Optimal investment with stock repurchase and financing as signals

When management has private information it has an incentiveto finance investment by issuing a security that is overpricedin the market. The market's valuation of the issued securitymay lead management either to forego profitable investmentsor to invest suboptimally. With investment fixed, there existfully revealing signaling equilibria in which the covenantsof the issued claim serve as signals. A straight bond issuecannot provide the signals but a convertible bond issue can.With investment endogenous, fully revealing equilibria existin which the par value of a straight bond issue and the announcedlevel of investment jointly serve as signals and investmentis optimal. The article also investigates the role of a stockrepurchase in these equilibria.     

Implicit consumer preferences and their influence on product choice

Recent theories in social psychology assume that people may have two different attitudes toward an object at the same time—one that is explicit and corresponds with deliberative behavior, and one that is implicit and corresponds with spontaneous behavior. The research presented in this article tested this assumption in the consumer domain with an experimental approach. Participants whose explicit and implicit preferences regarding generic food products and well‐known food brands were incongruent were more likely to choose the implicitly preferred brand over the explicitly preferred one when choices were made under time pressure. The opposite was the case when they had ample time to make their choice. On the basis of these results, the discussion stresses the importance of impulsive behavior and implicit measures for research in the area of consumer behavior. © 2006 Wiley Periodicals, Inc.     

The precautionary demand for money: A rigorous foundation

Consumers' demand for money to hold is shown rigorously to be related to possible but uncertain purchase opportunities rather than to total consumption (income) or to the variability of bond yields. A formal model of consumers' demand for precautionary balances is analyzed. It implies that cash balances demanded will be changed by different amounts in response to equivalent changes in the rates of time preference and inflation. This perhaps explains recent instability in money demand estimates.     

Capital structure and product market behavior: an examination of plant exit and investment decisions.

We examine whether sharp debt increases through leveraged buyoutsand recapitalizations interact with market structure to influenceplant closing and investment decisions of recapitalizing firmsand their rivals. We take into account the fact that recapitalizationsand investment decisions are both endogenous and may be simultaneouslyinfluenced by the same exogenous events. Following their recapitalizations,firms in industries with high concentration are more likelyto close plants and less likely to invest. Rival firms are lesslikely to close plants and more likely to invest when the marketshare of leveraged firms is higher.     

Recycled Effluent: Should the Polluter Pay?

A coastal city can either dispose of recycled effluent by dumping it in the sea, or transfer it to farmers in its hinterland for irrigation. Who should bear the cost of recycling? Three alternatives are employed: a central planner who maximizes the combined utility of city and farmers; regulation by prices, for which purpose we develop the city's supply function; and a bargaining framework for the allocation of costs. The main conclusions are that "the polluter pays" rule cannot be justified in principle and that bargaining may result in inefficiency. We demonstrate with an example from Israel that essentially conforms to the theoretical structure.     

A theory of the nominal term structure of interest rates

A model of the nominal term structure of interest rates is developedthat has a positive and stationary process for the interestrate and delivers closed form expressions for the prices ofdiscount bonds and European options on bonds. Unlike the one-state-variableversion of the Cox, Ingersoll and Ross (1985) model this model- even in its one-state-variable version - allows the term premiumto change sign as a function of the state and the term to maturity,and also allows for shapes of the yield curve that are observedin the U.S. data but that are disallowed in the Cox, Ingersolland Ross model     

Attendance half the story at successful charity auction

The process of procuring the right merchandise is crucial to the success of your charity auction, the author maintains. He gives some pointers on how that task can become an enjoyable experience for all involved.