wealth driven selection in a financial market with heterogeneous agents we study the co evolution of asset prices and individual wealth in a financial market with an arbitrary number of heterogeneous boundedly rational investors using wealth dynamics as a selection device we are able to characterize the long run market outcomes i e asset returns and wealth distributions for a general class of competing investment behaviors our investigation illustrates that market interaction and wealth dynamics pose certain limits on the outcome of agents interactions even within the wilderness of bounded rationality as an application we consider the case of heterogeneous mean variance optimizers and provide insights into the results of the simulation model introduced by levy levy and solomon 1994

catastrophic natural disasters and economic growth this paper examines the short and long run average causal impact of catastrophic natural disasters on economic growth by combining information from comparative case studies the counterfactual of the cases studied is assessed by constructing synthetic control groups taking advantage of the fact that the timing of large sudden natural disasters is an exogenous event it is found that only extremely large disasters have a negative effect on output both in the short and long run however this result appears in two events where radical political revolutions followed the natural disasters once these political changes are controlled for even extremely large disasters do not display any significant effect on economic growth it is also found that smaller but still very large natural disasters have no discernible effect on output

the dynamic value of hierarchy this study develops a dual routines view of the dynamic value of hierarchy and tests it against the implicit null hypothesis that hierarchy merely provides static advantages over markets the view holds that hierarchical managers perform two roles that create value for firms in perpetuity an administrative role of enforcing operational routine and an entrepreneurial role of executing a metaroutine that continually revises operational routine to keep pace with changes in the environment the test consists of a natural experiment comparing the behavior and performance of establishments that leave a franchise lose their hierarchical managers with those that remain i find support for the view in the absence of the franchisor establishment behavior drifts from the operational routine and establishments fail to adopt innovation both responses lead to significant decay in performance thus hierarchical managers are necessary to actively enforce routine even after the routine been assimilated and to introduce innovation even in this unique setting of perfect incentives

reproducing knowledge inaccurate replication and failure in franchise organizations the recognition that better use of existing knowledge can enhance performance has spawned substantial interest in the replication of productive knowledge within organizations an enduring belief is that when expanding by replication organizations can and should strive to adapt to fit the salient characteristics of new environments yet some have argued that the exploitation of an established template for doing business by replication can be more successful when the template is copied precisely using unique longitudinal data we report a large sample empirical investigation of the survival consequences of accurate replication versus local adaptation by examining the effect that deviation from the template has on the survival chances of franchise units within a large franchise organization

twister employment responses to the 3 may 1999 oklahoma city tornado this research examined the impact of the 3 may 1999 tornado on the oklahoma city labour market we estimated time series models that allow for time varying variance in employment growth the models include intervention variables designed to capture the tornado s effect at initial impact as well as over the post tornado period in terms of total employment growth the oklahoma city metropolitan statistical area msa experienced an increase in employment growth and a reduction in labour market risk in the sample period following the tornado the analysis also examined the effect of the weather event on eight industrial sectors five of eight sectors experienced significant decreases in labour market risk after the tornado our evidence suggests that oklahoma city and surrounding communities that make up the metropolitan statistical area survived the disaster without suffering any extended adverse labour market effects our results indicate that at least in the aggregate the labour market improved what

does rising income increase or decrease damage risk from natural disasters abstract recent empirical literature has found a negative relationship between income per capita and measures of risk from natural disaster supportive of logic that higher incomes allow countries to mitigate disaster risk we argue that behavioral changes at the micro level in response to increasing income such as location choice and extent of costly abatement activity may lead to a non linear relationship between aggregate incomes and disaster damages where the risks increase with income before they decrease in a country year panel data set we show that disaster risk associated with flooding landslides and windstorms increases with income up to gdp per capita levels of 5044 3360 and 4688 per year respectively and decrease thereafter such non linear impacts are absent for other disaster types such as extreme temperature events and earthquakes where the links between human behavioral choices and exposure to risk are not as strong from a policy perspective this suggests that for the least developed countries the dual goals of disaster risk prevention and economic development cannot be assumed to be complementary for all forms of natural disaster in addition to allocating resources to manage disaster risk the poorest nations may have to be more proactive in enacting policies that alter the behavioral choices of citizens that impact a country s exposure to natural disaster risk

stock market crashes as social phase transitions abstract stock market crashes are traumatic events that affect the lives of millions of people around the globe and have tremendous economic implications crashes are not only dramatic but often completely unexpected the 1987 crash for example was not induced by any obvious trigger even after the fact it is hard to find the reason for the crash why did the market crash in october rather than in september or december why did it crash at all to this day we lack satisfactory answers this paper shows that spontaneous market crashes can be explained by a social phase transition mechanism similar to statistical mechanics phase transitions investors heterogeneity plays the role of temperature and is key in determining the possibility and magnitude of the crash the analysis suggests that dramatic crashes are a robust and inevitable property of financial markets it also implies that market crashes should be preceded by an increase in price volatility as empirically observed thus market crashes like earthquakes are a fundamental and unavoidable part of our world however we can develop early warning systems that may help minimize the damage

nirvana efficiency a comparative test of residual claims and routines two widely adopted views of firm efficiency are agency theorists residual claims and organization theorists routines the agency view holds that ownership structures and their proxies are the primary source of efficiency differences between firms the organization theory view holds that organizational routines are the primary source of efficiency differences between firms we conduct an empirical test that compares the relative value of residual claims and routines in generating firm efficiency while controlling other factors we find support for both views but more importantly find that the average value of routines is roughly an order of magnitude higher than residual claims 1999 elsevier science b v all rights reserved jel classification l 2

the danger of assuming homogeneous expectations the capital asset pricing model the black scholes option valuation model and many other economic models rely on the assumption of homogeneous expectations what are the effects of heterogeneous expectations on price determination are the homogeneous expectations models approximately correct we compare stock price dynamics in models with homogeneous and heterogeneous expectations heterogeneous expectations appear to play a crucial role in risky asset price determination when homogeneous expectations are assumed unacceptable market inefficiencies are observed the introduction of even a small degree of diversity of expectations changes the dynamics dramatically and the result is a much more realistic market these findings make one wonder how far the equilibrium prices of the capm and black scholes model are from the true values in markets with heterogeneous expectations

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

housing investment in the united states a supply determined model of housing investment is estimated from quarterly data over the 1963 83 period the model is built on dynamic marginal cost pricing considerations and allows short and long run supply elasticities to differ these are estimated as 1 0 and 3 0 respectively but most of the long run response occurs within 1 year rapid adjustment speed and the sizable long run elasticity of supply are important factors in understanding the volatility of housing investment the data also suggest some anomalies in the expected present value theory of asset pricing for housing capital

permanent income liquidity and expenditure on automobiles evidence from panel data several recent papers have tested the permanent income cum rational expectations hypothesis using data on nondurable or semidurable consumption we show how this approach can be extended to the case of durables an application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis this result is unchanged in subsamples segregated by family holdings of liquid assets

the macroeconomic consequences of disasters abstract natural disasters have a statistically observable adverse impact on the macro economy in the short run and costlier events lead to more pronounced slowdowns in production yet interestingly developing countries and smaller economies face much larger output declines following a disaster of similar relative magnitude than do developed countries or bigger economies a close study of the determinants of these adverse macroeconomic output costs reveals several interesting patterns countries with a higher literacy rate better institutions higher per capita income higher degree of openness to trade and higher levels of government spending are better able to withstand the initial disaster shock and prevent further spillovers into the macro economy these all suggest an increased ability to mobilize resources for reconstruction financial conditions also seem to be of importance countries with more foreign exchange reserves and higher levels of domestic credit but with less open capital accounts appear more robust and better able to endure natural disasters with less adverse spillover into domestic production

natural disasters and macroeconomic performance recent empirical research has shown that output and gdp per capita in the aftermath of natural disasters are not necessarily lower than before the event in many cases both are not significantly affected and surprisingly sometimes they are found to respond positively to natural disasters here we propose a novel economic theory that explains these observations specifically we show that gdp is driven above its pre shock level when natural disasters destroy predominantly durable consumption goods cars furniture etc disasters destroying mainly productive capital in contrast are predicted to reduce gdp insignificant responses of gdp can be expected when disasters destroy both durable goods and productive capital we extend the model by a residential housing sector and show that disasters may also have an insignificant impact on gdp when they destroy residential houses and durable goods we show that disasters irrespective of whether their impact on gdp is positive negative or insignificant entail considerable losses of aggregate welfare

a capability based view of competitive heterogeneity the question of how firms differ is paramount to strategy scholars this question has motivated empirical research on the factors influencing performance differences among close competitors it also has motivated work on factors that increase or decrease the mean performance of firms in an industry theories about resources and capabilities tend to dominate discussions of heterogeneity in performance and superior performance yet the strategy field lacks a cumulative body of empirical work showing how firms differ this article derives conclusions and questions from empirical work on capabilities we then discuss work that complements but lies beyond the boundaries of traditional capabilities research we conclude by suggesting approaches to and areas of future work

can natural disasters have positive consequences investigating the role of embodied technical change it has been suggested that disasters might have positive economic consequences through the accelerated replacement of capital this possibility is referred to as the productivity effect this effect is investigated using a model with embodied technical change in this framework disasters can influence the production level but cannot influence the growth rate in the same way than the saving ratio in a solow like model depending on reconstruction quality indeed accounting for embodied technical change can either decrease or increase disaster costs but is never able to turn disasters into positive events moreover a better but slower reconstruction amplifies the short term consequences of disasters but pays off over the long term regardless the productivity effect cannot prevent the existence of a bifurcation when disaster damages exceed the reconstruction capacity potentially leading to poverty traps c 2008 elsevier b v all rights reserved

the growth aftermath of natural disasters this paper provides a description of the macroeconomic aftermath of natural disasters it traces the yearly response of gross domestic product growth both aggregated and disaggregated into its agricultural and non agricultural components to four types of natural disasters droughts floods earthquakes and storms the paper uses a methodological approach based on pooling the experiences of various countries over time it consists of vector auto regressions in the presence of endogenous variables and exogenous shocks varx applied to a panel of cross country and time series data the analysis finds heterogeneous effects on a variety of dimensions first the effects of natural disasters are stronger for better or worse on developing than on rich countries second while the impact of some natural disasters can be beneficial when they are of moderate intensity severe disasters never have positive effects third not all natural disasters are alike in terms of the growth response they induce and perhaps surprisingly some can entail benefits regarding economic growth thus droughts have a negative effect on both agricultural and non agricultural growth in contrast floods tend to have a positive effect on economic growth in both major sectors earthquakes have a negative effect on agricultural growth but a positive one on non agricultural growth storms tend to have a negative effect on gross domestic product growth but the effect is short lived and small future research should concentrate on exploring the mechanisms behind these heterogeneous impacts

simulating security markets in dynamic and equilibrium modes an asynchronous discrete time model run in dynamic mode can model the effects on market prices of changes in strategies leverage and regulations or the effects of different return estimation procedures and different trading rules run in equilibrium mode it can be used to arrive at equilibrium expected returns

are negative supply shocks expansionary at the zero lower bound the standard new keynesian model predicts that economies behave differently at the zero lower bound completely wasteful government spending or forward guidance is very stimulative and capital des

an empirical analysis of territorial encroachment within franchised and company owned branded chains franchisees within large branded chains loudly complain of a form of channel conflict known as encroachment or impact encroachment occurs when franchisors add new units of their brand proximately to their franchisees existing units franchisees claim that their revenues have substantially decreased as a result of encroaching same brand entry the topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers yet until now evidence of encroachment has been strictly anecdotal this paper provides the first systematic evidence of encroachment using revenue data from the texas lodging industry in the 1990s i find that when franchisors approve new same brand units in the vicinity of incumbent units these new units cannibalize the incumbents revenues in contrast to the result for franchisors the addition of a new unit by company owned brands in the vicinity of same brand units is associated with an increase in the incumbents revenues this contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion this finding informs theory on governance forms and exclusive territories implications for practitioners and policy are also discussed