an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

the denomination effect labeled the denomination effect study 1 shows in three field studies that the likelihood of spending is lower when an equivalent sum of money is represented by a single large denomination e g one 20 bill relative to many smaller denominations e g 20 1 bills in two of the three field studies individuals spent more once the decision to spend had been made study 2 then shows that consumers deliberately choose to receive money in a large denomination relative to small denominations when there is a need to exert self control in spending study 3 further shows that the denomination effect is contingent on individual differences in people s desire to reduce the pain of paying associated with spending the results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones allowing them to be used as a strategic device to control and regulate spending

on the frequency of large stock returns putting booms and busts into perspective textabstractnumerous articles have investigated the distribution of share prices and find that the returns are fat tailed nevertheless there is still controversy about the amount of probability mass in the tails and hence about the most appropriate distribution to use in modeling returns this controversy has proven hard to resolve as the alternatives are non nested we employ extreme value theory focusing exclusively on the larger observations in order to assess the tail shape within a unified framework we find that at least the first two moments exist this enables one to generate robust probabilities on large returns which put the recent stock market swings into historical perspective

interfirm relationships and informal credit in vietnam trading relations in vietnam s emerging private sector are shaped by two market frictions the difficulty of locating trading partners and the absence of legal enforcement of contracts examining relational contracting we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier a longer duration of trading relationship is associated with larger credit as is prior information gathering customers identified through business networks receive more credit these network effects are enduring suggesting that networks are used to sanction defaulting customers

informal risk capital in sweden and some international comparisons abstract in many countries there seems to be a shortage of risk capital i e equity or equity linked capital for entrepreneurial ventures seeking external capital as a consequence many entrepreneurial ventures are undercapitalized with a high loan capital burden there is some evidence from the u sa that informal investors provide an essential source of equity capital to entrepreneurial ventures however our knowledge about the informal risk capital markets is dominated by research from the u s a and there are few studies carried out in other countries this study represents the first description of the informal risk capital market in sweden the aim of the study is also to compare the characteristics of informal investors in sweden with those in the u sa and the u k information from 52 informal investors is used for the description of the informal risk capital market in sweden an international comparison is made by using the results of studies by gaston 1989 on informal investors in the u sa and mason et al 1991 on the informal risk capital market in the u k what about the informal risk capital market in sweden traditionally the tax system in sweden has not stimulated private wealth accumulation and there has been a tradition to seek formal institutional solutions to solve the problems faced by entrepreneurial ventures however in recent years there has been a growing interest in the potential role of informal investors to fill the equity capital gap for entrepreneurial ventures today there seems to be an informal risk capital market in sweden even if it is not very large in terms of investor demographics investment activity portfolio characteristics and the relationship between the informal investor and the portfolio firm the informal investors in sweden can be characterized in the following way they are predominantly male and they are financially well off one main characteristic is that they are very experienced entrepreneurs and it can be assumed that the majority of the informal investors have made their fortunes through a cash in of their businesses the informal investors in sweden seem to be frequent investors and their acceptance rate is rather high furthermore they seem to be rather careful in their evaluation of new investment opportunities and also invest large amounts of money in their informal investments the informal investors seem to make their investments in established firms and in more low tech industry sectors therefore they only partly seem to play a role infilling the equity capital gap for entrepreneurial ventures the informal investors relationship to their portfolio firms can be characterized as active but they are not involved to any large extent in daily operations the most common way of organizing the relationship is by way of active work on the board and by providing consulting help when needed what are the similarities and differences between informal investors in the u k the u s a and sweden this study shows that there are some similarities for example informal investors are predominantly male with an entrepreneurial background financially well off and they identify investment opportunities from friends and business associates on the other hand there seem to be some important differences for example informal investors in the u k and sweden seem to be older than those in the u s a furthermore informal investors in sweden invest a higher proportion of their wealth in informal investments compared to their counterparts in the u s a and the u k in terms of investment activities informal investors in the u k can be characterized as less sophisticated and ad hoc investors and they seldom make investments with other informal investors on the other hand informal investors in the u s a and sweden seem to be more professional in their investment activities i e they make many serious evaluations of new investment opportunities and they put rather large emphasis on the evaluation in terms of portfolio characteristics informal investors in sweden seem to take the lowest risks in their investment portfolios compared to their counterparts in the u s a and the u k finally informal investors in the u k the u s a and sweden work differently in relationship to their portfolio firms in the u k the relationship can be characterized as passive i e their involvement in the portfolio firms daily operations is usually rather low on the contrary the informal investors in the u s a work very actively in their portfolio firms the analysis shows that there seem to be two extreme categories of informal investors one extreme is represented by many of the informal investors in the u k they can be characterized as infrequent and less sophisticated investors who invest small amounts of money and work as rather passive investors the other extreme is represented by informal investors in the u s a they seem to be more professional and active in their informal investments informal investors in sweden show some similarities with their u s counter parts but they work less actively in the portfolio firms than do informal investors in the u s a the differences between the characteristics of informal investors in the u k the u s a and sweden are of course attributable to differences in contextual factors such as investment climate entrepreneurial traditions fiscal regimes regulatory environment and wealth distribution this implies that it may be difficult to copy measures to stimulate the informal risk capital market from one country to another

