what drives corporate social performance the role of nation level institutions based on whitley s national business systems nbs institutional framework we theorize about and empirically investigate the impact of nation level institutions on firms corporate social performance csp using a sample of firms from 42 countries spanning seven years we construct an annual composite csp index for each firm based on social and environmental metrics we find that the political system followed by the labor and education system and the cultural system are the most important nbs categories of institutions that impact csp interestingly the financial system appears to have a relatively less significant impact we discuss implications for research practice and policymaking

competition under consumer loss aversion we address the effect of expectation based consumer loss aversion on firm strategy in imperfect competition consumers are fully informed about match value and price at the moment of purchase however some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution whereas others are perfectly informed all the time we show that if firms have symmetric costs a larger share of informed consumers leads to a more competitive outcome the reverse holds if cost asymmetry in duopoly is sufficiently large

self rewards and personal motivation self administered rewards are ubiquitous they serve as incentives for personal accomplishments and are widely recommended to increase personal motivation we show that in a model with time inconsistent and reference dependent preferences self rewards can be a credible and effective tool to overcome self control problems we also discuss the different types of self rewards the individual can use such as vice goods and virtue goods and analyze which types of goods the individual prefers

the curious case of corporate tax avoidance is it socially irresponsible in contrast to many aspects of the social responsibility of business csr scholarship has been largely silent on the issue of the payment of corporate tax this is curious because such tax payments are often considered a fundamental and easily measured example of a company s citizenship behavior however because the payment of corporate tax can often be legally avoided this activity represents a boundary condition for csr if the law and csr suggest that a company should pay its fair share of tax yet many successful companies actively avoid this social obligation should they be considered socially irresponsible this paper explores the issue of tax avoidance and the implications it has for any credible definition and measure of csr it also highlights an aspect of corporate practice that is deliberately hidden from public view

home ownership as status competition some theory and evidence abstract in this paper we explore the implications of home ownership as a status good for housing prices more concretely if a family s housing wealth relative to others is an important sorting variable for relative attractiveness in the marriage market then competition for marriage partners might motivate people to pursue a bigger and more expensive house apartment to test the hypothesis we explore regional variations in the sex ratio for the pre marital age cohort across china as a proxy for differential strength for concerns for status we find that the evidence is consistent with the status competition hypothesis

disappointment in decision making under uncertainty decision analysis requires that two equally desirable consequences should have the same utility and vice versa most analyses of financial decision making presume that two consequences with the same dollar outcome will be equally preferred however winning the top prize of 10 000 in a lottery may leave one much happier than receiving 10 000 as the lowest prize in a lottery this paper explores the implications of disappointment a psychological reaction caused by comparing the actual outcome of a lottery to one s prior expectations for decision making under uncertainty explicit recognition that decision makers may be paying a premium to avoid potential disappointment provides an interpretation for some known behavioral paradoxes and suggests that decision makers may be sensitive to the manner in which a lottery is resolved the concept of disappointment is integrated into utility theory in a prescriptive model

individual preferences monetary gambles and stock market participation a case for narrow framing we argue that narrow framing whereby an agent who is offered a new gamble evaluates that gamble in isolation may be a more important feature of decision making than previously realized our starting point is the evidence that people are often averse to a small independent gamble even when the gamble is actuarially favorable we find that a surprisingly wide range of utility functions including many nonexpected utility specifications have trouble explaining this evidence but that this difficulty can be overcome by allowing for narrow framing our analysis makes predictions as to what kinds of preferences can most easily address the stock market participation puzzle

the demand for tax haven operations what types of firms establish tax haven operations and what purposes do these operations serve analysis of affiliate level data for american firms indicates that larger more international firms and those with extensive intrafirm trade and high r and d intensities are the most likely to use tax havens tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high tax jurisdictions and by reducing the burden of home country taxation of foreign income the evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of u s taxation of foreign income firms with sizeable foreign operations benefit the most from using tax havens an effect that can be evaluated by using foreign economic growth rates as instruments for firm level growth of foreign investment outside of tax havens one percent greater sales and investment growth in nearby non haven countries is associated with a 1 5 to 2 greater likelihood of establishing a tax haven operation

questioning organizational legitimacy the case of u s expatriates it has been estimated that u s companies with global business operations can reduce their u s tax bill by up to 10 percentage points if they reincorporate in a zero or low tax offshore jurisdiction but this activity at a time of national crisis following the september 11 terrorists attacks and recent spate of corporate scandals has received a less than sympathetic response from the u s media ordinary taxpayers shareholders and politicians as concerns are raised about the reduction of the tax base and the lack of oversight and regulation in offshore centres offshore reincorporation has been condemned as immoral unconscionable dishonest and unpatriotic accusations that cast doubt on the legitimacy of the companies concerned in question is their right to conduct business in the u s and in particular their right to still be viewed as american their legitimacy once bestowed so readily by the company s shareholders is now being questioned not only by shareholders but also the media politicians government regulators pension funds and labour unions expatriate companies have been slow to respond to questions of their legitimacy viewing their offshore move as a financial decision needing only the consent of their shareholders however times have changed and corporate legitimacy is now in the hands of all the company s stakeholders companies will need to explicitly consider the determinants of their legitimacy and the implications of the implied social contract under which they operate to remain relevant in the days ahead

