government policy with time inconsistent voters behavioral economics presents a paternalistic rationale for benevolent government intervention this paper presents a model of public debt where voters have self control problems and attempt to commit using illiquid assets in equilibrium government accumulates debt to respond to individuals desire to undo their commitments which leads individuals to rebalance their portfolio in turn feeding into a demand for further debt accumulation as a consequence i large and distortionary government debt accumulation occurs and ii banning illiquid assets could improve individuals welfare these results offer a new rationale for balanced budget rules in constitutions to restrain governments responses to voters self control problems

time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

on the patterns and wealth effects of vertical mergers we use industry commodity flows information to measure vertical relations in completed mergers from 1962 to 1996 almost one third of the mergers display vertical relatedness vertical merger activity is more intensive in the 1980s and 1990s and less so in the 1960s and the 1970s vertical mergers generate positive wealth effects that are significantly larger than those for diversifying mergers the wealth effects in vertical mergers are comparable to those in pure horizontal mergers

contagion as a wealth effect financial contagion is described as a wealth effect in a continuous time model with two risky assets and three types of traders noise traders trade randomly in one market long term investors provide liquidity using a linear rule based on fundamentals convergence traders with logarithmic utility trade optimally in both markets asset price dynamics are endogenously determined numerically as functions of endogenous wealth and exogenous noise when convergence traders lose money they liquidate positions in both markets this creates contagion in that returns become more volatile and more correlated contagion reduces benefits from portfolio diversification and raises issues for risk management during the f inancial panic associated with the default of the russian government in august 1998 and the subsequent collapse of the hedge fund long term capital management numerous hedge funds banks and securities firms tried simultaneously to reduce exposures to a variety of financial instruments such as russian bonds brazilian stocks u s mortgages spreads between on therun and off the run government securities and spreads between swaps and u s treasuries although the fundamental values of these positions would appear to have little correlation during this financial crisis the asset prices in these markets exhibited the following common empirical pattern 1 financial intermediaries suffered losses as prices moved against their positions 2 market depth and liquidity decreased simultaneously in several markets 3 the volatility of prices increased simultaneously in several markets and

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

industry classifications and return comovement a company s industry affiliation is commonly used to construct homogeneous stock groupings for portfolio risk management relative valuation and peer group comparisons a variety of industry classification systems have been adopted however creating disagreements as to companies industry assignments this analysis of the global industry classification system gics and fama french system indicates that common movement in returns and operating performance resulting from industry effects is stronger for stocks of large companies than for those of small companies also increasingly fine levels of disaggregation improve discrimination up to six digit gics codes after which the benefits tail off stock groupings based on industry exhibit stronger out of sample homogeneity than groups formed from statistical cluster analysis

demand deposit contracts and bank runs with present biased preferences abstract this paper extends the diamond dybvig model of bank runs by incorporating hyperbolic discounting the main question is how consumers myopic decisions affect the possibility of a bank run and the bank s optimal contract under hyperbolic discounting consumers deposit preferences differ from their withdrawal preferences therefore the bank needs to consider two separate preferences when designing the optimal banking contract making it more difficult to design a run safe banking contract this difference in preferences could increase the possibility of a bank run in equilibrium although the bank can design a run proof contract the ex ante welfare through banking services will be lower under hyperbolic discounting due to its tighter incentive compatibility constraint

dynamic nonlinear income taxation with quasi hyperbolic discounting and no commitment this paper examines a dynamic model of nonlinear income taxation in which the government cannot commit to its future tax policy and individuals are quasi hyperbolic discounters who cannot commit to future consumption plans the government has both paternalistic and redistributive objectives and therefore uses its taxation powers to maximize a utilitarian social welfare function that reflects individuals true long run preferences under first best taxation quasi hyperbolic discounting exerts no effect on the level of social welfare attainable under second best taxation quasi hyperbolic discounting increases resp decreases the level of social welfare attainable when separating resp pooling taxation is optimal in stark contrast to previous studies this result implies that some individuals can actually be better off in the long run as a result of their short run impatience

total factor spillovers similarities and competitions in the petroleum industry this chapter investigates multi dimensional spillovers similarities and competitions in the petroleum industry spatial techniques are applied first in production function in order to observe the cross sectional dependence in each of the four dimensions product technology segment and region wide these four single dimensional spatial models are then aggregated by a model averaging method that assigns weights to different models based on their ability to explain data taking all dependences into consideration this chapter estimates the total factor spillovers similarities and competitions in the spirit of total factor productivity negative spillover effects are observed in all the four dimensions moreover segment wide competition has negative effect on productivity some policy implications concerning human capital globalization and development strategies are also discussed

a non unitary discount rate model we develop a simple macroeconomic model in which agents discount their utility from consumption and the utility from leisure at different rates under this setting time inconsistency emerges for the preferences of agents moreover the time inconsistency problem generates two types of inefficiencies intratemporal and intertemporal we examine the welfare effects of savings subsidy and consumption tax the effects of taxation in our model are quite different from those in the standard model if the discount rate for consumption is higher lower than that for leisure today s self cares less more about the consumption of the future selves than the leisure of the future selves depressing stimulating the consumption of future selves improves the utility of today s self hence a positive negative consumption tax rate improves the utility level of all selves

search costs sticky prices and markups this article investigates how search costs price stickiness and product durability influence the impact of inflation on firm markups we provide evidence that each of these three factors plays an independent role in influencing the responsiveness of markups to inflation although we find that the direct effect of inflation on markups is negative offsetting positive influences of inflation on markups arise in industries that produce durable experience goods with flexible prices thus our results indicate that markups of industries producing nondurable search goods with sticky prices tend to experience unambiguously negative impacts from inflation

what s my line a comparison of industry classification schemes for capital market research this study compares four broadly available industry classification schemes in a variety of applications common to capital market research standard industrial classification sic codes have been available since 1939 but are being replaced by north american industry classification system naics codes the global industry classifications standard gics sm system jointly developed by standard poor s and morgan stanley capital international msci is popular among financial practitioners whereas the fama and french 1997 algorithm is used primarily by academics our results show that gics classifications are significantly better at explaining stock return comovements as well as cross sectional variations in valuation multiples forecasted and realized growth rates research and development expenditures and various key financial ratios the gics advantage is consistent from year to year and is most pronounced among large firms the other three methods differ little from each other in most applications

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

insider trades and demand by institutional and individual investors there is a strong inverse relation between insider trading and institutional demand the same quarter and over the previous year our analysis suggests a combination of factors contribute to this relation first institutional investors are more likely to provide the liquidity necessary for insiders to trade second insiders are more likely to buy low valuation and low lag return stocks while institutions are attracted to the opposite security characteristics last the results are consistent with the hypothesis that insiders are more likely to view their securities as overvalued undervalued following a period when institutions were net buyers sellers the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

time consistent public expenditures in this paper we study the optimal choice of public expenditures when there is no way of committing to future policy and reputational mechanisms are not operative this amounts to conflning our attention to markov equilibria the environment is a neoclassical growth model where consumers derive utility from a public good this environment gives rise to a dynamic game between successive governments and the private sector and this game is made interesting by the presence of a state variable the capital stock we characterize equilibria in terms of an intertemporal flrst order condition a generalized euler equation gee for the government and we use this condition both to gain insight into the nature of the equilibrium and as a basis for computation the gee reveals how the government optimally trades ofi tax wedges over time it also allows us to discuss in what sense a current government may be strategically in uencing future governments in their taxation decisions for a calibrated economy we flnd that when the tax base available to the government is capital income an inelastic source of funds at any moment in time the government still refrains from taxing at high rates in order to smooth distortions over time as a result the economy is far from the mix of public and private goods that would be optimal in a static context in return the savings distortion is not very severe and the capital stock is quite high

politico economic equilibrium and economic growth abstract we propose a notion of dynamic politico economic equilibrium which builds on two key assumptions policies are determined sequentially and agents are fully rational in their roles as both consumers and voters we examine a simple model of endogenous growth and infinitely lived agents where taxes on income are endogenous and where growth critically depends on the initial distribution of asset holdings we relate our equilibrium definition and results to existing literature on time consistency and on political economy and growth we show that our equilibria are time consistent and we argue that the choice of equilibrium concept might have important quantitative implications

time preference and commitment abstract we study how the extent of commitment ability influences equilibrium allocations in one sector growth models in which households have non geometric discounting functions our analysis covers the standard model in which the economy approaches a stationary equilibrium and the a k model which allows for perpetual growth of per capita output we demonstrate that higher commitment ability implies a higher level in the standard model and a higher growth rate in the a k model of long run per capita output unlike similar studies we assume that the commitment technology is stochastic and that the non geometric nature of time preference is caused by idiosyncratic shocks to households

on the neoclassical growth model with non constant discounting we study the neoclassical growth model with non constant discounting we do not assume specific functional forms for discounting and demonstrate that the competitive economy always performs better than the planning economy

temptation and taxation we study optimal taxation when consumers have temptation and self control problems embedding the class of preferences developed by gul and pesendorfer into a standard macroeconomic setting we first prove in a two period model that the optimal policy is to subsidize savings when consumers are tempted by excessive impatience the savings subsidy improves welfare because it makes succumbing to temptation less attractive we then study an economy with a long but finite horizon which nests as a special case the phelps pollak laibson multiple selves model thereby providing guidance on how to evaluate welfare in this model we prove that when period utility is logarithmic the optimal savings subsidies increase over time for any finite horizon moreover as the horizon grows large the optimal policy prescribes a constant subsidy in contrast to the well known chamley judd result

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

social security and self control preferences abstract we analyze the welfare effects of an unfunded social security system we do so using an overlapping generations economy wherein agents have self control preferences face mortality risk individual income risk and borrowing constraints given our specification of preferences unfunded social security helps reduce the agents temptation to consume in every period consequently the welfare costs it otherwise entails are substantially mitigated while both social security and self control when considered separately reduce welfare their combination renders this effect considerably less severe moreover if the cost of resisting temptation is very high the introduction of social security might even improve welfare

optimal life cycle capital taxation under self control problems we study optimal taxation of savings in an economy where agents face self control problems and we allow the severity of self control to change over the life cycle we focus on quasi hyperbolic discounting with constant elasticity of inter temporal substitution utility functions and linear markov equilibria we derive explicit formulas for optimal taxes that implement the efficient commitment allocation we show analytically that if agents ability to self control increases concavely with age then savings should be subsidised and the subsidy should decrease with age we also study the quantitative effects of age dependent self control problems and find that the optimal subsidies in our environment are much larger than those implied by models with constant self control finally we compare our optimal subsidies with those implied by the 401 k plan although the subsidy levels in the two cases are of comparable magnitudes the 401 k plan implies an increasing pattern of subsidies while the optimal subsidies decrease over the life cycle

dynamic stability and reform of political institutions abstract this paper examines endogenous institutional change in a class of dynamic political games the political aggregation rules used at date t 1 are instrumental choices under rules at date t effectively rules are players who can strategically delegate future policy making authority to different rules a political rule is stable if it selects itself a reform occurs when an alternative rule is selected the stability of a political rule is shown to depend on whether its choices are dynamically consistent for instance simple majority rules can be shown to be dynamically consistent in many common environments where wealth weighted voting rules are not the result extends to political rules that incorporate private activities such as extra legal protests threats or private investment the approach is one way of understanding various explanations of institutional change proposed in the literature a parametric model of public goods provision gives an illustration

consistent planning under quasi geometric discounting abstract we study properties of stationary markov perfect equilibria in a general model of intertemporal choice under quasi geometric discounting the dynamics generated by stationary markov perfect equilibria can be very complicated even if the model satisfies strict convexity and smoothness properties and the decision maker is arbitrarily patient if there exist multiple stationary markov perfect equilibria then it is in general possible to construct infinitely many non degenerate stationary sunspot equilibria as well

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

introduction to a general equilibrium approach to economic growth abstract endogenous growth theory has had some success in explaining the observed data related to the process of economic growth however the results of the models in this literature are typically very sensitive to their micro economic structure it is therefore important to understand how the growth process behaves under more general specifications of such features as the number of commodities the number and preferences of consumers the factors of production and the financial and information structures in other words valuable insights can be gained by integrating growth theory into the framework of general equilibrium theory the summary of the papers in this volume focuses on seven issues that are crucial to this integration and highlights the contributions of the papers to the resolution of these issues journal of economic literature classification numbers c61 d50 d90 f43 o30 o41

a comparison of industry classification schemes a large sample study in a large sample setting we compare four broadly available industry classification schemes in their effectiveness to group stocks with similar operating characteristics we demonstrate the advantage of the global industry classification scheme to be consistent across different application schemes common to capital market research and across different groups of firms

on the efficiency of intra industry information transfers the dilution of the overreaction anomaly abstract we revisit the stock market anomaly documented by thomas and zhang 2008 and show that the apparent mispricing of information transfers has decayed over time as the us markets experienced rapid improvements in the efficiency of the underlying price formation processes utilizing recent advancements in market microstructure research to estimate firm specific proxies for market efficiency we demonstrate that the existence of the overreaction anomaly where stock prices of late announcers in response to the earnings reported by early announcers in the same industry are negatively related to subsequent price responses of late announcers to their own earnings reports is specific to an earlier sample period and results from the inefficient incorporation of information into prices largely attributable to an environment with high barriers to arbitrage our results indicate that the pricing efficiency of intra industry information transfers has increased in the recent years of increased liquidity and markedly higher trading activity

unions in a frictional labor market abstract a labor market with search and matching frictions where wage setting is controlled by a monopoly union that follows a norm of wage solidarity is found vulnerable to substantial distortions associated with holdup with full commitment to future wages the union achieves efficient hiring in the long run but hikes up wages in the short run to appropriate rents from firms without commitment in a markov perfect equilibrium hiring is too low both in the short and the long run the quantitative impact is demonstrated in an extended model with partial union coverage and multiperiod union contracting

consistent climate policies what are the optimal climate policies when time preferences deviate from the standard exponential discounting and decision makers cannot commit to future policies we show that with time declining discounting the delay and persistence of climate impacts provide a commitment device to policy makers we quantify the commitment value in a climate economy model by solving time consistent markov equilibrium capital and emission taxes explicitly the returns on capital and climate investments are no longer equal leading to a large increase in the emission tax compared to a benchmark with equalized returns the commitment value increases the tax by a factor of 20 in our quantitative assessment

discounting by committee abstract we study a dynamic social choice problem in which a sequence of committees must decide how to consume a public asset a committee convened at time t decides on consumption at t accounting for the behaviour of future committees committee members disagree about the appropriate value of the pure rate of time preference but must nevertheless reach a decision if each committee aggregates its members preferences in a utilitarian manner the collective preferences of successive committees will be time inconsistent and they will implement inefficient consumption plans if however committees decide on the level of consumption by a majoritarian vote in each period they may improve on the consumption plans implemented by utilitarian committees using a simple model we show that this occurs in empirically plausible cases application to the problem of choosing the social discount rate is discussed

the aggregate impact of household saving and borrowing constraints designing a field experiment in uganda abstract we develop a model of households with multiple needs smoothing shocks financing investment and constraints limited credit self control issues in order to examine the nature of household s financing constraints in a developing country and the impact of relaxing them we show that increased access to credit has very different implications for the aggregate model economy depending on its form asset financed or cash we then illustrate how a short term increase in access to loans leads to very distinct behavior in the short run the relevance of the model can be evaluated using a field experiment which we are currently implementing in uganda

equilibrium welfare and government policy with quasi geometric discounting abstract we consider a representative agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions we restrict attention to a parametric class for preferences and technology and solve for time consistent competitive equilibria globally and explicitly we then characterize the welfare properties of competitive equilibria and compare them to that of a planning problem the planner is a consumer representative who without commitment but in a time consistent way maximizes his or her present value utility subject to resource constraints the competitive equilibrium results in strictly higher welfare than the planning problem whenever the discounting is not geometric journal of economic literature classification numbers e21 e61 e91

production subsidies and redistribution abstract who gains from stimulating output we explore a dynamic model with production subsidies where the population is heterogeneous in one dimension wealth there are two channels through which production subsidies redistribute resources across the population first poorer agents gain from a rise in wages since to the extent there is an operative wealth effect in labor supply they work harder second because a current output boost will raise consumption today relative to the future thus lowering real interest rates poor agents gain in relative terms since their income is based less on interest income we examine optimal redistribution from the perspective of an arbitrary consumer in the population we show that if this consumer has commitment at time zero to set all present and future subsidy rates and for a class of preferences that admits aggregation in wealth then output stimulation and hence redistribution will only occur at time zero after that subsidies are zero a byproduct of our analysis of this environment is a median voter theorem with direct voting over subsidy sequences at time zero the sequence preferred by the median wealth consumer is the unique outcome we also study lack of commitment since interest rate manipulation is associated with time inconsistency we analyze this case formally by looking at the markov perfect time consistent equilibrium in a game between successive identical decision makers e g the median agent here subsidies persist they are constant over time and are more distortionary than under commitment moreover whereas under commitment asset inequality changes initially in favor of the consumer who decides on policy it does not under lack of commitment

numerical analysis of non constant pure rate of time preference a model of climate policy abstract when current decisions affect welfare in the far distant future as with climate change the use of a declining pure rate of time preference prtp provides potentially important modeling flexibility the difficulty of analyzing models with non constant prtp limits their application we describe and provide software available online to implement an algorithm to numerically obtain a markov perfect equilibrium for an optimal control problem with non constant prtp we apply this software to a simplified version of the numerical climate change model used in the stern review for our calibration the policy recommendations are less sensitive to the prtp than widely believed

time inconsistency and the long run effects of inflation recent work by laibson 1997 identifies that individuals time discount factors evolve over time this leads to a time inconsistency problem in which savings are distorted this paper studies the long run effects of inflation in the presence of a time inconsistency problem

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

conglomerates and industry distress focusing on economic distress episodes in an industry we estimate the effect of conglomeration on resource allocation distressed segments have higher sales growth higher cash flow and higher expenditure on research and development than single segment firms this is especially true for segments with high past performance for unrated firms and in competitive industries single segment firms increase cash holding and the diversification discount reduces during industry distress firms with high past performance acquire their industry counterparts and firms with low past performance exit the distressed industry industries more prone to distress have greater conglomeration overall conglomeration enables segments to avoid financial constraints during industry distress the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

the neoclassical growth model with heterogeneous quasi geometric consumers this paper investigates how the assumption of quasi geometric hyperbolic discounting affects the distributional implications of the standard one sector neoclassical growth model with infinitely lived heterogeneous agents the agents are subject to idiosyncratic shocks and face borrowing constraints we confine attention to an interior markov recursive equilibrium the consequence of quasi geometric discounting is that the effective discount factor of an agent is not a constant but an endogenous variable which depends on the agent s current state we show both analytically and by simulation that this new feature can significantly affect the distributional implications of the neoclassical growth model

on the size of u s government political economy in the neoclassical growth model we study a dynamic version of meltzer and richard s median voter model of the size of government taxes are proportional to total income and they are redistributed as equal lump sum transfers voting takes place periodically over time and each consumer votes for the tax rate that maximizes his equilibrium utility we calibrate the model to u s data key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices the total size of transfers predicted by our political economy model is quite close to the size of transfers in the data

median voter equilibria in the neoclassical growth model under aggregation we study a dynamic version of meltzer and richard s median voter model where agents differ in wealth taxes are proportional to income and are redistributed as equal lump sum transfers voting occurs every period and each consumer votes for the tax that maximizes his welfare we characterize time consistent markov perfect equilibria twofold first restricting utility classes we show that the economy s aggregate state is mean and median wealth second we derive the median voter s first order condition interpreting it as a tradeoff between distortions and net wealth transfers our method for solving the steady state relies on a polynomial expansion around the steady state

an intra and inter industry evaluation of three classification schemes common in capital market research we compare the standard industry classification sic the north american industry classification system naics and the global industry classification standard gics schemes in their effectiveness to group stocks with similar operating characteristics we are the first to analyse and compare individual functional category levels within and across each industry classification and test whether the three industry classifications show significant improvement in homogeneity with finer industry partitions across a wide range of research applications our results suggest that the gics system offers advantages over the other two systems in grouping firms across all its levels of industry categories and across different application schemes common to capital market research however the sic and naics offer additional advantages across their finest industry partitions our study has important implications for users of industry classifications in various financial and economic analyses research settings and regul

technology and time inconsistency policy makers have time inconsistent preferences if they fear losing power or are endowed with hyperbolic discount factors politicians may thus seek to influence future policy choices for example

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

hedge fund return dependence model misspecification or liquidity spirals we test whether model misspecification or liquidity spirals primarily explain the observed excess dependence in filtered for economic fundamentals hedge fund index returns and the links between volatility liquidity shocks and hedge fund return clustering evidence supports the model misspecification hypothesis i hedge fund filtered return clustering is symmetric ii filtered short bias fund returns exhibit negative dependence with filtered returns for other hedge fund types iii negative liquidity shocks are associated with clustering in both tails and market volatility subsumes the role of negative liquidity shocks and iv these same patterns appear in size sorted equity portfolios

group inefficiency in a common property resource game with asymmetric players if the joint preferences of asymmetric players having different discount rates are represented by the sum of intertemporal utilities they become time inconsistent it is shown how time consistent solutions for this problem can be strongly inefficient the sum of payoffs can be higher if cooperation or coordination is forbidden than if it is allowed

hedge fund crowds and mispricing recent models and the popular press suggest that large groups of hedge funds follow similar strategies resulting in crowded equity positions that destabilize markets inconsistent with this assertion we find that hedge fund equity portfolios are remarkably independent moreover when hedge funds do buy and sell the same stocks their demand shocks are on average positively related to subsequent raw and risk adjusted returns even in periods of extreme market stress we find no evidence that hedge fund demand shocks are inversely related to subsequent returns our results have important implications for the ongoing debate regarding hedge fund regulation

ramsey meets laibson in the neoclassical growth model the neoclassical growth model is modified to include a variable rate of time preference with no commitment ability and log utility the equilibrium features a constant effective rate of time preference and is observationally equivalent to the standard model the extended framework yields testable linkages between the extent of commitment ability and the rates of saving and growth the model also has welfare implications including the optimal design of institutions that facilitate household commitments steady state results are obtained for general concave utility functions and some properties of the transitional dynamics are characterized for isoelastic utility

efficiency and equilibrium when preferences are time inconsistent abstract we consider an exchange economy with time inconsistent consumers whose preferences are additively separable if consumers have identical discount factors then allocations that are pareto efficient at the initial date are also renegotiation proof in an economy with a sequence of markets competitive equilibria are pareto efficient in this sense and for generic endowments only if preferences are locally homothetic

hyperbolic discounting and endogenous growth this paper provides the closed form solution for the standard model of endogenous growth when consumers have present biased preferences and make time inconsistent savings plans which they revise continuously it is shown that long run growth is not necessarily lower under present biased preferences in fact a strong equivalence result holds if hyperbolic discounting provides the same present value of a constant infinite income stream as standard exponential discounting then the equilibrium rate of economic growth is also the same under both discounting methods in this sense present bias preferences are harmless for economic growth

non constant discounting and ak type growth models this paper analyzes an ak type endogenous growth model under non constant discounting assuming both naive and sophisticated consumers for both types of consumers an isoelastic utility with an intertemporal elasticity below one guarantees observational equivalence under exponential and non constant discounting but rejects strong equivalence identical overall impatience does not lead to identical growth rates further polices aimed at increasing productivity of the economy are less growth enhancing than typically predicted by the literature with exponential discounting

vested interests in a positive theory of stagnation and growth we study a positive theory of stagnation and growth aimed at understanding the large variations in growth outcomes across actual economies the theory points to the fundamental role played by vested interests in determining policies which are key to the growth process some agents seek to prevent the adoption of new technologies we develop a model of technology adoption and show how technological innovation may sow the seeds of its own destruction in particular we find that the equilibrium is characterized by a long cycle of stagnation and growth over this cycle incumbents are phased out of the economy will new innovation occur in formalizing our theory we make a methodological contribution by characterizing dynamic voting equilibria when voters must forecast the effects of different current policies on future prices and policy outcomes

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

non constant discounting social welfare and endogenous growth with pollution externalities abstract we analyze the effect of non constant discounting on economic growth and social welfare in an endogenous growth model with pollution externalities for time consistent agents who play a game against their future selves the balanced growth equilibrium is compared to the case of standard exponential discounting a decaying instantaneous discount rate leads to slower growth in a centralized economy while its effect for a competitive economy is ambiguous interestingly when comparing the planned and the competitive equilibria the assumption of non constant discounting may imply greater social welfare in the market equilibrium under two conditions first the pollution externality on utility must be large with respect to the externality on production so that the central planner slows down growth below the growth rate in the market economy secondly individuals degree of impatience should decrease sharply with the time distance from the present concerning policy implications we observe that under log utility policies may not be necessary while for an isoelastic utility with an elasticity lower than one introducing policy instruments is less effective than under constant discounting

distortionary taxes and public investment when government promises are not enforceable abstract we characterize the optimal financing of productive public capital and compute the welfare loss from being unable to commit to the ramsey policy because this calculation ultimately relies on numerical approximations we contrast alternative approaches while perturbation and linear quadratic methods deliver accurate steady states the latter can yield misleading policy implications during transitions we find that moving from a regime with commitment to one with discretion implies only a small welfare loss although markov perfect consumption falls noticeably short of its ramsey counterpart in steady state consumption under discretion is higher in the short run which largely offsets this long run loss