import price adjustments with staggered import contracts abstract in this paper we develop a linear rational expectations equilibrium model of staggered import contracts with incomplete exchange rate indexing to explain the slow and moderate adjustment of import prices and quantities to exchange rate changes the existence and stability of the equilibrium are proved by establishing equivalence between the solution to the equilibrium problem and the solution of an optimal linear regulator problem simulation analysis illustrates that the nature of the adjustment of import prices and quantities to exchange rate changes depends crucially on the length of the contract and the length of the delivery lag thus an alternative to the hysteresis explanation of the slow and moderate adjustment of import prices and quantities to exchange rate changes is established the new explanation however has significantly different implications for exchange rate management and trade policies

input demand under yield and revenue insurance previous studies disagree on the effects of insurance on fertilizer application rates the effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements we estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates our results indicate no support for this hypothesis at all nitrogen fertilizer rates and reasonable levels of risk aversion nitrogen fertilizer and insurance are substitutes suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications

how reliable are simple single equation specifications of import demand this paper examines nine models of aggregate import demand for each of five countries canada germany japan united kingdom and united states in an attempt to determine which of the frequently used single equation models of import demand are appropriate an appropriate model is defined as one which generates unbiased or at least consistent and efficient elasticity estimates while models without lagged adjustments and almon lag models perform rather poorly according to these criteria models including dynamic behavior through lagged values of the dependent variable are frequently accepted results are reported regarding functional form measures of variables and structural shift economists have devoted considerable attention to the estimation of aggregate import demand elasticities because of their importance in trade theory the simplest procedure for estimating these elasticities which is consistent with economic theory is to assume that the elasticity of supply of imports is infinitely elastic and to estimate

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

loss aversion and managerial decisions evidence from major league baseball i introduction and motivation previous research indicates that management changes are important events for organizations partly because they lead to reversals of poor prior decisions 1 however this research begs the question of why it may be necessary to replace the manager in order to bring about such changes in this article we test for evidence of loss aversion and distinguish between loss aversion and agency costs as explanations for why managers hang on to poorly performing assets or employees they were instrumental in acquiring or hiring the study contributes to the literature on managerial decisions and to the sports economics literature it may be necessary to replace managers if their investment decisions are affected by loss aversion as aronson wilson and akert 2010 point out avoiding admission of mistakes is a common human trait once we have committed time or energy to a cause it seems to be nearly impossible to convince us that the cause is unworthy psychological aversion to admitting mistakes is related to loss aversion and reflects a cognitive bias the manager fails to see the problem or discounts negative experience as non representative agency costs provide an alternative explanation for why it may be necessary to replace managers to rectify prior mistakes agency costs arise when an agent e g a manager acts in his her own interest but not in the interest of the principal e g the firm owner in the presence of asymmetric information managers may have incentives to disguise or conceal poor decisions to avoid negative consequences such as reduced marketability as a manager demotion or termination this concern with career and reputation can lead to overlooking inefficiencies including asset underperformance and overpayment for the underperforming assets using three decades of data on managerial and player turnover in major league baseball mlb we 1 estimate the tendency of incumbent managers to hold on to low performing players rather than divest them 2 test the hypothesis that new managers unwind the mistakes of previous managers and 3 distinguish between loss aversion and agency costs as alternative explanations for retention of poor performing players our empirical analysis focuses on poor performing players who were hired by previous managers this is because either loss aversion or agency cost may have induced the prior manager to hang onto poor performing players new managers can be expected to move quickly to address these types of problems hence we can use new manager retention decisions to determine if the decisions are affected by whether or not the poor performer was hired by a previous manager failure of the acquiring manager to divest poor performing players could be consistent with either the manager s aversion to loss a cognitive bias or the manager s unwillingness to admit mistakes agency costs in the form of career concerns to distinguish between these we follow the career concerns literature and reason that experienced managers are less likely to suffer reputational harm if they terminate poor performers whom they hired loss aversion in contrast does not suggest a relationship between managerial experience and failure to terminate poor performers there are several advantages to using baseball data for this study the empirical design holds industry and competitive conditions constant and allows us to directly observe the performance of acquired assets players and how managers react to their performance once it is revealed we are able to identify the manager who made the acquisition decision and can measure the performance of individual players we also observe the player retention decisions of the subsequent manager the manager who did not acquire the player hence we can evaluate how the acquiring manager s behavior differs from that of the manager who inherits poor performing players some who were acquired by the prior manager and others who were hired by even earlier managers

intertemporal substitution imports and the permanent income model abstract we examine the importance of intertemporal substitution in u s import consumption using a model of permanent income that allows for random preference shocks and additive separability the latter feature allows us to take two estimation approaches in the first approach we show that there is a cointegrating restriction imposed by the first order conditions of the model which allows us to estimate the intertemporal elasticity of imported and domestic goods consumption in the second approach we estimate the euler equations using generalized method of moments this approach however requires us to place some restrictive assumptions on the model that are not required for the first estimation approach thus the two different approaches allow an assessment of the severity of these restrictive assumptions which are often imposed in the literature

a method for estimating the timing interval in a linear econometric model with an application to taylor s model of staggered contracts abstract this paper describes and implements a procedure for estimating the timing interval in any linear econometric model the procedure is applied to taylor s model of staggered contracts using annual averaged price and output data the fit of the version of taylor s model with serially uncorrelated disturbances improves as the timing interval of the model is reduced

do bad bidders become good targets this paper empirically examines one motive for takeovers to change control of firms that make acquisitions that diminish the value of their equity firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value and firms that do not become takeover targets make acquisitions that raise their equity value within the sample of acquisition by targets the acquisitions that reduce equity value the most are those that are later divested either in bust up takeovers or restructuring programs to thwart the takeover this evidence is consistent with theories advanced by marris manne and jensen concerning the disciplinary role played by takeovers

agricultural supply response under contract agricultural producers typically face considerable production and price risk in their operations as a result the role of risk in shaping farm level decisions has been the focus of much research e g moschini and hennessy but why do risk averse producers face such risk in a world of complete markets and perfect information a profit maximizing intermediary would provide full insurance to producers thus some aspect of the production and marketing of agricultural commodities must limit the scope for this type of insurance when considering reasons why growers of fresh produce might face price risk hueth and ligon suggest the possibility of unobserved actions in the provision of quality if quality cannot be measured perfectly and some downstream price contains information about a farmer s investment in quality then conditioning a grower s compensation on this price may help the intermediary to monitor farmer effort a similar argument holds in the case of production risk if unobserved actions influence yield an optimal compensation scheme might expose farmers to considerable production risk in order to provide incentive for high output this suggests that the type of intermediation available to farmers can have important consequences for the risks that farmers face previous analyses of the role of risk in producer decisions make one of two polar assumptions regarding intermediation either there is none e g sandmo leland or producers have access to an exogenously specified source of intermediation that may take the form of a futures market e g holthausen public or private insurance e g ramaswami babcock and hennessy or perhaps a particular government program e g lin chavas and holt although each of these analyses represent important contributions toward an understanding of how producers respond in different risk environments they are each silent on how the institutions themselves

a model of exchange rate pass through abstract exchange rate pass through is the phenomenon whereby changes in the value of foreign exchange are reflected in changes in import prices this paper presents a partial equilibrium model in which firms are price setters who anticipate exchange rate changes in equilibrium firms strategies incorporate expectations about the exchange rate consistently and are best responses to the strategies of all others in the world market it is shown that exchange rate changes give rise to import price changes but the degree of exchange rate pass through depends upon domestic and foreign market structures and the exchange rate regime in general exchange rate pass through is higher if the home market is monopolistic or if the foreign market is competitive

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

adjustment costs and international trade dynamics abstract this paper develops a model of trader behavior that is characterized by quadratic adjustment costs imperfect competition and rational expectations the model is fitted to data on aggregate trade flows between the united states and three of its largest trading partners tests against alternative specifications confirm the importance of imperfect competition and adjustment costs the hypothesis of rational expectations cannot be rejected the estimated price elasticities of trade flows are generally in the range reported by previous researchers but the activity elasticities are significantly higher

hyteresis in import prices the beachhead effect this paper shows that temporary real exchange rate fluctuations can have persistent hysteretic effects on trade specifically when market entry costs are sunk sufficiently large exchange rate shocks alter domestic market structure and thereby induce hysteresis this simple result has strong implications for exchange rate theory t rade policy and estimation of trade equations empirical evidence su ggests that the recent dollar overvaluation induced hysteresis in u s import prices namely the aggregate pass through equation of exchange rates to import prices shifted in the 1980s the shift s nature and timing is broadly consistent with the hysteresis hypothesis copyright 1988 by american economic association

adverse selection in crop insurance actuarial and asymmetric information incentives adverse selection is often blamed for crop insurance indemnities exceeding premiums plus subsidies however nationwide empirical evidence has been lacking or based on inadequate county level data this article uses nationwide farm level data on corn and soybeans to decompose incentives for participation in u s multiple peril crop insurance into a risk aversion incentive the conventional justification for insurance an actuarial or subsidy incentive reflecting government subsidization and an asymmetric information incentive which reflects farmers information advantage results show that the risk aversion incentive is small farmers participate in crop insurance primarily to receive the subsidy or because of adverse selection possibilities

linear rational expectations equilibrium laws of motion for selected u s raw material imports in this paper the authors develop and estimate time series models of the rational expectations equilibrium laws of m otion for several u s commodity imports bauxite cocoa coffee and petroleum the theoretical model is based upon the optimizing behavi or of firms that import in the presence of supply shocks delivery la gs and adjustment and inventory holding costs one of the important features of the empirical model is that the authors are able to estim ate elasticities that distinguish between responses to changes in the environment that importers expect to be relatively temporary versus relatively permanent copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the outsourcing of r d through acquisitions in the pharmaceutical industry abstract we examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns these returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position a unique desperation index is employed to determine the current status of a firm s internal productivity we find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines

broiler production contracts as a multi agent problem common risk incentives and heterogeneity the broiler industry presents two puzzles regarding production contracts why do processors control growers inputs and why do they use a statistically insufficient estimator to calculate growers compensation this paper provides an agency theoretic framework that explains these puzzles in terms of processors response to grower heterogeneity and production risk and to grower risk aversion processors control inputs to reduce the information rents paid to agents by forcing agents to bear additional income risk through the use of an imprecise estimator processors can increase profits due to the combined moral hazard adverse selection nature of the informational problem

income and price elasticities for exports of developing countries income and price elasticities for non oil exports of non opec developing countries play an imp ortant role in the development of policy responses to the debt crisis these elasticities are estimated for the major standard internation al trade classification commodity groups based on two stage least sq uares and quarterly data for 1973 to 1984 the income elasticity for non oil exports ranges between 1 4 and 1 9 the analysis also tests t he properties of the error term the dynamic specification and para metric stability the sensitivity of the results is assessed using sh iller s lags and band spectrum estimation copyright 1988 by mit press

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

distributed lags and intermediate good imports abstract in this paper we draw upon some recent developments in the theory of dynamic economics and econometrics to characterize the time series behavior of intermediate good imports it is shown that adjustment costs delivery lags and inventory holding costs considerations lead to distributed lag import demand functions that are not subject to the nerlove 1972 and lucas 1976 critiques of ad hoc and fixed distributed lag modelling

marketing contracts and crop insurance contracts between farmers and intermediaries and crop insurers are important means for farmers to mitigate risks in modern u s agriculture in this paper we investigate the effect of crop insurance enrollment on contract terms and farmers participation in marketing contracts following ligon 2003 we set up a mechanism design framework to demonstrate an intermediary s contract design problem where farmers are assumed to be utility maximizing agents we depict farmers optimal choices of insurance coverage using the specification developed by babcock 2012 our model shows that improved terms of crop insurance lower premiums higher subsidies make contracts less appealing to farmers as mechanisms for mitigating risk therefore intermediaries may revise their contract offers so that they are more attractive however improvements in contract terms are limited by their cost to the intermediaries and will not lead to expanded participation in contracts