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

psychological expected utility theory and anticipatory feelings we extend expected utility theory to situations in which agents experience feelings of anticipation prior to the resolution of uncertainty we show how these anticipatory feelings may result in time inconsistency we provide an example from portfolio theory to illustrate the potential impact of anticipation on asset prices

human capital investment and the gender division of labor in a brawn based economy we use a model of human capital investment and activity choice to explain facts describing gender differentials in the levels and returns to human capital investments these include the higher return to and level of schooling the small effect of healthiness on wages and the large effect of healthiness on schooling for females relative to males the model incorporates gender differences in the level and responsiveness of brawn to nutrition in a roy economy setting in which activities reward skill and brawn differentially empirical evidence from rural bangladesh provides support for the model and the importance of the distribution of brawn

gender of children bargaining power and intrahousehold resource allocation in china abstract based on the prevalent son preference in china this paper proposes a new measure of relative bargaining power within the household using data from china health and nutrition survey we show that a woman with a first born son has a 3 9 percentage points greater role in household decision making than a woman with a first born daughter having a first born son improves the mother s nutrition intakes and reduces her likelihood of being underweight while thinking of these impacts as being channeled through intrahousehold bargaining power we cannot fully rule out other possible direct effects of a first born son on the outcomes

binary payment schemes moral hazard and loss aversion we modify the principal agent model with moral hazard by assuming that the agent is expectation based loss averse according to k o szegi and rabin 2006 2007 the optimal contract is a binary payment scheme even for a rich performance measure where standard preferences predict a fully contingent contract the logic is that due to the stochastic reference point increasing the number of different wages reduces the agent s expected utility without providing strong additional incentives moreover for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold

hard to get the scarcity of women and the competition for high income men in urban china reports of the difficulties of elite women in finding suitable mates have been increasing despite the growing availability and value of men in china we rationalize this leftover women phenomenon within the directed competitive search framework which uniquely allows for equilibrium crowding out within this framework we show that the leftover women phenomenon can be the result of women s aversion to men who have a lower income than themselves hereafter alm and the long predicted complementarity between women s non market traits in particular beauty and male earnings for high income h women even when high income h men are more plentiful and richer the direct effect of the greater number of desirable men can be overwhelmed by the indirect effect of competitive entry by low income l women particularly the beautiful we test for these competitive search effects using online dating field experimental census and household survey data consistent with the competitive entry of l women when sex ratio and h men s income increase the search intensity of beautiful l women for h men increases in response to this competitive entry plain h women who are constrained by their alm to search predominantly for h men also increase the search intensity however only their marriage probability decreases our evidence is consistent with intra female competitive search for spouses who can cover the labor market opportunity cost of marriage and childbirth which increases with a woman s income

dowry and wife s welfare a theotrical and empirical analysis becker attributes the existence of marital transfers to inflexibility in the division of joint product within the marriage if that were the only reason we would not have observed the coexistence of dowries and bride prices this paper offers an alternative analysis while becker s interpretation is retained for bride prices a dowry is now represented as a premortem bequest by altruistic parents for a daughter it not only increases the wealth of the new conjugal household but also enhances the bargaining power of the bride in the allocation of the output within the household thereby safeguarding here welfare using micro data from taiwan we found that a dowry improves the bride s welfare whereas a bride price has no effect these empirical results support the theoretical predictions of the model

consumption and portfolio choice under internal multiplicative habit formation this paper explores the optimal consumption and investment behavior of an individual who derives utility from the ratio between his consumption and an endogenous habit we obtain closed form policies under general utility functionals and stochastic investment opportunities by developing a nontrivial linearization to the budget constraint this enables us to explicitly characterize how habit formation affects the marginal propensity to consume and optimal stock bond investments we also show that in a setting that combines habit formation with epstein zin utility consumption no longer grows at unrealistically high rates at high ages and investments in risky assets decrease

positional spending and status seeking in rural china focusing on a remote area in rural china we use a panel census of households in 26 villages to show that socially observable spending has risen sharply in recent years we demonstrate that such spending by households is highly sensitive to social spending by other villagers this suggests that social spending is either positional in nature i e motivated by status concerns or subject to herding behavior we also document systematic relations between social spending and changes in higher order terms of the income distribution we find that the implications of status seeking for spending are not unidimensional they vary across income groups and expenditure categories in particular and consistent with theories of rank based status seeking we find that the poor increase spending on funerals and gifts as competition for status intensifies in addition poor families of grooms expend more for wedding ceremonies as local income competition increases while the families of brides do not the welfare implications of spending in order to keep up with the joneses are potentially large particularly for poor households

restoring rational choice the challenge of consumer financial regulation abstract this lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively the lecture argu

reference points and effort provision a key open question for theories of reference dependent preferences is what determines the reference point one candidate is expectations what people expect could affect how they feel about what actually occurs in a real effort experiment we manipulate the rational expectations of subjects and check whether this manipulation influences their effort provision we find that effort provision is significantly different between treatments in the way predicted by models of expectation based reference dependent preferences if expectations are high subjects work longer and earn more money than if expectations are low

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

the boundaries of loss aversion abstract in this article the authors propose some psychological principles to describe the boundaries of loss aversion a key idea is that exchange goods that are given up as intended do not exhibit loss aversion for example the authors propose that money given up in purchases is not generally subject to loss aversion the results of several experiments provide preliminary support for the hypotheses the authors find that consistent with prospect theory loss aversion provides a complete account of risk aversion for risks with equal probability to win or lose the authors propose boundaries for this result and suggest further tests of the model

marriage and managers attitudes to risk marital status can both reflect and affect individual preferences we explore the impact of marriage on corporate chief executive officers ceos and find that firms run by single ceos exhibit higher stock return volatility pursue more aggressive investment policies and do not respond to changes in idiosyncratic risk these effects are weaker for older ceos our findings continue to hold when we use variation in divorce laws across states to instrument for ceo marital status which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences we explore various potential explanations for why single ceos may be less risk averse data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1926 this paper was accepted by wei jiang finance

circumvention of trade defence measures and business ethics with the rise of globalization the debate around free trade versus fair trade and liberalism versus protectionism has become increasingly complicated at times the regulations of the world trade organization seem to pit developed markets against emerging markets as governments attempt to expand international trade while at the same time protecting local industry to this end antidumping measures have been extensively developed as a way to block foreign low cost goods often produced in emerging countries from entering domestic markets in response some exporters have begun to circumvent these antidumping measures using strategies such as transhipment assembly operations and slightly modified products while previous studies have addressed the ethical aspects of antidumping measures this study will focus on the ethics of circumvention strategies with a special focus on the theories on legal compliance and specifically civil disobedience and conscientious evasion

project evaluation with democratic decision making what does cost benefit analysis really measure abstract it is often argued that projects involving public good changes should be chosen on the basis of monetary valuation and cost benefit analysis cba however cba is not value free when used to measure welfare it is based on highly controversial value judgements when used to measure efficiency it is based on assumptions of limited relevance to democratic decision making processes cba measures total net willingness to pay neither more nor less while interesting in its own right the normative significance of this indicator is not obvious

the effect of housing on portfolio choice we show that characterizing the effects of housing on portfolios requires distinguishing between the effects of home equity and mortgage debt we isolate exogenous variation in home equity and mortgages by using differences across housing markets in house prices and housing supply elasticities as instruments increases in property value holding home equity constant reduce stockholdings while increases in home equity wealth holding property value constant raise stockholdings the stock share of liquid wealth would rise by 1 percentage point 6 of the mean stock share if a household were to spend 10 less on its house holding fixed wealth

labor tax avoidance and its determinants the case of mafia firms in italy this paper develops two new measures of labor tax avoidance ltav based on social contribution expenses reported in financial statements and tests them and their determinants within a sample of 224 italian firms defined as legally registered mafia firms lmfs due to having been confiscated at some point by judicial authorities in relation to alleged connections with italian organized crime overall our results reveal that before confiscation lmfs engage more in ltav than lawful firms do whereas after confiscation there is no significant difference between both types of firm furthermore we find that several factors have a significant influence on the probability of engaging in such a practice this study can enhance further research on the effectiveness of our measures and on the determinants of ltav in other contexts and for other types of firms moreover these measures can be added to the other direct and indirect methods commonly employed to measure and detect undeclared work representing a primary means of ltav finally our study allows inferring conclusions on the relation between corporate social responsibility and tax avoidance suggesting that socially irresponsible firms such as lmfs are more likely to adopt this practice

life cycle portfolio choice with additive habit formation preferences and uninsurable labor income risk this article explores the implications of additive and endogenous habit formation preferences in the context of a life cycle model of an investor who has stochastic uninsurable labor income to solve the model i analytically derive the habit wealth feasibility constraints and show that they depend on the worst possible path of future labor income and on the habit strength but not on the probability of the worst income when there is only a slim chance of a severe income shock the model implies much more conservative portfolios the model also predicts that for some low to moderately wealthy households the portfolio share allocated to stocks increases with wealth because of this feature the model can generate more conservative portfolios for younger than for middle aged households the effects of habits on portfolio choice are robust to income smoothing through borrowing or flexible labor supply one controversial finding is that for high values of the habit strength parameter usually required for the resolution of asset pricing puzzles in general equilibrium the life cycle model predicts counterfactually high wealth accumulation jel g11 g12 copyright 2007 oxford university press

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

responsibility in paradise the adoption of csr tools by companies domiciled in tax havens in contrast to the recent rise to economic importance of offshore finance centres ofcs the topic of taxation has so far created little interest among scholars of corporate social responsibility csr this paper makes two contributions to addressing this lacuna applying a range of influential normative theories of ethics it first offers an ethical evaluation of tax havens second the paper examines what use large firms that are headquartered in two ofcs bermuda and the cayman islands make of formal csr tools the emerging duplicity in tax haven based companies professing social responsibility highlights once more the political nature of csr where at least some firms and or industries can successfully limit government power to enact regulation as well as shape the discourse around csr the study of csr in ofc based firms thus calls into question the usefulness of the often quoted definition of csr as going beyond the law

the effect of myopia and loss aversion on risk taking an experimental test myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently two implications of myopic loss aversion are tested experimentally 1 investors who display myopic loss aversion will be more willing to accept risks if they evaluate their investments less often 2 if all payoffs are increased enough to eliminate losses investors will accept more risk in a task in which investors learn from experience both predictions are supported the investors who got the most frequent feedback and thus the most information took the least risk and earned the least money language en

frames of mind in intertemporal choice recent research has demonstrated that choices between gambles are systematically influenced by the way they are expressed kahneman and tversky s prospect theory kahneman d a tversky 1979 prospect theory an analysis of decision under risk econometrica472 363 391 explains many of these framing effects as shifts in the point of reference from which prospects are evaluated this paper demonstrates the applicability of the reference point concept to intertemporal choice three experiments demonstrate that when people choose between immediate and delayed consumption the reference point used to evaluate alternatives can significantly influence choice the first study elicited relative preference for immediate and delayed consumption using three methods each of which differently framed choices between alternatives offering identical end state consumption the conventional discounted utility model predicts that the three methods of elicitation should yield similar estimates of time preference but preferences were found to differ in accordance with a reference point model the second and third studies extend and replicate the results from the first the third using real rather than hypothetical choices

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

national accounts and environmental resources in the paper optimal growth theory is used to derive the appropriate definition of the net national product concept when there are environmental resources and environmental damage to take into account the basic conclusions are that conventional defined np should be corrected by deducting environmental damage and adding the value of the net change of all resources

borrowing costs and the demand for equity over the life cycle abstract we construct a life cycle model that delivers realistic behavior for both equity holdings and borrowing the key model ingredient is a wedge between the cost of borrowing and the risk free investment return borrowing can either raise or lower equity demand depending on the cost of borrowing a borrowing rate equal to the expected return on equity which we show roughly matches the data minimizes the demand for equity alternative models with no borrowing or limited borrowing at the risk free rate cannot simultaneously fit empirical evidence on borrowing and equity holdings

the supply of information by a concerned expert how much information should a policy maker pass on to a currently ill informed citizen in this paper we address this classic question of crawford and sobel 1983 in a setting in which beliefs impact utility as in kreps and porteus 1978 we show that this simple amendment has far reaching implications in particular our question cannot be answered using a utility function with standard revealed preference foundations revealed preference cannot tell us whether in a particular state s a decision maker prefers to believe incorrectly that the state is t or to know the truth to solve the model we go beyond the classical model in two respects relying on the psychological expected utility model of caplin and leahy 2001 to capture preferences and the psychological game model of geanakoplos pearce and stacchetti 1989 to capture strategic interactions

new york city cab drivers labor supply revisited reference dependent preferences with rational expectations targets for hours and income this paper reconsiders whether cabdrivers labor supply decisions reflect reference dependent preferences following botond koszegi and matthew rabin 2006 we construct a model with targets for hours as well as income both determined by rational expectations estimating using henry s farber s 2005 2008 data we show that the reference dependent model can reconcile his 2005 finding that drivers stopping probabilities are significantly related to hours but not income with the negative wage elasticity of hours found by colin camerer et al 1997 and farber 2005 2008 the model yields sensible estimates that avoid farber s 2008 criticism that drivers income targets are too unstable to allow a useful reference dependent model of labor supply

cultural and leadership predictors of corporate social responsibility values of top management a globe study of 15 countries this paper examines cultural and leadership variables associated with corporate social responsibility values that managers apply to their decision making in this longitudinal study we analyze data from 561 firms located in 15 countries on five continents to illustrate how the cultural dimensions of institutional collectivism and power distance predict social responsibility values on the part of top management team members ceo visionary leadership and integrity were also uniquely predictive of such values

reference health and the demand for medical care we propose that health in prior periods termed reference health is theoretically and empirically relevant to the demand for medical care to address non normality in the distributions of medical care spending consumption and health we use a conditional density estimator nested in a finite mixture framework we find that reference health can help explain the variation in spending among individuals with the same contemporaneous health particularly in the top tail of the spending distribution we demonstrate that omitting reference health understates the potential cost savings of healthy aging initiatives by 50 percent this article is protected by copyright all rights reserved

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

myopic loss aversion information feedback vs investment flexibility we experimentally disentangle the effect of information feedback from the effect of investment flexibility on the investment behavior of a myopically loss averse investor our findings show that varying the information condition alone suffices to induce behavior that is in line with the hypothesis of myopic loss aversion

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

a study of codes of ethics for mexican microfinance institutions most scholarly interest in codes of ethics or conduct has focused on traditional companies little is known about the codes of social enterprises or hybrid organizations such as microfinance institutions mfis our paper provides a comparative case study of the codes of a mexican microfinance network and seven mfis using the corporate integrity model we analyze the content of mfis codes compared to those of traditional organizations we then examine to what extent some specific features of mfis such as their mission target group and applied credit methodologies are factors that determine the content of their code we find that mfis codes like those of traditional companies include traditional stakeholder principles nevertheless they put greater emphasis on socially oriented principles or on terms such as people and common good mfis codes differ with respect to the items they include and exclude and the size of the covered sections we also find that these codes attempt to address prevailing concerns in microfinance but rarely tackle two critical debates namely levels of interest rates and of profitability we finally argue that it is difficult to move toward a global code owing to regional disparities and the variety of organizational models and missions

role of country and firm level determinants in environmental social and governance disclosure in recent years companies receive pressure to release environmental social and governance esg disclosure since these are perceived as critical issues by society despite this pressure esg disclosure practices considerably vary by firm prior academic literature investigated country and firm level factors determining such variation alternatively adopting the institutional and legitimacy theory by combining these theories in a unique framework this study investigates the extent to which social structures i e institutional theory and social legitimization i e legitimacy theory influence esg disclosure practices and each pillar results obtained using a cross country sample of 14 174 firm year observations during 2005 2012 provide evidence that country level characteristics such as a political system legal framework and corruption labor system labor protection and unemployment rate and cultural system social cohesion and equal opportunities significantly affect firms esg disclosure practices however their impact is heterogeneous in that they either reduce or enhance disclosure levels and may differ by pillar results for firm level characteristics related to a firm s visibility analysts coverage cross listing leverage and size demonstrate a positive and homogeneous effect on esg disclosure and each pillar these results inform policy makers and regulators aiming to enhance esg disclosure levels of the risk they incur when managing variables related to social structure and the benefits of exposing firms to higher visibility

the realization effect risk taking after realized versus paper losses abstract understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty a large literature documents the significant influence of prior losses on risk attitudes the findings appear contradictory some studies find greater risk taking after a loss whereas others show the opposite that people take on less risk i reconcile these seemingly inconsistent findings by distinguishing between realized versus paper losses using new and existing data i replicate prior findings and demonstrate that following a realized loss individuals avoid risk if the same loss is not realized a paper loss individuals take on greater risk jel d11 d14 d81 g11

lagged beliefs and reference dependent utility abstract models of expectation based reference dependent preferences proposes that the reference point to which consumption outcomes are compared is endogenously determined as a function of lagged probabilistic beliefs this paper presents an experiment designed to test some predictions of expectation based reference dependence models the design induces a stochastic reference point via a lottery and then measures valuations for a commodity the experimental results find no effect of the first stage lottery on commodity valuation

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

opportunity cost of environmental conservation in the presence of externalities application to the farmed and wild salmon trade off in norway estimation of the opportunity cost is necessary for the economic assessment of environmental conservation policies this paper considers the case where an environmental good is negatively affected in the process of the production of marketable goods in the presence of externalities conservation implies the undertaking of abatement measures by polluters a relevant measure of opportunity cost in these settings is the abatement cost required to preserve or restore a unit of the environmental good in question current economic literature lacks an established methodology for deriving such measures as it commonly focuses on pricing pollutants rather than the natural stocks affected by them this paper uses a non optimal valuation approach suggested by fenichel and abbott jaere 1 1 2 1 27 2014 as a point of departure and develops a framework for deriving the opportunity cost of conservation as the cost of externality abatement per unit of environmental good an empirical illustration is provided for the case of the farmed and wild salmon trade off in norway in light of the current pollution control regulations

corporate contributions altruistic or for profit existing literature has focused on three rationales for corporate philanthropy through the firm giving corporate statesmanship and profit motivated giving the profit motivation argument was exa

negative voters electoral competition with loss aversion this paper studies how voter loss aversion affects electoral competition in a downsian setting assuming that the voters reference point is the status quo we show that loss aversion has a number of effects first for some values of the status quo there is policy rigidity both parties choose platforms equal to the status quo regardless of other parameters second there is a moderation effect when there is policy rigidity the equilibrium policy outcome is closer to the moderate voters ideal point than in the absence of loss aversion in a dynamic extension of the model we consider how parties strategically manipulate the status quo to their advantage and we find that this increases policy rigidity finally we show that with loss aversion incumbents adjust less than challengers to changes in voter preferences the underlying force is that the status quo works to the advantage of the incumbent this prediction of asymmetric adjustment is new and we test it using elections to us state legislatures the results are as predicted incumbent parties respond less to shocks in the preferences of the median voter

offshore pariahs small island economies tax havens and the re configuration of global finance the stock of wealth held offshore is estimated at us 6 trillion many small island economies sies host offshore finance centers and some sies are highly dependent upon offshore finance extreme examples have over 90 of government revenues derived from finance sector activities since 1998 a series of international initiatives have been launched to combat harmful tax practices money laundering and inadequate financial regulation these initiatives will transform the economies of many sies this paper explores the dependence of many sies upon offshore finance and the barriers to diversification arising from their smallness and unique political economies

it s not what you get but when you get it the effect of gift sequence on deposit balances and customer sentiment in a commercial bank abstract the authors examine the impact of gifts on deposit balances and customer satisfaction in a longitudinal field experiment conducted at a commercial bank they find that gifts increased deposit balances survey response rates and customer satisfaction compared with the no gift control they manipulated several factors within the gift treatment gift type the accompanying message and the sequence of gift value which improved 35 then 100 gift worsened 100 then 35 gift or was a single gift a highly detrimental effect of decreasing gift value occurred on deposit balances this deterioration aversion persisted in a long term follow up analysis of deposit balances a vignette experiment replicates deterioration aversion and extends the results demonstrating increased effectiveness of improving gifts over constant gift sequences and indicating that the mechanism underlying deterioration aversion involves the violation of expectations

are firms with foreign ceos better citizens a study of the impact of ceo foreignness on corporate social performance this study examines whether firms corporate social performance csp varies when local firms have foreign ceos building on the social identity perspective we argue that because foreign ceos are perceived as outgroup or nonprototypical leaders by the local firms stakeholders local firms with foreign ceos need to achieve a higher level of csp than do local firms with local ceos to enhance their legitimacy and trustworthiness furthermore we propose that the predicted difference in csp between foreign and local ceo led firms will be larger a for more authentic and thus trust enhancing csr activities and b in those socio economic environments where the salience of ceo foreignness and thus the need to build trustworthiness with locals is more pronounced in a sample of 1001 local firms across 18 developed countries during the period between 2003 and 2015 our empirical results support most of our predictions

narrow bracketing and dominated choices an experiment by tversky and kahneman 1981 illustrates that people s tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first order stochastically dominated by other available combinations we investigate the generality of this effect both theoretically and experimentally we show that for any decisionmaker who does not have constant absolute risk averse preferences and who evaluates her decisions one by one there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices we also characterize as a function of a person s preferences the amount of money that she can lose due to a single mistake of this kind the theory is accompanied by both a real stakes laboratory experiment and a large sample survey from the general u s population replicating tversky and kahneman s original experiment where decisionmakers with prototypical prospect theory preferences will choose a dominated combination we find that 28 of the participants do so in the survey we ask the respondents about several hypothetical large stakes choices and find higher proportions of dominated choice combinations a statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect theory value functions and that about 83 of people bracket narrowly none of these results varies strongly with the personal characteristics of participants we also demonstrate directly that dominated choices are driven by narrow bracketing when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey

do workers prefer increasing wage profiles we present survey data challenging the assumption implicit in analyses of labor supply that all else being equal workers prefer declining over increasing wage profiles we test several explanations for our results including that a there is something special about wages e g their association with productivity as opposed to other types of payments that induces the preference for increasing wages b utility depends not only on absolute levels of consumption but also on changes in consumption over time and c respondents who prefer increasing wage profiles are irrational and would change their behavior if the rationale for preferring declining wages were explained

the applicability of marginal abatement cost approach a comprehensive review abstract the marginal abatement cost mac methodology is widely used in climate change policies policy makers rely on mac to assess feasible strategies and related costs to achieve emission reduction goals this paper introduces a variety of mac methodologies aiming at solving diverse problems which utilizes various calculable logic thus producing different results and implications this study applies a mind mapping method to capture differentiation of mac methods and systematically classify mac methodologies the applicability path analysis was proposed based on principles such as stakeholder type decision making objectives cost concept strategy mode and information scope our goal is to assess the applicability of different methodologies to reduce misuse by policy makers and to serve as a guide for subsequent research which might prompt and lead to the derivation of more consequential results in future studies the results of this study suggest that the complex method is not always better than the simplified method because policy makers are required to select the appropriate method according to the type of information needed it may even be suggested that mac could be reliable by ranking relative value of options compared with baseline rather than focusing on the absolute value of individual measures

deal or no deal decision making under risk in a large payoff game show we examine the risky choices of contestants in the popular tv game show deal or no deal and related classroom experiments contrary to the traditional view of expected utility theory the choices can be explained in large part by previous outcomes experienced during the game risk aversion decreases after earlier expectations have been shattered by unfavorable outcomes or surpassed by favorable outcomes our results point to reference dependent choice theories such as prospect theory and suggest that path dependence is relevant even when the choice problems are simple and well defined and when large real monetary amounts are at stake

the economics of dowry and brideprice payments between families at the time of marriage existed during the history of most developed countries and are currently pervasive in many areas of the developing world these payments can be substantial enough to affect the welfare of women and a society s distribution of wealth recent estimates document transfers per marriage amounting to six times the annual household income in south asia rao 1993 and four times in sub saharan africa dekker and hoogeveen 2002 this paper first establishes some basic facts about the prevalence and magnitude of marriage payments it then discusses how such patterns vary across countries depending upon economic conditions societal structures institutions and family characteristics such payments have also evolved within societies over time for example in some periods such payments have risen sharply in some cases payments have shifted from the grooms sides to the brides and vice versa also property rights over such payments have sometimes shifted between marrying partners and parental generations economists who have only recently begun to work on the topic have focused on explaining these facts the second part of the paper addresses this economic literature though considerable insight into many of the facts has been gained many of the existing economic explanations are weakly convincing and many puzzles remain one crucial difficulty is that solid data in this field have been extremely rare the descriptions of marriage payments in this paper are synthesized from a patchwork of studies across periods places and even epochs and there are doubtless numerous cases which remain undocumented thus the paper

reference dependent consumption plans we develop a rational dynamic model in which people are loss averse over changes in beliefs about present and future consumption because changes in wealth are news about future consumption preferences over money are reference dependent if news resonates more when about imminent consump tion than when about future consumption a decision maker might to generate pleasant surprises overconsume early relative to the optimal committed plan increase immediate consumption following surprise wealth increases and delay decreasing consumption following surprise losses since higher wealth mitigates the effect of bad news people exhibit an unambiguous first order precautionary savings motive

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

a derivation of the marginal abatement cost curve abstract the relationship between a firm s technology and its marginal abatement cost mac curve is explored even under the simplest specifications the mac curve will be kinked at some point except under a special assumption which in reality could easily be violated the nondifferentiability implies that the choice of instrument under uncertainty may depend on the targeted level of emissions reduction also stability conditions for dynamic tax mechanisms may be violated in the neighborhood of the kink point a policy implication is that in some cases output restrictions are as efficient as emissions restrictions in contrast to previous results

loss aversion in a consumption savings model abstract we propose a model of consumption and saving based on kahneman and tversky s prospect theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption when there is sufficient income uncertainty a person resists lowering consumption in response to bad news about future income this resistance is greater than the resistance to increasing consumption in response to good news we present empirical evidence from five countries that confirms this behavior

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

the hidden cost of raising voters expectations reference dependence and politicians credibility abstract two politicians compete to get elected each politician is characterized by a valence which is unobservable to the electorate and can take one of two values high or low the representative voter prefers politicians with high valence but random shocks may lead him to appoint a low valence politician politicians make statements concerning their valence if the voter is a standard expected utility maximizer politicians statements lack any credibility and no information transmission takes place by introducing reference dependence and loss aversion we show that truthful communication is possible in equilibrium and we characterize the conditions under which it can arise intuitively these behavioral biases introduce a cost of overstating one s valence as overstatements may shift the electorate s preferences toward better skilled opponents

timid choices and bold forecasts decision makers have a strong tendency to consider problems as unique they isolate the current choice from future opportunities and neglect the statistics of the past in evaluating current plans

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

going to haven corporate social responsibility and tax avoidance this study examines the endogenous relation between corporate social responsibility csr and tax avoidance by focusing on a common strategy of corporate tax avoidance i e establishing entities in offshore tax havens using hand collected data on a sample of u s firms we find that firms csr ratings increase substantially in the two years after they first open tax haven affiliates we provide evidence by using the controlled foreign corporations cfc look through rule enacted by congress in 2006 that facilitates offshore profit shifting we find that firms that are affected by the cfc legislation increase their csr practices in response overall our results are consistent with the risk management theory which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive csr activities

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

endogenous price expectations as reference points in auctions the paper models auctions with bidders who have reference dependent payos the reference point is endogenised as the expected price of the good in the auction the model predicts that in equilibrium bidders both overbid and underbid in comparison to the standard bidding function without reference dependent utility the model predicts that more bidders overbid than underbid and that bidders bid more aggressively as the number of bidders or the reserve price increases finally it is shown perhaps surprisingly that revenue equivalence continues to hold between rst and second price

an institutional analysis of corporate social responsibility in kenya there is little doubt that corporate social responsibility csr is now a global concept and a prominent feature of international business with its practice localised and differing across countries despite the growing body of research focussing on csr in developing countries there is dearth research on csr institutionalisation in african countries drawing on institutional theory it this article examines the focus and form of csr practice of companies in kenya it is evident from our findings that the nature and orientation of csr differ across companies with operations only in kenya and those headquartered abroad or with international operations significantly firm related drivers such as public relations and performance as well as global institutional pressures explain the focus and form of csr in kenya this article concludes that for the institutionalisation of csr in kenya attention must be paid to conditions that stifle csr uptake such as lack of government regulations and the government s capacity and commitment to enforce regulation the establishment of functional csr institutions and a vibrant civil society that advance civil regulation ought to be encouraged

business codes of multinational firms what do they say business codes are an oft cited management instrument but how common are codes among multinationals and what is their content in an unprecedented study the codes of the largest corporations in the world have been collected and thoroughly analyzed this paper presents the results of that study of the 200 largest companies in the world 52 5 have a code more than half f these codes describe company responsibilities regarding quality of products and services 67 adherence to local laws and regulations 57 and the protection of the natural environment 56 many codes make reference to principles governing stake holder relations e g transparency 55 honesty 50 and fairness 45 corporate core values e g teamwork 43 appropriate conduct among employees e g discrimination 44 and intimidation 43 and treatment of company property by employees e g conflict of interests 52 corruption 46 and fraud 45 monitoring compliance with the code is addressed in 52 of the codes based on this content study three types of codes are distinguished the stakeholder statute 72 the values statement 49 and the code of conduct 46 the results of this inquiry present a benchmark for the evaluation and development of both individual and international business codes

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

expectation based loss aversion and strategic interaction abstract by extending the equilibrium concepts of k szegi and rabin 2006 k szegi and rabin 2007 this paper analyzes the strategic interaction of expectation based loss averse players for loss averse players with choice acclimating expectations the utility from playing a mixed strategy is not linear but convex in the probabilities they assign to their pure strategies as a consequence they are generally unwilling to randomize and an equilibrium may fail to exist for players with choice unacclimating expectations by contrast randomizing over their pure strategies may indeed constitute a credible best response and an equilibrium always exists building upon these insights we delineate how expectation based loss averse players differ in their strategic behavior from their counterparts with standard expected utility preferences derive novel strategic effects discuss equilibrium selection and derive equilibrium play for some simple games

why do retired workers claim their social security benefits so early a potential explanation based on the cumulative prospect theory abstractsocial security provides longevity insurance for older americans according to expected utility theory models rational households who are not liquidity constrained should delay claiming th

a model of mental accounting and reference price adaptation consumers possess a mental account that stores the worth of items purchased and yet to be consumed reference prices act as the book values of these items movements in the account the comparison between the reference price and the price paid at entry and the comparison between the benefit of consumption and the reference price at exit yield hedonic benefits the reference price is determined by a psychological process of adaptation to the price evoked by the trade the model is integrative in that it explains a wide array of observed anomalies such as sunk cost effects payment depreciation reluctance to trade preference for prepayment and the flat rate bias the model also generates new testable implications this paper was accepted by james smith decision analysis