with a more equal initial distribution grow faster but other cases are possible. Moreover, since the model provides an endogenous threshold for investing in human capital, the distribution is characterised by multi-modality.     

Financial Innovation and Information: The Role of Derivatives When a Market for Information Exists

We study the effects of financial innovation in a model of endogenousinformation acquisition. We determine the conditions under whichthe introduction of a derivative written on an existing stockincreases or decreases the incentive to purchase information.We show that financial innovation produces some effects whichhold across informational structures and others which differ.The former coincide with the few empirical results that arerobust in the literature (effects on prices, risk premia, andvolatility), while the latter coincide with the ones that differexperiment by experiment (effects on volume, correlation betweenvolume and volatility, and market informational efficiency).     

Evaluation of cooperative research

This report looks at evaluation studies of a number of cooperative academic-industrfy research programmes in Europe, and suggests that indirect economic benefits should be taken into account as well as motives and goals of participating firms.     

From rationality to hyperreality: paradigm poker

This paper, following McGoun's (1997) seminal article comparing the economy of financial securities to a hyperreal poker game, argues that finance and accounting researchers should take the “linguistic turn” that has rejuvenated theory and research in many, if not most, of the social science and humanities in recent decades. In general terms, this means following Ludwig Wittgenstein's language game paradigm rather than Karl Popper's scientific deductive hypothesis testing methodology. The paper illustrates this by drawing on some of Jean Baudrillard's' ideas, particularly his concept of hyperreality and his phases of the image theoretic.The paper presents a poststructuralist genealogical analysis of the radical ruptures and reformulation of the meaning attributed to the accounting sign of earnings over the feudal, counterfeit, production, and simulation eras. It concludes that, as with many other signs in contemporary society, the earnings sign no longer has any relationship with, nor does it any longer refer to, any real or intrinsic profit but instead floats ungrounded in today's financial economy.The paper recommends that researchers in finance and accounting adopt paradigms from literary theory, semiotics, linguistics, and semiology rather than continue to rely on economics-based theory, which has lost its power for explaining and predicting happenings in today's financial economy of self-referencing models and images.     

Theoretical considerations for a meaningful code of professional ethics

The professions have focused considerable attention on developing codes of conduct. Despite their efforts there is considerable controversy regarding the propriety of professional codes of ethics. Many provisions of professional codes seem to exacerbate disputes between the profession and the public rather than providing a framework that satisfies the public's desire for moral behavior.After examining three professional codes, we divide the provisions of professional codes into those provisions which urge professionals to avoid moral hazard, maintain professional courtesy and serve the public interest. We note that whereas provisions urging the avoidance of moral hazard are uncontroversial, the public is suspicious of provisions protecting professional courtesy. Public interest provisions are controversial when the public and the profession disagree as to what is in the public interest. Based on these observations, we conclude with recommendations regarding the content of professional codes.Karim Jamal is an Associate Professor in the Department of Accounting at the University of Alberta. His research interests are in modelling judgment processes of individuals in professional firms and financial markets. He is currently involved in research on the auditor-client negotiation process, the role of framing effects in masking fraud as well as the means by which frauds are detected, and tensions in professional codes of conduct especially between confidentiality and public disclosure.Norman E. Bowie is the Elmer L. Andersen Chair in Corporate Responsibility at the University of Minnesota. He is the co-editor ofEthical Theory and Business and has published numerous books and articles in business ethics and political philosophy. His most recent book isUniversity Business Partnerships: An Assessment.     

Fair markets

The paper challenges a minimalist strategy in business ethics that maintains if it's legal, it's moral. In hard cases, judges decide legal issues by appealing to moral ideals. Investigation shows that the bedrock concept is fairness. Often judges define fairness in terms of non-coerciveness or equality of bargaining power. The prudent manager must look beyond the legal department to the ethical notion of fairness. Moreover, if the courts were to consistently appeal to non-coerciveness and equality of bargaining power, some practices now considered morally acceptable would be neither moral nor legal. Norman E. Bowie is Professor of Philosophy and Director of the Center for the Study of Values at the University of Delaware. He is the author of numerous articles on business ethics and social and political philosophy and of Business Ethics, Making Ethical Decisions (ed.), The Tradition of Philosophy (co-ed.), and Ethical Theory and Business (co-ed.).     

Evaluation of dynamic stochastic general equilibrium models based on distributional comparison of simulated and historical data

We take as a starting point the existence of a joint distribution implied by different dynamic stochastic general equilibrium (DSGE) models, all of which are potentially misspecified. Our objective is to compare “true” joint distributions with ones generated by given DSGEs. This is accomplished via comparison of the empirical joint distributions (or confidence intervals) of historical and simulated time series. The tool draws on recent advances in the theory of the bootstrap, Kolmogorov type testing, and other work on the evaluation of DSGEs, aimed at comparing the second order properties of historical and simulated time series. We begin by fixing a given model as the “benchmark” model, against which all “alternative” models are to be compared. We then test whether at least one of the alternative models provides a more “accurate” approximation to the true cumulative distribution than does the benchmark model, where accuracy is measured in terms of distributional square error. Bootstrap critical values are discussed, and an illustrative example is given, in which it is shown that alternative versions of a standard DSGE model in which calibrated parameters are allowed to vary slightly perform equally well. On the other hand, there are stark differences between models when the shocks driving the models are assigned non-plausible variances and/or distributional assumptions.     

Forecasting economic time series using flexible versus fixed specification and linear versus nonlinear econometric models

Nine macroeconomic variables are forecast in a real-time scenario using a variety of flexible specification, fixed specification, linear, and nonlinear econometric models. All models are allowed to evolve through time, and our analysis focuses on model selection and performance. In the context of real-time forecasts, flexible specification models (including linear autoregressive models with exogenous variables and nonlinear artificial neural networks) appear to offer a useful and viable alternative to less flexible fixed specification linear models for a subset of the economic variables which we examine, particularly at forecast horizons greater than 1-step ahead. We speculate that one reason for this result is that the economy is evolving (rather slowly) over time. This feature cannot easily be captured by fixed specification linear models, however, and manifests itself in the form of evolving coefficient estimates. We also provide additional evidence supporting the claim that models which ‘win’ based on one model selection criterion (say a squared error measure) do not necessarily win when an alternative selection criterion is used (say a confusion rate measure), thus highlighting the importance of the particular cost function which is used by forecasters and ‘end-users’ to evaluate their models. A wide variety of different model selection criteria and statistical tests are used to illustrate our findings.