average cost pricing versus serial cost sharing an axiomatic comparison abstract a finite group of agents share a one output production function a cost sharing rule allocates the total cost among the users for every conceivable profile of output demands we investigate the space of possible cost sharing rules from an axiomatic perspective we provide two characterizations of average cost pricing one based on the axioms of additivity and monotonicity both with respect to the cost function and the other based on the axioms of additivity and a version of consistency we also provide a characterization of serial cost sharing based essentially on additivity and a free lunch axiom journal of economic literature classification numbers d63 d78 c79

equitable nonlinear price regulation an alternative approach to serial cost sharing abstract this paper examines the serial cost share rule from a perspective of nonlinear pricing the expenditure function concept is introduced to facilitate the modelling of a wide variety of pricing mechanisms including those featuring head taxes block pricing or volume discounts axioms on equitable price regulation are shown to characterize the serial expenditure function a pricing mechanism which induces the distribution of serial cost shares several such characterizations are offered in a variety of technological contexts journal of economic literatureclassification numbers d63 c71

event risk covenants and bondholder returns in leveraged buyouts abstract prebuyout bondholders on average suffer statistically significant wealth losses in leveraged buyouts bonds with strong covenant protection however gain value while those with no protection lose value the disposition of bonds after buyouts e g remained outstanding called tendered defeased is also strongly linked to type of covenant protection we also document that covenant use declines for bonds issued after 1980 finally the losses to bondholders are small compared with the gains accruing to shareholders

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

behavioral responses to risk in rural china does risk perpetuate poverty in a credit constrained economy jalan and ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural china one quarter of wealth is held in unproductive liquid forms but only a small share of this appears to be a precaution against income risk the authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point moreover that effect is confined largely to middle income groups high income households do not it seems need to hold unproductive cautionary wealth and the poor probably cannot afford to do so the authors find no evidence that income risk discourages schooling but risk does inhibit the out migration of labor generally the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting there is such an effect but it is small in magnitude and cannot be deemed an important cause of poverty

multi product serial cost sharing an incompatibility with the additivity axiom previous literature has shown that the serial cost sharing rule is endowed with a variety of desirable incentive and equity features by definition applications of this mechanism are essentially constrained to single service facilities we investigate difficulties that emerge when attempting to extend serial cost sharing to multi product environments in particular we show that such an extension is incompatible with the additivity axiom journal of economic literatureclassification numbers d63 c71

child labor and schooling responses to anticipated income in south africa abstract forward looking unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities the timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income however this study documents large increases in schooling attendance and declines in total hours worked when black south african families become eligible for fully anticipatable social pension income as an explanation the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint perhaps because of schooling costs

family labor supply and the timing of cash transfers evidence from the earned income tax credit abstract this paper exploits the unique disbursement timing and benefit rules of the earned income tax credit eitc to provide new evidence on how families adjust their labor supply in response to receiving anticipated cash transfers i find that income seasonality caused by eitc receipt leads to changes in the intra year labor supply patterns of married women on average receiving a 1 000 payment significantly reduces the proportion of married women who work by 1 3 percentage points in the month when the eitc is received additionally this labor supply response is mainly driven by those who are secondary earners or liquidity constrained

the valuation impacts of specially designated dividends this paper examines the valuation impacts of specially designated dividends sdds by analyzing the behavior of stock and bond prices on dates surrounding their announcements the evidence presented here suggests that sdds are considered positive signals by the market with most of the gains associated with their announcements accruing to stockholders in addition we present some evidence that the gain to stockholders is negatively related to the frequency of sdd announcements

erratum to environmental determinants of cost sharing multiple cost sharing rules often coexist in seemingly identical environments we use shared irrigation costs as a context for examining the extent to which the structural environment explains cost sharing rule selection we find that environmental factors affecting irrigation costs and benefits as well as those determining irrigator distribution along the ditch have impressive explanatory power these results present some of the first formal empirical analysis of the manner in which structural features influence the actual cost sharing choices of economic agents moreover our results also suggest that previous axiomatic studies are reflective of real world cost sharing behavior