the determinants of trade credit use the case of the tanzanian rice market most small businesses in the developing economies suffer from a lack of access to formal external finance one important alternative source of finance for these entrepreneurs is trade credit applying a unique data set containing data on specific trade relations between rice wholesalers and rice retailers in tanzania we analyse the determinants of trade credit demand and supply in this market using a simultaneous equation modelling approach the analysis shows that while the demand for trade credit is primarily determined by the extent to which retailers need external funds supply is mainly driven by wholesalers incentives to attract and keep clients moreover wholesalers willingness to provide credit increases if they have better information about the possibility that the customer will fail to repay the credit

on rational bubbles and fat tails this paper addresses the statistical properties of time series driven by rational bubbles a la blanchard and watson 1982 using insights on the behavior of multiplicative stochastic processes we demonstrate that the tails of the unconditional distribution emerging from such bubble processes follow power laws exhibit hyperbolic decline more precisely we find that rational bubbles predict a fat power tail for both the bubble component and price differences with an exponent smaller than 1 the distribution of returns is dominated by the same power law over an extended range of large returns although power law tails are a pervasive feature of empirical data these numerical predictions are in disagreement with the usual empirical estimates it therefore appears that exogenous rational bubbles are hardly reconcilable with some of the stylized facts of financial data at a very elementary level

does competition encourage credit provision evidence from african trade credit relationships previous work has claimed that monopoly power facilitates the provision of credit because monopolists are better able to enforce payment here we argue that if relationship specific investments are required by borrowers to establish creditworthiness monopoly power may reduce credit provision because holdup problems ex post will deter borrowers from investing in establishing creditworthiness empirically we examine the relationship between monopoly power and credit provision using data on the supply relationships of firms in five african countries consistent with the up front investment story we find that monopoly power is negatively associated with credit provision and that this correlation is stronger in older supplier relationships because the data include several observations per firm we are able to utilize firm fixed effects thus netting out unobserved firm characteristics that may have been driving results in earlier studies

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

slow down insensitivity to rate of consumption leads to avoidable satiation consumers often choose how quickly to consume things they enjoy the research presented here demonstrates that they tend to consume too rapidly growing tired of initially well liked stimuli such as a favorite snack experiments 1 and 4 or an enjoyable video game experiments 2 and 3 more quickly than they would if they slowed consumption the results also demonstrate that such overly rapid consumption results from a failure to appreciate that longer breaks between consumption episodes slow satiation the results present a paradox participants who choose their own rate of consumption experience less pleasure than those who have a slower rate of consumption chosen for them

a theory of disappointment aversion an axiomatic model of preferences over lotteries is developed it is shown that this model is consistent with the allais paradox includes expected utility theory as a special case and is only one parameter beta richer than the expected utility model allais paradox type behavior is identified with positive values of beta preferences with positive beta are said to be disappointment averse it is shown that risk aversion implies disappointment aversion and that the arrow pratt measures of risk aversion can be generalized in a straight forward manner to the current framework copyright 1991 by the econometric society

rational asset price movements without news this paper argues that an important part of movements in asset prices may be caused by neither external news nor irrationality but by the revelation of information by the trading process itself two models are developed that illustrate this general idea one model is based on investor uncertainty about the quality of other investors information the other is based on dispersion of information and small costs to trading the analysis is used to suggest a possible rational explanation of the october 1987 crash copyright 1993 by american economic association

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

events that shook the market tick data on the standard and poor s 500 stock index s p 500 futures contract and newswire searches are used to match events to large 1 to 5 minute stock price changes sixty nine events that led to large stock price changes are identified between 1982 and 1999 53 of which are directly or indirectly related to monetary policy many large stock price changes have no events associated with them

the behavior of stock prices around institutional trades all trades executed by 37 large investment management firms from july 1986 to december 1988 are used to study the price impact and execution cost of the entire sequence package of trades that we interpret as an order we find that market impact and trading cost are related to firm capitalization relative package size and most importantly to the identity of the management firm behind the trade money managers with high demands for immediacy tend to be associated with larger market impact financial economists have long studied the equity trading process and its impact on stock prices much prior empirical research isolates individual trades and analyzes the behavior of the stock price around each trade see for example kraus and stoll 1972a holthausen leftwich and mayers 1987 1990 keim and madhavan 1991 petersen and umlauf 1991 hausman lo and mackinlay 1992 and chan and lakonishok 1993 evaluating the behavior of stock prices around trades provides a means of discriminating among various hypotheses as to the elasticity of the demand for stocks yields an estimate of the cost of executing trades and a measure of the liquidity of a market and permits tests of different models of the determination of quotes and transaction prices for many institutional investors however even a moderately sized position in a stock may represent a large fraction of the stock s trading volume accordingly an investment manager s order is often broken up into several trades it is often misleading therefore to consider an individual trade as the basic unit of analysis in the study of trading activity and its effects on prices this paper uses the record of trades executed by 37 large investment manage

trade credit and credit rationing asymmetric information between banks and firms can preclude financing of valuable projects trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers incentive compatibility conditions prevent collusion between two of the agents e g the buyer and the seller against the third e g the bank consistent with the empirical findings of petersen and rajan 1995 firms without relationships with banks resort more to trade credit and sellers with greater ability to generate cash lows provide more trade credit finally small firms react to monetary contractions by using trade credit consistent with the empirical results of nilsen 1994 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

trading cost the critical link between investment information and results 1983 trading cost the critical link between investment information and results financial analysts journal vol 39 no 3 pp 39 44

melioration a theory of distributed choice in this paper we develop a theory of individual choice called melioration which implies that choices distributed over a period of time may be reliably and predictably suboptimal in terms of the person s own preferences consider some typical examples of distributed choices the expenditure rate on various non durables frequency of athletic exercise rate of work in free lance type occupations allocation of leisure time rate of savings or dissavings expenditures on lottery tickets and other forms of gambling when people express dissatisfaction about their choices their discontent seems clustered around these sorts of distributed choices for example complaints that one is working too hard or not hard enough exercising too little or too much wasting time overeating overspending and so on are commonplace the next two sections of the paper spell out the basic theory we are proposing the following section then applies the theory to pathological consumption patterns and shows that one should find a general underinvestment in those activities that exhibit increasing average returns to rate of consumption and an overinvestment in activities that have an addiction like interaction between value and rate the final section compares the theory with other approaches to suboptimal choice

ethnicity and credit in african manufacturing abstract this paper investigates whether market interaction can by itself perpetuate the lack of ethnic diversity that is observed in the business communities of many developing countries using case study data on manufacturing firms in kenya and zimbabwe we find no evidence that blacks or women are disadvantaged in the attribution of bank credit once we control for firm size and other observable characteristics in contrast an ethnic and gender bias is noticeable in the attribution of supplier credit although we cannot rule out the presence of discrimination the bulk of the evidence indicates that network effects play an important role in explaining this bias

the value of time ten studies are used to document that time is valued in accordance with a double kinked value function there is a zone of indifference for small time gains losses increasing marginal utility disutility for moderate time gains losses and diminishing marginal utility disutility for large time gains losses moderate amounts of time exhibit increasing marginal utility disutility because larger blocks of time provide a more diverse set of usage opportunities it is only when it is difficult to imagine how more less time would be beneficial detrimental that there is diminishing marginal utility disutility for time thus time valuation shows increasing marginal utility when there is a time deficit but diminishing marginal utility when there is a time surplus these findings have implications for how other resources might be valued

institutional investors and stock market volatility statement of responsibility on t p reads xavier gabaix parameswaran gopikrishnan vasiliki plerou h eugene stanley

the effect of partitions on controlling consumption abstract the authors demonstrate that partitioning an aggregate quantity of a resource e g food money into smaller units reduces the consumed quantity or the rate of consumption of that resource partitions draw attention to the consumption decision by introducing a small transaction cost that is they provide more decision making opportunities so that prudent consumers can control consumption thus people are better able to constrain consumption when resources associated with a desirable activity which they are trying to control are partitioned rather than when they are aggregated this effect of partitioning is demonstrated for the consumption of chocolates study 1 and gambles study 2 in study 3 process measures reveal that partitioning increases recall accuracy and decision times importantly the effect of partitioning diminishes when consumers are not trying to regulate consumption studies 1 and 3 finally study 4 explores how habituation may decrease the amount of attention that pa

tribe or nation nation building and public goods in kenya versus tanzania this article examines how government policies affect ethnic relations by comparing outcomes across two nearby districts one in kenya and one in tanzania using colonial era boundary placement as a natural experiment despite similar geography and historical legacies governments in kenya and tanzania have followed radically different language education and local institutional policies with tanzania consistently pursuing more serious nation building the evidence suggests that nation building has allowed diverse communities in rural tanzania to achieve considerably better local public goods outcomes than diverse communities in kenya to illustrate while kenyan communities at mean levels of diversity have 25 percent less local school funding than homogeneous communities on average the comparable figure in the tanzanian district is near zero the kenya tanzania comparison provides empirical evidence that serious reforms can ameliorate social divisions and suggests that nation building should take a place on policy agendas especially in africa

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

strategic trading in a dynamic noisy market this paper studies a dynamic model of a nancial market with a strategic trader in each period the strategic trader receives a privately observed endowment in the stock he trades with competitive market makers to share risk noise traders are present in the market after receiving a stock endowment the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time or by selling and then buying back some of the shares sold when the time between trades is small the strategic trader reveals the information regarding his endowment very quickly

the upstairs market for large block transactions analysis and measurement of price effects this article develops a model of the upstairs market where order size beliefs and prices are determined endogenously we test the model s predictions using unique data for 5 625 equity trades during the period 1985 to 1992 that are known to be upstairs transactions and are identified as either buyer or seller initiated we find that price movements prior to the trade date are significantly positively related to trade size consistent with information leakage as the block is shopped upstairs further the temporary price impact or liquidity effect is a concave function of order size which may result from upstairs intermediation

do demand curves for stocks slope down since september 1976 stocks newly included into the standard and poor s 500 index have earned a significant positive abnormal return at the announcement of the inclusion this return does not disappear for at least ten days after the inclusion the returns are positively related to measures of buying by index funds consistent with the hypothesis that demand curves for stocks slope down the returns are not related to s p s bond ratings which is inconsistent with a plausible version of the hypothesis that inclusion is a certification of the quality of the stock

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade