Does Fiscal Decentralization Promote Fiscal Discipline?

We investigate the efficiency and equity implications of a redistributive rule that takes into account both local tax collection efforts and deviation of local incomes from respective targets under alternative fiscal mechanisms. We show that, if the general budget constraint is binding, the proposed transfer rule leads to higher fiscal discipline under fiscal decentralization (FD) than under centralized redistribution. Although the centralized decision yields better income distribution than FD, FD also improves income distribution unambiguously when equalization across regions is targeted explicitly. When localities act strategically, the private sector’s utility weight enhances the disciplinary effect of decentralization.     

The diffusion of internet-based distance education technology among US associate colleges

This paper analyzes the diffusion of internet-based distance education technology (NETDE) among the US associate colleges. The study finds that an institution with experience in using an earlier generation distance education technology is more likely to adopt NETDE than an institution without such an experience. The finding supports the view of Cohen and Levinthal (1990) that an organization's ‘absorptive capability’ plays a significant role in its innovative activities. Institution size also facilitates the adoption of NETDE. We relate this size effect to market power because the size effect is partly caused by customer switching costs present in the NETDE market. Finally, we find that, among public institutions, the presence of close competitors motivates an institution to adopt NETDE earlier.     

The Role of Goals and Feedback in Incentivizing Performance

In this paper, we experimentally investigate how goal setting and feedback policies affect work performance. In particular, we study the effects of (i) absolute performance feedback, (ii) self‐specified goals, and (iii) exogenous goals and relative performance feedback. Our results show that the average performance of the subjects who are provided self‐performance feedback is 11% lower than the ones who obtain no feedback. Moreover, setting a non‐binding personal goal does not affect performance. Finally, assigning an exogenous goal and providing relative performance feedback decreases performance by 8%. We discuss the insights our findings offer for the optimal design of goal setting and feedback mechanisms. Copyright © 2015 John Wiley & Sons, Ltd.     

The Effects of Identical Versus Varied Advertising and Publicity Messages on Consumer Response

A trend in images and messages that eventually cause offence was noted among significant international advertisers, accompanied by a steady increase in formal complaints over a 6-year period in the UK. Though the numbers are at present small, reanalysis of large-scale industry research reports suggested they are the tip of an iceberg consisting of many million potential complainants. If this latent activism reaches a critical mass, it will become a phenomenon that planners can no longer afford to ignore. Meanwhile, the literature on complaining behaviour has concentrated on the causes and responses rather than on the sources. Therefore, this study applied geographic and psychographic analysis techniques to postcodes accompanying over 50 000 complaints to the two main regulatory bodies in the UK, which were hitherto unavailable to independent researchers. A resulting index of complaints by location confirmed the intuitively logical assumption that it is characteristic of London and the south of England. A profile of the complainants showed that they typically belong to a distinctive and relatively homogeneous social group of potential opinion leaders. Together, these outputs provide an original and unique template for minimizing the risk of longterm negative effects due to accidental provocation of an unintended audience. This is a media-strategy solution; the alternative would of course be to abandon potentially controversial creative strategies.     

WHAT'S IN A NAME? A CAUTIONARY TALE OF PROFITABILITY ANOMALIES AND LIMITS TO ARBITRAGE

The recent literature investigating profitability anomalies defines profitability in various ways (i.e., gross, operating, and cash based). We show that limits to arbitrage are associated with returns of gross and cash-based operating profitability anomalies, suggesting mispricing. In contrast, returns from the operating profitability strategy have no relation with barriers to arbitrage and exhibit no evidence of mispricing. Additionally, we show that the differential effects of limited arbitrage-related mispricing of gross and cash-based operating profitability anomalies are attributable to their respective correlations with selling, general, and administrative (SG&A) expense and accruals anomalies. We find that SG&A return predictability, like that of accruals, is related to limits to arbitrage. These findings suggest that investors and researchers should proceed with caution when searching for return predictability by redefining profitability measures.     

Sentimental mutual fund flows

We show that many stylized empirical patterns for mutual fund flows are driven by investor sentiment. Specifically, when sentiment is high, investors exhibit a stronger tendency of chasing past fund performance; fund flows are less sensitive to fund expenses; and investors are attracted more to funds with sheer visibility. Moreover, the well‐documented positive relation between fund flows and future fund performance is significant only during high sentiment periods and is mainly driven by expected component of fund flows. Finally, we show that mutual fund investors exhibit a significantly negative timing ability at the individual fund level when sentiment is high.     

Increasing Mail Survey Response Rates from an Industrial Population: A Cost-effectiveness Analysis of Four Follow-up Techniques

This article reports findings from a mail survey and field experiment that manipulated four follow-up techniques. Three hundred and twenty-eight non-respondents of a mail survey were systematically assigned (every fourth one) to four follow-up techniques: Original Replacement Follow-up (ORF); Photocopy Replacement Follow-up (PRF); Postcard Follow-up (PCF); and, Letter Follow-up (LTF). Findings indicate several statistically significant differences suggesting that there is a trade-off between the number of responses and cost per response.     

Does Investment Horizon Matter? Disentangling the Effect of Institutional Herding on Stock Prices

This study finds that, over short horizons, herding by short‐term institutions promotes price discovery. In contrast, herding by long‐term institutions drives stock prices away from fundamentals over the same periods. Furthermore, while the positive predictability of short‐term institutional herding for stock prices is more pronounced for small stocks and stocks with high growth opportunities, the negative association between long‐term institutional herding and stock prices is stronger for stocks whose valuations are highly uncertain and subjective. Finally, we show that the destabilizing effect of institutional herding persistence documented in the recent literature is entirely driven by persistent herding by long‐term institutions.     

Pricing catastrophe equity put options: Financial implications of engineering decisions

Natural disasters such as earthquakes, floods, and tsunamis cause large-scale loss of life and result in billions of dollars in damages. However, the global insurance and reinsurance sector only bears a portion of this cost; the majority of the bill is still inflicted on corporations, local communities, and the governments that struggle to recover even years following the disaster. One of the key factors why insurance and reinsurance sectors do not play a more active role is the difficulty in absorbing the losses as well as accurately pricing the underlying risks. This article presents a valuation model for catastrophe equity puts (CatEPuts), an alternative method of risk transfer. The proposed valuation model is based on a four-step engineering loss model to compute the fair value of the CatEPut for different hazard intensities and structural responses. The results from test examples show that such a model can provide a necessary link between the engineering characteristics of the underlying physical assets and the fair value of the CatEPut.