bond and stock market response to unexpected earnings announcements this study examines whether earnings changes convey information in bond markets and finds a significant positive negative reaction to unexpected earnings increases decreases the results are consistent whether earnings announcements precede or follow dividend announcements thus earnings surprises convey information to bond markets and changes in firm value are split among bondholders and stockholders this is in contrast to evidence from studies examining unexpected dividend announcements where bond price reaction is asymmetric cross sectional analysis reveals that bond excess returns are positively related to earnings surprises i introduction stock market reaction to earnings announcements has received significant attention in the finance and accounting literature ball and brown 1968 brown 1978 watts 1978 aharony and swary 1980 and fried and givoly 1982 are some ofthe studies that observe a revision of stock prices associated with the release of earnings information lev 1989 provides a survey of research in this area the explanation for the above empirical findings is that unexpected earnings provide new information about future cash flows furthermore the classical discounted cash flow model predicts a revision in firm value that is the present value of expected future cash flows whether this increased firm value accrues to stockholders and bondholders is an empirical issue past research on the information content of earnings has focused solely on stock price behavior and finds at least part of the benefits accrue to stockholders in this study we examine the bond market reaction to unexpected quarterly earnings announcements the study is unique for several reasons first dividends repurchases and earnings are eonsidered primary mechanisms used by manage ment to convey information about future cash flows to securityholders recent

product market competition and the cost of bank loans evidence from state antitakeover laws abstract the extant literature documents a positive relationship between a firm s takeover vulnerability and its agency cost of debt using state antitakeover laws as an exogenous measure of variation in takeover vulnerability i investigate whether product market competition has a disciplinary effect that can lower a firm s cost of bank loans after taking into account the industry composition of borrowers i find that banks charge higher spreads to borrowers that are vulnerable to takeovers but only in concentrated industries in the absence of disciplinary competitive pressure the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms firms followed by analysts firms with existing credit ratings non family firms and for borrowers with shorter maturity loans or loans with covenants and collateral in place taken together the results suggest that the effect of governance on the cost of financing is not homogenous across all industries and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

permanent household income and consumption in urban south america milton friedman s permanent income hypothesis pih is considerably more complex and difficult to test than it appears at first sight which is why certain of its postulates still cannot be accepted or rejected with certainty one of the chief difficulties is that of separating the effects on consumption of permanent income which is unobservable and of various observable household characteristics which may be highly correlated with permanent income but may also be presumed to affect consumption directly this difficulty can be overcome provided a variable can be found which is associated with permanent income but has no independent direct effect on the propensity to consume if households are grouped by classes of that variable the permanent consumption propensity or elasticity can be estimated from mean income and consumption in the groups this technique requires the assumption of zero mean transitory income in each group but does not depend on the postulate that transitory income is uncorrelated with consumption for these reasons it cannot be applied to individual households this paper presents and estimates a model which separates the direct and indirect effects on consumption of a series of observable characteristics using regression techniques on individual household observations this makes it possible to estimate all the parameters of the model both the consumption propensity or elasticity and the contribution to permanent income of each observable explanatory variable the technique still requires that at least one of the explanatory variables affect consumption only through permanent income but for all other variables both direct and indirect influences can be estimated and the propensity to consume a given income can vary among households with different characteristics another principal problem with the pih is the assumption that transitory income and consumption are uncorrelated efforts to test this postulate can lead to very different results ranging from agreement with the hypothesis to findings of high propensities to consume transitory income see robert ferber pp 1306 09 this inconsistency and continued controversy over the hypothesis is due to the fact that permanent income cannot be estimated exactly but can be known only with an error which is conceptually distinct from transitory income empirical work on the pih has uniformly overlooked this fact treating estimates of permanent income as exact and regarding the whole of the unexplained residual as transitory income the present model explicitly distinguishes the estimation error from the error of transitory income or consumption the two transitory components can then be assumed to be uncorrelated while the part of permanent income which is not explained is consumed exactly like the explained part whether residual income and consumption appear to be correlated or not then depends on the relative sizes of these two components the unexplained permanent part and the true transitory part this technique has the further advantage that estimating the variance of the error of estimation makes it possible to tell how well a set of observable variables explain permanentincome this explanation may be better than the brookings institution robert solow richard eckaus and robert hall supervised the dissertation 1974 on which this article is based i am particularly grateful to ross williams and robert hall for help in specifying and estimating the model and to denisard alves for a crucial suggestion william cline irwin friend ricardo ffrench davis and robert ferber provided helpful comments on earlier versions subsequent discussions with surjit bhalla and robert lawrence have been most useful i am also much indebted to the managing editor and to a referee for improvements in the final version

financial systems in northern thai villages field research attempted to measure the risky environments the information structures the institutions and the risk response mechanisms of ten villages in northern thailand various key features are then modeled in an abstract but realistic way either with a full information risk sharing model or an information constrained version of the same model observations from some of the villages seem consistent with one or the other of these models but in many of the villages one is left with risk response variations across households which suggest that pareto improvements are possible

framing controversial actions regulatory focus source credibility and stock market reaction to poison pill adoption we contribute to the research on organizational accounts by examining the role of different framing languages and the credibility of the frame articulator on justifying controversial organizational actions drawing on regulatory focus theory and the literature on source credibility we develop novel arguments as to how a gains versus nonlosses framing and the perceived credibility of the speaker influence stakeholder responses as well as how the effectiveness of these aspects is influenced by context we test our arguments using data on the framing of the adoption of poison pills by u s firms between 1983 and 2008 using content analysis and an event study we find that a gains framing aligned with the dominant institutional logic leads to a positive stock market reaction while statements emanating from speakers with potentially self serving interests negatively affect the stock market reaction our findings further show that the effectiveness of framing and source credibility are dependent on contextual attributes such as speaker visibility prior performance and practice prevalence

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

environmental determinants of cost sharing abstract multiple cost sharing rules often coexist in seemingly identical environments we use shared irrigation costs as a context for examining the extent to which the structural environment explains cost sharing rule selection we find that environmental factors affecting irrigation costs and benefits as well as those determining irrigator distribution along the ditch have impressive explanatory power these results present some of the first formal empirical analysis of the manner in which structural features influence the actual cost sharing choices of economic agents moreover our results also suggest that previous axiomatic studies are reflective of real world cost sharing behavior

nutrition health birth order and seasonality intrahousehold allocation among children in rural india abstract nutrients available to children are determined largely by intrahousehold allocations there are a number of reasons why birth order may affect these allocations a model is developed to estimate critical parameters of parental preferences regarding the allocation of nutrients among their children latent variable estimates for rural south india indicate that parental preferences have productivity equity tradeoffs and parents favor older children the productivity equity tradeoff however is much less for the lean season therefore when food is scarcest parents follow more closely a pure investment strategy exposing their more vulnerable children to greater malnutrition tisk

evaluating seasonal food storage and credit programs in east indonesia abstract predictable annual lean seasons occur in many rural areas including west timor in indonesia imperfections in savings and credit markets make it difficult for staple farmers to convert harvest season output into lean season consumption we conduct a randomized evaluation of a seasonal food storage program and a food credit program by providing improved ways to transfer assets across seasons each program functions as a subsidy on lean season consumption we find that neither program had effects on staple food consumption the storage program increased non food consumption the credit program increased reported income and reduced seasonal gaps in consumption our results are consistent with positive income effects through the expansion of budget sets but suggest that the average household could be close to staple food satiation

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

takeover defenses and wealth effects on securityholders the case of poison pill adoptions abstract this is the first study to examine the valuation effects of any antitakeover amendment on both bondholders and stockholders we present new evidence documenting that on average there is a significant wealth loss experienced by bondholders at poison pill adoption announcement while stockholders are unaffected our finding of significant bondholder losses is consistent with the proposed negative signal hypothesis we document results which indicate that bondholders correctly anticipate the degree of leverage increase at the time of the announcement we also show that the proportion of insider ownership is negatively related to bondholder wealth effect at announcement this supports the notion that higher insider manager ownership leads to a greater alignment of manager stockholder interests while increasing the stockholder bondholder agency costs long run analysis of leverage and performance measures reveal that pill adopting firms are not under leveraged as compared to their industry rivals however supporting the negative signal hypothesis the leverage of sample firms rises significantly after the pill adoption performance measures reveal that sample firms significantly underperform their industry cohorts this result suggests that poison pill adoptions are motivated by poor managers attempting to immunize themselves from the disciplinary actions of the corporate control market

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective