ten little treasures of game theory and ten intuitive contradictions this paper reports laboratory data for games that are played only once these games span the standard categories static and dynamic games with complete and incomplete information for each game the treasure is a treatment in which behavior conforms nicely to predictions of the nash equilibrium or relevant refinement in each case however a change in the payoff structure produces a large inconsistency between theoretical predictions and observed behavior these contradictions are generally consistent with simple intuition based on the interaction of payoff asymmetries and noisy introspection about others decisions

strikes and holdouts in wage bargaining theory and data we develop a private information model of union contract negotiations in which disputes signal a firm s willingness to pay previous models have assumed that all labor disputes take the form of a strike yet a prominent feature of u s collective bargaining is the holdout negotiations often continue without a strike after the contract has expired production continues with workers paid according to the expired contract we analyze the union s decision to strike or hold out and highlight its importance to strike activity strikes are more likely to occur after a drop in the real wage or a decline in unemployment

corporate pension policy an empirical investigation an empirical investigation of pension funding levels and plan asset allocations suggests that corporations manage their pension funds as if they are an integral part of overall corporate financial policy this corporate financial perspective contrasts with the traditional view of pension management whereby pension assets are seen as a separate pool to be managed in the best interests of beneficiaries the primary evidence concerns the links between corporate profitability and pension policies first reported pension fund liabilities are linked systematically to company profitability by management s choice of a discount rate more profitable firms tend to choose lower discount rates hence to overstate their pension liabilities relative to those of less profitable firms second profitability has a strong positive association with funding level the proportion of pension assets invested in fixed income securities also has a positive association with funding level corporations with taxable income can maximize tax savings by having fully funded plans invested in heavily taxed securities such as bonds evidence regarding specific motivations behind the corporate pension perspective emerges when the sample is investigated more closely for example the subsample of firms with the heaviest tax burdens exhibits a significant relation between level of funding and tax paying status similarly the subsample of riskiest firms tends to hold underfunded portfolios invested in riskier assets stocks rather than bonds this is consistent with the presence of a pbgc insurance effect the tendency of less financially sound firms to lay off their pension burden on the pension benefit guaranty corporation

research in accounting for income taxes abstract this paper comprehensively reviews the accounting for income taxes afit literature we begin by identifying four distinctive aspects of afit and briefly covering the rules surrounding afit we then review the existing studies in detail and offer suggestions for future research we emphasize the research questions that have been addressed most of which relate to whether the tax accounts are used to manage earnings and whether the tax accounts are priced by equity market participants we also highlight areas that have not received much research attention and that warrant future analysis

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

hedonic prices for fish tuna prices in hawaii over the past two decades the marketing of fish has recognized the importance of quality yet empirical analysis of market transactions could give us little insight into the value of different qualities of fish because market data are typically aggregated we exploit a dataset on the auction price of tuna sold in hawaii to estimate a hedonic model the model provides empirical estimates of price increments due to species quality of the fish such as size or fat content method of handling and market conditions the empirical results are also used to estimate price flexibilities for landings in hawaii

reversions of excess pension assets after takeovers this article evaluates pension asset reversions as a source of takeover gains in our sample of 413 takeovers pension funds were reverted by 15 1 of acquirers in the two years following hostile takeovers compared to 8 4 in the two years following friendly takeovers reversions following takeovers tend to occur in unit benefit plans where the potential for wealth transfer is the greatest these results are consistent with the view that hostile takeovers breach implicit contracts between firms and employees we estimate that the reversions can on average explain approximately 11 of the takeover premium in cases where they actually occur reversions are too small to be the sole or even dominant source of takeover gains

determinants of corporate pension funding strategy abstract several hypotheses concerning pension funding strategy are tested in a cross sectional regression model on a sample of 255 firms results are consistent with the following explanations 1 finance incentives tax benefits and financial slack for high level funding 2 labor incentives for low level funding and 3 financial statement incentives relating to political costs for high level funding and debt contracting costs for low level funding pension funding strategy appears to be complex involving tradeoffs between funding incentives the nature of these interactions and tradeoffs remains to be clarified through future research

an introduction to applicable game theory this paper offers an introduction to game theory for applied economists i try to give simple definitions and intuitive examples of the basic kinds of games and their solution concepts there are four kinds of games static or dynamic and complete or incomplete information complete information means there is no private information the corresponding solution concepts are nash equilibrium in static games of complete information backwards induction or subgame perfect nash equilibrium in dynamic games of complete information bayesian nash equilibrium in static games with incomplete information and perfect bayesian or sequential equilibrium in dynamic games with incomplete information the main theme of the paper is that these solution concepts are closely linked as we consider progressively richer games we progressively strengthen the solution concept to rule out implausible equilibria in the richer games that would survive if we applied solution concepts available for simpler games in each case the stronger solution concept differs from the weaker concept only for the richer games not for the simpler games

bundled payments for healthcare services proposer selection and information sharing the centers for medicare and medicaid services cms has introduced a bundled payments for care improvement bpci initiative each bundle pertains to a specific medical condition a set of linked services and a length of time referred to as an episode of care proposers choose bundles design service chains and propose target values of quality metrics and payments per episode expert panels evaluate proposals based on cms announced relative weights but there is no limit on the number of proposers that may be selected moreover there is no minimum score that will guarantee selection which makes selection uncertain for proposers we develop normative models for the parameter selection problems faced by potential proposers within the cms proposal selection process proposers have private information about their costs of achieving different quality targets which determine their equilibrium responses we show that an optimal strategy for cms under its current approach may be to either announce a fi

price formation of fish an application of an inverse demand system inverse demand systems explain price variations as functions of quantity variations they have properties analogous to those of regular demand systems there are very few examples of their empirical application in part this is due to lack of data for which price is the decision variable and the quantity given the case of fish landed at belgian sea ports appears to suit an inverse demand system well a rotterdam variant of such a system in estimated allais interaction intensities have been derived and show a reasonable pattern

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

empirical tax research in accounting this paper traces the development of archival microeconomic based empirical income tax research in accounting over the last 15 years the paper details three major areas of research i the coordination of tax and non tax factors ii the effects of taxes on asset prices and iii the taxation of multijurisdictional international and interstate commerce methodological concerns of particular interest to this field also are discussed the paper concludes with a discussion of possible directions for future research r 2001 elsevier science b v all rights reserved jel classification m41 h25 k34 g32 f23

global ex vessel fish price database revisited a new approach for estimating missing prices the global ex vessel fish price database ex vessel db reported in sumaila et al j bioecon 9 1 39 51 2007 was the first comprehensive database that presents average annual ex vessel prices for all commercially exploited marine fish stocks by nationality of the fishing fleet it contained over 30 000 reported price items covering the period from 1950 to the present and supplemented missing prices with estimates based on prices from a different year species group or fleet nationality this paper describes a revised missing price estimation approach focused on the computation of annual average international prices for each species group adjusted to domestic prices using the real exchange rate based on national purchasing power parity key advantages of the new approach are that it allows a larger number of reported prices to be used in the price estimation and accounts for relative price level differences that exist between countries our new approach should improve the estimates in regions where reported prices are scarce or non existent by linking domestic prices to the trends in international prices our analysis based on the revised ex vessel price estimates in real 2005 usd shows that the global marine fisheries landings have generated total value of usd 4 2 trillion since 1950 including usd 100 billion in 2005

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

tax planning regulatory capital planning and financial reporting strategy for commercial banks we test whether banks investment and financing policies can be explained by tax status we document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense we also document an association between banks marginal tax rates and their investment and financing decisions which is consistent with the existence of tax clienteles however banks do not sort themselves perfectly into investment and financing clienteles because of adjustment costs we posit specific types of transaction cost impediments to tax planning and document that banks apparently trade off these costs against tax planning benefits article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the impact of taxes on the choice of divestiture method abstract this paper estimates the magnitude of tax costs and their impact on the decision to divest assets via a taxable sale rather than a tax free spin off we find that the tax costs are substantial averaging 8 of market value of the divested assets and that cross sectional variation in tax costs has a large impact on managers choice of divestiture method our results are consistent with two explanations first managers are willing to incur avoidable tax costs to gain earnings and cash flow benefits second managers choose taxable sales because the acquisition premia on the sales exceed the avoidable tax costs

games with incomplete information a simplified exposition with inventory management applications abstract in most existing literature in supply chain management it is assumed that the players possess complete information about the game i e the players payoff objective functions are assumed to be common knowledge for static and dynamic games with complete information the nash equilibrium and subgame perfect equilibrium are the standard solution concepts respectively for static and dynamic games with incomplete information the bayesian nash equilibrium and perfect bayesian equilibrium respectively are used as solution concepts after presenting a brief review of the static and dynamic games under complete information the application of these two games in inventory management is illustrated by using a single period stochastic inventory problem with two competing newsvendors next we illustrate the bayesian nash and perfect bayesian equilibrium solution concepts for the static and dynamic games under incomplete information with two competing newsvendors the expository nature of our paper may help researchers in inventory supply chain management gain easy access to the complicated notions related to the games played under incomplete information

inter firm trade finance in times of crisis the paper discusses the main features that distinguish inter firm international trade finance from alternative sources of financing on the one hand inter firm trade finance could help overcome informational problems associated with other lending relationships on the other it may contribute to propagate shocks due to the interconnection among firms along credit chains the paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries it argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions the disadvantages might be exacerbated because of these firms greater exposure to a default chain based on these arguments a menu of choices is identified for what policymakers can do to boost firms access to inter firm trade finance in times of crisis

differential tax benefits and the pension reversion decision abstract we document that tax considerations influence whether and when a firm withdraws excess assets in its defined benefit pension plan through a reversion since a reversion impacts taxable income over many years and alternative methods of withdrawing excess assets exist we argue that the economically relevant tax based decision criterion is its differential tax benefit defined as the difference between the discounted tax savings of reversion versus those of the best alternative withdrawal method we develop a technique for directly estimating this decision criterion and document that differential tax benefits are strongly correlated with the reversion decision and its timing

pension reversions and worker stockholder wealth transfers this paper examines the relative importance of transfers from workers to shareholders in the firm s decision to terminate their overfunded defined benefit pension plans in contrast to earlier studies i find evidence that firms terminate their pension plans to relieve themselves of implicit promises to workers of future compensation in addition financing and tax considerations influence the reversion decision the results suggest that the 1986 excise tax on asset reversions reduced termination for reversion by 36 percent in 1986

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices