Hayek on the essential dispersion of market knowledge

The Review of Austrian Economics - A key insight in Hayek’s thought is the importance of so-called “local knowledge” in economic activity. In The Fatal Conceit, he states that...     

The Role of Ethical Standards in the Relationship Between Religious Social Norms and M&A Announcement Returns

Journal of Business Ethics - Prior studies suggest that firms headquartered in areas with strong religious social norms have higher ethical standards. In this study, we examine whether the ethical...     

Real Incentive Effects of Soft Information

Both soft, noncontractible, and hard, contractible, information are informative about managerial ability and future firm performance. If a manager's future compensation depends on expectations of ability or future performance, then the manager has implicit incentives to affect the information. We examine the real incentive effects of soft information in a dynamic agency with limited commitment. When long-term contracts are renegotiated, the rewards for future performance inherent in long-term contracts allow the principal partial control over the implicit incentives. This is because the soft information affects the basis for contract renegotiation. With short-term contracts, the principal has no control over the basis for contract negotiation, and thus long-term contracts generally dominate short-term contracts. With long-term contracts, the principal's control over implicit incentives is characterized in terms of effective contracting on an implicit aggregation of the soft information that arises from predicting (forming expectations of) future performance. We provide sufficient conditions for soft information to have no real incentive effects. In general, implicit incentives not controllable by the principal include fixed effects, such as career concerns driven by labor markets external to the agency. When controllable incentives span the fixed effects of career concerns, the latter have no real effects with regard to total managerial incentives—they would optimally be the same with or without career concerns. Our analysis suggests empirical tests for estimating career concerns that should explicitly incorporate noncontractible information.     

Predicting Household Poverty: A Methodological Note with a Kenyan Example

Household surveys provide data that is used for identifying and measuring the poverty status of households and individuals. However, carrying out such surveys is expensive, especially in poor developing countries. Thus it is important to make maximum use of the available survey data in developing countries, especially in sub‐Saharan Africa, where such data are expensive to collect and analyse. This paper develops a simple method for using poverty indices derived from survey data for a given year, to predict poverty rates for subsequent periods without having to conduct a new household survey. We illustrate the workings of the method with data from Kenyan household surveys for 1994 and 1997.     

Maximum efforts in contests with asymmetric valuations

Efforts may be reduced when players with different valuations participate in a contest. This paper considers the problem of designing a contest to elicit maximum aggregate effort from players with asymmetric valuations. Optimal designs for different classes of contest technologies are computed and characterized. A value weighted contest is optimal in the concave case. In the unconstrained case, the optimal contest is equivalent to a first price all-pay auction with a reserve price. The optimal design discounts the effort of the high valuation player in order to induce him to compete vigorously.     

Understanding the Economic Factors Influencing Farm Policy Preferences

A survey conducted in Mississippi, Texas, Indiana, and Nebraska elicited producers' preferences for various farm policy changes. This permitted examination of the diversity of preferences that single-state studies have not allowed. Five policy choices, including deficiency payments, loan programs, crop insurance, export programs, and disaster payments were examined. Logit model results predicting producer preferences for each of the five dichotomous policy choices are reported. Explanatory variables based on expected utility theory such as risk aversion, price and yield variability, and price–yield correlation are significant in various models.     

Means-Testing the Child Benefit

Improving the distributional impact of transfers may be costly if it reduces labor supply. In this paper we show how effects of changes in the design of the child benefit program can be examined by employing information from behavioral and non-behavioral simulations on micro data. The direct distributional effects are assessed by tax-benefit model calculations, while female labor supply responses to alternative child benefit schemes are simulated under the assumption that choices are discrete. Distributional effects after labor supply responses are also shown. The study confirms that greater targeting of the child benefit is traded against reductions in female labor supply.     

Moore's Law and the Semiconductor Industry: A Vintage Model*

In this paper we develop a vintage model to gain a better understanding of the semiconductor industry and its role in recent U.S. productivity gains. Unlike previous work, in our model the observed price declines of individual chips are driven by the introduction of better vintages rather than by learning economies. Dominated chips, nonetheless, continue to be produced, for a time, due to sunk investments in chip‐specific production equipment. The model lends partial support to Jorgenson's hypothesis that an exogenous increase in Moore's Law could have generated the more rapid price declines, and faster productivity growth, seen after 1995.