Monotonizing empirical Bayes estimators for a class of of discrete distributions with monotone likelihood ratio

A procedure is given for the construction of a monotone estimator that dominates a given estimator for a class of discrete distributions with monotone likelihood ratio. This procedure is applied to some empirical Bayes estimators. Monte Carlo results are given that demonstrate the usefulness of monotonizing.     

Extraction of an Exhaustible Resource: The Effects on Investment of Several Parameters Being Subject to Uncertainty*

This article shows that the effect on investment of the introduction of uncertainty about the size of one parameter depends on what other parameters are simultaneously uncertain. Further, two parameters may be linked with positive or negative covariances. The covariances are here shown to have important effects on the investor, whether risk neutral or risk averse. Governments are advked to consider policies that affect the covariances of those parameters that are key influences on in vestment.     

Masculinity,Testosterone, and Financial Misreporting

We examine the relation between a measure of male CEOs’ facial masculinity and financial misreporting. Facial masculinity is associated with a complex of masculine behaviors (including aggression, egocentrism, riskseeking, and maintenance of social status) in males. One possible mechanism for this relation is that the hormone testosterone influences both behavior and the development of the face shape. We document a positive association between CEO facial masculinity and various misreporting proxies in a broad sample of S&P1500 firms during 1996–2010. We complement this evidence by documenting that a CEO's facial masculinity predicts his firm's likelihood of being subject to an SEC enforcement action. We also show that an executive's facial masculinity is associated with the likelihood of the SEC naming him as a perpetrator. We find that facial masculinity is not a measure of overconfidence. Finally, we demonstrate that facial masculinity also predicts the incidence of insider trading and option backdating.     

Identifying Price Reviews by Firms: An Econometric Approach

Price reviews are a potentially costly activity. A significant fraction of unchanged prices may stem from firms not reviewing prices, rather than from obstacles to changing prices per se, such as menu costs. In this paper, we disentangle these two causes of price stickiness by estimating an inflated ordered probit model on a panel of French manufacturing firms. The results point to a low frequency of price reviews, suggestive of the relevance of information costs as a determinant of the observed price stickiness. In view of the “inattentive producers” literature, pointing that the source of price rigidity matters, this is suggestive of a large real effect of monetary policy.     

The Insurance Is the Lemon: Failing to Index Contracts

We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state that the borrower would like to hedge. The lender is risk-averse and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a nonindexed contract instead.     

Public Information and Coordination: Evidence from a Credit Registry Expansion

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.     

Do People Always Pay Less Than They Say? Testbed Laboratory Experiments with IV and HG Values

Hypothetical bias is a long‐standing issue in stated preference and contingent valuation studies—people tend to overstate their preferences when they do not experience the real monetary consequences of their decision. This view, however, has been challenged by recent evidence based on the elicitation of induced values (IV) in the lab and homegrown (HG) demand function from different countries. This paper uses an experimental design to assess the extent and relevance of hypothetical bias in demand elicitation exercises for both induced (IV) and homegrown (HG) values. For testbed purpose, we use a classic second‐price auction to elicit preferences. Comparing the demand curve we elicit in both, hypothetical bias unambiguously (i) vanishes in an IV, private good context and (ii) persists in HG values elicitation context. This suggests hypothetical bias in preference elicitation appears to be driven by “preference formation” rather than “preference elicitation.” In addition, companion treatments highlight two sources of the discrepancy observed in the HG setting: the hypothetical context leads bidders to underestimate the constraints imposed by their budget limitations, whereas the real context creates pressure leading them to bid “zero” to opt out from the elicitation mechanism. As a result, there is a need for a demand elicitation procedure that helps subjects take the valuation exercise sincerely, but without putting extra pressure on them.     

Climate Change Policy Options for Asian Economies: Findings from an Integrated Assessment Model

This study outlines potential futures for the global economy through the 2050 with a specific focus on the countries of Asia. With underlying assumptions about population and output growth, a baseline scenario assesses the growth of greenhouse gas emissions and the ensuing impacts on the climate. Under the baseline scenario, Asia's high growth leads to a strong rotation in global output and emissions by the year 2050. The analytical framework traces back the changes in temperature to economic damages – limited to the agricultural sectors. Parts of Asia are likely to see much higher dependence on food imports as a consequence of these damages. Various carbon tax scenarios are implemented to assess the potential for reducing carbon emissions. Because of the structure of their economies, Asian countries are likely to bear the greatest burden in reducing emissions in an efficient global tax scheme, but there is significant scope to ease this burden through financial transfers.     

Why Are U.S. Stocks More Volatile?

U.S. stocks are more volatile than stocks of similar foreign firms. A firm's stock return volatility can be higher for reasons that contribute positively (good volatility) or negatively (bad volatility) to shareholder wealth and economic growth. We find that the volatility of U.S. firms is higher mostly because of good volatility. Specifically, stock volatility is higher in the United States because it increases with investor protection, stock market development, new patents, and firm‐level investment in R&D. Each of these factors is related to better growth opportunities for firms and better ability to take advantage of these opportunities.